Mello Roos Question

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acpme_IHB

acpme_IHB

New member
I have a general question about mello roos. I know the general answer is that it pays for infrastructure - roads, schools, sewers, etc.


The idea is that to make residents in the special districts pay for these things rather than all taxpayers.





First of all, aren't public schools funded by the state?





Secondly, everywhere I have ever lived had all the basic modern infrastructure... and it never required mello roos. So if I'm living in Woodbury, I'm paying 500 bucks a month to ensure I'm not driving a dirt road to my house and whatever I flushed down the commode is truly out of sight and out of mind. I understand that people living on the other side of Jeffrey shouldn't have to pay higher taxes because city of Irvine is expanding. But at the same time, I'm still paying the basic property tax which is supporting all the infrastructure in the older communities. In other words, are homeowners in newer communities supporting themselves alone as well as contributing to general tax pool, while older residents only contribute to the general tax pool?





I've never been able to figure out how the math works on the mello roos tax. Intuitively it simply doesn't make sense. Anyone with a better understanding of it care to explain?
 
Prop 13 is the key reason that Mello-Roos exist. The text of Prop 13 reads:





SECTION 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed One percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.





In other words, most counties can't increase property tax to fund infrastructure improvements, so they resort to bond measures.





Homes in other states (Austin, TX comes to mind...) have base tax rates far higher than California.





-OCR
 
Although I'm not sure about Irvine's situation, when we build large housing tracts in other cities, there are many situation where our approval by the city to develop is contingent upon us (builders) paying the cost of new street lights, parks, roads, drainage, ect that aren't necessarily part of the project itself. But due to the traffic that our project would create, we're forced to shell out for a lot of public infrastructure.





So instead of raising the price of our homes, <em>you </em>end up paying for it through mello roos. Many times we (the builders) don't even have the budget for such infrastructure. There are currently a couple of public builders who are challenging this because, as you said, these costs should be already covered by our taxes. But due to many factors (e.g. lack of funds), the city passes on the cost to the builders, which ultimately is passed onto the buyers (us individually).





That's the short of it I guess. Currently, we have a 200 lot project in Lancaster and the city is forcing us to buy and install large drainage pumps instead of a standard size because future developments would be able to make use of it. It makes no sense since it's an extra quarter million that wasn't budgeted and really doesn't benefit our project and future residences directly. Sure, we can challenge it but each day we spend not moving forward is a carrying cost we have to account for.
 
ACPME...here is a link that might help you understand Mello-Roos better.





http://www.fidelitytitle.net/fastfacts/NewPDF/021_Mello-Roos.pdf





As a second thought, this is all the more reason why we need a "consumption tax" vs federal and state income taxes. From my understanding the whole reason for Mello-Roos is b/c their is never enough money in the State's Budget to fund all the different public projects for community and economic expansion....ie The State Wastes Our Tax Dollars on Pork Projects.
 
California schools have a rather complex funding system due to prop 13.





Before prop 13 about 55% of public school funding came from local property tax, the rest was paid by the state and assoretd other minor funding sources. But after the passage of prop 13 the burden carried by CA State General Fund gradually increased. According to this recent LA Times article:





http://www.latimes.com/news/education/la-me-cap12mar12,1,5556792.column?coll=la-news-learning


<em>In the present fiscal year, California is spending $49 billion on K-12 schools — $37 billion from the state general fund, $12 billion from local property taxes. To put that in perspective, the general fund amounts to roughly $102 billion; the total state budget, including special funds, $132 billion.</em>





So you can see the ratio of State funding vs. property tax funding went from 45:55 to 75:25 (someone please correct my math if it's wrong).





When the lotto was passed in 1984, they had an amendent that said at least 34% of the lotto revenue should go to public schools. I assume that got lumped under State General Funds.
 
The state requires to provide public school. To regulate this, the state wants the developer to throw in the land for the school. State then throw in the structure. The developer naturally wants to pass this cost on to homeowner. Usually, the larger the avg. lot size, the higher the mello-roos amount.
 
raymond,





It is nice to see another industry insider on the board. I haven't seen you post before today. <a title="Permanent Link to I am IrvineRenter (Inventory Cholesterol)" rel="bookmark" href="http://www.irvinehousingblog.com/2007/02/27/i-am-irvinerenter-inventory-cholesterol/" set="yes">I am IrvineRenter.</a>





Welcome.
 
mino,





i've seen the faqs about mello roos and all that before. so i know why we pay mello roos and what its for... but my jist of my question is, does the tax make sense? i agree with your point that theres simply never enough money in the budgets. obviously it pays for vital necessities that we take for granted. roads, lights, sewers, water systems, and public safety don't come for free. but residents in a CFD also pay the same state, local, and property taxes as those not in a CFD. so if you live in portola springs X% of your taxes go to fund IUSD on top of that spend Y% of the mello roos to fund theoritical portola elementary. whereas turtle rock residents only contribute the X% to of IUSD. simplistic example i understand, but is there double the benefit there which justifies paying nearly twice as much in taxes?





maybe this can all be summed up in as a general i-hate-taxes rant...
 
acpme,





For a homeowner, Mello Roos is of no benefit. It is just a tax which increases your costs. Many buyers avoid these homes because of it. However, Mello Roos serves a valuable service in the market. Without it, housing would almost always be undersupplied.





When a developer moves into a new area, a great deal of very expensive infrastructure must be installed. The pioneering developer in an area must absorb enormous costs just to get the first house ready for sale. Municipal governments do not have the money to do this, and even if they did, they would probably spend the money in the wrong places to benefit the wrong people. Market forces are better at determining the location of new housing than political forces. Without Mello Roos, it would be so expensive to pioneer in a new area that no developer would do it. By allowing developers to sell bonds to finance the construction, new housing developments become feasible thus providing supply to meet the market demand.





Of course, developers abuse this system to pass costs on to the consumer and make more money for themselves. The Irvine Company pushes all of its construction and development costs onto homeowners, so its land sales are almost all profit. The builders make a few bucks on the home, and the Irvine Company makes huge money on the land. Not a bad deal if you are the Irvine Company.
 
My thoughts are the following:





1. New home builders have been "leading the market" down, in other words, on a purchase price basis, new homes are cheaper than resale homes. The reasons for this have been discussed in this forum (sticky downward prices, builders having less "emotion" in the pricing game, etc)...I won't elaborate here.





2. It is also true that Mello-Roos (i.e. higher taxes) are assessed on new homes.





3. Conclusion: Is seems that right now, the homes that are cheaper in price (new homes versus resales) are more expensive in taxes (Mello-Roos).





What I think you need to do is work out the math: Does it make sense to have a slightly cheaper home, or higher taxes for 20-30 years? When my wife and I did the math, it was a wash, so we went with the sparkle of a new home and community with a new school. But many variables change this equation: tax bracket, down payment, village, location, etc.





Your mileage and values may vary...





-OCR
 
<p>Is it possible for the the Mello Roos to get extended past the planned end date? I understand that it is a bond but many people keep telling me to not count on the mello roos going away. </p>
 
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