Short Articles of Interest

This page includes short articles, generally, of a technical nature.

What is Mello Roos?
  Mello Roos 101, A Reader's Digest version of Mello Roos.

    Proposition 13 severely limited governments ability to use property taxes to finance public facilities. As an alternative method of financing, the Mello-Roos Community Facilities Act was created in 1982. Mello Roos enables public agencies such as counties, cities, and school districts, to form "Community Facilities Districts" (CFD's). CFD's issue bonds and create special "taxes" to finance public improvements and services as needed. These "taxes" (Mello Roos) is the debt service on these bonds that are passed on to the buyer.

    In most of Aliso Viejo and many other surrounding cities or unincorporated areas, you pay an annual "tax" that goes toward payment of the CFD bonds. The amount of that "tax" is based on the size of your home. In subsequent years, these "taxes" will not increase substantially because a cap on annual increases in the maximum "tax" has been incorporated into the bond plan. As an example, in Aliso Viejo, for the fiscal year 1991-92: the Capistrano School Districts CFD (CFD No. 87-1) which provides for local schools, ranges from approximately $158.10 for smaller attached homes, to $492.66 for up to large-size detached homes, and the maximum annual increase is 2%. The Orange County CFD (CFD No. 88-1), which funds road improvements and public safety facilities, begins at $654.95 for smaller attached residences, and ranges up to $1,636.90 for larger detached homes. The increase in the maximum "tax" for this CFD is capped at an annual amount of 3.5%. Your CFD "taxes" are payable as part of your regular tax bill. Is this amount tax deductible? Check with your tax advisor. This example was for Aliso Viejo only. Characteristics of each CFD including maximum caps will and do vary from CFD to CFD.

    Builders, developers, commercial and industrial land owners, pay Mello-Roos taxes by the acre. Mello Roos is also paid by apartment owners commercial and industrial facilities.

    Can Mello Roos go up higher than the stated maximum cap? If the total amount isn't already at the maximum amount for a given property, it could jump to that maximum, which could be in excess of the stated maximum cap percentage per year. This maximum amount is stated in the "White Report" on a new property and disclosed if you get a report similar to Property ID and/or the Mello Roos disclosures issued by David Taussig and Associates on resale properties.

    Could additional CFD's be added? Yes, if the voters voted them in, which is highly unlikely. The way the CFD's were created in the first place, was when there are fewer than 11 registered voters in an area where CFD's are being considered, there doesn't need to be a public vote. The land owners make the decision whether to establish the CFD's and pass off the debt service (Mello Roos) of these bonds to the property owners or pay for the schools and infrastructure and charge more for the properties.

    Remember - Mello Roos goes up every year, regardless of whether or not the property value goes up or down. The increase is minimal, however. In Aliso Viejo, this amount ranges from 2% to 3.5% of the current Mello Roos amount. As an example, if you're currently paying $500.00 and it goes up 2%, that's only $10.00 for the year.


What's In A Tax Rate?
  What's in a Tax Rate? Answer, very little!

    Ever call the county (949/834-2455) to find out the tax rate on a particular property? They may state 1.1%, 1.4%, 2.4%, or whatever. Unless you know how this tax rate is broken down and if there are any additional amounts, like Mello Roos, this rate virtually means nothing and can be very confusing and misleading. Below are two examples. Two tax rates that are very different, but the ultimate "effective rate" very similar.

    Example 1: 30 Calle del Norte, Rancho Santa Margarita
            Assessment - $190,329
                minus     7,000(Home owner exemption)
                 $183,329 (For tax purposes)

            Tax Rate - 2.21952%    

            Total Taxes - $3414.22
                Basic Levy         $2,202.98
                Mello Roos (CFD 87-1)     421.42
                Mello Roos (CFD 88-1)     717.75
                Vector Control         .67
                Metro Water         10.08
                Santa Margarita Water     61.32
                     Total 3,414.22

     "Effective Tax Rate" = $3,414.22 / $183,329 = 1.86%
    Now for the confusing part. The tax rate of 2.21952% is broken down into 2 factors; 1.00952% which is applied to the totalassessed value of $183,329 ($190,329 less the Home Owner Exemption of $7,000) and 1.21% which is applied to the value of the land only, in this case $29,276.

     1.00952% * $183,329 = $1850.74
     1.21% * $ 29,276 = 352.24
     ------- ---------- ---------
     2.21952%     2,202.98

    All these factors and breakdowns will be supplied by the County, if you ask them. You can see from this example, even though the tax rate is 2.21952% plus Mello Roos, the "effective overall tax rate", at this time, is 1.86%.

    In this case, CFD 88-1 or R-3 goes up 4% per year and CFD 87-SB or S5 goes up 3.5% per year.
    They are both near their current year maximum amounts.

    Example 2: 19 Sandbridge, Aliso Viejo
             Assessment - $262,000
     minus     7,000(Home ownerexemption)
                 $255,000 (For tax purposes)
            Tax Rate - 1.37544%    

            Total Taxes - $4,929.88
                Basic Levy         $2,920.60
                Mello Roos (CFD 87-1) 388.26
                Mello Roos (CFD 88-1)    1,609.02
                Vector Control         1.92
                Metro Water         10.08
                    Total 4,929.88

     "Effective Tax Rate" = $4,929.88 / $255,000 = 1.93%
    Now for the confusing part. The tax rate of 1.37544% is broken down into 2 factors; 1.01% which is applied to the total assessed value of $255,000 ($262,000 less the Home Owner Exemption of $7,000) and .36546% is applied to the value of the land only, in this case $94,428.

     1.01% * $255,000 = $2,575.50
     0.36546% * $ 94,428 = 345.10
     --------- ---------- -----------
     1.37546%          2,920.60

    All these factors and breakdowns will be supplied by the County, if you ask them. You can see from this example, even though the tax rate is 1.37544% plus Mello Roos, the "effective overall tax rate", at this time, is 1.93%.

    You can see from these 2 examples, even though the Tax Rates were substantially different (1.37544% and 2.21952%), the overall "effective tax rate", for these two properties, at this time, were virtually identical.

    You will also notice from the disclosures for 19 Sandbridge, CFD 87-1 or R4 is at its current maximum amount of $388.26 while CFD 88-1 or R7 could theoretically go up to $1,849.45, it is currently at $1,609.02. Keep in mind that these are current maximums and will go up 2% and 3.5% per year respectively on this property.

    Caution - Be careful in representing an overall tax rate for a property. Since Mello Roos is based on square footage and not value, this can get you into trouble.