Mello Roos is a special tax that is common in newly developed communities in California. Home buyers don’t like it, because who likes to pay extra tax? To find out if the property has Mello Roos tax, ask the listing agent, or when you are in escrow, review your A9 report.
California has very low property tax rate when compared to other states. California’s property taxes is 1.25% of the assessed value of your property. The assessed value is also limited to a maximum increase of 2% a year, which does not keep pace with the market. It is quite common for properties that have been owned for 10 years or more to have assessed values substantially below their current market value. Low property taxes is great because it increases the value of real estate and also means less expense owning property. However, the draw back to very low property taxes is that the state has less tax revenues for infrastructure.
the Mello-Roos Community Facilities Act of 1982 was created to provide an alternative method for funding community improvement projects that helps offset the loss of revenue from low property tax revenues.
The Act allows any county, city, special district, school district or joint powers authority to establish a Mello-Roos Community Facilities District (a “CFD”). The CFD can finance a public improvement project, such as streets, water and sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. And then, the CFD can levy a special tax to recover the expenses to repay the bonded debt- Mello Roos Tax.
Mello Roos taxes will be charged annually until the bonds are paid off in full. Often, after bonds are paid off, a CFD will continue to charge a reduced fee to maintain the improvements.