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Poway Schools Rely On Mello-Roos Tax Machine For Lunches, Signs And Old School Repairs

Mello-Roos taxes, paid by homeowners in new developments, are a virtual ATM for the Poway Unified School District. The District has accumulated so much surplus in these special taxes it spends some of the money in neighborhoods that pay no Mello-Roos at all.

Aired 8/19/13 on KPBS News.

The Poway Unified School District spends special property taxes called Mello-Roos on everything from catered lunches, to consultant fees, to a new administration building.

The district pays for everything from a garbage disposal to catered lunches to a $49,000 three-day planning meeting. It even bought a multi-million dollar administration building and furnished it using Mello-Roos money.

There is no legal limit and no standardized formula for calculating Mello-Roos Taxes. In some cases, the formulas are so convoluted that homeowners have virtually no way of knowing whether they’re paying the correct amount.

What’s more there is no state oversight over the funds: at a minimum, the system is far from transparent to those who are footing the bill. Some are asking whether it’s even legal.

“We’re not going to engender support for our schools from the broader community if we’re misusing their funds," Poway School Board Trustee Kimberley Beatty told inewsource.



No room at the school

When Mike Smith and his wife bought a house in an upscale San Diego suburb seven years ago, they were planning to start a family.

Smith agreed to pay an extra $4,140 on top of his regular tax bill every year to pay for the roads and parks in his neighborhood and most importantly, the promise of a new school in the acclaimed Poway Unified School District. He was happy to know he and his wife could walk their child just a block to class.

This summer, Smith was ready to cash in on his investment. His daughter is five years old and entering kindergarten. But he and 55 other families were told in May there wasn’t room. They were diverted to a much older school, in need of repair. “It’s not what we were signing up for,” Smith said.

The school is nearly five miles away from his home.

Mike Smith believed he was paying extra property taxes called Mello-Roos so his daughter could go to the school on her street. But he learned in May there's no room for her.

Smith’s extra taxes, called Mello-Roos, were signed into law in 1982 as a way for developers to pass on the costs of infrastructure in new neighborhoods to property owners. They create mini-governments called Community Facilities Districts, or CFDs, that are administered by cities or school districts. The premise is that growth should pay for growth.

The CFD can issue tax-exempt municipal bonds and pass the debt costs onto property owners in the form of Mello-Roos taxes. They can range from less than $100 a year to more than $10,000. In return for paying these special taxes, the property owners have fresh roads and state-of-the-art schools.

How the Poway district is able to renege on its deal with Mike Smith and the other families is a question not easily answered because figuring out where Mike Smith’s money is spent is like disassembling a pyramid one stone at a time.

inewsource spent months combing through financial documents, reviewing bond statements to the Securities and Exchange Commission, pouring over reams of tax data and bills paid with Mello-Roos money to discover a labyrinthian system that brings in so much money it has accumulated $168 million in cash in more than 200 bank accounts.

Because bonds finance other bonds and funds are combined in accounts, it is almost impossible to follow the money.

When two inewsource reporters sat down with Poway district officials last year to learn about how Mello-Roos helps pay for schools in new neighborhoods, superintendent John Collins said the taxes could be used for buildings, school buses, even computers, anything that had a lifespan of five or more years.

What inewsource found, however, were invoices for hundreds of miscellaneous expenses related to repairing, upgrading, and furnishing district offices and schools inside and outside of Mello-Roos communities

Both Poway superintendent John Collins and Marc Davis, the president of the school board, who chose to be interviewed together, defended how much they collect in Mello-Roos taxes and the way the funds are spent.

Parents love Poway schools and they don’t complain about their taxes, Davis said.

“In fact, we have people flooding to our community. We have high quality schools, high quality infrastructure, high quality facilities, and parents come here because they love the area,” he said. “And so if this was an issue I think we would hear some blowback from our people and I just don’t hear it.”


School Board Pres. Marc Davis

Taking from Mello-Roos

The name can be deceiving. The Poway Unified School District stretches 100 square miles in the center of the county, encompassing the city of Poway, and several neighborhoods in the city of San Diego. In fact 26 of its 37 schools are in San Diego.

The district has a great academic record - with all of its schools exceeding state standards. Its financial record suffered a major blow after it used a capital appreciation bond to finance $100 million in school renovations, a financing scheme that will end up costing taxpayers $1 billion dollars. Voters approved the renovations in a bond measure, Prop C, in 2008.

Voters also approved Prop U in 2002, allowing the district to borrow nearly $200 million to upgrade older schools.

The improvements included new heating, ventilation, and air conditioning (HVAC) systems, according to a presentation by Collins at a school board meeting last year. In that same presentation Collins told board members the renovations were complete.

But just four months ago, the school board approved spending $16.5 million of Mello-Roos funds to upgrade the HVAC systems at Rancho Bernardo and Mt. Carmel High Schools, the same schools that were supposed to have already been upgraded with Prop U and Prop C funds.

What’s more, neither school is in a Mello-Roos District.

Kimberley Beatty, a former DEA special agent and law school graduate, was elected to the Poway School Board last November.

As a homeowner in Sabre Springs who pays Mello-Roos taxes, she wondered whether it was even legal to take taxes earmarked for new facilities and spend it on older schools. And why the district hadn’t been able to renovate the schools with the previous bond funds.

Beatty said she was told the district ran out of money and couldn’t renovate all the schools on its list. And, she was told, it was legal to use surplus Mello-Roos funds on the older schools.

“I voted for that agenda item, but pretty soon after I regretted my vote because it just seemed inherently wrong,” she told inewsource.

“You had new communities that were not only set up to pay for their own infrastructure development but also for redevelopment in the older communities and that was why I started questioning this action.”

Beatty wrote to the superintendent to ask for a written legal opinion from district lawyers. She received it a few days ago, three months after the request. But she said most of her questions were not addressed.

The HVAC systems weren’t the only upgrades made at older schools with Mello-Roos funds.


Poway School Board Trustee Kimberley Beatty

Trustee Beatty on Mello-Roos and "tax fatigue."

The district also spent more than $466,500 on new computers for Mount Carmel High School last July, according to invoices.

It spent $9.5 million on its new administration building, hundreds of thousands more on furnishing it, and $6,500 on a CAFE sign on the exterior, from Mello-Roos funds. The total cost of the building and the improvements were paid for by homeowners who live in CFDs. Their children make up just 40 percent of the student population.


Poway School Superintendent John Collins

Superintendent Collins explains how the district paid for the new administration building.

Surplus taxes are for everyone

The Poway school district collects Mello Roos taxes in 14 different community facilities districts (a 15th was recently formed) for new schools. In some of those communities, it also collects Mello-Roos taxes to pay for roads, sewers, and fire stations - infrastructure separate from the schools.

That’s usually the role of cities, but in 2006, when a large section of the Poway district was being developed, the city of San Diego’s credit rating had taken a nose dive because of its pension obligations. So the developer asked the school district to go the bond market on its behalf to pay for infrastructure and then pass that debt on to homeowners through Mello-Roos taxes.

Collins said the district only uses the “surplus” taxes generated from those “improvement” areas in the non-Mello-Roos schools.

And that distinction, Collins and school board president Marc Davis said, make it legal.

“The value that comes to us in providing that service to the developer, is that over time those CFDs, (Mello-Roos districts) those infrastructure CFDs will build up surplus special taxes we are then able to use for other district wide purposes,” Davis said.


Poway School Board Pres. Marc Davis

School Board press. Davis explains why spending some of the surplus Mello-Roos taxes outside of the special tax districts is legal.

Bond Lunch Money

On Sept. 29, 2011, the Poway Unified School district hosted a three-day design symposium at their administration building to talk about the new $82 million, K- 8 school it was building near Black Mountain in the northeastern section of the city of San Diego. About 100 people attended, among them architects, the developer, parents, students, and school board members, according to board president Davis.

The event, paid for with Mello-Roos funds, cost $48,725.

Breakfast, lunch, and snacks were served over the three days. The catering bill came to $2,443.04.

The district paid for the event and the meals using Mello-Roos funds generated in a neighborhood a couple miles away. Homeowners there are scheduled to pay an average of $2,600 every year in extra taxes for the next three decades.

“These people were here for three consistent days for eight hours each day for the purpose of designing this, what’s going to be an incredible school in the 4S Ranch area,” Davis said in defense of the expense.

It wasn’t the only catering bill the district paid with Mello-Roos funds. inewsource obtained invoices from The Catering Group between January 2010 and and June 30, 2013. The district spent $3,524 in Mello-Roos funds on lunches during meetings, interviews, and an “event” where ice cream sundaes were on the menu.

There are provisions in the law for “administration,” but even one of the district’’s own financial advisors paused when considering whether a catering bill could be an allowable expense under the Mello-Roos law.

“Lunch I don’t know, this is like a legal question,” Steven Gald, senior director at Dolinka Group said. Dolinka is paid by the district to administer Mello Roos funds.

The district also paid a real estate consultant more than $101,446 from Mello-Roos funds, which included $989 in meals, between January 2010 and July 2012, according to invoices inewsource reviewed.

Many of the hours he charged the district were for meetings unrelated to Mello-Roos communities.

Collins said the general fund will reimburse the Mello-Roos accounts for the charges at the end of the year.

“We always do a reimbursement from the general fund for any expenses that were really not tied to the CFDs,” he said.

“I’d like my money back please”

A small group of parents met at a park in the Torrey Del Mar area a week ago to introduce their kids and to strategize about tonight’s school board meeting.


Poway school district parents

Poway district parent Mike Eagen says he doesn't think he's getting the benefit of his Mello-Roos taxes.

The kids, all first born, start kindergarten this week, and they’ll be going to the same school, Adobe Bluffs Elementary, miles from where some of them live. They are among the 55 families who, along with Mike Smith, were told there is no room for them at one of the district’s newest schools, Willow Grove Elementary.

All of the parents at the park pay Mello-Roos and believed their children could attend the new school.

“We’ve paid it for eight years now, and we’re just now getting our first kid into kindergarten,” Mike Eagan said.

Jenny Duncan, whose daughter was looking forward to starting school with her friends, said Adobe Bluffs “is not equitable in any way to the school they’re being sent from.”

Willow Grove is five years old, has an artificial turf field, interactive garden, an outdoor amphitheater and a computer lab with 30 workstations. Adobe Bluffs is 21 years old. In June, the school board approved spending $728,000 in Mello-Roos funds to upgrade the bathrooms and the exterior of the building.

The Mello-Roos act says families who pay special taxes that helped pay for a new school should get priority in attending that school, but how much priority they get depends on how much of their taxes paid for the facility.

Given the district’s complex financing system and the general language used in describing school facilities in CFD and bond documents, the average homeowner doesn’t stand a chance of tracking her special tax dollars.

Collins, the superintendent, says all the families whose children made it into the kindergarten class at Willow Grove are paying Mello-Roos taxes.

“They all have preference, but when it’s full it’s full,” he said.

Duncan, Smith and other parents asked district officials at the June board meeting why they couldn’t provide relocatable classrooms at Willow Grove for their kids. Several of Poway’s schools use these classrooms in expanding neighborhoods.

“It’s over $100,000 to move one on and off, and it was the decision of staff not to do that at this time," Collins told parents at the meeting.

In an interview with inewsource, Collins said he never said the district couldn’t afford the extra classrooms.

“We can order one now and it will be there in January. By then these kids will be settled in Adobe Bluffs … and nobody’s going to want to move, and I don’t know that its worth that effort,” Collins said.

Duncan and the other parents were surprised to learn from inewsource the district has surplus Mello-Roos funds. Some were especially bothered to hear the district spent more than $6,000 on a Cafe sign.

“I’’d like my money back, please, because my husband and I work a lot of hours to provide for our children. I’d like my money back if they’re not going to use it appropriately,” she said.

There is no state oversight of Mello-Roos funds. Local governments have to report bond activity and expenditures to the state treasurer, but that office has no responsibility to question what is reported.

Ultimately, the school boards and city councils, which enter into agreements with developers to form Community Facilities Districts, are accountable for the funds, to the taxpayer and the bond market.

Beatty says she takes that job seriously and so has been researching the Mello-Roos act.

Asked whether she thinks the district is spending Mello-Roos funds illegally, she paused.

“I don’t want to conjecture and that is why I would like a legal opinion from an attorney or … perhaps from the head lawyer of the state (attorney general) to explain to communities, to school boards, to cities, municipalities, what the allowable uses are of Mello-Roos funds,” she said.


Trustee Beatty

Poway school board Trustee Beatty wants guidance from state on allowable Mello-Roos expenses.

Collins said the district is just using the financial mechanisms the state allows to raise money for the district.

“(Is) everyone happy with every dollar spent? I’m sure they’re not. But are they happy with the quality of the outcome and the facility and the education we’re providing to the next generation? Absolutely,” he said.

Beatty takes a different view.

“No matter how happy you are that legal obligation of disclosure doesn’t go away.”

When Mike Smith learned some of the Mello-Roos funds from his community paid for the Cafe sign at the new administration building he was dumbfounded.

“That’s appalling,” he said.

Especially because the district decided not to spend the money on a relocatable classroom that could have made room for his daughter at Willow Grove, the school down her street.

She starts school in two days. And unless the school board comes up with a last-minute solution that will make room for 55 more kindergarten kids, Smith will be driving rather than walking her to school.

inewsource reporter Kelly Paice and data journalist Kevin Crowe contributed to this report

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Avatar for user 'Eddie89'

Eddie89 | August 19, 2013 at 11:04 a.m. ― 3 years, 7 months ago

Instead of spending any surpluses, they should be reserved in a "rainy day" account so that when those "new" facilities need fixes, improvements, etc. then the money will be there.

It just seems so simple! Why do people need to make things so difficult!

If I get a raise at work, I don't go looking for ways to spend my increased income! I continue to save the extra income. Then if something happens to my income or I want to purchase/fix something around the house, the money will be there and I don't need to resort to borrowing.

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Avatar for user 'Powaykevin'

Powaykevin | August 19, 2013 at 1:47 p.m. ― 3 years, 7 months ago

I am still shaking my head that the superintndent was allowed to short sale his home a few months ago and sell it for 730k to the listing brokerage who immediately flipped it for 929k??

How does that happen?

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Avatar for user 'monimom'

monimom | August 20, 2013 at 12:54 a.m. ― 3 years, 7 months ago

Legislation should be enacted to require oversight, independent audits, and funds to be held with the County Treasurer.

Mello Roos funds are restricted and should only be used for the purpose set forth by agreement and pursuant to the disclosures made to Mello Roos bond investors in Official Statements. For example, see:

Someone should make a records request for the "School Impact Mitigation Agreement" and any supplements/amendments made thereto, which were executed by the district and developer (in the form of a general partnership). For example, the district entered into an agreement with "KS Kelwood General Partnership".

Lastly, the taxpayers may have a valid claim to challenge the Mello Roos tax under Proposition 218 given that the district is modifying the tax each year to include fees such as "administrative fees", which are above and beyond the amount necessary to pay off the Mello Roos bonds. Also, it appears that using the "surplus" funds to pay for improvements outside of the Community Facilities District, may be illegal...however, one needs to read the Mitigation Agreement to make this determination.

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Avatar for user 'monimom'

monimom | August 20, 2013 at 1:04 a.m. ― 3 years, 7 months ago

So did Poway adopt "Local Goals & Policies"?

See page 20 of the following:

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Avatar for user 'PowayReform'

PowayReform | August 20, 2013 at 2:33 p.m. ― 3 years, 7 months ago

This article is disturbing... What is happening to PUSD? It is nowhere near the quality district of past and that everyone has the illusion it is wrong. Educators do a great job covering for the district office.

Here is an example...Westview High, is far behind all other PUSD campuses technologically and there is no funding to bring it to current standards. Westview is a Mell-Roos campus. Westview has an outstanding Newscast program/class with 40+ students who use video software for learning and application, 3 computers to support 40 students and the instructor is told he was a great educator and they have faith in him that he will make it work....crazy! Mello-Roos money is not available for this $6K investment? PUSD shame on you!

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Avatar for user 'SteveJ'

SteveJ | August 21, 2013 at 12:03 p.m. ― 3 years, 7 months ago

I believe strongly that all kids deserve a decent chance at a good education. However, with that being said I also believe that we need to have a fair taxation system. Our general taxes are for the whole community. Mello-Roos are something we choose to take on to get a good infrastructure for our specific area and it is a lot to take on ($7,000 a year for my family) That money should be ring fenced for the Mello-Roos district. If there is excess why not use it to pay off the bond sooner or have a rainy day fund. One thing in the interviews that I took great offence to was the fact that as a payer of Mello-Roos I am blindly happy to pay the tax because I have a good schools system (I believe the Superintendant made this point). This was an extremely arrogant comment. The reason more homeowners don't complain is that they don't know all that is going on with their tax money. If the schoold system is SO WELL FUNDED why do we as parents constantly get harrased for extra fundraising. However, homeowners are also to blame. They should be putting more pressure on their local government to account for the spending decisions being made. I am sure many people are extremely angry and frustrated by what this report has uncovered, but will anything get done about it. Are there any local politicians that will look into this, or is it not sexy enough to win votes - I would argue it is. Sadly I doubt it.

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Avatar for user 'powaymom'

powaymom | August 21, 2013 at 1:20 p.m. ― 3 years, 7 months ago

Obviously, PUSD has too many bank accounts. Who allowed this? There should be direct, straightforward accounting. PUSD should have never made deals with developers and collected Mello-Roos. They should have said, start your own school district. Major mistakes have been made. One more thing, check your school and see how many students are inter-district transfers and took up your children's spots....

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Avatar for user 'DeLaRick'

DeLaRick | August 21, 2013 at 2:22 p.m. ― 3 years, 7 months ago

In all fairness, there are parents who pay Mello-Roos and send their kids to private schools. Why can't PUSD implement a system whereby those spots are reserved for Poway residents or transfers?

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Avatar for user 'Earl_Lee'

Earl_Lee | September 4, 2013 at 7:04 a.m. ― 3 years, 6 months ago

I posted on several comment sections on this Mello Roos tax issue for KPBS. I've mentioned several times there needs to be more oversight, transparency and accountability for what Mello Roos funds can and can't be used for.

I do believe in the general importance of why Mello Roos funds need to be collected. However, I believe they have gotten beyond what their intended purpose was and this article shows at least in several cases that the funds are NOT being used for things essential to what they are being collected for.

It shouldn't be difficult to get a spreadsheet showing all funds collected and all funds paid out breaking down specifically where those funds are going and what it's being used for. Also, what entities/persons are authorized to write checks or spend money with our Mello Roos funds?

Is there a system of checks and balances? How many people need to sign off on it?

I had the good fortune that both my kids got in at Willow Grove. I do know people from the 55 person list that didn't get in and I think it's a travesty. Especially those that live a few blocks from the school. I don't think the selection process is all that fair. I've met some parents that live on the other side of I-56 that got in over some that live right in Santaluz or the immediate area.

Me personally don't have to worry about my kids for the next 5 years but I still feel for the parents that live in the area, have been paying Mello Roos taxes and have to send their kids to schools miles away.

But it's very disturbing to read about our Mello Roos funds being spent on things they were NOT intended for.

Also, I still haven't seen any articles that address the possibility that these Mello Roos taxes will be extended beyond their original pay off dates.

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Avatar for user 'Earl_Lee'

Earl_Lee | September 4, 2013 at 8:18 a.m. ― 3 years, 6 months ago

Also, there is NO reason there should be 200 bank accounts with Mello Roos funds. Someone needs to explain why there are 200 (TWO HUNDRED) separate bank accounts. This set up has the potential with a LOT of fraud and abuse with that many bank accounts.

The question to ask is who are all the people authorized to write checks on these 200 bank accounts??

Also, it sounds illegal to use Mello Roos funds for lunches and seminars. We really need clear transparency and we need oversight at a State level. It's clear that some people sound like they can use OUR Mello Roos funds for whatever they are in the mood for whether it is illegal or not.

Yes, PUSD schools are excellent. But that doesn't have anything to do with the fact that Mello Roos funds may be used illegally and not for their intended purposes.

I hope KPBS stays on this topic and holds these people spending OUR money accountable. We probably can't do anything for past possible malfeasance or misuse of funds but we can sure put a stop to future misuse of OUR funds.

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Avatar for user 'Earl_Lee'

Earl_Lee | September 7, 2013 at 10:23 a.m. ― 3 years, 6 months ago

I'm afraid that it's going to take a formal lawsuit to really get to the bottom of all of these questions. I'm shocked that more taxpayers aren't outraged by these things.

A question to KPBS, do you think it will take a formal lawsuit against the District to get more answers and accountability on many of these important questions?

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Avatar for user 'Always1'

Always1 | September 17, 2013 at 11:52 a.m. ― 3 years, 6 months ago

It is getting out of hand. We should put in a ballot to strict the use of the Mello-Roos taxes for it was intended for use. We have paid for 11 years this Mello-Roos tax, we did not benefit on the use of school system because by the time the schools are created my child has already gone to college.
We do not mind contributing but for the district to misuse these funds is illegal.
I think what needs to be done is put a ballot to strictly enforce the CFD funds for what it is intended and any surplus needs to be put back as a reduction in Mello-Roos for the next tax fiscal year. These funds can not be collected forever from the homeowners subject to such.

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Avatar for user 'Danschmitt'

Danschmitt | September 22, 2013 at 8:54 p.m. ― 3 years, 6 months ago

In 2006 I did similar research on the mello Roos for Stonebridge in Scripps Ranch (Poway school district). The agreement for mello Roos was signed in 2004 (near the peak of real estate frenzy). The signed agreement states that funds will be used for the items listed in Exhibit D, but Exhibit D is blank. Looking at where the money was spent (this is easy to follow through the bond annual reports) it was transferred to Westview Highschool in very large increments over several years (Stonebridge kids do not attend Westview High School). Early this year the bonds were refinanced to a lower rate and extended by 10 years. The school district gets the funds from the refinance and keeps residents paying 10 more years (when the mello Roos will be outrageous because of their 2% annual increase). Some home owners had paid off their mello Roos before the refinance (good for them) but the result is that not all homeowners in a mello Roos district are being treated equally because those who did payoff early received a 7% discount rate and 30 years of payments to determine their NPV (for the remaining home owners after the refinance of mello Roos the NPV would be calculated with a 3% discount rate and 40 years of payments).
Like others I am also offended by the Superintendents comment that homeowners haven't complained about the misuse of mello Roos. I sent in an email after the refinance of our mello Roos and he sent back a very snarky email which was addressed to his assistant telling her to send me the standard response. "Here's another one! Send them the standard response." The assistant then sent me a very apologetic email saying that the Superintendent hadn't yet learned 'reply' vs 'reply all' on his iPad.

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