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Last login: Tuesday, June 18, 2013
Mello-Roos CFDs were a response to Prop. 13, and are really only feasible in newly developing areas. And they don't always work. If the record is investigated, it will be found that the City of San Diego had to step in and take over CFDs where the development did not successfully generate enough in assessment income to cover the bond debt payments. Like all financing, there is risk.
If property owners in an established community wanted to develop some additional public improvements, e.g., a new park and recreation center, then an assessment district would be a good way to pay for that. But the voters within the are that would benefit from the facilities would have to vote in favor of that.
All taxes and assessments, for whatever purpose, should be fairly and equitably assigned to whatever it being taxed, whether it is income, property or sales. These articles indicate that there have been some serious errors in that process, and that needs to get corrected. But the underlying concept of making new development pay for itself, and using assessment districts to spread the cost over time at low interest rates (CFD bonds generally get tax exempt interest rates, which are lower than mortgage interest rates) is sound. And, no one has to buy property within a CFD assessment area. Like Homeowner Association fees, they are optional, and buyers can choose to avoid them by living in areas that don't have them.
June 18, 2013 at 5:43 p.m.
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CFDs are formed to pay for new public improvements, like streets, water, sewer, parks, schools, etc. Those public goodies have to be paid for by someone, and the CFD, just like all assessment districts, place the payment burden on the landowner(s). Like other assessments, the costs are linked to the land, because the improvements make the land worth more. Look on your property tax bill and you will no doubt see several assessments for things like street lights.
The improvements make the land worth more than it was before. Land without access (roads) is generally worth very little. Land without water, pretty much worthless. Homes without nearby schools are worth a lot less than homes with schools nearby. So the property is assessed to pay off the money that was borrowed (bonds) to build the improvements.
The other choices are 1) have all of the taxpayers pay to build the new improvements that benefit the newly developed property (we used to do this back in the 1970s and before, but the taxpayers got tired of paying for the streets, etc. near them as well as the streets way out in the suburbs, and so the City adopted Growth Management, which required that new development pay for itself). By spreading the cost over all the taxpayers in the City, the cost per taxpayer is lower, but there is a constant shifting of wealth from long-term owners to new owners--the new owners are being subsidized. A lot of folk thought that was unfair.
Under option 2) you can have the developer pay for it out of pocket and then recover the costs via higher prices for the homes, shopping centers, etc. The people who buy property in the new development pay regardless, but it is in their mortgage instead of their tax and assessment bill. Interestingly, this also results in much higher prices for property, which has the effect of artificially pulling up prices of property NOT in the CFD. So, the new owners, by paying for new improvements in their neighborhood via higher home prices, create unearned wealth for owners in older areas not within the CFD.
Under option 2) the school districts, and other public agencies also have to pay more for the land they need to build schools, parks, libraries, fire stations, etc. (The developer doesn't give that land away, she gets paid from the CFD that buys the land and builds the public improvements.) So the general taxpayer ends up paying more taxes for the improvements that the CFD would have paid for.
June 18, 2013 at 5:40 p.m.
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