Hearing Will Target Mello-Roos Bonds : Finance: State treasurer will convene a Santa Ana session to assess whether more controls are needed.

Should California law be changed to protect people who buy new homes and then must pay higher taxes associated with Mello-Roos municipal bonds?

Should state government more strictly control how and under what circumstances cities, counties and other agencies may issue these bonds?

Those are two of the central questions to be faced Wednesday when state Treasurer Kathleen Brown convenes a special hearing of the California Debt Advisory Commission in Santa Ana. The meeting is scheduled for 9 a.m. to 1:30 p.m. in the Board of Supervisors’ chambers at the Hall of Administration.

Aides to Brown said that the commission will submit a report of Wednesday’s hearing to the state Legislature. And, depending in part on Wednesday’s testimony, the aides said that Brown may in coming weeks propose changes to the law.

Mello-Roos bond financing, named after two state legislators, has for nearly a decade provided a financial engine for California’s suburban expansion: Local governments have teamed with developers to sell the tax-exempt bonds, using the $3.6 billion in proceeds to build streets, schools and other facilities.

The Mello-Roos bonds have been used most extensively in growing Orange, Riverside and San Bernardino counties, where newly arrived home buyers are repaying the securities through their sharply higher property taxes.

Mello-Roos financing is now facing increasing scrutiny--in part because the bonds are often secured by undeveloped land that is shrinking in value. The declining values threaten the viability of some of the bonds.

At the same time, new homeowners from Aliso Viejo to the San Joaquin Delta community of Tracy are complaining that they have no control over how officials and developers are collecting and spending the Mello-Roos proceeds.

Some developers and other promoters of Mello-Roos bonds oppose any substantive changes to the existing state law, saying that the bonds provide a vital source of capital for newly formed communities.

But Brown, responding to a three-day Los Angeles Times series in December that explained the emerging downsides of Mello-Roos bond financing, decided last month to organize Wednesday’s hearing. She said on Monday that changes to the law may be necessary.

Speaking through her press secretary, Jennifer Openshaw, Brown said the problems that are surfacing “may represent a kind of early warning system.”

Brown added: “With the aftershocks of the S&L; scandal still being felt, it is not a time for closing our eyes or our minds to the possibility that reforms may be in order--both to protect California taxpayers and to preserve these bonds as an effective financing tool for another decade.”

Among the 23 witnesses scheduled to testify Wednesday are taxpayers, local government officials, bond underwriters, representatives of bond-rating agencies, bond attorneys and lobbyists for developers.