Building Industry Rises to Defense of Mello-Roos Bonds : Taxes: Its officials say levies often are ‘essential’ to growth but agree buyers should be fully informed. Measure may be revised.
Calling recent publicity about Mello-Roos property taxes misleading and harmful to home sales, building industry officials Wednesday defended the special tax levies and said they are here to stay.
At a seminar sponsored by the Building Industry Assn. of Orange County and the Home Builders Council, panelists agreed that prospective home buyers should be clearly informed of the ramifications of moving into a community where they will be obligated to repay Mello-Roos bonds. But they said the positive aspects of Mello-Roos taxes have been overlooked.
Carl Kymla, owner of Muncipal Services, a Newport Beach management consulting firm, said the taxes are “essential” to growth because developers and municipalities may be unable to obtain sufficient financing for public facilities any other way.
But while panelists were defending this form of municipal tax, one of the co-authors of the 1982 legislation authorizing Mello-Roos districts is proposing legislation that would tighten public disclosure requirements and ban tax increases for homeowners in the event of defaults.
The legislation being considered by state Sen. Henry J. Mello (D-Watsonville) was prompted in part by a series of articles published by the Times Orange County Edition in December.
The series showed how so-called Mello-Roos bonds are sold by local governments to pay for streets, schools and libraries in emerging communities. As new homeowners move in, they assume the cost of repaying the bond debt, which can amount to thousands of dollars a year.
The articles detailed several weaknesses and failings of the system including: Home buyers often aren’t aware of how much debt their local Mello-Roos district is authorized to accumulate or what projects can be funded with bond proceeds; local government officials have quietly imposed Mello-Roos taxes that favor developers at the expense of home buyers; governments in Orange and Riverside counties have entered deals with developers that were in trouble financially, imperiling the security of the bonds; and developers have been allowed to select the appraisers who value the land that is collateral for the bonds.
Sen. Mello’s proposed reforms would require that notice of Mello-Roos taxes be given to home buyers at the time the deposit on a house is signed rather than after the property is in escrow. Also, the disclosures would specify the tax burden for each type of residence, with escalation limited to no more than 2% per year.
Under Mello’s proposed bill, which he said he plans to introduce within two weeks, the value of land would have to be at least three times the amount of the Mello-Roos bond debt. Some specialists have noted that the use of having such a ratio of bond value to land debt hinges on the accuracy and independence of appraisals, but Mello’s suggested reforms do not address the appraisal process.
At Wednesday’s seminar, panelists agreed that prospective home buyers should be clearly informed of the ramifications of moving into a community where they will be obligated to repay Mello-Roos bonds.
Kymla and other speakers at the half-day forum, which was designed to “set the record straight” about Mello-Roos, said home buyers can vote with their pocketbook by deciding whether to purchase homes in Mello-Roos districts.
“The problems are overstated,” said David Taussig, a public financing consultant who has worked on numerous Mello-Roos programs in Orange County.
In most cases in Orange County, Taussig said, the monthly charge to homeowners may increase no more than 10% over the life of the bond debt, although taxes paid by the developer and owner of the undeveloped land could soar 200% to 600%.
Real estate officials said negative publicity about Mello-Roos tax districts has scared off some institutional investors in the bonds and in some cases has made homes in Mello-Roos districts more difficult to market.
Sandy Conner, a sales manager for the Fieldstone Co. in Newport Beach, said real estate sales people within Mello-Roos districts should stress the “benefits” to prospective home buyers.
