Proposition 13, which was enacted in California in 1978, imposed fiscal constraints on local governments by limiting the amount of tax on property. Before the passage of Proposition 13, local governments issued long term general obligation bonds to fund public improvements required to serve new development projects. These general obligation bonds were repaid through the levy of general property taxes on all residents living within the jurisdictional boundary of the local government. Just prior to the passage of Propostion 13 property tax rates in California were as high as three percent (3%) of the fair market value of the property. Proposition 13 effectively prevented local government from increasing general property taxes within the jurisdiction of the local government to fund new public improvements that ultimately served only new developing areas that comprised a small portion of the local government’s jurisdictional boundary. Essentially, Propostion 13 now requires new development to pay for its own public improvements directly. Today, a Land Development Project is expected to pay for schools, roads, fire stations and numerous public improvements that are needed to serve the ultimate users of the project.
The Mello Roos Community Facilities Act of 1982 was enacted by the California legislature in 1982 to allow local governments to form a Community Facilities District with the power to levy Special Taxes within the boundary of the Community Facilities District. A Community Facilities District assists both local governments and developers in dealing with the increased burdens associated with the financing of public improvements since the enactment of Proposition 13. In a nutshell, a Community Facilities District can issue long term tax exempt bonds to fund public improvements, which are repaid through the levy of special taxes collected on the property tax bills of property owners residing within the boundary of the Community Facilities District. The use of tax exempt bond financing by a Community Facilities District to pay for public improvements results in borrowing costs that are lower than traditional forms of financing used by the developer. These lower financing costs of a Community Facilities District benefit all parties involved in the Real Estate Transaction including the ultimate property users.
II. WHAT FACILITIES CAN BE FUNDED BY A COMMUNITY FACILITIES DISTRICT?
A Community Facilities District may finance the purchase, construction, expansion, improvement, or rehabilitation of any real or other tangible property with an estimated useful life of five years or longer or may finance planning and design work that is directly related to the purchase, construction, expansion, or rehabilitation of any real or tangible property. For example, a community facilities district may finance facilities, including, but not limited to, the following:
(a) Local park, recreation, parkway, and open-space facilities.
(b) Elementary and secondary school-sites and structures provided that facilities meet the building area and cost standards established by the State Allocation Board.
(d) Child care facilities.
(e) The Community Facilities District may also finance the construction or under-grounding of water transmission and distribution facilities, natural gas pipeline facilities, telephone lines, facilities for the transmission and distribution of electrical energy, and cable television lines to provide access to those services to customers who do not have access to those services to customers who do not have access to those services or to mitigate existing visual blight.
(f) The Community Facilities District may also finance the acquisition, improvement, rehabilitation, or maintenance of any real or other tangible property, whether privately or publicly owned, for flood and storm protection services, including, but not limited to, storm drainage and treatment systems and sandstorm protection systems.
(h) Any other governmental facilities that the legislative body creating the community facilities is authorized by law to contribute revenue to, or construct, own, or operate.
(i) (1) A Community Facilities District may also pay for the following:
(A) Work deemed necessary to bring buildings or real property, including privately owned buildings or real property, into compliance with seismic safety standards or regulations.
(B) In addition, within any county or area designated by the President of the United Sates or by the Governor as a disaster area or for which the Governor has proclaimed the existence of a state of emergency because of earthquake damage, a district may also pay for any work deemed necessary to repair any damage to real property directly or indirectly caused by the occurrence of an earthquake cited in the President’s or the Governor’s designation or proclamation, or by aftershocks associated with the occurrence of an earthquake, including work to reconstruct, repair, shore up, or replace any building damaged or reconstruct, repair, shore up, or replace any building damaged or destroyed by the earthquake, and specifically including, but not limited to, work on any building damaged or destroyed in the Loma Prieta earthquake that occurred on October 17, 1989, or by its aftershocks.
(2) Work on privately owned property, including reconstruction or replacement of privately owned buildings pursuant to sub-paragraph (B) of paragraph (1), may only be financed by a tax levy if all of the votes cast on the question of levying the tax, vote in favor of levying the tax,
or with prior written consent to the tax of the owners of all property that may be subject to the tax, in that case the prior written consent shall be deemed to constitute a vote in favor of the tax and any associated bond issue.
(j) A Community Facilities District may also pay for the following:
(1) Work deemed necessary to repair and abate damage caused to privately owned buildings and structures by soil deterioration.
(2) Work on privately owned buildings and structures pursuant this subdivision, including reconstruction, repair, and abatement of damage caused by soil deterioration, may only be financed by tax levy if all of the votes cast on question of levying the tax vote in favor of levying the tax.
(k) A Community Facilities District may also finance the acquisition, improvement, rehabilitation, or maintenance of any real or other tangible property, rehabilitation, or maintenance of any real or other tangible property, whether privately or publicly owned, for the purposes of removal or remedial action for the cleanup of any hazardous substance released or threatened to be released into the environment.
What services can be funded by a Community Facilities District?
A Community Facilities District may also be established to finance any one or more of the following types of services within an area:
(a) Police protection services, including, but not limited to, criminal justice services. However, criminal justice services shall be limited to providing services for jails, detention, facilities, and juvenile halls.
(b) Fire protection and suppression services, and ambulance and paramedic services.
(c) Recreation program services, library services, maintenance services for elementary and secondary school-sites and structures, and the maintenance of museums and cultural facilities.
(d) Maintenance and lighting of parks, parkways, streets, roads, and open space.
(e) Flood and storm protection services, including, but not limited to, the operation and maintenance of storm drainage systems, plowing and removal of snow, and sandstorm protection systems.
(f) Services with respect to removal or remedial action for the cleanup of any hazardous substance released or threatened to be released into the environment.