Mello-Roos Taxes and the Peanuts Syndrome

LucysFootball 3Lucy yanking the football just as Peanuts kicks – the iconic image created by the great Charles Schulz will forever live in the public consciousness as a badge of trusting souls. No matter how many times Lucy causes Peanuts to tumble as he kicks into empty space, Peanuts trust Lucy to keep the ball in place the next time.

We the People seem to have acquired the Peanuts syndrome.  No matter how many times legislation morphs into other than its intended purpose, We the People remain faithful to the idea that the next law or rule will fix what went wrong.  The immutable rule of legislation is that every law grows to include more stuff.  Eventually the original piece of legislation becomes something else.  Examples abound; but here, let’s talk about the Community Facilities Act, passed by the California legislature in 1982, better known as Mello-Roos to honor the act’s co-authors.

California’s 1978 Proposition 13 chocked off the flow of property tax money.  Predictably, instead of developing fiscal restraint, the legislature established other ways to tax homeowners.  Mello-Roos was enacted as a quasi parcel tax, not subject to Proposition 13, to provide funds for public infrastructure in newly-created development areas.  Not a particularly bad idea.  However, as time passed, Mello-Roos transformed, with significant transformations occurring since 2010.

Senate Bill 555 in 2011 further blurred the distinction, never quite clear, of what was truly a public facility or service and what was private by authorizing the financing of energy-efficient improvements on privately-owned property.  Assembly Bill 2618 in 2016 included seismic safety improvements to what could be financed.

Lawsuits have not been successful in curbing the morphing of Mello-Roos.  The Pacific Legal Foundation filed a suit on behalf of the Building Industry Association against the City of San Ramon, asserting that Mello-Roos applied only to new infrastructure created specifically for residents of a Mello-Roos district.  The court ruled that existing infrastructure was also covered, thereby breaking the link between the services and the residents paying for the services.

A high-profile expansion of Mello-Roos is the construction of San Francisco’s Transbay Center, located within a highly urbanized and dense Mello-Roos district.  Among the community benefits is a magnificent transit terminal that will include inter-city transportation service, leaving little connection between residents of the district and the services provided by the development.

Yet, residents of the Transbay Center Community Facilities District will still pay the Mello-Roos tax in addition to their regular property tax.  Lucy strikes again.