A taxing method that’s funding
much of Orange County’s growth is poorly overseen and lacks a transparent way
for taxpayers to monitor how their money is being spent, a grand jury has
concluded.
A report issued this week
recommends the county and the 31 other agencies that administer the
approximately 119 special Mello-Roos taxing districts in Orange County make
detailed financial audits easily available to residents and form an oversight
committee to oversee how multimillion dollar tax debt placed on homeowners is
being managed.
The districts are worth more
than $2 billion – another $500 million is in the works in Irvine and the
unincorporated Rancho Mission Viejo development – and fund public
infrastructure like roads and schools by levying special taxes on homeowners
above and beyond the standard property taxes they already pay. The taxes are
levied ever year, often for decades.
Homebuilders say the taxes,
created in 1982 to surpass the restrictions of Proposition 13, which limits
property value increases to 2 percent annually, allow them to build needed
infrastructure without charging more for the homes. But there are no mechanisms
in place to ensure the taxes collected are properly spent, and the grand jury
noted that developers sometimes profit from the taxes.
“It is important that the
property owners in Orange County be aware of the consequences of the Mello-Roos
Act used by the local government agencies that govern them,” according to the
grand jury, which noted that while many homeowners pay the taxes, especially in
south Orange County, “few understood how and why they were formed, how long
they lasted, and how the funds were spent.”
And they have few options for
answers. The grand jury found that many documents and reports about the tax
districts “use general, vague language that does not meet the requirements and
intent” of the Mello-Roos law, named for the lawmakers who wrote it in 1982.
Mello-Roos districts are formed
by government agencies that undertake bonds to pay for land improvements.
Residents of the new developments eventually repay the agencies through the
taxing districts.
Agencies have 90 days to
respond to the report. County spokeswoman Jean Pasco said county staff “are
certainly reviewing the report’s recommendations and will be preparing a
response for the Board’s approval.”
Todd Spitzer, chairman of the
Board of Supervisors, is in New York with the Orange County Transportation
Authority Board of Directors and said Tuesday he hadn’t yet read the report.
The county is the biggest administrator of Mello-Roos districts, overseeing 23
that encompass tax obligations worth more than $830 million. Capistrano, Tustin
and Irvine school districts are close behind with a combined $500 million in
bonds.
The report comes in the midst
of a surge in home construction in Orange County that’s relying on Mello-Roos
districts to pay for public amenities without tacking the cost onto the price
of the homes.
The city of Irvine is in the
midst of forming a $384-million district for the Five Point Great Park
development, according to the grand jury, and the Board of Supervisors in April
authorized a $110 million district that will help fund the development of
Rancho Mission Viejo’s second village, Esencia. A $70-million district
authorized by the Santa Margarita Water District is in place in the first
village, Sendora. Ranch officials expect to form several more districts in the
area, where 14,000 homes are to be built in the next few decades.
Supervisor Michelle Steel was
the only supervisor who voted against the taxing district. She issued a
statement through her policy analyst, Arie Dana, that said she’s reviewing the
report.
“Transparency and oversight are
essential for property owners who live in Mello-Roos districts to know where
their money is going,” she said, according to an email from Dana.
The call for better oversight
also comes on the heels of an unprecedented revolt by homeowners upset over
huge Mello-Roos bills in San Clemente’s Talega development. The Capistrano
Unified School District had for years been taxing the Mello-Roos districts,
including those in Talega, at a rate much higher than that needed to pay for
the bonds; the extra money was meant as a safety net. But angry homeowners
persuaded school board trustees in August to substantially reduce the annual
increase typically applied to Mello-Roos rates.
Jim Reardon, a member of the
Capistrano Unified Board of Trustees who supported the homeowners’ efforts,
praised the grand jury report as “highly relevant” and said he hopes other
elected officials take it to heart.
“To bring about change, it is
necessary for voters to elect representatives to school boards, water boards,
and the Board of Supervisors who will respect taxpayer contributions,” Reardon
wrote in an email. “If you elect a “water expert” to the water board or a “PTA
mom” to the school board, then you should expect them to cede decisions to the
paid agency staff and attorneys who will naturally lean toward less
transparency and more spending.”
Dan Kelly, spokesman for Rancho
Mission Viejo, praised Mello-Roos taxes as a “financially prudent” way to
ensure development pays for itself. He said the company is “robust in our
efforts to ensure that residents” are aware of their obligations before they
buy homes.
Jonathan Volzke, spokesman for
the Santa Margarita Water District, said an oversight committee is something
that could be considered by the board of directors. He said the district
includes details about its taxing districts in its annual report, and “our
plans are pretty transparent.”
“We
obviously think they’re a valuable tool to finance infrastructure,” he said.
Home buyers “want their hot showers the day they move in, so we’ve got to have
our infrastructure in place.”
July 1, 2015
Orange
County Register
By
Meghann M. Cunliff
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