What the school district's Mello-Roos rate increases mean for residents

Last week, The Lincoln News Messenger published a front-page story about Western Placer Unified School District school board raising Mello-Roos rates for the Lincoln Crossing and Twelve Bridges neighborhoods. This story caused some confusion as the information provided in the story was not clear or complete with the action the board took and how it would affect future and current residents. Action that the board took at the Aug. 6 meeting was to raise the base Mello-Roos tax rate for all new homes being constructed in the Twelve Bridges and Lincoln Crossing neighborhoods. This means that current Twelve Bridges area residents will not see an increase in their Mello-Roos rates and Lincoln Crossings residents will only see their annual two-percent increase. The reason for the base increase was that construction costs have been rising and there was an increase of 1.3 percent in the California Construction Cost Index from December 2017 to December 2018, according to the school district's facilities director Mike Adell. "So if you think over the last five years, construction costs have increased significantly," Capitol PFG strategic consultant Cathy Dominico said. "So if you were going to fund a public improvement five years ago, it would probably cost 75 percent of what it would cost today." Another question raised by residents from the article was the different rates they were paying, even if they lived in the same neighborhood or under the same community funds district (CFD). This is partly due because, as a home is being built, the base rate can continue to change until the house is finished. "If you had a home built in 2005 and another built in 2007, even if they are in the same neighborhood, they would see an increase in cost just because a couple years have passed and the base fee has escalated," Dominico said. Also, there is a different rate structure for both community funds district one and community funds district two, due to negotiations between developers and the district, along with state legislation related to Mello-Roos. "So when the school district first conceived CFD one (Twelve Bridges) back in the mid '90s, there was this vision that it was going to apply to all new development that came along after 1995," said the school district's special tax consultant Russ Powell. That vision was to require that all developers join the community funds district and pay Mello-Roos or risk that potential buyers would not be able to use the schools, according to Powell. Developers had several options of how to pay for the tax and how much they would pass on to future residents. "One option was that they could have paid 50 percent and then the rest of it would have been funded by the homeowner over 30 years," Dominico said. "They could pay 30 percent of the fee and the remaining 70 percent would be funded by the homeowner over 30 years or they could pay zero upfront and the homeowners would pay all of it over 30 years." According to both Dominico and Powell, the majority of developers went with paying only 30 percent and passing the remaining 70 percent onto the homeowners. In 1998, the California Legislature passed a law stating districts could no longer force developers to charge Mello-Roos and that schools could no longer reject residents from a certain neighborhood for not paying Mello-Roos. This forced the city to restructure how it would collect the special tax and work with developers to find an option that worked well for both of them. Powell directly worked on the negotiation for Lincoln Crossing (community funds district two). "When Lincoln Crossing came along, what they were doing is they used their formula which didn't have any amounts that were payable at building permit and came up with an annualized amount that was a little bit less than what was paid in Twelve Bridges and the other areas but it increased two percent annually and it ran for 10 years longer," Powell said. This is also why last week's story reported that Twelve Bridges residents were paying $7.16 per square foot and Lincoln Crossing residents were only paying $.5747 per square foot. The $7.16 represents the base rate at the time the building permit is filed. The developer then decides how much of a percentage they want to pay up front and how much of that percentage they want to pass on to the homeowner to pay over 30 years. So, according to Dominico, the annual cost per square foot in Twelve Bridges is not too far off from a home in Lincoln Crossings after it is broken down. According to Powell, though, the recent base rate increase for Lincoln Crossings is somewhat theatrical as no available lots are left for residential development and the only way to add more is to rezone commercial into residential. To summarize, the base tax rate increases approved by the board have no impact on current residents and the majority of Mello-Roos taxes are going toward schools that have been around for several years.