Half-Baked: Idea of Creating Mello Roos Areas to Postpone Developer Fees

Half-Baked Pic

The City of Chula Vista has never had a worse idea than the one it’s proposing for the west side of the city. The City wants to pass the buck (in the way of $20,000 in “development impact fees” plus ten years worth of interest) from the developer to the owner of the house ten years later.

Cities get their revenues in a few different ways. One of those ways is by charging “development impact fees” / “housing fees.” The more new housing that is built the more “impact” it has on the City (hence the name). While the City charges these one-time fees, these services have to be provided to the new residents, well, basically forever. These fees range from sewer lines to traffic light fees which a developer of new housing units pays before construction begins. The City depends on these fees to pay for basic infrastructure like roads, sewers, fire / police stations and everything else that City is responsible for.

The City is proposing a new system by creating “Community Facility Districts” aka “CFD”s aka Mello Roos on the west side of the City. Now, since this is a tax, to comply with the law, CFD areas must be voted on by the “owner” of the property but the tax is paid by future owners. (Note: the “owner” or the only person who gets to vote is always the developer)

The rationale for the new Mello Roos districts on the west side is to make it cheaper for developers to build on the west side and to spur “vertical development in west Chula Vista.” By postponing these fees, it serves as an incentive because the developer can make a bigger profit. For example, if a developer proposes a project with 100 residential units, that would cost about $2 Million in developer impact fees. By shifting the burden on future residents, the developer doesn’t have to worry about that cost.

So, what is the problem with this idea? First of all, an abeyance would mean even less revenue to pay for these services in the short-term. This, at a time, when the City is barely emerging from one of the worst recessions ever. City staff have had one raise in five years, the libraries look like they haven’t been remodeled in 20 years (because they haven’t), and the city has about $600 Million in needed infrastructure repairs. It’s bad enough that the City is already too dependent on these one-time housing fees, postponing these fees would make a bad situation even worse.

Worst of all, it would be one helluva shock to residents come property tax time. Whoever owns the property at that time will get a nice fat tax bill in the mail. Remember, future homeowners would have to pay $20,000 plus interest for ten years. Doing some back of the napkin math, that adds about $1,000 in interest each year so that would make it a $30,000 tax bill. (It will be interesting to see how many units are put for sale at the ninth year)

In a way, this is even worse than traditional Mello Roos where those funds are taxes used to pay for “extras” like schools, parks, libraries, etc. This is different – the fees that would be postponed in this idea are supposed to pay for the “basics” like roads, sewers and other basic infrastructure. The City would still have to pay for the basic services for new residents.

While this idea may be one of those “out of the box” creative ideas, it is also one of those “not cooked all the way” ideas. With resources as low as they are at the City, it should be looking for additional sources of revenue, not fewer.

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2 Responses to Half-Baked: Idea of Creating Mello Roos Areas to Postpone Developer Fees

  1. RussH says:

    More fuzzy headed thinking from a city that is apparently unable/unwilling to do a thing about the poor performing city economy. Where is the long promised and undelivered economic development that was supposed to occur on the bayfront? What happened to re-development for that matter? The city sticks in a few new palm trees and traffic islands on Third Ave and calls that progress. Yet Third Ave remains the same junky mish mash of business that produce far too little sales tax revenue. The same can be said of Broadway. Thrift stores, used car lots, and numerous low end businesses plague the entire thoroughfare. The city has allowed this all to happen and now they want the taxpayers to bail them out again. Which part of “hell no” do they not understand?

  2. Pingback: North of the Fence: Institutionalized Racism in San Ysidro, - South Bay Compass

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