Mello-Roos community facilities districts (CFDs) are a type of special tax district formed when property owners within a geographic area agree to impose a tax on property in order to fund infrastructure improvements or services. These fees can then be used either for pay-as-you-go financing or to pay off tax-exempt bonds issued against the anticipated revenue from the CFD. CFDs are flexible in both the basis and application of tax; direct proportionality of benefit is not required, as with special assessment districts. Rates and methods of apportionment (RMA) have been based on land or property square footage or number of bedrooms; distinct areas and land uses may also be taxed differently. The only standard for the special tax is that it be reasonable and that it not be ad valorem (i.e., it cannot be based on property value). CFDs are also flexible in the type of improvements or services that can be paid for. They are used most commonly for streets, water, sewer/drainage, electricity infrastructure, schools, parks & police. The method of apportionment and types of improvements or services to be authorized, as well as the amount and term of any bond, must be designated.
CFDs require a two-thirds vote of property owners, so long as there are no more than 12 registered voters living within the proposed district. More than 12 registered voters living in the district requires a two-thirds vote of registered voters. Because of this voter approval requirement, CFDs are most commonly formed in undeveloped areas where the district encompasses a small number of property owners who intend to subdivide the land for sale. (One provision of the Mello-Roos Community Facilities District Act is that the fees can be proportionally subdivided with the land and passed on to the future landowners.)