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Escondido considers adjustments to special tax district

ESCONDIDO — The city is considering changing a special tax district applied to new residential developments to direct its funds to more specific municipal services, such as public safety.

The Escondido City Council gave staff direction to review the city’s Community Facilities District, a special tax district (or Mello-Roos) the council approved in 2020 to make new developments “revenue neutral” by offsetting the costs of general municipal services — police, fire, public works, community services and general services — at recent developments.

The special tax district was established following a fiscal analysis of new developments to address projected city budget shortfalls. Without a tax district, the study found that providing services to new residential developments, including police, public works, community services and general services, would exceed the city’s anticipated revenue from those developments.

Maximum tax rates between $536 and $783 per dwelling unit were established as part of the tax district and could increase based on inflation. There are 437 developed lots in the Community Facilities District that will generate approximately $295,000 in revenue, with an additional 182 lots annexed into the district but not yet developed as of March 1.

A total of 23 projects have been annexed into the tax district totaling 769 homes, which could potentially generate $500,000.

While Escondido is not the only city with a special tax district in the region, the city is one of the only municipalities being sued by the Building Industry Association of San Diego over the city’s Mello-Roos. Due to pending litigation, the council wants to review how the special tax formula has been applied to potentially bring relief to those being taxed and sway the BIA to drop its legal complaint.

“Five hundred thousand dollars a year is not a solution for the city,” said Lori Pfeiler, CEO of the Building Industry Association of San Diego, at a Nov. 16 council meeting.

Pfeiler asked the council consider rescinding the special tax district altogether.

“The CFD is a hindrance to home ownership and affordability by establishing a tax on new homeowners,” Pfeiler said.

But the City Council generally feels the city needs a tax district to help pay for public services, although council members could adjust the tax to make it more efficient for the city and residents.

The city could change its Community Facilities District by lowering the tax rates, which are currently at the maximum level.

“We may have a problem with our formula,” Councilmember Mike Morasco said.

Another option is to create several tax districts with specific intentions rather than just general services like the city’s current tax. For example, San Marcos has four community facilities tax districts that each target a particular goal, including police services, lighting and landscape maintenance, fire and paramedic services and congestion management.

The County of San Diego has two well-known special tax districts — Harmony Grove Village, between San Marcos and Escondido, and Horse Creek Ridge in Fallbrook. The Harmony Grove Community Facilities District tax covers public services that include fire protection, ambulance and paramedics, park maintenance, parkways and open space, and flood and storm prevention. The tax on Horse Creek Ridge supports general county services and flood and fire protection.

“I think one of the goals that came to my mind was to find a level that does not discourage development,” Deputy Mayor Tina Inscoe said.

Councilmember Consuelo Martinez noted that with the city’s proposed ¾-cent sales tax measure for public safety and other municipal services likely to fail, she isn’t in favor of dissolving the CFD but instead would rather revisit the formula as well.

“We have many more questions and still need funding,” Martinez said.

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