ESCONDIDO — The Escondido City Council voted to repeal the city’s Mello-Roos tax district earlier this month, a move aimed at easing financial burdens on new property owners and developers.
The Jan. 24 decision comes after a month of deliberation since the council set the community facilities district rates at $0 in December. During this time, Deputy City Manager Christopher McKinney cautioned that future councils might increase the rates unless the special tax district was eliminated.
Established in 2020, the Mello-Roos community facilities district is an additional tax for real property owners to help fund city services for new developments. Before its repeal, developers in Escondido had a few options: they could establish their own special tax district for residents of the new development, annex their development into the citywide Mello-Roos tax district, or request a concession through the state’s density bonus law by providing affordable housing, which would waive the Mello-Roos tax.
In 2022, the city began reviewing the tax rate to determine any necessary adjustments, such as lowering it or narrowing its intention for specific city services, like public safety, instead of general services.
“There was a concern that it was becoming a hindrance to developers,” McKinney told The Coast News.
Unlike those applied to specific developments, McKinney said citywide Mello-Roos tax districts tend to be more contentious.
While Escondido was not alone in having a special tax district, it was among the few local governments facing a lawsuit from the Building Industry Association of San Diego regarding the tax. Following the repeal of Mello-Roos, the city anticipates resolving the litigation.
Although the city could have benefited from approximately $500,000 in tax dollars from around 500 homes under the tax district, McKinney said this amount was relatively small considering the city’s structural deficit.
Moreover, the tax district was perceived as unfair to residents of new developments, who would pay taxes for services they might not heavily utilize, such as public safety.
“It’s not fair — illegal, some would say — to charge taxes to this specific slice of the community,” McKinney said. “You can’t burden them with the cost of services for everyone, so that’s why, even though we’re in dire need of new revenue, we can’t take that general revenue need and then apply it to specifically tax new residents.”
While repealing the citywide special tax district does not entail refunds for taxes already paid, the reversal will not affect specific tax districts on new developments, a practice the city will continue for the foreseeable future.
Some council members were particularly excited to repeal the tax.
“Thank you, thank you, thank you – it couldn’t have happened soon enough, as far as I was concerned,” said Councilmember Mike Morasco.