Property owners’ tax rates in Escondido’s special tax district will remain unchanged for another year, pending additional fiscal analysis.
The Escondido City Council recently voted to keep the Community Facilities District’s existing tax rates the same for the fiscal year 2023-24. A Community Facilities District, or Mello-Roos, is a special tax rate levied annually on a property tax bill to help pay for local services and infrastructure.
The council first approved the special tax in 2020 “to make new development revenue neutral” and ensure current residents are protected from subsidizing new housing projects. According to the city, each new residential unit permitted after May 13, 2020, will be annexed into the special tax district through a voluntary annexation. Instead of joining the special tax district, developers of new residential projects may also provide an alternate funding mechanism to help offset the development’s impact on municipal services.
The Mello-Roos tax rate is set at maximum rates between $536 and $738 per dwelling unit and could increase based on inflation.
According to Andrew Firestine, the city’s director of development services, the city could raise the rates based on changes in the consumer price index. However, staff recommended keeping the rates the same.
“In doing so, we’re not increasing the tax burden on property owners and preserving the city’s ability to make additional adjustments to the special tax rate for FY 2023-24 based on review of a new fiscal impact analysis,” Firestine said.
In November 2022, the City Council directed staff to review options for adjusting the special tax rate to focus on public safety services and potentially reduce the tax rate. The city is being sued by the Building Industry Association of San Diego over the city’s Mello-Roos, prompting the city to review how the special tax formula has been applied.
With its fiscal impact analysis, staff must return to the City Council by October.
At that time, the council may reduce the special tax rate for the upcoming year. If the city does reduce the tax rate, it could cost money to correct the rate with the county. With the 556 annexed lots in the community facilities district and a $15 per parcel correction fee from the county, the city would have to pay $8,340.
Andrea Contreras, a land use attorney representing several developers in Escondido, told the City Council that Mello-Roos tax districts don’t pencil out developers.
“It has become a bit of a barrier to develop in Escondido,” Contreras said. “No one is not mindful of the budget shortfall, but we really feel like this needs to be looked at in a holistic manner.”
The city is facing an ongoing structural budget deficit issue that could lead to deep service cuts in the future without additional revenue streams.
