On a city council that has often lacked clearly defined lines of demarcation of key issues, the CFD (Community Facilities District) has been among the most divisive and polarizing issues with several strongly divided 3-2 votes. The final 3-2 vote a month ago set the stage for the Cannery to have a Community Facilities District where some of the promised amenities will be funded by the residents.
Now activists are up in arms over a press release from the New Home Company which announced no Mello Roos taxes at Lambert Ranch – an unusual move by the home building company who stated in the press release that the decision made “the development the only new home community in Irvine to offer no additional tax assessment.”
Lest we have any uncertainty, the company clearly defined its terms, “Mello Roos or ‘CFD’ fees refers to California’s Mello Roos Community Facilities District Act, which allows developers to borrow funds needed for major improvements and services (schools, roads, libraries, police and fire protection) through the sale of public bonds. The obligation to repay the bonds is then usually passed on to homebuyers by adding ‘special taxes’ on the homebuyers’ real property tax bills.”
The February 2012 announcement came directly from The New Home Company Partner and CEO Larry Webb. ”The elimination of Mello Roos fees at Lambert Ranch is one of its many distinguishing advantages as it emerges as Orange County’s most anticipated 2012 residential development.”
This is a high-end, gated, master-planned community of 169 luxury residences in the hills above Irvine which apparently “offers inspiring views from many homes.”
“Families have a hard enough time paying normal real property taxes, let alone the special taxes imposed by Mello Roos,”says Mr. Webb. “We are making sure that Lambert Ranch, which looks over Orange County from the hills of Irvine, also surpasses all other new communities in Irvine by eliminating these special assessments. It is one more important way that The New Home Company offers homebuyers a better way to live.”
Except for one thing, we are not talking about average families if we are talking about a gated community and 169 luxury residences that offer “inspiring views from many homes.” We are not talking about $400,000 to $600,000 homes like at Cannery – we are talking about million dollar homes.
Mr. Webb continues, “Unlike general real property taxes, it has long been unclear whether Mello Roos taxes are deductible for income-tax purposes.”
Mr. Webb added, “Historically many homebuyers deducted Mello Roos taxes anyway, adding it to their general property taxes. But starting with 2012 tax returns, the State of California Franchise Tax Board instituted new software targeting homeowners who try to write-off Mello Roos payments. This is one more compelling reason for homeowners to avoid communities that charge them. Of course, under current law our buyers can continue to write-off all of their standard general property taxes.”
One of the biggest arguments put forward by the Davis pro-CFD councilmembers is that if the CFD wasn’t put in place, the developer would simply pass the costs on to the consumers in the form of higher home prices.
However, this press release “asks” Mr. Webb where “The New Home Company is simply replacing Mello Roos taxes with higher home prices at Lambert Ranch,” and Mr. Webb replied, “Some of the cost may be passed to the homebuyer. However, this does not significantly impact the cost of the home. In fact, our prices will be comparable per square foot with projects in Irvine that are subject to Mello Roos fees. And buyers in those communities will have to pay these fees every year.”
So the press release has now completely undercut the main arguments about why a CFD is needed here. The New Home Company was willing to bypass the CFD for the exclusive million dollar homes above Irvine, but not for the purported workforce homes at the Cannery three years later.
In early May, Mayor Pro Tem Robb Davis made the case, “I still don’t understand why the New Home Company needs this CFD to cover their costs. The infrastructure that we’re approving tonight, $6 million is already in place – they found a way to finance it. It’s already in place. $6 million of the $8 million is already in place according to Bob Clarke.”
And so, while some councilmembers like Lucas Frerichs and Rochelle Swanson argued it was about timing, the fact that the financing was already in place for the early amenities undermined that argument.
Larry Webb’s statements in 2012 undermine two other arguments. First he acknowledged that families would be burned by the special taxes imposed by a Mello Roos, all the more so because in this case we are talking about average families whereas in Irvine we were talking about extremely wealthy families.
Second, he acknowledged that, while some of the cost may be passed to the homebuyer, it will “not significantly impact the cost of the home.”
This brings up a point that the mayor pro tem made in March, because, as he put it, the demand for housing is so high that it will be a seller’s market and therefore the seller will be able to find buyers who will simply take their asking price.
So the council would ultimately reduce the size of the CFD after community outcry, but, at the end of the day, the press release from Irvine demonstrates that there was no real need for a CFD at Cannery at all.
—David M. Greenwald reporting