More than 400 people attended a Beaumont City Council workshop Monday night, expressing concerns about the high costs of their Mello-Roos taxes in special community facilities districts and wondering where the hundreds of millions of dollars collected for facilities and services have gone.
Anticipating a large crowd, the city held the workshop in the Beaumont Unified School District’s board room at the Educational Support Facility. The board room was full and the lobby also had an overflow crowd of residents attending the two-hour workshop.
Many of the residents live in Solera, Four Seasons, Stetson and other special districts governed by the Mello Roos Act of 1982.
In 1978, Prop. 13 limited local public agencies in increasing property taxes based on the property’s assessed value.
In 1982, the Mello-Roos Community Facilities Act was created to provide an alternate method of financing needed for improvements and services.
A CFD, or community facilities district, provides financing through the issuance of bonds for facilities and services. Facilities include recreation, parks, libraries and schools, among other needs.
Services include police and fire protection, ambulance and paramedic services, and maintenance and lighting of streets and parks.
Once approved, the special tax lien is placed against each property, for which homeowners pay as an annual special tax. The taxes are not based on a property’s value, but on the property’s square footage of structure and lot size.
Shane Spicer, director of municipal finance for Albert A. Webb Associates in Riverside, and Richard Wall, project manager for the same firm, outlined information about CFDs.
Beaumont has one CFD comprised of 59 improvement areas totaling $208.1 million in bonds as of September 2015.
An improvement can have a useful life of five years or more and need not be located with the boundaries of a CFD.
Spicer said a CFD is initiated by an applicant, whether that be a developer, a land owner or residents looking for additional ways to enhance services or need facilities in their community.
Tax rates cannot exceed 2 percent.
The CFD is formed after two regular city council meetings, and bonds are not issued at the time of formation, Spicer said.
A special election has to have a two-thirds vote for a bond to be approved.
The consultants talked about the costs of a bond. For example, a $3,000 tax rate can have a 2 percent escalator attached, increasing the amount of the tax. The range can be from $3,115 to $3,723.
After five, seven or eight years, bonds are eligible for refunding at a savings of 10 to 15 percent initially, followed by additional savings.
Councilmember Mark Orozco asked Spicer about the home buyer’s perspective. Spicer said that a home buyer would do his homework and understand what he is buying, although sometimes they don’t focus on the cost of the property tax.
The CFD tax is included in the purchase documents.
Brian Forbath, a partner in the Newport Beach-basedlaw firm of Stradling, Yocca, Carlson and Rauth, said that it is the homeowner’s responsibility to disclose information about the CFD taxes at the time the home is sold. The city does not bear that responsibility, Forbath said.
Councilmember Brenda Knight asked if any refunding opportunities have been identified.
Michael Busch, president and CEO of Urban Futures of Orange, which is the city’s interim financial adviser, said six improvement areas have been identified. They include Areas 8 A, B and C; as well as 6A and 19 C in the years 2006 and 2008.
There is a gross savings of $8.6 million for 3,584 parcels. The average savings per parcel is $130 a year.
Refunding does not mean that the homeowner gets any money back, Busch said.
Councilmember Della Condon, a Solera resident, said she had heard many concerns about how some homeowners are taxed differently than their next-door neighbor.
Two different tax zones were established – one for smaller size units and one for larger size.
A senior development would have a lesser tax rate than a single-family home.
The city council also learned that boundaries become immoveable. Once the two-thirds majority of an improvement area has voted, the zone can’t be changed.
Mayor Pro-tem Lloyd White asked the special consultants if any of them had been involved in the Mello-Roos bonds that were financed by the previous administration.
They said no.
White also asked if it is unusual for one CFD to be established for 59 improvement areas.
Spicer said yes.
White said that he pays $2,800 a year for the CFDs in the Stetson community. If he were to pre-pay his loan, he would only have to pay $300 a year.
The council also has no jurisdiction over previous developer agreements with the city.
“We don’t really have the option to say, ‘We don’t want to do it,’” White said.
If the council violates that agreement, the city could be sued.
White also wanted to know why the 2 percent increase keeps occurring each year.
Forbath said that the escalator fee allows the developer and the city to finance more facilities because they would have a larger revenue stream.
Forbath also explained about the arrangement between the city of Beaumont and the former Redevelopment Agency. Together, they form a joint power authority to issue the bonds.
The city is not responsible for the CFD payments.
“It is not a debt of the city,” Forbath said.
Homeowners have to be careful about choosing their future property when it comes to CFD’s.
Forbath said that the biggest risk is when the developer can walk away from a project.
As for bond refunding, there is no cash involved. It only lowers the interest rate and the annual payments decrease, Forbath said.
Busch said that when former city manager Alan Kapanicas created the Improvement Area, the proceeds were put into one fund so that the proceeds could be used anywhere within the project instead of remaining in the areas they were collected.
That is a unique situation, Busch said.
In reconciling where the money was spent, Busch said that Urban Futures found that the city had fairly poor accounting practices.
The tax dollars were not being separated, he said.
Busch said that Urban Futures is close to 90 percent done with the mitigation reconciliation. All of the work will be done by the end of April, he said.
About a dozen residents spoke during the public comment portion, which began an hour and 15 minutes into the workshop.
Angela Briz-Garcia said she and her husband live at Four Seasons. They were looking for a nice place to live, where they could “live in peace” and “die in peace.”
She said that she and her husband are poor and she is not ashamed to admit that. But she is very angry about the amount of money they have to pay for the CFD’s and the mismanagement of the previous administration in handling the funds.
“How can we live in peace, how can we die in peace, if you don’t even know where the money is or what you are going to do with the money?,” asked Briz-Garcia.
Michael Kirby asked that the city council consider voting down the 2 percent increase in Mello Roos taxes.
He also wondered if the 2 percent increase was linked to the embezzlement and theft in the city.
Kirby also brought up another issue that got the residents going. He asked about the $800 charge that homeowners must pay to find out the cost of their Mello-Roos tax if they are considering pre-payment. He also doesn’t want to be penalized if he chooses to pre-pay.
One dollar? I would be happy with that. My fear is it will be very, very high,” Kirby said.
Karen Hawkesworth said she is concerned about paying twice for improvements if a bond were to be refinanced.
“We are paying for things that weren’t done the first time,” Hawkesworth said.
White said he will not personally approve any CFDs until these issues are resolved.
The issue of the $800 came up again and acting city manager Elizabeth Gibbs said that it is her belief that the $800 has been charged all along – it was just rolled in with the rest of the finances.
City Attorney John Pinkney said that the bond trustee, Union Bank, has not cooperated with the city regarding its requests for documents.
“In my opinion, they’ve given the city the runaround,” Pinkney said.
Orozco asked Forbath if it was true that the homeowners were paying twice for facilities and service.
Forbath said that reducing the bond proceeds only pays off the old bonds.
Spicer said that calculating the $800 fee, which is non-refundable, takes a lot of time – hence, the expensive cost. These also are individualized and are time-sensitive, Spicer said.
Gibbs said that the city has stopped taking pre-payments because it affects the bonds, whether by being over paid or underpaid. Gibbs said that the city is drafting new policies regarding the Mello-Roos taxes that were established in 1994 in Beaumont.
Staff writer Julie Farren may be reached at
jf*****@re***********.net
.