LOS ANGELES -- Gov. Pete Wilson on Saturday signed a bill designed to strengthen California's special tax district bonds.
The law, effective Jan. 1, 1993, is aimed at easing investor and taxpayer concerns regarding bonds sold under the Mello-Roos Community Facilities Act of 1982. It would increase notice of the taxes to home buyers and require ongoing disclosure for the secondary bond market.
Sen. Henry Mello, D-Monterey, introduced SB 1464 early this year to reform the Mello-Roos Act, after questions about the safety of such land-backed debt arose at a January hearing sponsored by the California Debt Advisory Commission.
Often called "dirt bonds" because they are ultimately secured by real estate, Mello-Roos bonds came under scrutiny last year because of the state's widespread real estate slump.
Local agencies in California have sold over $3.6 billion of Mello-Roos bonds to pay for infrastructure needs tied to new development. Under the Mello-Roos law, a district can be treated with two-thirds voter approval. Special taxes then can be levied for schools, sewers, and other needs. If there are less than 12 residents, the land owners vote to approve the tax.
The reform bill passed the state Legislature this summer with little opposition after the removal of a controversial provision to reduce the capitalized interest period for Mello-Roos bonds.
Under the new law, beginning on Jan. 1, 1993, home buyers must be given notice of the tax at the time of deposit. The regulation will also increase special tax notice to secondary buyers beginning July 1 of that year.
The law also increases secondary market disclosure to investors by requiring that simple data about the district, such as the status of tax collections, be reported to the state debt commission on an ongoing basis. This change applies to bonds sold after Jan. 1, 1993.
The law also mandates a three-to-one value-to-lien ratio and requires special districts to adopt goals and policy procedures detailing what the Mello-Roos taxes are and how they will be used. It includes an "anti-shopping provision" to discourage developers from searching for the least-sophisticated district in order to get the best deal.
In addition, the law gives the state treasurer new powers to recommend appraisal policies for the districts.