From the Coast News:
Those who own property in the Encinitas Ranch might want to take a closer look at your Mello Roos Taxes. They are going to increase.
Encinitas City Council voted 3-1 April 27 to allow the Encinitas Ranch Golf Authority, or ERGA, to pay themselves a “contingency fund” of $100,000 a year for the next five years or more, before paying the full amount of the CFD bonds.
This means the golf course and Carltas Development Corporation will be passing more of ERGA’s portion of the CFD bond debt of $400,000 per year on to you.
By way of a brief explanation, CFD stands for Community Facilities District — the portion of the bonds that paid for the roads, utilities, etc., that you as property owners in the Encinitas Ranch are paying through your Mello Roos taxes.
As background, the Carltas Company borrowed from the taxpayers of Encinitas 50 percent of the sales tax generated in the first five years by the commercial development along El Camino Real. This “sales tax loan” was approximately $1.3 million. Carltas Company is the development arm of the vast Ecke family land holdings.
According to the Encinitas Ranch Development Agreement between the city and Carltas, the loan was to be paid back with interest by June 2013. Carltas Corporation paid the installments for the first $500,000 and the remaining $800,000 was to come out of the ERGA surplus net revenues. ERGA made the installments for 2008 and 2009, but came to City Council in 2010 saying they could not afford to make further payments.
The ERGA board is made up of members of JC Resorts; the Carltas Company representative; the Encinitas city manager, the Parks and Recreation director; the director of Engineering and other city support staff. Bill Dean of Leucadia is president. It is a private-public for-profit business partnership. Its finances are spelled out in a complicated formula under the development agreement. ERGA operates independently, without City Council oversight.
ERGA announced that they needed to establish a “contingency fund” of $500,000 in case there is a “catastrophic event” in the future regarding the golf course. The questions here are: Why establish this contingency fund now? And where does ERGA plan to get the money for this contingency fund when it cannot make the payments on the sales tax repayment loan?
The sales tax loan was a loan between the city of Encinitas and Carltas Company, the owner of the golf course. It states in the development agreement: “Failure of the golf course to produce sufficient Surplus Golf Course Net Revenue to repay all or a part of the sales tax advance in no way releases Owner (Carltas) of the obligation to repay said advance.”
Carltas requested to invoke a condition in the development agreement that reads, “City will consider in good faith extending the payment period” of the loan. At the March 23 meeting, City Council directed City Manager Cotton to “negotiate” with Carltas Corporation to allow ERGA and Carltas to have a five-year suspension of repayment of the sales tax loan.
On April 27, Carltas got their loan extension with only ERGA’s revenue stream (which is uncertain) as collateral. If at sometime in the future there is a default, and Carltas Development can’t pay their bills, it will all fall on the city of Encinitas. Carltas gets to defer their obligation until June 2016, 2017, 2018.
By giving this benefit to Carltas, what Encinitas projects go unfunded while Carltas foregoes their obligation to pay their debt of $650,000 on time?
The request by ERGA for establishment of a “contingency fund”?
City Council allowed ERGA to pay themselves the $100,000 per year contingency fund before paying the debt on the CFD bonds. Which means, the Ranch property owners get to pick up the shortfall on the Community Facilities District Bonds — whatever part of the $400,000 payment that ERGA cannot afford to make while paying itself. This “contingency fund” appears to be a bailout. It creates a revenue stream for ERGA should they default on other financial obligations.
Questions property owners in the Encinitas Ranch might want to ask: How much more money will I pay? How many more years am I paying increased taxes?
Read more: Coast News Group – COMMUNITY COMMENTARY Mello Roos taxes are going up
sounds like just another way the developer is trying to past the buck on to the homeowner/taxpayer.
the question is how many developments with mello roos out there have this type of potential? all of them? just ones with “golf authorities?” or just this one because of the odd arrangement to start off with?
Jim,
Can you explain this? I thought Mello-Roos was a known, fixed dollar amount for each property that could not be retroactively increased by city council / developer shenanigans.
WOW!!!!!!! THAT SUCKS!!!!!!!!!!
Sounds Illegal to me?
It’s that fine-print thing again.
I first noticed that mello-roos wasn’t fixed when I came across the latest Pardee verbiage in CV.
Their Santa Rosa tract has roughly $5,000 per year in Mello-Roos, but it last 40 years….and has the ability to go up 2% per year! They will assure you that it hasn’t gone up yet, but how much longer?
How about the 1/4 point surcharge the builders get every time a house sells? They have it in Del Sur and others.
They get away with this stuff because they know that nobody reads the paperwork – you must read it all.
What is very interesting, or less than precisely worded in the article, is the Carltas got the loan, yet revenue from golf/homeowners is being used to pay it back?
If Carltas got the loan, why is it a condition of the homeowners/golf assn to pay it back?
A $1.3mm loan seem pretty small in the grand scheme of developing ER. Thus, curious if that was pure development money or just a ‘cash out’ loan for walking around cash which is now being paid back by others.
Odd to say the least.
Lastly, per JTR#4 – not reading the paperwork is EXACTLY why all the RMBS holders got burned…they didn’t understand what they were buying….AAA bonds backed by homes in Murietta??? Seriously!
Wow, if I didn’t have enough reasons before to not consider MR-covered properties I certainly do now. NWIH.
Any chance you could get a copy of the language on Encinitas Ranch Mello-Roos?
Prop 13 be damned!
Mello-Roos isn’t a tax, it’s a “fee.” There are no Prop 13 limits on it at all.
MR is virtually nonexistent in Northern CA. Local communities up there prefer to require developers to front the money for improvements before they’ll grant development approvals, and the costs get passed on as part of the initial sale price. It’s one reason why prices up north are higher, but it also means there are no nasty surprises like this one.
Oh yeah, in addition to not being fixed, MR isn’t always tax-deductible, either.
I’m so thankful that I bought a home with no HOA or M-R. Thanks for the reminder, Jim. 🙂
Yep love my old central coast ocean front hood with no HOA or MR and only two CC&R restrictions – no oil drilling or pig farming!
Comment # 2 above from W.C. Varones
We spoke with Jay Lembach, Finance Manager of the City of Encinitas. The reason why the Mello Roos could be increased is because the Homeowners were paying about 20% less than the maximum allowed amount. He said his estimate is now they will be paying about 8-10% less than the maximum allowable amount.
We were also able to find out that this Mello Roos is up in 2030, so there are 19 years left to pay.
Jim….how many of your buyers have not bought a property because of Mello-Roos?
It’s very important to read all HOA, CC&R and other legal documents before buying a house. You’d be amazed at what’s in the fine print. A lot of it is difficult to understand. The CC&R’s for my HOA are about 35 pages long, filled with boilerplate that original developer probably never even read but signed off on and paragraph’s such as this that you need a law degree to figure out what it means:
“If any of the easements, privileges, covenants, interests or rights created by this Declaration would otherwise by unlawful, void or voidable for violation of the rule against perpetuities, then such shall continue in existence until twenty-one (21) years after the death of the survivor of the now living descendants of the President of the United States, WILLIAM J. CLINTON.”
Say what? I propose a bill that all documents for the most important purchase of your life be written in 8th grade English.
How about this buried in a paragraph on page 15.
“Walking of pets within any of the Common Areas, including the private streets, shall be prohibited except at such times and subject to such rules, regulations and fines as the Board may, from time to time, establish and any defecation left by such pets shall be immediately removed by the Owner thereof.”
Good thing I am not a pet owner, but I feel sorry for pet owners who didn’t read the CC&R’s before moving in.
It’s also good to request the minutes of the lsat two years Board meetings to see if any unpleasant special assessments might be in the future or to see what the financial stability of the HOA is like.
Bottom line—I agree with JtR in Post #4. You definitely must read everything to protect yourself and your investment. Caveat Emptor.
Thanks wifey!
I’d bet dollars to donuts that Carltas/Ecke and their lackeys on the city council find a reason to jack that Mello-Roos up to the maximum within a few years.
College Joe,
When my wife and I moved to SD County we directed our realtor to not even show us any properties with MR.
Somewhere I read that the mr can be extended if the bond (or whatever) has not been completely paid. so one cannot be certain of exactly when the mr is completed. so there is a good chance the 2030 date is not SACROSANCT.