What is Mello-Roos?
A Mello-Roos Community Facilities District (CFD) is formed as a method of financing government entities (cities, counties, school districts and other special districts) to fund the cost of public improvements. The municipality sells bonds on behalf of the CFD. These bonds are sold to private investors who purchase them for tax-free interest income. The money raised through the bond sales becomes the debt obligation of the CFD.
The bond proceeds are used to pay for public improvements within the CFD. Money is repaid to bondholders through the Mello-Roos special tax. The service for the bonds is repaid by the levy of a special tax on property within the CFD. The special tax revenue is used to pay back the investment, repay principal and interest to bondholders. Taxation and repayment continues each year for the life of the bond issue, usually 20 to 40 years.