Click to see if you're paying Mello-Roos taxes

by Joanne Faryon | inewsource

A city audit has cast doubt on the accuracy of thousands of San Diego property tax bills, which means some homeowners could be paying too much or too little in a special tax called Mello-Roos.

The audit, prompted by an inewsource investigation last year, found problems with the way the city records square footage on building permits, ranging from typos to incomplete information.

Mello-Roos taxes are special assessments added to property taxes in new developments. They pay for infrastructure, such as schools, roads, and fire stations. The extra charge can range from $35 a year to several thousands.

The square footage of a house is used to calculate Mello-Roos taxes, so an inaccurate record can result in costly mistakes.

The audit, released last week, found the city’s “procedures to calculate assessable square footage can be prone to potential inaccuracies.”

Auditors looked at one neighborhood in the northeastern section of the city called Del Sur. That’s the neighborhood where inewsource first reported errors on tax bills last year.

Of the 306 homes reviewed, the square footage the city recorded did not match San Diego County Assessor records in 252 cases. That’s more than 80 percent of the time.

In most of those instances, the audit found, the discrepancies were not enough to affect the tax assessment. In 22 instances, however, homeowners overpaid by as much as $1,000 or underpaid by $1,800.

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The city’s Development Services Department, which issues the building permits, responded to the audit, confirming seven of the 22 tax errors. Department officials also confirmed that the square footage of 11 more homes conflicted with county records, but it did not conclude the city’s record was wrong. In the remaining cases, the city department either said the county record or the auditor was wrong.

The audit could have far-reaching implications.

While it examined only 306 properties, some 33,000 property owners in the city of San Diego pay Mello-Roos, according to an inewsource analysis of 2012-13 tax data.

About 13,000 of the taxpayers potentially affected are paying the special tax to the Poway Unified School District, 5,200 to the City of San Diego, and thousands more to various school districts including San Dieguito, San Ysidro Elementary, Sweetwater Union High School, Del Mar Elementary, Chula Vista Elementary, and Solana Beach.

Despite its name, many of Poway’s schools are in the city of San Diego.

Joe D’Esopo lives in a suburb in the northeastern part of San Diego and pays Mello-Roos taxes to both the city and the Poway district.

“My house was recorded as about 500 square feet higher” than it actually is, D’Esopo said.

D’Esopo has yet to make a claim with the city for the error, but the Poway school district confirmed D’Esopo was overpaying $125 in special taxes and will change his tax bill going forward.

The auditor has recommended square footage records be reconciled for all homeowners who pay Mello-Roos in San Diego’s special tax districts, and Poway school officials have asked the city to do the same for its taxpayers.

Many of the homeowners who pay Mello Roos are in Councilman Mark Kersey’s district. He asked for the audit last year after inewsource uncovered the errors. At the time, he said homeowners were entitled to an accurate tax bill.

Last week, Kersey said no further audits of tax bills are needed.

“I don’t think — given what we found in this — that that’s going to be a good use of taxpayer dollars from a staff perspective,” Kersey said.

“The reason is the underpayments and the overpayments basically evened out, there were only 22 examples of this.”

Part of the reason the city and county seem to have different records for square footage is because of the way they track changes to a home while it’s being built.

The city records changes to a home’s square footage on multiple permits, while the county records all changes on one master document.

Officials from the city’s permit department conceded the county record may be easier to read, but maintains the vast majority of city permits are accurate and complete.

D’Esopo, who has experience in data analysis, has looked at tax records for his neighborhood. He believes everyone who has the same model home he does, may be overpaying.

“There seems to be actually a systematic problem here,” D’Esopo said.

In D’Esopo’s case, the city used an estimated builder’s plan to record square footage, rather than the actual finalized building plan. By contrast, the county used the finalized building plan in its records and as a result, has the correct information, D’Esopo said.

He’d like the city and the county to make all the square footage documents available to the public so homeowners who pay the special tax can verify their tax bills.

“For me, it’s a question of transparency,” D’Esopo said.

The Poway school district set up a special website last year after inewsource identified the first mistakes. It enables homeowners in the Poway district to verify the accuracy of their tax bills.

The website has so far been accessed 2,637 times, resulting in five verified mistakes in four different tax districts, according to Poway’s director of communications, Jessica Wakefield.

There is also a question of refunds and back taxes. Poway district officials said Mello-Roos tax documents specify homeowners will only be refunded for one year of the overpayment.

D’Esopo is looking through his escrow documents to see whether he was made aware of the one-year stipulation when he bought his house 10 years ago.

The district is not sure how it will handle underpayments.

San Diego has yet to decide how it will handle refunds, but Kersey said homeowners who underpaid won’t be given a bill for back taxes. The city’s audit committee meets Monday, May 12th.

Data analyst Kevin Crowe contributed to this report.

Joanne Faryon is a freelance reporter and former inewsource and KPBS reporter.

7 replies on “City auditor wants Mello-Roos tax bills checked for accuracy”

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  5. In 2006 I did similar research on the mello Roos for Stonebridge in Scripps Ranch (Poway school district). The agreement for mello Roos was signed in 2004 (near the peak of real estate frenzy). The signed agreement states that funds will be used for the items listed in Exhibit D, but Exhibit D is blank. Looking at where the money was spent (this is easy to follow through the bond annual reports) it was transferred to Westview Highschool in very large increments over several years (Stonebridge kids do not attend Westview High School). Early this year the bonds were refinanced to a lower rate and extended by 10 years. The school district gets the funds from the refinance and keeps residents paying 10 more years (when the mello Roos will be outrageous because of their 2% annual increase). Some home owners had paid off their mello Roos before the refinance (good for them) but the result is that not all homeowners in a mello Roos district are being treated equally because those who did payoff early received a 7% discount rate and 30 years of payments to determine their NPV (for the remaining home owners after the refinance of mello Roos the NPV would be calculated with a 3% discount rate and 40 years of payments).
    Like others I am also offended by the Superintendents comment that homeowners haven’t complained about the misuse of mello Roos. I sent in an email after the refinance of our mello Roos and he sent back a very snarky email which was addressed to his assistant telling her to send me the standard response. “Here’s another one! Send them the standard response.” The assistant then sent me a very apologetic email saying that the Superintendent hadn’t yet learned ‘reply’ vs ‘reply all’ on his iPad.

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