A Mello-Roos tax on new residential development to finance a wide variety of governmental services was a valid special tax, not a general tax to fund existing municipal services. Building Industry Association of the Bay Area v. City of San Ramon 4 Cal.App.5th 62 (2016)

An analysis performed by the City of San Ramon showed

An agency may acquire the assets of a private utility through condemnation using Mello-Roos bond financing, including intangible property incidental to the real or tangible property being acquired. Golden State Water Co. v. Casitas Municipal Water District, 235 Cal. App. 4th 256 (2015).

Upon petition by the City of Ojai, the Casitas Municipal Water District elected to acquire all of the assets of Golden State Water Company, a private utility, and take over Golden State’s water service in Ojai. Casitas formed a Mello-Roos Community Facilities District (CFD) to finance the purchase, and took steps to acquire the assets through eminent domain. Golden State filed a reverse validation action seeking to invalidate the resolutions forming the CFD and authorizing the bond financing. It argued that Mello-Roos financing cannot be used to finance acquisition of property by eminent domain or to acquire intangible assets such as goodwill and contractual water rights.

The Court of Appeal rejected the challenge, finding no support for the proposition that Mello-Roos cannot be used to acquire property through eminent domain. Observing that the Act states that its provisions shall be liberally construed, the court found that the word “purchase” in the Act connoted acquisition in exchange for compensation regardless of whether the property was being acquired voluntarily. In an acquisition by condemnation, the court noted, the public entity must pay the same price the owner would have received in an arm’s length transaction. Given the obvious practical need in certain circumstances to use condemnation powers, the court concluded that the word “purchase” was properly construed to include taking by eminent domain upon payment of just compensation.
Continue Reading Mello-Roos Financing May Be Used to Acquire a Private Water Utility Through Eminent Domain.