Jumat, 11 Desember 2009

"Simple Question - Complicated Answer"

Community Member Question:

When looking for a home in Fontana some areas paid about 1% on property tax and others paid an additional (LMD) Land maintenance district and yet others (CFD) Community Facility District fee. What are the differences in the property taxes costs?

City Manager Response:

Let me begin this response by first saying that the taxes and assessments paid by property owners on their homes vary significantly. It is very important, when purchasing a home, to take the time to understand these costs as they may have a significant impact on the long term cost of ownership. All taxes and assessments must be disclosed to the buyer of the property at the
time of purchase, but I find that not everyone takes to time they should in reading through the documents they sign. Taxes and assessments are created by votes of residents or property tax owners and are never optional payment items on the tax bill.

The only constant in property taxes is the basic property tax that everyone pays on their property. This is about 1.1% of the assessed value of the house at the time that it is purchased. Under the terms of proposition 13, this tax can only be raised by a maximum of 2% per year. So in an economy where prices are rising significantly, over time the taxes being paid on the property often have an effective rate well below 1.1% of the market value of the house. As a side note, the City of Fontana only receives 3.6 cents out of every dollar of property taxes paid by its residents. We used to receive a much higher percentage, but the State has taken that money away from the City during prior budget balancing schemes.

Some properties, in addition to the basic property tax may pay an assessment to a Landscape Maintenance District (LMD), Lighting, Landscape and Maintenance District (LLMD), or a Community Facilities District (CFD). It is also possible to have more than one assessment district that a property owner may be a part of. These districts are set up when the development is first approved by a vote of the land owners in the district.

These districts can be used to pay for the costs of the maintenance of common landscape/park areas, street lighting, graffiti abatement in the area, repair and replacement of facilities, etc. An assessment rate is created at the time the district is formed based upon the actual costs of the services being paid for divided by the number of properties sharing the costs in the area. In Fontana, these types of Districts typically cost between $200 to $800 a year. The maximum rate can be increased by 2% per year, but the City has a strong track record of keeping rates consistent in most of our service related districts. The rule of thumb is that rates may change for these districts about once every 7 years. There are a couple of maintenance districts in Fontana that are significantly more costly. These districts cost more because they have significant costs associated with fire suppression areas such as hillsides.

Another type of CFD is one that is created to pay for bonded indebtedness. This bonded indebtedness was created to build the necessary back-bone infrastructure of the community. When the district is created, bonds are issued and the proceeds are used to build roads, storm drain systems, sewers, and parks. These districts are commonly referred to as Mello/Roos Districts. Bonds issued by these districts can be in the ten of millions of dollars and are usually issued for a 30 year time period. Properties in the district are assessed an annual share of the debt service cost which shows up on your property tax bill each year. It is not uncommon for these districts to add nearly another 1% to the property tax bill. When the bonds are paid off, the assessment to the property owner also goes away.

Other common assessments to watch for on property tax bills are water bonds, school bonds, and park bonds. All of these bonds are typically based upon a percentage of the assessed value of the house and must be paid back over time. These bonds can be added to a property tax bill anytime that residents and/or property owners of a community vote to support such a bond measure.

As you can see, it is a complicated answer to a simple question. If you ever need additional information about the assessments or costs on your tax bill please feel free to contact the Finance Department here at City Hall and they would be happy to spend the time necessary to help you understand the specific conditions for your property.

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