SAN FRANCISCO — Southern California’s Borrego Water District has defaulted on $9.5 million of special-tax bonds owned by Nuveen Asset Management.
The Water District, located in the desert in San Diego County, did not pay a February interest payment of $267,950 on its Mello-Roos bonds, according to filing with the Municipal Securities Rulemaking Board.
The default has been blamed on a dearth in tax collections because of foreclosures in the community facilities district that is linked to the bonds, the filing said.
“Starting last fiscal year — in the [2009-2010] fiscal year — we started seeing very high delinquencies, probably around 85%, by the developer,” said Andrea Roess, a managing director at consultancy David Taussig & Associates in Newport Beach, Calif., who advises the district. “Up until now, we had been able to make the payments to bondholders with the reserve fund.”
The facilities district’s tax delinquencies rocketed to 86%, or $593,000, in fiscal 2009-2010 from 0.14%, or $787, in fiscal 2008-2009. The district made its first unscheduled withdrawal from the bond reserve fund a year ago, leaving $543,000 in the reserve, according to filings.
The Water District issued $9.53 million of unrated Mello-Roos bonds in 2007. The district used the proceeds to refinance bonds issued for infrastructure work in the community facilities district, a golf community in the desert.
The water agency formed the community facilities district in 1996, encompassing the Rams Hill area that already had $11 million of special-tax bonds issued against it.
All of the 2007 bonds were outstanding as of August, according to the district’s 2010 annual report.
The bonds are only secured by a pledge of net taxes within the special district and without any responsibility by the Water District. Mello-Roos bonds, typically sold without a rating, are often used to fund infrastructure in new real-estate developments.
Water District officials did not return calls for comment.
Roess said the property in the special tax district has several owners but one developer. She said the Water District is mulling foreclosure on the delinquent properties.
The assessed value of the community facilities district is $36.5 million, according to the annual report.
Roess said Nuveen is the only bondholder.
The Water District sold $2.7 million of private-placement bonds in 2008 to refund previously issued certificates of participation.
California created Mello-Roos districts — named after the two lawmakers who sponsored the enabling legislation — in 1982 to finance infrastructure in the wake of the passage of Proposition 13 tax limits.
California community facilities districts have issued $18.4 billion of the bonds from 1992 to fiscal 2008, according to the latest figures from the California Debt and Investment Advisory Commission.
Mello-Roos districts can issue tax-backed bonds for infrastructure with the approval of either two-thirds of the residents of a district or two-thirds of property owners in districts with fewer than 12 residents.
To increase security of the bonds, state lawmakers gave districts enhanced tax-foreclosure powers.
Delinquent taxpayers can lose their homes in as little as a year in a Mello-Roos district, much less than the amount of time it takes authorities to complete a tax foreclosure elsewhere.