The Act allows any county, city, special district, school district or joint powers of authority to establish a CFD, which allows for the financing of public services and facilities. Basically, it allows communities to raise funds for improvements to infrastructure (streets, sewers, storm drains), even though Proposition 13 limits their ability to tax property.

In order to establish a CFD, it must be approved by a two-thirds margin of qualified voters in the district. If there are fewer than twelve registered voters within the district, the vote may be passed by current landowners. At the close of the legal proceedings, an established CFD has all the legal privileges of a legally sanctioned governmental body.

New development requires infrastructure (streets, sewers, storm drains). Local governments are forced to require developers to put in the necessary regional infrastructure for new home developments. The developer then adds the cost of this infrastructure to the price of each new home. The homebuyer pays more for the home, therefore increasing the amount of the mortgage.Many developers opt for establishing a CFD so they can sell the homes at a lower price. Prior to the sale of the homes, they are the only “voters” in the CFD and thus have the power to create the district for future property owners. The CFD has the power to issue tax-exempt bonds to pay for the infrastructure. The cost is then passed on to the homeowner in the form of annual special taxes.Without the CFD, the homebuyer would probably pay more for the home resulting in a higher mortgage payment, and would also be paying higher property taxes on the increased cost of the home.