United Mutual Property Taxes and Reserve Borrowing
Misinformation and rumors involving finances can provoke strong emotions when simply understanding the facts can save a great deal of misdirected energy.
Recent opinion letters in the press have misstated and misrepresented the process of how United Mutual’s property taxes are paid. Let’s set the record straight with facts.
Members of United pay their property taxes to the mutual, which in turn issues payment to the property tax assessor.
Property taxes are due in April and December. The tax assessor’s fiscal year is July to June, and United Mutual’s fiscal year is January to December. This results in timing and cash flow issues for United.
Starting every January, one-twelfth of members’ annual property taxes is collected through monthly assessments. This means that when six months’ worth of taxes are due in April, only four months’ worth of taxes have been collected.
To simplify, let’s assume United member Jane Doe has a total annual property tax liability of $2,400. The tax is paid in April and December. Her monthly assessment includes $200 toward property tax. When the first installment is due in April, the mutual has collected only $800, or $400 short of what is due.
Davis-Stirling Code Section 5115 allows the mutual to borrow from its reserves as long as the funds are returned to reserves within one year. This is what United does to cover the two-month tax deficit. Once monthly assessments are collected to cover this two-month property tax deficit, the money is returned to the reserve fund.
Residents may refer to Civil Code Section 5515, which states “the board may authorize the temporary transfer of money from a reserve fund to the association’s general operating fund to meet short-term cashflow requirements.” This is United’s operating fund.
All assessments and revenue belong to the mutual; none of it belongs to VMS. No VMS operating/reserve fund exists. Further, all financial decisions are made by a mutual’s board. Staff may provide the board with recommendations but does not implement any decision without board direction. The United board’s recently proposed resolution ensures board approval is obtained prior to a temporary borrowing being made from the Reserve Fund to pay for near term operating expenses. This resolution is under 28-day consideration and will be voted on at the July United regular open meeting.
There is a simple way all United members to get the story for themselves. Review United Finance Committee meeting recordings and view staff reports and meeting materials at lagunawoodsvillage.com. From Residents in the main menu, click Board Meeting Videos, scroll to Archived Events, click United Laguna Woods Mutual Finance Committee and select the meeting you wish to watch.
Steve Hormuth
Finance Director
Village Management Services Inc.
