Why Funding Reserves is Harder Than it Used to Be


Scott Clements, RS, Reserve Studies, Inc. Things cost more. End of article.


But, of course, it’s never that simple. In our daily discussions with homeowners and community managers, a common theme is why it’s


so hard to keep up with escalating


recommended reserve transfer rates, which many claim “just seem much higher than before.” There are multiple issues that have contributed to the need to increase the reserve allocation, and why recommended contributions to the reserve fund are higher than ever.


INFLATION


By now, everyone is aware of the effects of infl ation on HOA budgets. And if you want more details on how and why, you are invited to read Expense Explosion in the Nov/Dec 2025 issue of OC View. And while infl ation has had a signifi cant impact on HOA reserve transfer recommendations, it is not the only reason for the recent increases.


CHANGES TO THE STANDARDS OF PRACTICE


In 2023 Community Associations Institute (CAI) updated its Standards of Practice for preparing a reserve study putting greater emphasis on infrastructure and structural


integrity.


It now encourages the inclusion of long-life components (30+ years from the time of installation). This has caused numerous items that were often omitted from reserve funding, such as waterproofi ng, potable water piping, wastewater piping, electric meter bays, switch gears, or transformers, among others,


Additionally, the updated standards encourage supplemental reports, including inspections for structural integrity, such as California’s exterior elevated elements inspections (EEEI) requirement created by the “Balcony Bill.” For older buildings, particularly those made of unreinforced masonry, or any high-rise structure, the updated standards recommend a periodic review by a qualifi ed engineer to ensure the building is structurally sound and safe to occupy. These evaluations, while prudent, add more liabilities to the associations funding obligations.


Other items that can be recognized as reserve components that are starting to appear in reserve inventories include inspections, reviews or certifi cations, such as 5-year elevator load testing or fi re sprinkler certifi cations. These were typically funded from operating budgets. While HOA may still choose to fund these infrequent but costly services from the operating budget, they may also choose to fund via reserves, to lessen the impact on a statutorily mandated zero-based operating budget from these volatile expenses. While this practice does not increase the overall expenses, it moves them from one budget to the other.


EXTERIOR ELEVATED ELEMENTS INSPECTIONS The cost to procure an EEEI report


to be included in the funding calculations. These infrastructure components are typically very costly, and even distributed over 40, 50, or more years, create an annual liability, which requires more contributions.


(California Civil Code § 5551) has come down in the last year or so after the initial


18 March | April 2026


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32