By: Helsing Admin

Question: I have 2 questions about the HOA budgets.
Q1. Does any California law determine the amount of the HOA reserve fund?
Q2. When the board says that we are “under-budget 20%”, what is it?

California law does not dictate the amount of money that an association should have in its reserve fund. Every few years, someone introduces legislation to require associations to be 100% funded, and fortunately to date that has not happened. While this concept sounds simple and true, it is in fact terribly problematic. Your Board of Directors is responsible to act responsibly (like the phrase?) and plan for adequate reserves.

California Law does require that associations disclose the level of funding, as well as a variety of other reserve disclosures, so that the membership is aware of the current and future funding levels of the reserve and if future increases or special assessments are needed.

With regard to your second question – I have no clue what they mean. They could mean that they have only collected 80% of what they intended to (which could be a problem because that would be a borrowing that needs to be preannounced), or it could mean that the association is 80% funded. Sometimes it is hard to tell what Board members mean because they often don’t understand reserve funding themselves. Every month I hear a treasurer report that they are overfunded in the reserves because they collected more than they spent, when in fact the reserves are underfunded (associations generally are collecting more than they spend, except in years where large expenditures like re-roofing are taking place).

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