Your Board Is Flying on One Instrument
Percent funded is real, honest, and nowhere near enough. Why the number our industry trusts most keeps telling healthy and failing communities the same thing.
Years of flying a single-engine airplane around the West taught me one lesson that has followed me into every reserve study we prepare: no pilot looks at a full fuel gauge and concludes the flight is safe. It’s one instrument. It answers one question. And for decades, our industry has handed community associations exactly one instrument, a number called percent funded, and told them it was an instrument panel.
Take two California communities that, at a glance, look interchangeable. Same era of construction. Comparable size. Similar big-ticket systems. And for a stretch in recent years they even shared the same percent funded, that uneasy number in the twenties that can make a boardroom feel suddenly airless.
One is doing fine, not just “fine” as in hoping for the best, but genuinely stable.
The other has already dropped an emergency assessment on owners with a comma in it, and the next one is already looming.
Their reserve studies made them seem like near twins. They weren’t. And after a lifetime around buildings, and watching what time does to them, I’ve become convinced that the gap between those two outcomes, a gap percent funded simply can’t capture, is the biggest blind spot in reserve planning. That’s the space SMA ReserveScore™ was built for, because here’s what the familiar number missed.
The Two Stories
In the first community, flexibility evaporated the way it often does, slowly, then suddenly. Projects slid out year after year, not because site conditions supported waiting, but because waiting kept cash in the account. Contributions stayed as low as the cash flow plan could tolerate, then dipped anyway as costs kept climbing. Special assessments stopped feeling like a last-ditch option and started showing up like a recurring line item, baked into one plan, then the next, then the next. Funds existed for the projects everyone could point to, and almost nothing for the problems nobody had discovered yet.
Then an insurance carrier flagged the community’s electrical panels, a brand with a known fire history. The policy was cancelled. Replacement coverage came back at a punishing price. The panel replacement itself was a straightforward construction job, well under six figures. But after paying for the electrical work, refilling the hole the insurance shock drained, covering consultants, contingency, plus the owners who couldn’t pay quickly, the “emergency” assessment ballooned to more than double the construction cost, thousands per unit, collected from a limited slice of owners.
A quick note that matters: this community came to SMA halfway through that story, not at the beginning. We stepped into the descent, we didn’t map it, and I'm not interested in throwing stones at anyone who came before us, because, as I'll get to later, this is bigger than any one firm. The standards and tools our entire industry works with are still evolving, ours included, and all of us can see further today than the profession could a decade ago. Still, taking over in the middle of a crisis teaches a lesson you don’t forget. When the emergency hits, the choices that set it up are usually years old. The work in front of us now is the climb back out, and that climb is exactly what shaped the thinking behind what you’re reading.
Now for the detail that should unsettle every board member: that assessment briefly lifted percent funded by almost ten points, right before the largest project year in the entire funding plan, with another six-figure assessment already penciled in behind it.
On paper, it resembles a turnaround. In reality, it’s a breath before the next wave.
The second community lived in that same range, twenties to low thirties, for years too. During the same stretch it never issued a special assessment. Not once. As components neared the end of their expected lives, the board didn’t just hope and slide dates to the right. Inspections were ordered. Repairs were funded when they truly extended service life. Contributions rose steadily, no dramatic jolt, just a consistent climb.
When one draft plan showed a six-figure special assessment on the horizon, the board didn’t shrug. It got busy. Conditions were verified. The schedule was rebuilt. Sequencing changed. And the assessment disappeared from the plan, not through wishful thinking, but through evidence. This community has cycled through major infrastructure work more than once and kept emerging intact.
Same percent funded. Opposite futures. Percent funded can’t separate them. It never could.
The Number We All Grew Up On
Percent funded isn’t a “bad” metric. It’s real, simple, honestly calculated, and it’s not going away. It tells you how your reserve balance compares to the theoretical value of what the community has consumed so far, that’s useful.
But it’s one frame, a snapshot. Your community isn’t a snapshot. It’s a moving story.
Percent funded knows what’s in the account today. It doesn’t know whether that cash is truly free and liquid or partly an IOU to operating. It doesn’t see three major components crashing into the same 24-month window. It can’t sense a roof that’s been “patched” for eleven years while slow leaks, the kind nobody notices, keep working on framing underneath. It doesn’t register whether contributions are rising, flat, or quietly sliding. It doesn’t care if the funding plan relies on a special assessment that no owner has approved. And it cannot tell you whether your association can absorb a single surprise, one unplanned $75,000 problem, without tipping into crisis.
For years I watched the same misunderstanding loop: a board reads “we never go below zero over thirty years” and translates it as, we’re safe. Money in the bank feels protective the way a spare tire feels like a maintenance strategy. Better than nothing, sure. Still not a strategy.
Years ago I flew a single-engine airplane all over the West, Salt Lake City, down to Tucson for training, up to Bend, Oregon to visit a window supplier back in my construction days, and once, memorably, over the Golden Gate Bridge with my cousin visiting from Finland, who probably still tells that story.
Every pilot learns something quickly: the panel is crowded because it has to be. Airspeed, altitude, attitude, heading, engine gauges, fuel, each one answers a different question. You need all of them to keep what pilots call situational awareness. Not just where am I, but where am I going, what’s changing, and what do I do about it.
The fuel gauge matters, no one disputes that. Still, no pilot sees full tanks and concludes the flight is safe. Full tanks don’t tell you about weather stacking up over the pass, terrain ahead, the weight you’re carrying, or whether you’re even pointed at the right airport. A pilot who navigates by the fuel gauge alone can fly, with completely full tanks, straight into a mountain.
Percent funded is the fuel gauge. For decades, we’ve handed boards a fuel gauge and asked them to use it like an instrument panel.
In that first community’s story, it’s tempting to blame the electrical panels. But the panels didn’t create the weakness, they exposed it. Vulnerability had been accumulating for years, in plain view, just not in percent funded. You could see it in deferrals. In shrinking contributions. In special assessments quietly built into every plan. In the total absence of shock capacity. And the industry’s favorite number looked at all of that and reported: twenty-something percent, same as the healthy community down the road. A metric that can’t tell those two boards apart isn’t measuring health. It’s measuring a balance.
What a Lifetime of Watching Things Break Taught Me
Construction is the air I grew up breathing. Buildings and infrastructure have been the background of my life, how they go together, and, more importantly, how they come apart. Since 2009 I’ve worked as a reserve analyst, which means plenty of instances watching decent, well-meaning people make choices their future neighbors will pay for.
Not because they’re careless. Because the system keeps offering an easy exit.
The loop is familiar. Keep dues low and you’re popular. The manager, and I want to say this plainly because managers are often the steady hand in these stories, warns that contributions have to rise and the reserve study isn’t something to ignore. The board says thanks, but no. Nothing fails that year, which feels like proof they were right. Risk climbs a notch. Next year, same cycle.
Then the board members who made those calls sell and move on. The next buyers inherit the bill, sometimes as an assessment letter with a comma, sometimes as a unit they learn they can’t sell at all.
Deferrals also snowball in ways a spreadsheet won’t admit. A roof that should be replaced gets patched instead. Patching conceals leaks you can’t see. Those leaks create dry rot. Dry rot hides where nobody looks, in framing beneath balconies and walkways, until a law, an inspection, or a failure forces attention onto it. Deferral isn’t a pause button. It’s borrowing against your own buildings, with an interest rate nobody wrote down.
I watched that play out at full scale in an aging community with well over a hundred units. For years, roofs sat in the plan as a routine, comfortably distant expense. Then a contractor ran a moisture survey, actually measured what was happening under the surface, and found widespread moisture across a large share of buildings.
A tidy schedule became a multi-phase remediation plan overnight: recoat what could be saved, restore what was damaged, tear off and replace what was beyond recovery. The funding discussion jumped from “we should contribute more” to special assessments totaling tens of thousands per unit.
The roofs didn’t suddenly change. The knowledge changed. The risk had been there all along, invisible to the budget, invisible to percent funded, accruing interest.
Then there’s what I call component compression, I’ve also heard “capital stacking,” which sounds gentler. Push enough projects forward and they stop being spread over a decade. They start landing together, in a pile, in the same two or three years, exactly when reserves are weakest because underfunding has been going on for so long. A board trying to “smooth things out” ends up manufacturing the cliff it meant to avoid.
Percent funded won’t show any of that. Not even a hint.
The Patterns That Actually Predict the Future
After you’ve seen enough associations, you stop treating each decision as an isolated event and start recognizing patterns. Communities develop funding personalities. Those personalities predict outcomes better than any single ratio.
There’s the association that treats deferral as a budgeting trick, pushing projects out again and again with no inspection, no vendor input, no documentation, just hope. There’s the association that funds to the bare minimum the model can tolerate and calls it good. There’s the association whose “plan” depends on a special assessment in year two, then again in year four, which isn’t a plan at all, it’s an argument with the future that never got resolved. And there’s the association that only moves when something forces its hand: a failure, a new law, an insurance letter. It doesn’t get ahead of risk. It waits for consequences.
One point convinced me any score worth trusting had to account for behavior, not only balances: deferral itself isn’t automatically the problem. That second community defers items all the time. The difference is proof.
When they extend service life, an inspection supports it. A repair supports it. A professional opinion exists on paper. That’s stewardship. Unsupported deferral is an association borrowing against itself. Supported deferral is an association managing assets like it truly owns them. One should pull a score down. The other should push it up.
A snapshot metric can’t see that. A score that weighs risk, timing, and trajectory can.
The Insurance Industry Figured This Out Before We Did
Here’s the uncomfortable reality about 2026: in California, the most effective enforcer of reserve discipline right now isn’t the reserve study field. It’s the insurance industry. Ask anyone who’s been hit with a nonrenewal. Carriers are checking electrical panel brands, aging systems, inspection findings, and I’ve been told directly by insurance professionals that one of the first places they look in a reserve study are deferrals and how many zeros there are in the remaining life column. A community packed with components living past their expected life, without documented justification, looks to an underwriter exactly like what it is, a building full of claims that just haven’t happened yet.
Lenders are tightening too. Underwriting on units in underfunded, deferral-heavy associations is getting stricter. We’re already seeing where this heads: owners who can’t sell because no lender will finance the next buyer. A family’s biggest asset gets stuck, because of decisions made in board meetings they might never have attended.
Put plainly, this industry needs real minimum standards, the same way we accept minimum standards for physical building integrity. Regulation or not, the market isn’t waiting. Insurers and lenders are already scoring your community, only they’re doing it from the outside with blunt tools, and you find out through a cancellation notice.
Boards, managers, and owners deserve measurement that happens earlier, and in a language everyone can share.
The Squeeze Nobody Planned For, and the Silver Lining
One more force is pressing down on all of this and it deserves its own spotlight: cost.
Inflation has been hot for years, and construction costs have been hotter. The roof bid that would have been six figures a decade ago comes back now with numbers that make board members read the email twice. Every component in every study got more expensive, seemingly all at once, and the gap between what communities saved and what things actually cost widened while everyone watched it happen.
You’d expect that pressure to make boards more willing to raise dues. Often it does the opposite. When groceries, insurance premiums, and everything else climb, the appetite for a dues increase, already the least popular motion in any board packet, shrinks even further. The squeeze is real: costs up, willingness down.
But that squeeze also produced something I didn’t anticipate, engagement. Board members are reading reserve studies now. Line by line. They’re online late at night, asking AI tools to translate funding models, showing up with printouts and questions. Ten years ago, the reserve study went into a drawer. Today it gets interrogated.
That’s a good thing. An engaged board asking hard questions is one of the best outcomes a community can have, and it’s the best thing that can happen to a reserve professional who stands behind the work. Still, engagement deserves better than a midnight rabbit hole. It deserves plain answers, honest measurement, and real tools for stewardship. What boards have been missing isn’t curiosity. It’s instrumentation.
One Number That Weighs What Percent Funded Can’t
That’s why we built SMA ReserveScore™.
SMA ReserveScore™ condenses a community’s reserve picture into a 0 to 100 score, paired with a plain-English rating. An 82 reads STRONG. Two characters tell you where you stand.
Unlike percent funded, it isn’t only counting dollars at a single moment. It weighs what actually determines whether a community stays steady or ends up sending a four-figure-per-unit letter:
Funding strength, not only the balance, but the real, liquid, uncommitted balance. Risk, including deferrals and whether they’re supported by evidence, aging critical systems, what insurers and lenders are already watching, and the capacity to absorb a surprise. Timing, meaning how projects are sequenced and whether obligations are spread responsibly or stacked into a cliff. Trajectory, the direction the community is moving, rising contributions and improving position, or a slow slide with assessments temporarily propping up the optics.
The exact mechanics, how factors are measured and weighted, are reserved for our clients and built into the reserve studies we deliver. But the ingredients aren’t secret, and they aren’t fancy. They’re the practical realities experienced professionals already know to watch. What’s been missing is a single number a board can absorb in seconds. So we built it.
Think about what a FICO score did for lending. Before it, creditworthiness was a judgment call, inconsistent and opaque, varying from one institution to another. FICO turned it into a shared language. A borrower, a lender, and a regulator can say “740” and mean the same thing.
Just as important, someone at 640 can see a path to 740, and roughly what it takes to get there. The score isn’t a moral verdict. It’s a location, and locations come with directions.
That’s what SMA ReserveScore™ is meant to do. The score comes with the why, what’s pulling it down or holding it up, plus the path forward. A community at 58 isn’t told “be 100 percent funded,” which often isn’t feasible or even necessary. Instead it’s shown what choices move the number: verify that deferral with an inspection, break up the 2029 project pile-up, adopt the contribution ramp and keep it after the crisis instead of slipping back down.
Every community, at every level, has a next step. This wasn’t built to punish boards. It was built to give them, and the managers advising them, a real chance.
For the Managers Who Have Been Saying This All Along
If you’re a community manager reading this, you’re probably feeling a mix of validation and fatigue. You’ve been trying to have this conversation for years. You’ve said, listen to your reserve professional. You’ve said, dues have to rise. You’ve watched the room go quiet and the motion die.
The problem was never that you were wrong. The problem was the tools. You were showing up with a thirty-page report and a percentage, facing the undefeated argument of “nothing has failed yet.” In rooms where risk can’t be seen, optimism usually wins.
A score changes the dynamic. One number, one rating word, one trend line, and the conversation stops being the manager’s opinion versus the board’s confidence. It becomes the community’s 54 sitting at the table, demanding a response.
And when the board makes smart moves, the number rises. For once, doing the right thing shows up on the record. Prudence gets a scoreboard.
Raising the Bar, Including on Ourselves
If this ended with “boards are the problem and the professionals are the solution,” it would miss the point. That’s not what I believe, and it’s not what the evidence shows.
The demands on reserve preparers are rising, and they should. Long-term infrastructure deserves a longer look than this industry's traditional practices were built to give it. For decades, standard practice kept studies focused on a thirty-year window, which meant the longest-lived and often most expensive systems, foundations, underground plumbing, electrical service equipment, could sit outside the study entirely. Out of the report, out of sight, out of mind. Remember the electrical panels in the first community? Under older habits, equipment like that often never appeared in a component inventory at all. Nobody was assigned to look.
That’s changing, and it should. Most of us know about what happened five years ago at Champlain Towers South in Surfside, Florida. Ninety-eight people tragically died when a building fell. Among the painful lessons afterward was a simple one: deterioration had been documented, repairs had been estimated, and the funding discussion was deferred. Chronic reserve underfunding did not create those physical defects, but it left the association without the financial capacity to respond quickly when extensive repairs were finally identified. The shock rippled through this entire industry, and it should have. In response, the Community Associations Institute (CAI), the leading organization in our industry and one SMA is proud to belong to, convened a task force and revised its Reserve Study Standards. One of the most meaningful shifts was a broader recognition that reserve planning should not automatically stop at the traditional thirty-year horizon. Long-lived building systems, including foundations, electrical infrastructure, and other major assets, may warrant consideration and disclosure when they are relevant to the property, even if no near-term reserve expenditure is currently anticipated. The updated standards also encourage periodic structural inspections and ask preparers to find out whether components are actually being maintained, not simply assume they are.
That matters, and it represents meaningful progress. The lessons from Champlain Towers helped accelerate an important industry-wide reassessment of how aging buildings, long-term planning, and reserve funding should be evaluated. The opportunity now is to continue improving those standards thoughtfully, before future problems force the issue. Preparers, inspectors, analysts, boards, managers, everyone has a role here. At SMA we treat that as a standing obligation: keep looking further, ask better questions, and give clients a clearer picture, because the lesson of every case study in this piece is the same, what goes unexamined eventually sends a bill.
SMA ReserveScore™ is part of how we hold ourselves to that. You can’t distill risk, timing, and trajectory into an honest number unless you do the deeper looking first.
The Conversation Has to Change
Go back to those two communities. One is about to spend years assessing owners, patching finances, and hoping nothing else breaks at the wrong time. The other will keep inspecting, maintaining, funding steadily, and sleeping fine.
For decades, our favorite metric told boards those communities were basically the same. Each year we talk only about percent funded, we repeat the same half-truth to thousands of boards.
California’s communities are aging. Plumbing, roofs, panels, balconies, the bill for the 1980s is arriving in the 2020s, and it isn’t optional. Insurers know it. Lenders know it. The only question is how boards find out, from a score they can act on, or from a letter they can’t.
SMA ReserveScore™ exists because the answer to a complicated problem isn’t a thicker report. It’s clarity, the instrument panel condensed into one honest reading of the only questions that matter: how are we really doing, and what do we do next?
One last flying story. Years ago I flew my mother out of San Carlos to a small foothill airport, just for lunch. Pilots have a name for that kind of trip, the hundred-dollar hamburger, because the flight costs more than the food and it’s still worth it.
Even for a hamburger, I checked weather, planned the route, ran numbers on fuel and weight, walked around the airplane, worked the checklist. That’s what you do when someone you’re responsible for is on board. Nobody climbs in, shoves the throttle forward, and assumes the steering will sort itself out.
Your community carries a few dozen, maybe a few hundred, families. It isn’t flying to lunch. It’s flying thirty to sixty years into the future. It deserves at least as much instrumentation as my mother’s hamburger.
Do you know your HOA’s ReserveScore™?
It’s time to find out.
Erik Sundquist, RS, grew up in construction and has spent a lifetime around buildings, infrastructure, and the ways they fail, with a few years in the left seat of a single-engine airplane along the way. He has served as a reserve analyst since 2009. SMA Reserves provides reserve studies for community associations throughout California. Get your score at smareserves.com.
