What Orange County Boards Should Know About Assessment Increases

Start with the association's actual obligations

California Civil Code section 5600 states that an association must levy regular and special assessments sufficient to perform its obligations under the governing documents and the Davis-Stirling Common Interest Development Act. It also prohibits an association from imposing or collecting an assessment or fee greater than the amount necessary for the purpose for which it is levied.

Together, those principles create a useful discipline: assessments should be sufficient, supportable, and tied to real association needs.

Before discussing a percentage increase, the board should understand what is driving it. Common reasons include:

• Contract increases for landscaping, janitorial, pool, security, and other services
• Property-insurance premiums, deductibles, or coverage changes
• Utility-rate increases
• Payroll and professional-service costs
• New statutory, inspection, or safety obligations
• Reserve contributions that have not kept pace with the reserve study
• Aging roofs, plumbing, paving, balconies, mechanical systems, or other common components
• Prior budgets that relied on optimistic assumptions or one-time operating cash
• Delinquencies, bad debt, or revenue shortfalls
• A major repair that cannot responsibly be deferred

An increase is easier to explain when the board can show the specific costs and decisions behind it.

What may the board approve without a membership vote?

California Civil Code section 5605 generally provides that, notwithstanding more restrictive limitations in the governing documents, the board may not impose a regular assessment more than 20% greater than the preceding fiscal year's regular assessment — or special assessments that in the aggregate exceed 5% of the association's budgeted gross expenses for that fiscal year — without approval of a majority of a quorum of the members through a meeting or election under the applicable statutes.

Those percentages are legal thresholds, not budgeting recommendations. A board should not begin with "How much can we raise assessments?" It should begin with "What does the association reasonably need, and what process applies?"

Section 5605 also ties the board's authority to required annual budget-report disclosures. Governing documents, affordable-housing provisions, voting rules, notice requirements, and the facts of a particular increase can affect the process. Association counsel should confirm the procedure when there is uncertainty.

Emergency assessments are different

Civil Code section 5610 provides exceptions for certain emergency situations, including specified extraordinary expenses required by a court order, necessary to address a threat to health or safety or another hazardous condition, or necessary for repair or maintenance that could not reasonably have been foreseen during the budgeting process.

For an unforeseeable repair or maintenance expense under that provision, the board must adopt a resolution containing written findings about the necessity of the expense and why it was not — or could not have been — reasonably foreseen, and distribute the resolution with the assessment notice.

The emergency exception should not be treated as a substitute for ordinary budgeting or reserve planning. A known roof replacement, predictable insurance renewal, or repeatedly deferred project does not become unforeseeable merely because the association postponed addressing it.

Regular increase, special assessment, or another tool?

Different funding needs may call for different tools.

Regular assessment increase. A regular increase may be appropriate when recurring expenses and reserve contributions have permanently outgrown recurring revenue. It aligns ongoing income with ongoing obligations.

Special assessment. A special assessment may be appropriate for a defined project, urgent repair, deductible, or discrete funding shortfall. It should have a clear purpose, amount, schedule, and explanation.

Phased increases. When circumstances permit, planned increases over several budget cycles may be easier for owners to absorb than one abrupt correction. A phased approach only works if it still provides sufficient cash and does not create unreasonable project risk.

Borrowing. A loan can spread a major cost over time, but it adds interest, fees, covenants, and future payment obligations. Borrowing is a financing method, not a replacement for adequate revenue.

Project deferral or scope adjustment. Some work can be rescheduled or phased. Other work becomes more expensive — or dangerous — when delayed. Boards should obtain professional input before treating deferral as savings.

Often the responsible solution uses more than one tool: a regular increase to correct the operating budget, a special assessment for an immediate project, and a multi-year reserve contribution plan.

How to evaluate a proposed increase

1. Build the budget from current information. Use current contracts, renewal estimates, utility trends, payroll assumptions, known legal or engineering costs, delinquency experience, and a realistic contingency. Do not simply add an arbitrary percentage to last year's budget.
2. Connect the reserve study to the budget. Review near-term projects, the adopted reserve funding plan, actual reserve balances, and recent proposals. If the reserve contribution is below the plan, quantify the future effect.
3. Separate recurring and nonrecurring needs. Recurring expenses usually require recurring income. One-time expenses may be better addressed through reserves, a special assessment, borrowing, or a combination — subject to legal and governing-document requirements.
4. Model alternatives. Show the board what happens under realistic options. Compare the proposed increase with a lower increase, phased increase, special assessment, borrowing, or project deferral. Include both near-term owner cost and long-term association cost.
5. Confirm authority and procedure. Before adoption, confirm the statutory disclosures, meeting or election requirements, notice timing, governing-document provisions, and any need for legal review.
6. Make the decision in the right setting. Assessment decisions should be transparent and properly documented. The board packet should contain enough information for directors to understand the financial basis and alternatives without publishing confidential or privileged material.

Communicate before the invoice arrives

Owners are more likely to understand an increase when the explanation is specific, timely, and honest. Good communication should answer:

• Why is the increase needed?
• Which costs changed?
• How much is operating versus reserves?
• What alternatives did the board consider?
• What would happen if the increase were not adopted?
• When will the new amount take effect?
• Is the increase temporary or ongoing?
• What projects or services will it support?

Avoid saying only that "costs have gone up." Show the major drivers in a concise table or visual. A board does not need to defend every vendor invoice, but owners should be able to connect the increase to the association's real financial condition. Owners can find payment options and account tools on our Payments page.

Owner affordability matters — but so does delayed maintenance

Boards should take affordability seriously, particularly when several increases, insurance changes, or large projects occur close together. Useful approaches may include advance notice, phased funding when feasible, reasonable payment-plan options for a special assessment, and coordination so owners are not surprised by multiple decisions.

At the same time, keeping assessments below the cost of operating the community can create its own hardship. Deferred maintenance can lead to water intrusion, safety conditions, emergency repairs, larger special assessments, reduced property marketability, and conflict between current and future owners.

The responsible question is not whether assessments can remain unchanged. It is how the association can meet its obligations with the least harmful, most transparent, and most sustainable plan available.

Warning signs that an increase may be overdue

• Operating expenses repeatedly exceed budget
• Reserve contributions are reduced to cover routine operations
• The association relies on prior-year surplus to balance each budget
• Known projects are repeatedly postponed without professional support
• Insurance or utilities consume a rapidly growing share of revenue
• Vendor invoices are delayed because operating cash is tight
• The reserve study assumes contributions the board is not making
• The budget has remained flat despite several years of cost increases
• A large special assessment appears increasingly unavoidable

How Coastal supports the process

Coastal helps boards build budgets from current contracts and actual results, connect reserve needs to the funding plan, model assessment scenarios, organize the decision timeline, coordinate review with the association's CPA, reserve professional, insurance broker, and counsel, and communicate the adopted plan to homeowners.

The board makes the assessment decision. Coastal's role is to make sure that decision is supported by organized information, realistic projections, proper coordination, and clear communication.