Committee defers HB 117 after split testimony on condominium reserve funding

The House Committee on Consumer Protection & Commerce on Feb. 19 deferred HB 117, a bill addressing condominium reserve funding, after hearing conflicting testimony from reserve professionals, homeowners and industry representatives.

The bill drew sustained testimony and questions about whether assessed property value should be used to set condominium reserve requirements and whether failures to fund reserves should be treated as breaches of fiduciary duty.

Richard Emery, a reserve specialist testifying for Hawaii First Realty, said assessed value is the wrong metric for reserve calculations. “Reserve studies have national standards and specific protocol in how they're addressed. None of that includes assessed value,” Emery said, and gave an example of a 20-unit project whose assessed value would vastly overstate the association’s reserve needs because its only common component was a small road with an estimated replacement cost of $250,000.

Phil Nerney, chair of the Legislative Action Committee for the Community Associations Institute (CAI), said existing statutory reserve-study requirements already focus on a property’s actual components and warned the bill could cause both over- and under-collection of reserve funds. “With this bill, there is the risk of over inclusion and under inclusion,” Nerney said.

Homeowners and consumer advocates spoke in favor. Christine Morrison, appearing by Zoom, said her association had not completed a reserve study in eight years and that the board treasurer planned to make up deficits by increasing HOA fees. She urged stronger enforcement of boards’ fiduciary duties and suggested the bill language be changed from saying a failure “may constitute” a violation of fiduciary duty to saying it “does constitute” a violation. Gregory Mesakian, a consumer advocate, told the committee he has not received his association’s 2023 financial audit and cited state law (as he read it) in arguing for stronger consumer protections.

Chair Matayoshi asked Emery for an estimate of compliance; Emery replied that, in his experience, “well over 95%, if not close to 100%, have done reserve studies” as part of the annual budget process, though he acknowledged variation in quality.

Action: Chair Matayoshi announced the committee’s recommendation to defer the measure. The transcript records the chair’s recommendation to defer but does not record a formal roll-call vote on HB 117.

The committee did not adopt substantive changes at the Feb. 19 hearing. Proponents requested stronger enforcement language and investigations by the Department of Commerce and Consumer Affairs into particular associations; opponents urged caution against using assessed value as a proxy for component-based reserve needs. The measure will be deferred for further consideration.