The Per-Unit Reserve Deficiency Disclosure: How to Actually Calculate It

Written By Matthew Russell

Every budget a Washington community association adopts must disclose, among other items, "the current deficiency or surplus in reserve funding expressed on a per unit basis." The requirement appears in RCW 64.90.525(2)(f), it applies to the budget summary distributed to owners before the ratification meeting, and a budget notice that omits it is arguably defective, which puts the ratification itself at risk.

In practice, this is one of the more frequently mishandled line items in Washington budget packets. Some budgets omit the figure entirely. Others report a number with no visible methodology, or divide the wrong numerator by the wrong denominator. The good news is that the Legislature did not leave the calculation to guesswork. The formula is written into the reserve study statute, RCW 64.90.550, and once the inputs are understood, the computation is straightforward arithmetic.

This article walks through the formula, the definitions behind it, and a complete worked example, then explains how the same numbers flow into the supplementary information presented with audited financial statements.

Where the Requirement Lives

Two statutes work together.

RCW 64.90.525(2) lists what every proposed budget must include: projected income by category, projected common expenses by category, the amount of assessments per unit and their due dates, the current amount of regular assessments budgeted for contribution to the reserve account, a statement of whether the association has a reserve study meeting the requirements of RCW 64.90.550 and the extent to which the budget meets or deviates from its recommendations, and finally the current deficiency or surplus in reserve funding expressed on a per unit basis.

RCW 64.90.550 governs the contents of the reserve study itself and requires the study to state the current deficit or surplus in reserve funding expressed on a dollars per unit basis. Critically, the statute also specifies how to compute it: subtract the association's reserve account balance as of the date of the study from the fully funded balance, then multiply the result by the fraction or percentage of the common expenses allocable to each unit. If allocations vary by unit, the calculation must reflect that variation rather than presenting a single average.

So the disclosure in the budget is not a number the board invents. It comes out of the reserve study, and the reserve study computes it under a statutory formula.

The Two Inputs

The formula has only two inputs, but each one needs to be the right number.

The fully funded balance. Washington statute defines the fully funded balance as the current value of the deteriorated portion, not the total replacement value, of all reserve components. For each component, the fully funded balance is calculated by multiplying the component's current replacement cost by its effective age, then dividing by its useful life. A roof that costs $600,000 to replace, has a 30-year useful life, and is 18 years old has a fully funded balance of $360,000, because 60 percent of its life has been consumed. Sum that calculation across every component in the study and you have the association's total fully funded balance.

This is a straight-line accrual concept. It answers the question: if the association had set aside reserve funds evenly over each component's life to date, how much would be in the account today?

The reserve account balance. This is the balance of the reserve fund as of the date of the study. Two judgment points arise here. First, the balance should reflect the reserve fund's actual position, which means an association that has borrowed from reserves to cover operating shortfalls needs to think carefully about whether the bank balance or the fund balance including the interfund receivable is the faithful figure, and should disclose the interfund borrowing either way. Second, because RCW 64.90.545 requires the reserve study to be updated annually, the balance in the disclosure should never be more than a year stale.

The relationship between these two inputs is also the source of the "percent funded" metric that appears in reserve studies and resale certificates: the reserve account balance divided by the fully funded balance.

The Formula

For an association with equal allocations:

Per-unit deficiency (or surplus) = (Fully funded balance − Reserve account balance) ÷ Number of units

For an association with varying allocations:

Per-unit deficiency (or surplus) for a given unit = (Fully funded balance − Reserve account balance) × That unit's allocation percentage

A positive result is a deficiency. A negative result means the reserve balance exceeds the fully funded balance and the association reports a surplus per unit.

A Worked Example

Consider a hypothetical 120-unit condominium with equal common expense allocations. Its current reserve study identifies five components, and each component's fully funded balance is its replacement cost multiplied by its effective age, divided by its useful life.

The roofing has a replacement cost of $600,000, a 30-year useful life, and an effective age of 18 years, so its fully funded balance is $600,000 × 18 ÷ 30, or $360,000. The exterior paint costs $180,000 to redo on a 12-year life and is 9 years old, producing $135,000. The asphalt and pavement cost $250,000 on a 25-year life at 10 years old, producing $100,000. The elevator modernization costs $300,000 on a 25-year life at 5 years old, producing $60,000. Fencing and site improvements cost $75,000 on a 15-year life at 6 years old, producing $30,000.

Summed across all five components, total replacement cost is $1,405,000 and the total fully funded balance is $685,000.

The association's reserve account holds $411,000 as of the study date.

Deficiency: $685,000 − $411,000 = $274,000

Per unit: $274,000 ÷ 120 = $2,283 per unit (rounded)

Percent funded: $411,000 ÷ $685,000 = 60 percent

The budget summary distributed to owners would disclose a current reserve funding deficiency of approximately $2,283 per unit. Note what the number is not. It is not the total replacement cost of $1,405,000 divided by units, which would produce a meaningless $11,708 figure. It is not a special assessment, an amount owed, or a liability on the balance sheet. It is a funding metric: the gap between where straight-line accrual says the reserve fund would ideally stand today and where it actually stands, allocated to each unit.

The Variable Allocation Case

Now suppose the same association allocates common expenses by square footage, and allocations range from 0.55 percent for the smallest units to 1.25 percent for the largest. The statute is explicit that a single average will not do when allocations vary. The disclosure must reflect the variation.

The largest unit's share of the deficiency is $274,000 × 1.25 percent = $3,425. The smallest unit's share is $274,000 × 0.55 percent = $1,507. A compliant budget packet handles this either by presenting the per-unit figure for each unit type or by disclosing the total deficiency alongside each unit's allocation percentage so any owner can compute their own share. Presenting only the $2,283 average in a variable-allocation community does not satisfy the statutory language.

Common Calculation Errors

Several errors recur in budget packets and reserve disclosures. Using total replacement cost rather than the fully funded balance as the numerator, which dramatically overstates the deficiency. Using a reserve study prepared under a national standard whose funding target differs from Washington's statutory straight-line definition without reconciling the two, since some studies present a recommended or threshold funding goal that is not the same number as the statutory fully funded balance. Presenting a single average per-unit figure when allocations vary. Measuring the reserve balance at a different date than the study date, or using a balance that silently includes operating cash swept into the reserve account at year-end. And describing the deficiency to owners as an amount due, which it is not, and which tends to generate unnecessary alarm at the ratification meeting.

How the Number Flows Into the Audited Financial Statements

For associations subject to WUCIOA's audit requirement, the reserve study data behind this disclosure does not stay in the budget packet. Under ASC 972, audited financial statements of common interest realty associations present unaudited required supplementary information about future major repairs and replacements, typically including the components, their estimated remaining useful lives, estimated replacement costs, and the funding method. That schedule is generally drawn from the same reserve study that produced the per-unit deficiency figure, and the auditor applies limited procedures to it, including inquiries about the methods of measurement and consistency with the financial statements.

The practical implication for boards and managers is consistency. The reserve study date, the reserve balance, the component schedule, the budget disclosure, and the supplementary information in the audited statements should all trace to the same underlying data. When the budget packet says one thing and the audit's supplementary schedule says another, owners notice, and so do the buyers and lenders reading resale certificates.

What Boards Should Do

The sequence is short. Confirm the association has a current reserve study that meets RCW 64.90.550, updated within the last year and with a site visit within the last three per RCW 64.90.545. Confirm the study states the deficiency or surplus on a per-unit basis and that the calculation uses the statutory fully funded balance methodology. Confirm the budget summary carries that figure through, adjusted for any allocation variation. And confirm the reserve balance in the calculation reconciles to the reserve fund in the association's financial statements, including any interfund borrowing.

An association that can trace one number cleanly through all four documents is in good shape. An association that cannot has found its next project, and it is a much easier project to complete in 2026 than during a first-year audit.

The Bottom Line

The per-unit reserve deficiency disclosure is required in every Washington association budget, the formula is fixed by statute, and the inputs come from documents the association is already required to maintain. Fully funded balance, minus reserve balance, allocated per unit. Boards that understand the calculation can present the number with confidence and answer owner questions at the ratification meeting. Boards that treat it as a box to check tend to publish figures that will not survive contact with an auditor, a resale certificate request, or an owner with a calculator.

Russell CPA PLLC specializes in audits of homeowners associations and condominium associations and assists Washington boards and management companies with WUCIOA financial reporting readiness, including reserve disclosure review ahead of the 2028 audit mandate. Contact us to discuss your association's budget disclosures and audit timing.

This article is for general informational purposes only and does not constitute legal or accounting advice. Associations should consult qualified professionals regarding the application of WUCIOA and accounting standards to their specific circumstances.