SB 1007: The Bill That Could Defund Your HOA – How a CPI Assessment Cap Would Replace 40 Years of California HOA Fiscal Law and Hollow Out Your Community

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SB 1007: The Bill That Could Defund Your HOA
How a CPI Assessment Cap Would Replace 40 Years of California HOA Fiscal Law and Hollow Out Your Community

By David C. Swedelson, Esq.  |  SwedelsonGottlieb, Community Association Attorneys  |  May 2026

What Is SB 1007 and Who Is Behind It?

Senate Bill 1007, titled the “Fair and Affordable HOAs” Act, was introduced in early 2026 by State Senator Caroline Menjivar (D-San Fernando Valley), representing California’s 20th Senate District, which covers Burbank and communities throughout the San Fernando Valley. Senator Menjivar has co-authored the bill with the Consumer Federation of California, an advocacy organization that has teamed up with her on prior legislation aimed at restricting HOA authority. The bill is currently working its way through the California Legislature, and the HOA community needs to pay close attention.

It is important to understand the lens through which this legislation was conceived. Senator Menjivar and her allies have made no secret of how they view homeowners’ associations. In their framing, HOAs are not the communities they actually are volunteer-governed nonprofit corporations providing essential services to millions of California homeowners but rather, as one bill supporter put it, “quasi-governmental entities” operating “with little state oversight.” The Senator herself has described HOA fees as “volatile and sometimes arbitrary,” and characterizes boards as entities that raise fees “unilaterally” without sufficient accountability to members.

That framing is telling. It reveals a fundamental misunderstanding or deliberate mischaracterization of how community associations actually function. HOA boards are composed of volunteer homeowners who are themselves paying the same assessments they vote to increase. They are bound by fiduciary duties under California law, required to adopt balanced budgets, obligated to conduct reserve studies, and subject to member oversight at every annual election. The idea that California’s 50,000-plus community associations are rogue quasi-governments in need of a legislative leash is simply not grounded in the reality of how these communities operate.

But the Senator’s motivations matter here because they explain why SB 1007 is written the way it is. This is not a narrowly tailored bill aimed at the rare bad actor. It is a wholesale structural constraint on every HOA in California, regardless of how well or how responsibly managed. The bill would cap all regular assessment increases in every community, of every size, in every condition at the local Consumer Price Index, and would require a membership vote for anything above that ceiling. That is not consumer protection. It is a mechanism for systematically underfunding California’s community associations.

And there is a secondary risk that deserves mention: the bill’s language has the potential to be inserted into a must-pass budget bill rather than moving through normal legislative channels on its own merits. That is exactly what happened last year with AB 130, which significantly restricted HOA fine authority and was signed into law with limited public debate. The HOA community cannot afford to assume that SB 1007 will be stopped in committee. It must be opposed loudly and early.

• SB 1007 is not a minor regulatory tweak. It is an ideologically driven restructuring of California HOA governance by a legislator who views associations with deep skepticism, and it would have severe, lasting financial consequences for every community it touches.
• If SB 1007 passes as written, California’s more than 50,000 community associations representing over 5 million homes could be forced to choose between cutting essential services and gutting reserve funding. Boards need to understand what is coming and act now.

The numbers are now in. The U.S. Bureau of Labor Statistics has released April 2026 Consumer Price Index data, and those figures now establish the critical benchmark: if SB 1007 passes or if its language is quietly inserted into a must-pass budget bill the April CPI figures will set the maximum annual assessment increase California HOAs are permitted to levy. The bill has already cleared the Senate Housing and Judiciary Committees and is now on the Senate Floor awaiting a full vote. This is no longer a hypothetical. It is an imminent threat.

The ceiling is lower than the costs that keep your community running. That is the problem.

What SB 1007 Would Do — And What It Would Replace
At its core, SB 1007 would cap annual regular assessment increases at the local Consumer Price Index for All Urban Consumers (CPI-U). Any increase above that cap would require a membership vote a procedural hurdle that, as any experienced HOA manager will confirm, is extremely difficult to clear given perennial quorum challenges and the practical realities of member engagement.

But here is the context the bill’s proponents conveniently omit California law has capped regular assessment increases since the Davis-Stirling Common Interest Development Act was adopted in 1985. Under that longstanding framework now codified at Civil Code § 5605 a board may increase regular assessments by up to 20% per year without a membership vote, provided it acts within the parameters of the approved budget. That 20% ceiling has served California’s community associations for four decades. It provides boards with the flexibility to respond to genuine cost increases in any given year a spike in insurance premiums, a major utility rate increase, a significant jump in contractor labor costs without being forced to call a membership vote every time.

SB 1007 would not refine that 40-year-old protection. It would effectively eliminate it replacing a workable 20% ceiling with a CPI-indexed cap that, based on the April 2026 data, would range from approximately 2.6% to 3.8% depending on where your community is located. That is not a reform. It is a reversal.

Under SB 1007, a board could not increase regular assessments beyond the applicable local CPI figure, regardless of what it actually costs to maintain the community, address deferred repairs, or comply with state law. If operating costs rise faster than the CPI cap and they will something has to give. And what gives is always services, reserve contributions, or both.

April 2026: The Numbers That Would Cap Your Budget

Here is what the California local CPI-U data looks like for April 2026. These are the maximum total assessment increases SB 1007 would allow compare them to the existing 20% cap that has been law since 1985:

                           

Region                                             CPI-U (Apr. 2026)       SB 1007 Cap     Current Law (Since 1985)

Los Angeles–Long Beach–Anaheim         3.7%                          3.7%                       20%

San Francisco–Oakland–Hayward            3.8%                          3.8%                       20%

San Diego–Carlsbad                                 2.6%                          2.6%                       20%

Riverside–San Bernardino–Ontario          3.2%                          3.2%                       20%

West Region (statewide avg.)                   2.7%                          2.7%                       20%

These figures look modest because they are. Now compare them to what your association actually pays for.

The Cost Reality: What SB 1007 Would Not Cap
While the bill would cap what associations can collect, it would do nothing to cap what associations must spend. Essential service and infrastructure costs are rising well above any CPI figure:

Cost Category                                                             Recent Increase    SB 1007 Cap (LA Region)

Services (Anaheim)                                                      3.6%                            3.7%

Producer Price Index (finished goods)                         3.4%                             3.7%

Construction costs (statewide, reserve work)               6%+                              3.7%

Electricity                                                                      Rising                           3.7%

Water and sewer                                                          Rising                           3.7%

Natural gas                                                                   Rising                           3.7%

Elevator emergency communication                             Rising                           3.7%

Fire alarm monitoring                                                    Rising                           3.7%

• Under SB 1007, your HOA could collect 3.7% more (in the LA region). But your vendors, utilities, and contractors will charge 3.4% to 6% more. That gap must come from somewhere and it will come from your reserve contributions, your landscaping, your maintenance, and ultimately your property values. 

The Reserve Picture: Encouraged, Not Mandated But Increasingly Critical.

It is important to be precise here, because the bill’s proponents are not: California law does not mandate that community associations fully fund or fund at any particular level their reserves. What the law requires is disclosure. Under the Davis-Stirling Act, associations must conduct periodic reserve studies, assess the current funded status of their reserves, and disclose that information to members annually as part of the budget package. Boards are strongly encouraged to fund reserves at a level adequate to meet anticipated repair and replacement needs, but the decision of how much to contribute, and whether to increase or reduce contributions in any given year, ultimately rests with the board’s business judgment.

That distinction matters enormously in the context of SB 1007. Because reserve funding is discretionary, reserves are always the first casualty when operating costs outpace revenue. When a CPI cap compresses the budget year after year, boards facing a widening gap between what they can collect and what they must spend will reduce reserve contributions long before they eliminate landscaping or shut off the lights. It is the path of least resistance, and it is financially catastrophic over time.
The pressure is about to intensify significantly. Beginning next year, Fannie Mae and Freddie Mac the entities that back the vast majority of residential mortgages in this country will require that at least 15% of an association’s total budget be allocated to reserves as a condition of financing units in the community. This is not a California statutory requirement; it is a lending industry mandate with real and immediate teeth.

Lenders will refuse to finance or refinance units in associations that fall below that threshold. Buyers will be unable to obtain conforming loans. Sellers will find their units effectively unmarketable at conventional financing rates. Owners who need to refinance will be trapped. Now consider what happens when SB 1007 artificially depresses assessment revenue for even a few years:
•       Year 1: Reserve contributions are reduced to cover operating cost overruns caused by the CPI gap.
•       Year 2: Reserve funding falls below the 15% Fannie Mae/Freddie Mac threshold.
•       Year 3: Conventional financing dries up for units in the community.
•       Year 4+: Owners cannot sell or refinance at normal rates. Property values decline. The community deteriorates.

• A few years of CPI-capped assessments can take years or even decades to unwind. Underfunded reserves do not fix themselves. The compounding shortfall becomes a crisis that only a large special assessment or significant borrowing can resolve at far greater cost to the very homeowners the bill claims to protect.

What Gets Cut When Boards Can’t Balance the Budget?
California law requires associations to adopt a balanced budget. If revenue is capped below the cost of operations, something must be eliminated. Boards will face an impossible menu of cuts:
•       Reduced landscaping and common area maintenance
•       Deferred pool, gym, and amenity upkeep
•       Elimination of security or access control services
•       Reduced janitorial, pest control, and sanitation services
•       Delayed elevator inspections and emergency system certifications
•       Reserve contribution reductions — the most dangerous and most common first cut
•       Reduction or elimination of insurance coverage (catastrophic risk in California’s current market)

None of these cuts happens in isolation. Each one degrades the community, exposes the association to liability, and reduces property values. The hidden subsidy of artificially low assessments is always paid just later, and at far greater cost.

The Backers’ Hidden Agenda: Democratizing the Budget Process
Senator Menjivar and her co-sponsors argue that all HOA fee increases above inflation should be subject to a membership vote. It sounds democratic in the abstract. In practice, it is a mechanism for perpetual underfunding.
Here is what they do not tell you: a membership vote to reject or reduce a budget does not eliminate the costs in that budget. It simply means the association cannot legally collect enough to pay them. The roof still leaks. The elevator still needs servicing. The fire alarm still requires monitoring. The insurance premium still comes due. The association’s legal obligations do not disappear because the membership voted against funding them.
And getting a quorum for a membership vote on assessments is itself an enormous challenge. Many California associations struggle to achieve quorum even for routine annual elections. A requirement to hold a membership vote before implementing any assessment increase above the CPI rate is, for many associations, a practical guarantee that meaningful increases can never be approved at all.

Boards have a fiduciary duty to maintain the community and to make reasonable reserve contributions. SB 1007 would place directors in an impossible position: legal exposure for failing their fiduciary obligations on one side, and a statutory cap that prevents them from meeting those obligations on the other.

• Caps on assessments are not consumer protection. They are deferred cost acceleration. Every dollar of artificially suppressed revenue today is a dollar of special assessment, deferred maintenance, or loan obligation tomorrow plus interest. The homeowners SB 1007 claims to protect will ultimately pay far more.

What Boards Must Do Right Now
Do not wait to see whether SB 1007 passes or gets folded into a budget bill. The April CPI figures are now public, and the bill is on the Senate Floor. The time to act is now — before the bill passes and its financial consequences become irreversible. Boards should take the following steps immediately:
1. Run a multi-year projection of operating costs at realistic inflation rates (3%–6%) against a CPI-capped revenue scenario and share the results with your membership.
2. Identify the year in which your reserve funding falls below the 15% Fannie Mae/Freddie Mac threshold under a capped assessment model. This is a disclosure obligation your board should be taking seriously now.
3. Quantify the accumulated shortfall over a five-year SB 1007 scenario and model the special assessment required to correct it.
4. Present this analysis to your membership not as an argument for higher assessments, but as a fiduciary disclosure of the real consequences of capping them.
5. Contact your state legislators and oppose SB 1007. The Community Associations Institute (CAI) and other industry organizations are actively engaged add your voice and encourage your members to do the same.
6. Consult with your association’s legal counsel to document the board’s fiscal analysis and protect directors from claims that they failed to disclose the bill’s financial impact.

The Bottom Line
More than 50,000 community associations in California are watching this bill. More than 5 million homeowners will be affected by it. The April 2026 CPI data is now in, and the bill has already cleared committee and is on the Senate Floor. Senator Menjivar and her allies will point to those numbers 3.7% in Los Angeles, 3.8% in San Francisco and argue the cap is “reasonable.”

It is not reasonable. Replacing a 20% assessment increase ceiling that has been part of California law since 1985 with a 2.6% to 3.8% CPI cap when construction costs are rising at 6%, service costs at 3.6%, insurance costs at double-digit rates in some markets, and utilities at rates no public utility commission will agree to tie to a CPI formula is not a consumer protection measure. It is a mechanism for managed decline.

The Senator is entitled to her skepticism of homeowner’s associations. She is not entitled to impose that skepticism as structural law on 14 million Californians who depend on their associations to maintain the communities where they live, protect their property values, and preserve their access to mortgage financing.

Boards have a legal and ethical obligation to keep assessments aligned with the actual cost of operating, maintaining, and preserving their communities. SB 1007 would make that obligation legally impossible to fulfill.

Now is the time to speak up before the cap becomes law and your community pays the price for years to come.

David C. Swedelson, Esq. is a senior partner at SwedelsonGottlieb, Community Association Attorneys, a California law firm specializing exclusively in the representation of homeowners’ associations and condominium associations. He can be reached at dcs@sghoalaw.com.
© 2026 SwedelsonGottlieb. This article is intended for general informational purposes only and does not constitute legal advice. Contact your association’s legal counsel for guidance specific to your community.