The New Math of Reserve Studies: Tariffs + Inflation = Headache

By Robert W. Browning, PCAM, RS  

For years, tariffs were a topic mostly confined to college classrooms and economic policy debates. But, as recent headlines have shown, tariffs have stepped firmly into the mainstream – and with them, new and unexpected implications are emerging across various sectors, including reserve studies.  

If our office is any indication, in recent months, reserve specialists are fielding an increasing number of questions: Are tariffs impacting reserve studies? If so, how should associations respond? This article explores what tariffs are, how they might influence reserve funding plans, and what tools associations can use to mitigate their effects.  

What Is a tariff? A tariff is defined by Random House Webster’s Dictionary (1996) as “a schedule of duties imposed by a government on imports or exports.” In practical terms, tariffs are taxes placed on goods entering (or leaving) a country, designed to influence trade dynamics, support domestic industries, or advance geopolitical objectives. Tariff rates can vary significantly depending on the countries and products involved, and in some cases, are shaped by broader political or social agendas.  

Until recently, tariffs were largely in the background driving higher prices in the construction industry. But today, they are very real and can carry significant cost implications for material pricing – and by extension, the component costs in reserve studies.  

What makes 2025 distinct is the way tariffs are being introduced. Traditionally, tariffs are set through congressional action, allowing for a more deliberative process in which industries have time to anticipate and prepare for changes. However, under specific circumstances – such as national security concerns or economic emergencies – the president has the authority to impose tariffs unilaterally. That is the case in 2025. As we’ve seen in recent headlines, this has created an environment of uncertainty, making it especially challenging for stakeholders to predict the timing, scope, and impact of potential new tariffs.  

Take, for example, softwood lumber. While much of the lumber used in U.S. residential and commercial construction is produced domestically, roughly 70% has historically come from Canada. Canadian softwood lumber has long been subject to a 14.54% tariff. If predictions of a potential increase of 25% prove true, the effective hike would be 39.54%, not 25%, since it builds upon an existing tariff. This underscores a key point: When evaluating the impact of tariffs, it’s not just about new rates, but also the cumulative total, including pre‐existing duties. As of late May 2025, the 25% tariff has been suspended, but potential increases are anticipated in the future.  

Looking ahead, the materials most at risk for tariff‐related cost increases in 2025 are the cornerstones of modern construction: steel, aluminum, and lumber. These materials are critical in many capital repair and replacement projects. Any change in their cost structure could directly influence long‐term funding needs and, in turn, reserve studies.  

If a tariff functions merely as a cost multiplier on a component, many of the tools reserve specialists have been using for years will work on tariffs too. But tariffs don’t operate in isolation, they are closely intertwined with another familiar economic force: inflation.  

Since 2020, sustained inflation has already driven material and labor costs significantly higher. In this context, tariffs can feel less like a new challenge and more like an added burden – akin to being served a rich dessert after an already overwhelming meal. The reaction is no longer one of appetite, but of fatigue: “Do we really have to absorb this too?” OK, in my case, yes, but add indigestion as well.  

As boards have been dealing with high inflation in their budgets for several years now, tariffs are not the only stress point. High operating costs are causing many boards to look at borrowing from reserves to help pay for insurance related costs. Large insurance premiums due to natural disasters are causing boards to have to borrow from reserves at a time when reserve costs have been climbing as well. As noted by Terri Guest in The Communicator (Vol. 18, Issue 2), one emerging pressure point is the unexpected need to replace Zinsco circuit breakers due to safety concerns – an expense not typically accounted for in most reserve studies, when they are in a member’s residence. This is just one example of how unforeseen expenses are adding strain to already challenged reserve funding plans.  

Tariffs, inflation, rising operating expenses, and unanticipated insurance demands have placed significant strain on association budgets and reserve funds. A colleague once shared a valuable lesson during the 2008 housing crisis: When the economy is under pressure, start by examining what worked the last time. With that in mind, here are several practical tools reserve specialists and boards can use to navigate the current economic environment.  

Study Inflation Rate: Every reserve study incorporates an inflation factor that com‐ pounds annually over the course of the study’s 30‐year forecast. This is one global parameter in the study that should stand the test of time for the 30‐year term of the reserve study. But this is not the only tool related to inflation in the study as outlined in #2 and #3 below.  

Roll‐Forward Rate: As part of the reserve study update process, the reserve specialist applies a one‐time adjustment to component costs based on the current inflation rate. This “roll‐forward” rate increases all component costs at the outset of the new study cycle and ensures that recent price changes are properly reflected.  

Specific Component Cost Adjustments:  

Beyond general inflation, the reserve specialist will review each component, to determine if it needs a costing adjustment due to its material composition, location, maintenance history, etc. This allows the reserve specialist the ability to make spe‐ cific adjustments based on current factors related to each component.  

Safety Net: The safety net for community associations is the annual update of the reserve study. Using the tools above to adjust variabilities in costing for com‐ ponents, a similar approach can also be used for the funding plan. In the funding plan, the interest earned on investments is usually retained in the reserve fund. The reserve specialist will revise this rate each year during the reserve study update. If the previous year’s interest assumption was conservative, actual higher earnings will be reflected as a larger starting balance in the next year’s study.  

Special Assessment: This tool is an old one, not usually popular, and often the last resort. An important tip, if a special assessment is being contemplated, seek the advice of the reserve specialist early. Too often the reserve specialist is the last person to know the special assessment has been adopted and that news comes by way of a phone call exclaiming: “The board adopted a special assessment at their meeting last night, now they want to plan how to spend it!” The reserve specialist should be the first call, when trouble is on the horizon to pro‐ vide advice, options and potential solutions for the board to consider.  

Bank Loan: Loans can offer immediate relief for reserve shortfalls, especially when urgent repairs are needed. Though securing financing requires lead time and lender‐specific documentation, an up‐to‐date reserve study is typically a key requirement. Lastly, for the reserve study, sometimes a special assessment is needed along with the loan, blending two of the tools for a solution.  

Once considered abstract elements of economic policy, tariffs have become very real factors influencing construction costs and long‐term financial planning. Coupled with persistent inflation, the lasting impacts of the pandemic, and increasing insurance burdens, these economic pressures require careful, proactive management. For reserve specialists, community managers, and board members, staying informed and adaptable is not just advisable – it’s essential for preserving the financial health of community associations.  

The most effective reserve studies are born from strong collaboration among the board, management, and reserve specialist. By working together, we can navigate today’s challenges and ensure sound financial outcomes for the communities we serve. ■ 

Robert W. Browning, PCAM, RS, is the founder of the Browning Reserve Group, now a division of Reserve Advisors, LLC. He has served on the Board of Trustees of CAI and is a past President of CAI’s Foundation for Community Association Research. He has served as President for CAI‐CNC twice and chair of CAI‐CLAC.