Condo Media - July 2018 - 23

Baseline Funding
■ Goal to have sufficient reserves on hand to never completely run out of money
■ Pay reserve expenses without
regard to the association's
percent funded
■ Least conservative method
■ Not a common goal, but may
be used as a starting point

Threshold Funding
■ Funding goal between 100
percent full funding and cashpositive baseline funding
■ Specific percent funded target
or a minimum cash balance
target between full funding
and baseline funding

Component Calculation Method
The component calculation method,
often called the straight line method,
develops a funding plan for each
individual reserve component based
on its cost, useful life, and remaining
life. Total funding is the sum of funding for each component. In simpler
terms, each component is assigned a
"savings account" and the amount of
depreciation of each component per
year is deposited in that account. The
amount of the depreciation deposits is
determined by the reserve study based
on current cost and useful life.
At any point of time, the fully
funded balance of a component is:

FULLY
FUNDED
BALANCE

Once a component is replaced by the
association, the saving process starts
again to fund the next replacement.
The component method is widely
believed to be the most conservative
reserve funding method. This method
structures a funding plan that enables
the association to pay all reserve
expenditures as they come due and
enables the association to achieve the
ideal level of reserves over time. Contributions to the reserve fund vary annually based on annual depreciation
and requirements for achieving 100
percent funding as a goal. The annual
variability of contributions can be a
disadvantage. Figure 2 shows an ex-

COMPONENT AGE
USEFUL LIFE

CURRENT

x COMPONENT
COST

Statutory Funding
■ Goal to follow requirements
of laws or codes

Fully Equipped

■ No states in New England
have specific funding
requirements
* Massachusetts and
Connecticut require
"adequate" reserves
FUNDING CALCULATION METHODS
There are two calculation methods
typically used to develop funding plans component calculation method and cash
flow calculation method. Both methods
incorporate variables for inflation and
interest on investments. Both pay for the
same repairs and replacements listed in
the annual expenditure table. Typically,
the reserve analyst will seek to set the
funding contribution at a starting value
and increase annually at the rate of inflation. Increasing contributions at the rate of
inflation will be most equitable over time
for current and future owners. The challenge reserve analysts face is that many
associations are underfunded and may
need higher rates of contribution growth,
special assessments, or loans to catch up.
C

Did you know that our crews come
to your property FULLY EQUIPPED with a
complete set of tools, supplies,
equipment - everything that they'll
need for the work at your property
(not just a rag and a vacuum)?
We take pride in our work. See better
results. Call us today!
✔ Common Area Maintenance
✔ Unit Turnovers
✔ Truck Mount Carpet Cleaning

✔ Garage Sweeping

CMY

✔ Window Cleaning

✔ Tile & Grout Cleaning
✔ On-site / Porter Service
✔ VTC Floor Care
✔ Pressure Washing
✔ Construction Clean-ups

July 2018 CONDOMEDIA

Condo Media - July 2018

Table of Contents for the Digital Edition of Condo Media - July 2018