Reserve Study Terminology

CONDITION ASSESSMENT: The task of evaluating the current condition of the component based on observed or reported characteristics.

DEFICIT: An actual (or projected) Reserve Balance less than the Fully Funded Balance. The opposite would be a Surplus.

FINANCIAL ANALYSIS: The portion of a Reserve Study where current status of the Reserves (measured as cash or Percent Funded) and a recommended Reserve contribution rate (Reserve Funding Plan) are derived, and the projected Reserve income and expense over time is presented. 

FULLY FUNDED:  When the actual or projected Reserve balance is 100% Funded.

FULLY FUNDED BALANCE:   An indicator against which the actual or projected Reserve balance can be compared.  This number is calculated for each component, then totaled. 

FUNDING GOALS:  There are several approaches to Reserve Fundings:

BASELINE FUNDING: Establishing a Reserve funding goal of keeping the Reserve cash balance above zero.

FULLY FUNDING: Setting a Reserve funding goal of attaining and maintaining Reserves at or near 100% funded.  This is the most recommended funding and least likely to experience a shortfall.

STATUTORY FUNDING: Establishing a Reserve funding goal of setting aside the specific minimum amount of Reserves required by local statues.

THRESHOLD FUNDING:  Establishing a Reserve funding goal of keeping the Reserve balance above a specified dollar or Percent Funded amount. Depending on the threshold, this may be more or less conservative than "Fully Funding".

FUNDING PLAN:  The savings plan followed to funds adequate to pay for anticipated reserve expenditures.

FUNDING PRINCIPLES: In the development of a Funding Plan, the following four principles are to be considered:

• Sufficient Funds when Required
• Evenly Distributed Contributions over the Years
• Fiscally Responsible

PERCENT FUNDED: The ratio at a particular point of time of the actual Reserve Balance to the Fully Funded Balance expressed as a percentage.

PHYSICAL ANALYSIS: The portion of the Reserve Study where the Component Inventory, Condition Assessment, and Life and Valuation Estimate tasks are performed. 

REMAINING USEFUL LIFE:  The estimated number of years that a reserve component will serve its intended function. 

REPLACEMENT COST: The cost of replacing, repairing, or restoring a Reserve Component to its original functional condition. The Current Replacement Cost would be the cost to replace, repair, or restore the component during that particular year.

RESERVE BALANCE: Actual or projected funds as of a particular point in time that the association has identified for use to defray the future repair or replacement of those major components which the association is obligated to maintain. Also known as Reserves, Reserve Accounts, Cash Reserves.

RESERVE STUDY ANALYST: A professional that prepares Reserve Studies.

RESERVE STUDY:  A Reserve Study identifies the major components for which the association has maintenance responsibility that have a useful life of 3 to 30 years.  Each component is assessed for condition, useful life and cost of replacement.  With this information, a 30 year maintenance schedule and funding plan is produced. This 30 year plan provides current and future Boards with a roadmap to responsibly maintain the community's assets. Following the plan insures that all members pay their fair share of these major expenses. Special assessments become a thing of the past! 

SPECIAL ASSESSMENT: An assessment levied on the members of an association in addition to regular assessments. Special Assessments are often regulated by Governing Documents or local statutes.

SURPLUS: An actual or projected Reserve Balance greater than the Fully Funded Balance. See Deficit.

USEFUL LIFE:  The estimated time in years that a reserve component can be expected to serve its intended function when new if properly installed and maintained.

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