National Reserve Study Standards of the Community Associations Institute
Cash Flow
Method A method of developing a Reserve Funding Plan in which
contributions to the Reserve Fund offset the variable annual expenditures from
it. Different Reserve Funding Plans are tested against the anticipated schedule
of Reserve expenses until the desired funding goal is achieved.
Component An
individual line item in a Reserve Study developed or updated in the physical
analysis. Components are the building blocks on which the Reserve Study is
built.
Component
Inventory The task of selecting and quantifying Reserve Components.
This task can be accomplished through on-site visual observations, review of
Association design and organizational documents, review of established
Association precedents, and discussion with the appropriate Association
representative(s).
Component
Method A method of developing a Reserve Funding Plan in which
the total contribution is based on the sum of contributions for individual
components. See, cash flow method.
Condition Assessment The task of evaluating the current condition of the component based on observed or reported characteristics.
Current
Replacement Cost See, replacement cost.
Deficit An
actual (or projected) Reserve Balance less than the fully funded balance. The
opposite would be a surplus.
Effective
Age The difference between useful life and remaining useful
life. Not always equivalent to chronological age because some components age
irregularly. Used primarily in computations.
Financial
Analysis The portion of a Reserve Study in which the current
status of 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. The financial analysis is
one of the two parts of the study.
Fully
Funded 100 percent funded; when the actual (or projected)
Reserve Balance is equal to the fully funded balance.
Fully
Funded Balance (FFB) Total accrued depreciation; an indicator against
which actual (or projected) Reserve balance can be compared; the Reserve
Balance that is in direct proportion to the fraction of used life of the
current repair or replacement cost. This number is calculated for each
component, and these sums are added together for an Association tool.
Funding Goals Independent of methodology utilized, the following represent the basic categories of funding plan goals:
§
Full funding. Setting a Reserve-funding goal of attaining
and maintaining Reserves at or near 100 percent funded.
§
Baseline funding. Establishing a Reserve-funding goal of
keeping the Reserve cash balance above zero.
§
Statutory funding. Establishing a Reserve-funding goal of
setting aside the specific minimum amount of Reserves required by local
statutes.
§
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 full
funding.
Funding
Plan An Associations plan to provide income to a Reserve Fund
to offset anticipated expenditures from that fund.
Life and
Valuation Estimates The task of estimating useful life, remaining
useful life, and repair or replacement costs for reserve components.
Percent
Funded The ratio at a particular point in time (typically the
beginning of the fiscal year) of the actual or projected Reserve Balance to the
fully funded balance, expressed as a percentage.
Physical
Analysis The portion of the Reserve Study in which the Component
Inventory, condition assessment, and life and valuation estimate tasks are
performed. This represents one of the two parts of the Reserve Study.
Remaining
Useful Life (RUL); Remaining Life (RL) The estimated time, in years,
for which a Reserve Component can be expected to continue to serve its intended
function. Components of projects planned for the initial year have zero
remaining useful life.
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, or restore the component during that particular
year.
Reserve
Balance Actual (or projected) funds at a given point in time
identified by the Association to defray the future repair or replacement costs
of those major components the Association is obligated to maintain. Also known
as Reserves, Reserve Accounts, or Cash Reserves.
Reserve
Study A budget planning tool that identifies the current status
of the Reserve Fund and a stable and equitable funding plan to offset the
anticipated future major common-area expenditures. The Reserve Study consists
of two parts: the physical analysis and the financial analysis.
Special
Assessment An assessment levied on Association members 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.
Useful
Life (UL) The estimated time, in years, for which a Reserve Component
can be expected to serve its intended function if properly constructed in its
present application or installation.