Reserve Study Accuracy
February 5, 2019 No Comments
I recently read an article critical of using “% Funded” to measure the financial strength of an Association’s Reserve Fund. The author argued that since
I recently read an article critical of using “% Funded” to measure the financial strength of an Association’s Reserve Fund. The author argued that since
Hawaii state law (Section 514A-83.6) requires associations to update their Reserve computations each year as part of their annual budget, and include a specific statement about whether the budgeted Reserve contributions were developed using a “Percent Funded” or “Cash Flow” funding plan.
Various individuals in California have asked if our company, or other California-based Reserve Study providers, are in the business of creating “Funding Plans” to help associations comply with the January 1, 2009 Reserve Study Funding Plan requirement
We continue to find some reluctance to include major, infrequent common area expenses such as painting and tree trimming in the Reserve Study. This stems from IRS rulings and audit filings which state that these are “maintenance” items and not “contributions to capital”.
Periodically we are asked if we use the “straight line funding” or “cash flow funding” calculation method. The question is typically posed by someone with strong feelings on the matter, not simple curiosity. But “straight line funding” or “cash flow” is not an informative or revealing question,
There are four ways to pay for your Reserve expenses. The first way even provides you with a bit of magic – getting a “rich uncle” to help you with your Reserve expenses!