CCS CCS Reserve Studies & Capital Planning 2

Question 1

A special assessment is typically levied when:

Accepted Answer

Reserve funds are insufficient to cover an unexpected major repair or replacement

Answer

The board wants to increase amenities for residents

Answer

A unit owner fails to pay monthly dues

Answer

The annual audit reveals excess funds

Question 2

Which capital planning document outlines the schedule of major projects, their costs, and how they will be financed over a multi-year horizon?

Accepted Answer

Capital improvement plan (CIP)

Answer

Annual operating budget

Answer

Depreciation schedule

Answer

Audit report

Question 3

Inflation directly affects capital planning because:

Accepted Answer

The future cost to replace components will be higher than today's estimated cost

Answer

It lowers property tax assessments for the association

Answer

It reduces the interest earned on reserve investments

Answer

It increases the useful life of common components

Question 4

What is the risk to a condominium association of maintaining an 'underfunded' reserve (below 30% funded)?

Accepted Answer

Increased likelihood of special assessments, deferred maintenance, and difficulty obtaining FHA/VA financing for unit sales

Answer

Automatic loss of the association's tax-exempt status

Answer

Mandatory state takeover of the association

Answer

Loss of the right to enforce the CC&Rs

Question 5

The 'threshold funding' method sets reserve contributions at a level that ensures:

Accepted Answer

The reserve fund never drops below a predetermined minimum balance

Answer

Every component is 100% funded at all times

Answer

The fund equals the total replacement cost of all components

Answer

Contributions remain constant regardless of future expenses

Question 6

When a condominium association takes out a reserve loan to fund a major repair, what is the primary financial trade-off?

Accepted Answer

Lower monthly assessments now but interest costs increase the total project expense

Answer

Higher reserves immediately but reduced insurance premiums

Answer

Elimination of the need for future reserve studies

Answer

Transfer of maintenance responsibility to the lender