Budgeting and Reserve Studies Flashcards

Which reserve funding method maintains a constant dollar contribution that does not increase year over year?

Answer: Baseline funding

Baseline funding sets a fixed dollar amount that keeps reserves above zero but does not grow contributions annually.

A community's reserve study shows a percent funded ratio of 35%. This is generally considered:

Answer: Poorly funded with significant risk

A percent funded ratio below 70% is typically considered underfunded, and 35% represents significant financial risk.

What is the primary purpose of a Level III reserve study (update without site visit)?

Answer: Revise prior study estimates using current financial data without reinspecting components

A Level III update adjusts financial projections using updated costs and balances without a new physical inspection.

When preparing the operating budget, which cost is most appropriately funded through reserves rather than operations?

Answer: Replacement of the community's roof

Major component replacements like a roof are capital expenditures funded through reserves, not recurring operating expenses.

Which statement best describes the 'threshold funding' approach to reserve contributions?

Answer: Contributions are set so reserves never fall below a minimum target balance

Threshold funding sets contributions to ensure the reserve balance never drops below a specified floor amount.

A manager notices that actual reserve expenditures exceeded the budgeted reserve allocations by 20% last year. The best corrective action is to:

Answer: Review and update the reserve study to reflect actual costs

Updating the reserve study to reflect actual replacement costs ensures future contributions are accurately calculated.

Which of the following best describes 'component useful life' in a reserve study?

Answer: The total estimated lifespan of a physical component before replacement is needed

Useful life is the estimated total lifespan of a component, used to project when replacement funding will be needed.