Budgeting and Reserve Studies Flashcards

A community association wants to borrow from reserves to cover an operating deficit. What must the board typically do to remain in compliance with governing documents and state law?

Answer: Obtain homeowner approval and establish a repayment plan

Most state laws and governing documents require membership approval and a formal repayment schedule for inter-fund borrowing.

What does 'remaining useful life' (RUL) indicate in a reserve study component analysis?

Answer: The years remaining before a component is expected to need replacement

Remaining useful life is how many more years a component is projected to function before requiring replacement.

A special assessment is most appropriate when:

Answer: Reserves are insufficient to cover an unexpected major repair

Special assessments are used when reserve funds are inadequate to cover major unanticipated expenditures.

When inflation is factored into a reserve study's cash flow projection, it primarily affects:

Answer: The projected future replacement costs of components

Inflation adjusts the projected future replacement cost of components, increasing the amount that must be saved over time.

Which document typically authorizes the board to collect reserves as part of regular assessments?

Answer: The community's CC&Rs or bylaws

The CC&Rs or bylaws grant the board authority to levy assessments, including the reserve component.

A fully funded reserve plan aims to maintain the reserve balance at what target?

Answer: Equal to the sum of the depreciated value of all reserve components

Full funding targets a reserve balance equal to the total accrued depreciation of all components at any given time.

Which of the following expenses should NOT be included in a reserve budget?

Answer: Monthly janitorial services for the clubhouse

Monthly janitorial services are a recurring operating expense, not a major capital replacement item funded through reserves.