CMCA Budgeting and Reserve Studies 2 — Questions and Answers
Question 1: Which reserve funding method maintains a constant dollar contribution that does not increase year over year?
- Baseline funding (Correct answer)
- Threshold funding
- Full funding
- Percent funded method
Correct answer: Baseline funding
Baseline funding sets a fixed dollar amount that keeps reserves above zero but does not grow contributions annually.
Question 2: A community's reserve study shows a percent funded ratio of 35%. This is generally considered:
- Fully funded and healthy
- Marginally funded with some risk
- Poorly funded with significant risk (Correct answer)
- Optimally funded
Correct answer: Poorly funded with significant risk
A percent funded ratio below 70% is typically considered underfunded, and 35% represents significant financial risk.
Question 3: What is the primary purpose of a Level III reserve study (update without site visit)?
- Establish baseline data for new communities
- Revise prior study estimates using current financial data without reinspecting components (Correct answer)
- Conduct a full inventory and condition assessment
- Replace a Level I study every five years
Correct 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.
Question 4: When preparing the operating budget, which cost is most appropriately funded through reserves rather than operations?
- Monthly landscaping maintenance
- Annual pool chemical supplies
- Replacement of the community's roof (Correct answer)
- Utility bills for common area lighting
Correct answer: Replacement of the community's roof
Major component replacements like a roof are capital expenditures funded through reserves, not recurring operating expenses.
Question 5: Which statement best describes the 'threshold funding' approach to reserve contributions?
- Contributions are set so reserves never fall below a minimum target balance (Correct answer)
- Contributions are calculated to reach 100% funding at all times
- Contributions remain constant and do not adjust for inflation
- Contributions are waived when the community has a budget surplus
Correct 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.
Question 6: A manager notices that actual reserve expenditures exceeded the budgeted reserve allocations by 20% last year. The best corrective action is to:
- Borrow from the operating fund and repay over time
- Review and update the reserve study to reflect actual costs (Correct answer)
- Reduce planned future contributions to compensate
- Suspend reserve contributions for one fiscal year
Correct 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.
Question 7: Which of the following best describes 'component useful life' in a reserve study?
- The number of years until the community association dissolves
- The total estimated lifespan of a physical component before replacement is needed (Correct answer)
- The period covered by the current reserve study
- The warranty period provided by the original contractor
Correct 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.
CMCA Budgeting and Reserve Studies 2
Which reserve funding method maintains a constant dollar contribution that does not increase year over year?