Most of a reserve study is evidence. The funding plan is the decision: how much the association should put into reserves each year, and what happens if it does.
Start with where you are today
Two numbers describe the starting position. The reserve balance is the cash in the reserve account. The fully funded balance is what that account would hold if every component had been funded in step with its age. Divide the first by the second and you get percent funded. It is a snapshot, not a grade, but a low figure tells you the association is behind the wear on its buildings.
Then read the contribution
The plan proposes a yearly contribution, usually rising each year with inflation. Check three things:
- How much it changes from this year’s budget, in dollars per home per month. That is the figure owners will ask about.
- What inflation and interest rates the plan assumes. Small changes add up over 30 years.
- Whether there is more than one option. CAI’s standards describe several funding goals, from keeping the balance above zero to full funding.
Find the lowest point
Look at the 30-year cash flow table and find the year the balance is lowest. That is the year the association is most exposed. If it drops close to zero, a single surprise (a roof that fails early, a failed retaining wall) turns into a special assessment.
Questions worth asking the provider
- Which three components drive most of the cost in the next ten years?
- What happens to the lowest point if we fund 10 percent less?
- Which useful lives are you least sure about?
- When should we update the study?
For Ohio boards, the plan also answers a legal question. The budget has to carry an adequate reserve each year unless owners waive it, and a funding plan is the clearest way to show what “adequate” means for your community. To line up the timing with your budget, see the planner on our Ohio reserve studies homepage.