are two forms of linear funding:
A linear funding model provides for a consistent
contribution to the reserve account for each year over the planning
horizon. This method asks the question: “If the owners fund at level x,
what special assessments will result?”
Listed below are some examples of linear funding:
This method of linear funding asks the question: "If we fund at this level, what
special assessments with result". The alternative
question, which is asked by lumpy
funding, is: "What
should our funding level be to avoid special assessments".
- "Our reserve contribution is $95,000
each year for the next 30 years"
- Our reserve contribution is $60,000 in
the current year
and will increase by 2% every year thereafter.
Linear funding is characterized by the following:
will remain consistent each fiscal year, despite
the need for outflows
(for capital expenses) that are not consistent.
Special assessments are required to make up for shortfalls.
- A portion of the capital costs are amortized or smoothed using moving averages.
Listed below are some of the merits and advantages of linear funding:
It provides the owners with regularity in the annual
contributions. Linear funding models are best suited to younger
buildings where the capital projects do not yet have proximity and the
owners have not yet accumulated a significant unfunded liability
- It is predictive in nature.
- It is simple model that can be easily
- It is easy to manage and administer over
- It is easy to implement in the early
lifecycle stages of a building.
Listed below are some of the
limitations of linear
Linear funding models are less helpful for older
building as the
funding level will not be adequate to scale “lumps” associated with
capital projects that have close proximity, particularly if they are
significant in value.
funding may not be adequate to scale "lumps" in the funding
particularly if the projects have close proximity.
- Linear funding must be started early in
of a building to mitigate the long-term financial hardship for the
- Special assessments will be required to
make up for any shortfalls.
funding with the same contribution amount each successive fiscal year.
Linear funding with cumulative balances shown as blue bars. There are
no expenses shown on this graph and the funding accumulates at a
Fig. Linear funding contributions with equal incremental adjustments
each fiscal year
Overlay of the two types of linear funding approaches. Generally,
incremental funding starts at a lower point and crosses the uniform
line about 50% into the planning horizon.
Fig. Overlay of
four different funding approaches with linear funding options shown in
green and purple.