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Operating Budget Threshold
One of several methods for determining how much money to allocate to the reserve fund each fiscal year (ie., funding thresholds)

In  many jurisdictions, the owners set aside 20-50% of the operating budget into the reserve fund.

Evaluation:

Some of the advantages of the operating budget threshold:

  • Very simple formula
Some of the disadvantages of the capital cost threshold:
  • May underestimate capital costs
In my opinion, there should be absolutely no correlation between funding levels and operating budget. To the best of my knowledge, BC is the only jurisdiction in North America that uses the operating budget to set funding thresholds, which is ridiculous.
 
Take the example of a strata corporation with a $100,00 annual operating budget and a $200,000 roof on the building. This one asset (of many) requires the owners to seek a 3/4 vote to allow their funding level to exceed 100% of operating budget.
 
As a rule of thumb, and only if we are forced to think of reserve balances and operating budgets in the same equation, we recommend that the owners target a "minimum of 5 times the operating budget" as a reserve balance. This makes our traditional BC funding thresholds look really silly.
 
At all recent presentations I told the audience that we (in BC) need to train ourselves to stop thinking of funding percentages as a threshold of operating budget but rather a threshold of what the reserve study indicated is a fully funded reserve. For greater clarity, 10% of operating budget is a very different number to 10% of a fully funded reserve.


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