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Also referred as: "Reserve Adequacy"
The ratio, at a particular point in time (typically the beginning of the fiscal year), of the actual (or the projected) reserve balance relative to the targeted fund balance, which is expressed as a percentage of the target.
The percent funded is sometimes calculated in two ways:
Some examples of percent funded being used as a financial tool by a group of owners:
Since funds can typically be allocated from one asset to another with ease, this parameter has no real meaning on an individual reserve component basis. The purpose of this parameter is therefore to identify the relative strength or weakness of the entire reserve fund as of a particular point in time.
Purpose of Percent FundedPercent funded is often used by mortgage underwriters and prospective buyers to make an informed decision about the funding liabilities of an owner group.
This benchmark is also used by the owner group to monitor the changing health of the reserve fund over consecutive years. It can therefore be used to set funding goals.
Range of Percent Funded
There are three broad funding levels on the funding spectrum, ranging from underfunded at the left side of the spectrum to overfunded at the right end of the spectrum:
Calculating Percent Funded
Although percent funded is intended as an industry measure to allow for objective comparison between buildings so that prospective buyers can make an informed decision, it can be calculated using different formulas resulting in different percentages.
Listed below are four major formulas:
Percent Funded by Property Type & Jurisdiction
According to the 2006 Community Association Treasure’s Handbook, which contains Northern California Common Interest Development (CID) survey data, the percentage funded amounts were
These debates always seem to get us into a knots due to the infinite loop between "funding" and "funded". The former is a process whereas the latter is a state, both of which are only measured (or measurable) in snapshots. We need to somehow get beyond the limitations of two types of funding-funded paradigms:
Lawyers generally operate in the domain of performance-based paradigms that use linguistic variables. Engineers, generally prefer to operate in the realm of numerical variables.
I don't believe we will ever find universal agreement on a "%" funding/funded to align with "adequate" funding/funded -- such a thing does not exist. "Adequate" is a qualitative term and belongs in the realm of general rules, thresholds, ranges, etc.that are tied to context and circumstances.
My quick two-cents. Let the debate continue.
Fig. Different buildings funded to different levels.
Fig. Incremental changes to the funding level at a single building over time.
Fig. Is "I. Care", our cartoon character, trying to raise funding levels faster than the owners can sustain?
Fig. Comparison of average percent funded in different jurisdictions.
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