|Also sometimes referred to as
"adequate reserve model".
One of five alternative methods for calculating a funding trajectory.
The Progressive Reserve is the annual contribution
to the reserve account
that is equivalent to the amount that would have ideally been set
aside, since the first year after construction (or the base year of the report),
to ensure that the reserve
balance is sufficient (or fully
funded) with no (or minimum) special assessments required
over the planning
The progressive reserve has the following general financial attributes:
- It is a linear funding level
that is based on an amortized
value of the capital load
over the 30-year period (ie., it is termed
- At Year-1 of
a building, the progressive reserve is identical to the fully funded reserve.
These two concepts then start to diverge from one another with each
successive year, depending on the extent of the annual funding
The progressive reserve does not include the following:
progressive reserve has the following general merits and advantages:
- Any funding shortfalls that may have
arisen since the first year of the building. Therefore, any accumulated reserve
would need to be addressed separately. Only once the backlog is retired
and the financial picture has normalized (ie., reached a state of
equilibrium) can the progressive reserve once again be considered
adequate to avoid special assessments.
adjustments for the
time value of money.
For example: if a reserve study is done in the 20th year of building's
lifecycle, the calculation does not attempt to convert the contribution
to the value of money twenty year prior.
The progressive reserve has the following general
limitations and disadvantages:
- It provides the owners with a reasonably
clear picture of optimal funding levels over the long term, without
being skewed by any separate backlog
- It serves as a meaningful funding target
and can be argued to meet the test of adequate funding levels.
- Since it is a linear funding model, it
does not require fluctuation at different points over the planning
- It is more accurate and meaningful for
younger buildings (ie., childhood
stage) than for older buildings (eg., adulthood stage).
- Since the progressive reserve is a
linear/amortized model it is not able to "scale" any significant "lumps" in the
funding window, particularly for capital
projects that have close proximity.
- The term is not an industry recognized
standard and the formula is not applied consistently by different
- The progressive reserve is an optimum
target that many owners are not able to meet.
for calculating the Progressive Reserve funding level.
The two mathematical formulas to calculate the Progressive
Reserve funding requirements.
Fig. Trajectory of Progressive Reserve over the 30-year planning
Fig. Result from
adherence to the progressive reserve funding trajectory.
Fig. Comparison of four
alternative funding scenarios,
including progressive reserve as one of the options