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Progressive Reserve (PRf)
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 horizon.


Attributes:
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 not continuous).
  • 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 shortfall.

Evaluation:
The progressive reserve does not include the following:
  • Any funding shortfalls that may have arisen since the first year of the building. Therefore, any accumulated reserve backlog 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.
  • Any 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 merits and advantages:
  • 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 horizon.
The progressive reserve has the following general limitations and disadvantages:
  • 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 consultants.
  • The progressive reserve is an optimum target that many owners are not able to meet.
Progressive reserve funding methodology
Fig. Methodology for calculating the Progressive Reserve funding level.

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Fig.  The two mathematical formulas to calculate the Progressive Reserve funding requirements.



Fig. Trajectory of Progressive Reserve over the 30-year planning horizon.


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Fig. Result from adherence to the progressive reserve funding trajectory.

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Fig. Comparison of four alternative funding scenarios,
including progressive reserve as one of the options
("D")

See also:
Compare with:
  • Fully Funded
  • Ideal Reserve


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