What Exactly is Percent Funded?
PERCENT FUNDED: The ratio at a particular point of time of the actual reserve balance to the fully funded balance expressed as a percentage.
A simple example will help better illustrate this concept:
• Condo/ Homeowners association has $15,000 in a Reserve Fund Account.
• Condo/ Homeowners association has (2) reserve items: a 10 year old roof and a 5-year-old pool.
• Assume a useful life of 20 years for the roof and a current replacement cost estimate of $50,000.
• For the pool, assume a useful life of 10 years for resurfacing at a current cost estimate of $20,000.
The roof has “used up” 10 years of the 20-year useful life or 1/2 of $50,000 = $25,000. The pool has “used up” 5 years of the 10-year useful life or 5/10ths of $20,000 = $10,000. The total depreciation/deterioration since the last time the roof was replaced and the last time the pool was resurfaced (Fully Funded Balance) can be calculated as $25,000+ $10,000 = $35,000. The Fully Funded balance of Condo/ Homeowners association at this point would be $35,000.
To calculate the percent funded level, simply take the Reserve Fund Account Balance of $15,000, and divide this by the Fully Funded Balance calculated of $35,000 and you get 42% Funded.
The Percent funded range is as follows: 60-80% funded and above = “Healthy” and 30% and below = “Danger”. An association with a “Strong” reserve fund has low risk of special assessments and deferred maintenance. Below 30% means that the association may need a special assessment to maintain its assets.
Attaining a 60-80 Percent Reserve Fund
If your reserve fund has less than 60 percent of your estimate repair expenses, you will want to take steps to increase your contributions in order to avoid special assessments. This can be accomplished by allocating between 10 and 40 percent of your operating expense fund towards your reserve account on an annual basis. If your association fees don’t support an increased yearly contribution, you may want to hold a meeting with your board members to redetermine the appropriate association fees to charge your members and implement a gradual annual rates increase to cover the shortfall.