Crescent Reserve Studies

Industry Definitions

Cash Flow
The collection and expenditure of money over time.

Cash Flow Method
A method of developing a reserve funding plan where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund.

Component
A Reserve Component is typically a community owned items which meets the criteria set forth by Crescent Reserve Studies under the “Included Reserve Study Components” section of the report.

Component Inventory
The task of selecting and quantifying reserve components. This task can be accomplished through on-site visual observations, review of association design and organizational documents, a review of established association precedents, and discussion with appropriate association representative(s).

Component Method
A method of developing a reserve funding plan where the total contribution is based on the sum of contributions for individual components.

Condition Assessment
The task of evaluating the current condition of the component based on observed or reported characteristics.

Deficit
An actual or projected reserve balance less than the fully funded balance. The opposite would be a surplus.

Depreciation
The Present Cost divided by the Expected Life and multiplied by the sum of the Expected Life less the Remaining Life. Depreciation for a new reserve item begins at zero and ends with the replacement cost of the component. (Present Cost – Net Present Value = Deprecated value of the component)

Effective Age
The difference between useful life and remaining useful life. Not always equivalent to chronological age, since some components age irregularly.

Expected Life
The estimated time, in years, that a reserve item can be expected to perform its intended function

Financial Analysis
The portion of a reserve study where the current status of the reserves (measured as cash or percent funded) and a recommended reserve contribution rate (reserve funding plan) are derived, and the projected reserve income and expense over time is presented. The financial analysis is one of the two parts of a reserve study.

Component Full Funding
When the actual or projected cumulative reserve balance for all components is equal to the fully funded balance.

Accrued Fund Balance
The total accrued depreciation. It’s an indicator against which the actual or projected reserve balance can be compared to identify the direct proportion of the “used up” life of the current repair or replacement cost. This number is calculated for each component, and then summed together for an association total. The following formula can be utilized. AFB = Current Cost X Effective Age/Useful Life

Fund Status
The status of the reserve fund as compared to an established benchmark such as percent funding.

Funding Goal
Independent of methodology utilized, the following represent the basic categories of funding plan goals:

• Baseline Funding: Establishing a reserve funding goal of keeping the reserve cash balance above zero.

• Component Full Funding: Setting a reserve funding goal of attaining and maintaining cumulative reserves at or near 100% funded.

• Statutory Funding: Establishing a reserve funding goal of setting aside the specific minimum amount of reserves of component required by local statues.

• Threshold Funding: Establishing a reserve funding goal of keeping the reserve balance above a specified dollar or percent funded amount. Depending on the threshold, this may be more or less conservative than component full funding.

Funding Plan
An association’s plan to provide income to a reserve fund to offset anticipated expenditures from that fund.

Funding Principles

• Adequate Funds When Required

• Stable Contribution Rate over the Years

• Evenly Distributed Contributions over the Years

• Fiscally Responsible

Life and Valuation Estimates
The task of estimating useful life, remaining useful life, and repair or replacement costs for the reserve components.

NET Present Value
The current value of the component less the deprecated value of that component.

Percent Funded
The ratio of the actual Reserve Balance to the Fully Funded Reserve Balance expressed as a percentage. The value of the Percent Funded changes with time.

Physical Analysis
The portion of the reserve study where the component inventory, condition assessment, and life and valuation estimate tasks are performed. This represents one of the two parts of the reserve study.

Physical Inspection
The portion of the Reserve Study that generates the reserve item inventory and the condition of the reserve items.

Present Costs
The cost of a component today. Consists of the Unit Cost times the Number of Units of that component.

Remaining Useful Life
Also referred to as remaining life. The estimated time, in years, that a reserve component can be expected to continue to serve its intended function. Projects anticipated to occur in the initial year have “zero” remaining useful life.

Replacement Cost
The cost of replacing, repairing, or restoring a reserve component to its original functional condition. The current replacement cost would be the cost to replace, repair, or restore the component during that particular year.

Reserve Balance
Actual or projected funds as of a particular point in time that the association has identified for use to defray the future repair or replacement of those major components which the association is obligated to maintain. Also known as reserves, reserve accounts, cash reserves. Based upon information provided and not audited.

Reserve Component
The individual line items in the reserve study developed or updated in the physical analysis. These elements form the building blocks for the reserve study. Components typically are the association responsibility, have limited useful life expectancies, have predictable remaining useful life expectancies, are above a minimum threshold cost, and are as required by local codes.

Reserve Item
An element of a reserve category. Reserve Items consist of association facilities, which must be maintained or replaced by the association. Also known as a "Component".

Reserve Provider/Reserve Analyst
An individual that prepares reserve studies.

Reserve Study
A budget planning tool which analyses the current reserve fund and expected future expenses. A Reserve Study consists of a Physical Inspection of the facilities and a Financial Analysis of the reserve fund.

Special Assessment
An assessment levied on the members of an association in addition to regular assessments. Governing documents or local statutes often regulate special assessments.

Surplus
An actual or projected reserve balance greater than the fully funded balance.

Unit Cost
The present cost of a reserve item on a unit basis. Dollars per foot of fence is an example.

Useful Life
Total useful life or depreciable life is the estimated number of years that a reserve component can be expected to serve its intended function if it is properly constructed in its present application and/or installation.