RESERVE FUNDING
Reserve Study Components A reserve study is built on two interrelated components: a physical evaluation and a financial analysis. Together, these elements translate the condition of the association’s assets into a long-term funding plan that supports informed decision-making and fiscal sustainability.
Physical Evaluation The most critical decision in conducting a reserve study is selecting which components to include. This requires analysis of the association's governing documents, application of CAI’s Reserve Study Standards’ three-part test, and applicable state statutes and civil codes in addition to the physical inspection of each component. Preparation of the Physical Evaluation As part of the preparation of the reserve study, the association should provide the reserve specialist with:
PHYSICAL EVALUATION: The portion of the reserve study where the compo- nent inventory, condition assessment, and life and valuation estimate tasks are performed. This represents one of the two parts of the reserve study.
1. Date-in-service information for the components when available. 2. Contracts for recent capital projects, quotes for future work, and inspection reports such as engineering and turnover reports when available. 3. Any available engineering reports, specialty studies, or invasive inspection results for compo- nents that are not readily visible during a reserve study inspection such as piping, electrical wiring, and stormwater pond bathymetric surveys. Since reserve studies are based primarily on visual observations, these supplemental evaluations can help improve the accuracy of com- ponent condition assessments, remaining useful life estimates, and funding recommendations. THREE-PART TEST: 1. The association has the obligation to maintain or replace the existing element. 2. The need and schedule for this project can be reasonably anticipated. 3. The total cost for the project is relevant to the association, can be reasonably estimated, and includes all direct and related costs.
As part of the preparation of the reserve study, the reserve specialist should:
1. Work with the association to agree on reserve study components utilizing the three-part test. • If the study is an update to an existing study, the previous inventory should be reviewed and discussed. 2. Review all supplied information to uncover any potential inconsistencies, omissions, or values that appear outside industry norms. • If the study is an update, review all assumptions from the previous study as part of the update. 3. Apply professional judgment when discrepancies arise, including comparing information to prior studies, known construction standards, or reasonable expectations for similar communities.
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