Reserve Fund Position
A development’s Reserve Fund’s Position is a present value of money estimate of where the reserve fund stands in relation to where it needs to be. It is not that different from measuring a person financial position by using the Personal Net Worth Calculation. Both are limited, but helpful when it comes to measuring risk over time, and across developments.
Many reports present this measure as a binary ‘Reserve Surplus| Deficiency’ line item, and do not go on to refer to it in their analysis and recommendations. Best-practice reports use the benchmark’s current replacement requirements number as the basis of their analysis.
The Reserve Fund Position, an end of fiscal-year reserve fund dollar result, is calculated by deducting the closing reserve fund balance from the benchmarked reserve requirements for the current fiscal-year.
The Reserve Fund Position can be interpreted as a ratio expressed as a percentage, that divides the closing reserve fund balance by the ceiling benchmarked current requirements amount. In other words, were does the reserve fund stand in relation to its needs?
The Reserve Fund Position results are adjusted in all future years based on the expenditures found in the projection and adjusted for all other cashflow inputs and outputs, and thus are best read as Reserve Fund Standings. While regular and special contributions to the Reserve Fund are in present value of money amounts, all other variables are adjusted from fiscal-year to fiscal-year according to the sinking method.
Beware of reports that forget to deduct each fiscal-year’s expenditures from their calculations.
Beware of reports that use the right result in the wrong fiscal-year.
Beware of reports that use a deduction that is not tied to a benchmark amount, or that use current costs as the denominator, as both inflate recommended amounts.
Beware of reports that produce surplus or deficit numbers in their scenarios but do not use them to produce Reserve Fund Position and Standings analyses.
We believe that as reality is more complex than black-and-white conclusions, our role is to provide you with a a sense of where you are now in relation to your needs and to others, and to equip you with a planning direction.