The Threshold Funding Plan option will be typically selected by the board which could be a specific funded target or a cash balance target. The application will calculate what it takes for an association to always maintain a positive cash flow.
The internal algorithm optimizes cash flows in order to guarantee the following two conditions:
The full funding plan option allows an association to always maintain a positive cash flow and to achieve a 100% funding at the end of a 30-year period. The internal algorithm optimizes cash flows to guarantee the following three conditions:
Positive ending balance for each year
Ending Balance to Expenditures Ratio for each year exceeds the predefined minimal value (0.1 by default)
100% funding at the end of a 30-year period
Initial parameters from Data Entry tab (Starting Balance, Proposed Reserve Contribution, Inflation, and Interest) are used in calculations of the cash flows for the plan.
The internal algorithm automatically estimates the minimum required reserve contribution for each year. Special Assessments also can be automatically added by the algorithm for some years in order to guarantee the positive balance during the first several years. The algorithm always try to apply uniform increase/decrease of the reserve contribution from year to year (unless a user specifies other settings in Admin Parameters side panel). Admin Panel allow choosing how the Yearly Reserve Contribution should increase year by year as well as the rules for adding Special Assessments.
Minimal Ratio of Ending Balance to Expenditures can be set to any non-negative value (as a rule, it is a positive value between 0 and 1), it ensures the required level of cash flow considering the variable expenditures from year to year. The default recommended value is 0.1.
Percent Change can be chosen either Uniform or Custom:
Uniform Percent change means that Reserve Contribution will be increased every year by the same percent as compared to the previous year. A user is asked to set the limiting values of percent change for yearly Reserve contribution. This range is to be used by the algorithm to find the optimal value of the Percent Change. Default range is [-3.00% to +3.00%]
Custom Percent Change means that a user can set different limiting values for any year. Then the algorithm finds the optimal value of the Percent Change of Reserve Contribution for each year considering the defined limits. Default range is [-3.00% to +3.00%] for years 2 to 20 and [-3.00% to +2.50%] for years 21 to 30
The Percent Change for the first year is always chosen by the algorithm and cannot be changed by a user. A button “Reset to default” resets the limits of Percent Change to the default values. The subtab “Sp.Assessments” in the Admin Panel allows setting the rules adding Special Assessments if they are required by the internal algorithm.
The algorithm can add the special assessments to guarantee the required conditions while ensuring there are not super high yearly reserve contributions. In particular, the special assessments can be added if high contributions are required in the early years. A user is asked to choose the two-time ranges:
the first one sets the years, for which the required minimal Ending Balance should be guaranteed by additional Special Assessments
The second one sets the years, for which the Special Assessments may be added