CAI-NJ Nov. 2021(w)

FINANCIAL HEALTH... from page 16.

this typically results in the association having a “deficit” (or significantly reduced) replacement fund balance during the repayment period of the loan. This is an important item to con- sider, especially when looking at the annual contribution to the replace- ment fund. When repaying a loan, it is important to remember that the budgeted annual contribution to the replacement fund must be sufficient to 1) save for future projects and 2) cover the debt service payments associated with the loan. Once the board has gained an understanding of how much money is available for an upcoming project, the next step is to compare those cash and replacement fund balances to the engineering reserve study. The engineering reserve study contains a large amount of very detailed and useful information that, when interpret- ed properly, can serve as a valuable tool for financial planning. Some key pieces of information from a reserve study are detailed below: Cash Flow Projection: Most engi- neering reserve studies will include a 30-year cash flow projection, which proj- ects the contributions and expenses to be incurred in the replacement fund each year. Checking a few simple figures can provide insight as to the overall health of the replacement fund. a. Estimated Fund Balance – Checking the estimated fund balance to the association’s actual replacement fund balance as included in the audit or financial statements.

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