Baseline Funding

Baseline funding is a reserve funding goal that keeps the reserve cash balance above zero throughout the projection, and no higher than it needs to be.

Contributions are set so that the fund never runs out of cash on paper. In the tightest year of the plan, the projected balance approaches zero.

Baseline funding produces the lowest contribution of the three common goals, which is why it is attractive in the short term. It also carries the most risk. There is no cushion. If a project costs more than expected, arrives early, or inflation runs above the assumption, the association faces a special assessment, a loan or a delay.

Because the plan depends on every estimate being right, baseline funding calls for frequent updates and careful tracking of actual costs.

Some state laws restrict how far reserves can be reduced for certain components, so check the rules that apply to your association before adopting a baseline plan.

Source: this definition follows the National Reserve Study Standards, published by Community Associations Institute (CAI), explained in our own words. State law can define the term differently for its own purposes.