Threshold Funding

Threshold funding is a reserve funding goal that keeps the reserve balance above a chosen minimum, set as a dollar amount or a percent funded level.

The board picks the floor. It might be a fixed sum such as $100,000, or a level such as 70% funded. The funding plan then sets contributions so the projected balance never falls below it in any year.

Threshold funding sits between the other two common goals. A low threshold behaves like baseline funding. A threshold of 100% funded is full funding.

Its appeal is flexibility. An association can choose a cushion that suits its risk tolerance and the age of its buildings. The weakness is that the result is only as good as the threshold chosen. A floor that is too low leaves little room for a cost overrun or an early failure.

When you read a study that uses threshold funding, look for the threshold itself and the reason it was chosen.

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.