Baseline funding is described as keeping reserve cash above zero with lower contributions, increasing the risk of which outcome?

• A. It keeps reserve cash balance above zero with lower reserve contributions, and is the riskiest method.
• B. It ensures no special assessments will ever occur.
• C. It guarantees no need for loans.
• D. It eliminates the need to fund reserves.

Answer: (A)

Baseline funding tests how the level of reserve contributions affects the chance of funding future big costs. When you keep reserve cash above zero but fund it with lower contributions, there isn’t enough money being built up to cover major repairs or replacements as they come due. That slim cushion means a large expense could outpace the available reserves, making it more likely you’ll need a special assessment from owners or to borrow money to cover the cost. So, this approach is considered the riskiest because it preserves a small cash balance while underfunding the future needs. The other options describe outcomes (no special assessments, no loans, or eliminating the need to fund reserves) that baseline funding does not guarantee.