Reserve Funds

Greetings All - Our golf course is a POA amenity and a line item within our Reserves. The golf course needed a new irrigation pump and it was replaced at "X" dollars and the BOD voted to have the pump replaced.

Question - By voting yes to have the pump replaced I would expect the dollars to pay for this pump to come out of the operating account. However, our Mgr. states the monies were removed from the reserves to cover the expense. Now, the BOD did not discuss or approve or vote for monies to be removed from the reserves to cover this expense. Is this correct? Or, should have the BOD voted to remove monies from the reserve account to cover this expense or just expect that type of transaction to occur just because the golf course is a line item as part of our Reserves?? Thank you.

The usual accounting definition of a "capital improvement" is an expenditure for replacing or repairing physical assets that the HOA owns or is responsible for maintaining where the expenditure increases the value or the useful life of the asset or assets and the asset or assets are reasonably expected to have a useful service life of three (3) years or more.

By the nature of a reserve account, the Board is authorized to dip into it for any "capital improvement" without further authorization from the membership. Good reserve management will ensure that there will be money in the reserve account when the Board needs to authorize a capital improvement.

Hi Bill,

Lawrence nailed it as have yourself. If your regular operating budget can absorb a pump replacement, then save your reserve monies for those breakdowns that you REALLY didn't see coming, as in you don't have a normal budget line item with the cash to handle the repair.

I really don't think there's a wrong answer to your inqury, though I'm a personal/professional fan of staying "on budget" when possible and when fiscally responsible.