Can HOA capital improvements be paid for from reserves?

For purposes of this question we are defining HOA capital improvements as the expenditure of funds for new, not previously existing, components.

We frequently get this question from newer clients who usually will have what they consider a surplus in their reserve account. Member look at the money and want to use it. Recently an association that had an active grounds committee wanted to add a gazebo and raised gardens. We needed to explain to the board and grounds committee that reserves are strictly for maintaining existing capital assets and cannot be used for improvements such as a gazebo. However once the improvements are completed, the cost of maintaining them can be funded out of reserves.

So how does an association fund capital improvements? Once method would be to setup a separate account earmarked for this improvement. Another method that we see more frequently is a special assessment. The association should look first to their governing documents to determine if there are any limitations on inclusion of capital improvements within the reserve funding plan. In Washington state, the Condominium Act states how reserves are to be used. There is a provision where the association can borrow from reserves but that is normally to cover unexpected operation expenses, not capital projects. When is doubt the board should consult legal council.