QUESTION: Can the board install a new component (speed bumps) from reserves? If I understand correctly, it can't come from reserves since it is a new component which will alter the appearance of the complex, and it can't come from the operating fund either.

ANSWER: Speed bumps are asphalt mounds constructed on streets for the purpose of slowing down traffic. Arguably, the installation of speed bumps would be a capital improvement, i.e., the addition of a component that did not previously exist. As such, an argument could be made that speed bumps cannot be funded from reserves since reserve monies are set aside for existing common area components.

Contrary Argument. However, the streets themselves are existing reserve items and adding safety features to streets such as reflectors, additional striping, signage and the like are elements of streets that legitimately fall within the discretion of the board of directors. If the cost is relatively minor, it could justifiably come from street reserves. If the cost is significant, it would likely require a special assessment to pay for the improvements. If a safety concern can reasonably be demonstrated and the cost to install is a small percentage of the street funds, I suspect a judge would side with the board on using reserve funds for that purpose.

Resources. See www.phoenix.gov/Streets/speedhmp.html for information used by the City of Phoenix, Arizona. Also see www.ctre.iastate.edu/Research/roadhump for a study on speed bumps prepared by the Center of Transportation Research and Education at Iowa State University.

RECOMMENDATION: Since this issue is open to debate, boards should discuss with legal counsel how best to balance any safety and cost concerns related to reserve expenditures.