The Town of Fountain Hills would need to put aside nearly $1 million a year in order to be best prepared for site upkeep, according to a recent capital reserve study.

The Town Council heard from Casey Arnett with Capital Reserve Anaylysis, LLC during a study session held on April 12. The Town recently contracted with the company to provide a full reserve study in order to thoroughly assess the town’s physical properties and begin planning for future maintenance/replacement.

“Town assets, like all assets, have a limited lifetime usefulness and deteriorate,” Arnett explained.

The purpose of his study was to determine the best course of action for a “replacement reserve fund,” one that would help offset physical deterioration of town-owned assets by accumulating financial assets, according to the report.

At present, the Town is setting aside $100,000 annually for such a fund. According to Arnett, that puts the town’s reserve fund strength at about 14 percent. Ideally, the town would aim to be at 100 percent strength.

For the study, Arnett looked at the town’s component inventory, as well as the condition of assets and how long they were expected to last.

For Fountain Hills, this includes Town Hall, fire stations and Parks and Recreation. At Town Hall, typical components considered for the study included parking lot asphalt, pole lights, roofing, HVAC, chillers, elevators, paint, flooring, interior lighting, etc.

For local fire stations, this included items like communication equipment, fire hoses, defibrillators, interior finishes such as flooring and cabinets and roofing.

In the area of Parks and Recreation, typical components include Fountain Lake elements, playground equipment, irrigation systems, fencing and the courts/fields.

Not included in this study were vehicles, which the Town already has a fund established for similar purposes. Also not included are local streets.

In brief, the survey looked at all of these components, when they were purchased, their average life of usefulness, when they would need to be replaced and the expected cost of that replacement.

Instead of trying to find funds for these assets as the need arises, the purpose of a replacement reserve fund would be to build a pool that could be drawn from as needed, thus minimizing the need for emergency funding.

All told, Arnett reported that 199 components were included at all locations for his survey. The average expected life of these components was 19.8 years, with the average remaining usefulness of assets being 10.3 years.

With an annual deterioration cost of $655,673 pulled from this equation, Arnett said the Town’s fully funded goal totals $6,875,200.

Town Manager Grady Miller has recommended to the Council that $1,000,000 be used as a starting fund balance, which would then be added to on an annual basis. In order to reach the fully funded goal over the course of 30 years, Arnett’s survey suggests the town add $960,000 to the fund annually. According to Arnett, this would provide sufficient cash to fund repairs and replacements as needed, spread out stable contributions over an extended time frame and help keep the town fiscally responsible. Alternately, an $80,000 monthly contribution to the fund would have the same affect.

“Human nature is to put off and not plan for the future,” Arnett said, pointing out that about 70 percent of municipalities that are similar to Fountain Hills fund at 70 percent or below for their reserve funds.

While Fountain Hills is not obligated to fund at 100 percent ($960,000 annually), that was Arnett’s final recommendation.

“What we need to do is figure out how we will be funding this,” said Miller.

The Town Manager went on to suggest a financial policy wherein the Council determines a comfortable threshold and sources of funding.

The results of this study and the potential of a reserve fund will be further discussed at a future meeting.