Rules for Missouri Fire Protection Districts - Page 18
Parenthetical numbers in the text refer to sections of the current Revised Statutes of Missouri, abbreviated as RSMo.
When an FPD needs long-term financing for capital expenditures, the method of raising funds that the Missouri Constitution and statutes provide is to issue bonds (321.220; 321.240; 321.260; 321.290; 321.340-380; 321.600 ). Examples of capital expenditures include building an additional firehouse, purchasing new equipment that will last multiple years, and making other purchases or improvements of long-term usability rather than normal annual operating expenses.
These bonds come in two types: general obligation and revenue. General obligation bonds use all taxable real estate and personal property in the FPD as security to borrow against. Revenue bonds use as security only the revenue to be produced from the project or activity that the borrowing is for. FPDs nearly always use general obligation bonds because almost all their revenue comes from taxation. There are few situations for which revenue bonds could be used.
Also see Long-term debt and lease purchases section in Chapter X. Budgets and the Budget Process.
General obligation bonds
General obligation bonds represent a lien against every taxable property in the FPD — even after annexation into a city with its own fire department; thus, they are more tightly controlled than revenue bonds. Commonly called GO bonds, they can be issued only after voters approve a bond issue by an “exceptional” majority. At high-turnout elections (April, August or November), this means four-sevenths or 57.1% approval. At low-turnout elections (February), it means two-thirds or 66.7% approval.
After passage of a GO bond issue, an annual property tax levy raises the revenues needed to redeem these bonds. Should an FPD default on GO bonds, every taxable property in the FPD would have a proportional lien for its share placed against it. Property could be sold at auction for nonpayment (321.280).
As previously stated, revenue bonds do not obligate taxable property in the FPD, but only the revenue that is expected to be received from the purpose for which the funds were borrowed. An example of when a revenue bond might be used is if an FPD contracted with a city adjoining the FPD boundaries to provide service for an annual contract fee (321.221). Revenue bonds could be used to finance construction of a firehouse inside that city, payable from the contract payments.
Law firms that specialize in bond issues generally assess whether the proposed projects will produce necessary revenues to retire revenue bonds. If a law firm considered the bond issue unlikely to cover its obligations, it would not draw up the bond issue.
As political subdivisions, FPDs can issue bonds that are exempt from both state and federal income taxes. This tax exemption makes GO and revenue bonds attractive to investors, which allows borrowing at lower interest rates.
General obligation bonds usually have a slightly lower interest rate than revenue bonds.
The interest rate of FPD bonds is capped at 6% (321.340).
FPD laws permit borrowing for any term up to 20 years (321.340). Whatever the term, the reserves set aside to repay bonds can be no more than amounts necessary to make the current year’s and the coming year’s payments. With GO bonds, each year’s assessed property valuation is calculated against payment amounts needed, the dollar value of bonds maturing, to establish the needed levy amount.
According to Article VI, Section 26b, bonded indebtedness cannot exceed 5% of the value of taxable tangible property in the FPD as shown by the last state or county assessment. For example, an FPD with a $20 million assessed valuation, could only have $1 million in bonded indebtedness.
Debt retirement fund
When certifying annual levies the FPD board needs to take into account a separate levy for the next year’s installments and interest payments on bonds. (321.260). The tax revenues from this separate levy must be deposited into a separate reserve fund for debt retirement (321.290), that may have enough tax revenue for up to two years’ of installments and interest payments. (Also see the Long-term debt and bond issues section in Chapter VIII. Property and Sales Taxes and Fees.)