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 a fire protection district needs long-term financing, the method of raising funds that the Missouri Constitution and statutes provide is to issue bonds. These bonds come in two types: general obligation and revenue. General obligation bonds basically use all taxable real estate and personal property in the district 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.
General obligation bonds
General obligation bonds represent a lien against every taxable property in the district; 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 and November — this means four-sevenths or 57.1 percent approval. At low-turnout elections — February, March or June — it means two-thirds or 66.7 percent approval.
After passage of a GO bond issue, an annual property tax levy raises the revenues needed to redeem these bonds. Should a district default on GO bonds, every taxable property in the district would have a proportional lien for its share placed against it. Property could be sold at auction for nonpayment (321.340–321.380)
As stated above, revenue bonds do not obligate taxable property in the district 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 a district contracted with a city adjoining the district 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 firm considered the bond issue unlikely to cover its obligations, it would not draw up the bond issue.
As political subdivisions, fire protection districts 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.
Generally, Missouri laws permit borrowing for no longer than a 20-year term. Any term up to 20 years is permissible. 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’ 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.