Bond Issues, Bond Anticipation Notes, Revolving Loan Fund and Reserve Funds

• Pages: 437-508
• Author: Raymond S. Diraddo

BOND ISSUES, BOND

ANTICIPATION NOTES

CHAPTER 7

BOND ISSUES, BOND

ANTICIPATION NOTES,

REVOLVING LOAN FUND

AND RESERVE FUNDS

BOND ISSUES, BOND

ANTICIPATION NOTES

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BOND ISSUES, BOND

ANTICIPATION NOTES

7-3 Bond Issues, Bond Anticipation Notes §7:10

§7:10 BOND ISSUES AND BOND

ANTICIPATION NOTES

Fire districts have exibility in how they issue

and repay debt. The re district attorney, the district

treasurer, and bond counsel should be continuously con-

sulted regarding debt issuance and repayment. Under

no circumstances should a Board of Fire Commission-

ers become involved in nancing mechanisms without

proper legal advice.

§7:10.1 Registered Bonds

Using serial bonds is the most familiar method for

carrying out a capital improvement program. Serial

bonds are evidence of long-term debt. Local Finance

Law §62.10 requires all re district serial bonds to

be issued in registered form. Fire districts have two

choices for handling the registration requirement (See

Form 7-3).

1. Act as your agent. The oce of the State

Comptroller strongly advises against acting

as your agent because of diculties that may

be encountered in handling transactions in a

cost eective and timely manner.

2. Designate a bank as a transfer agent. In choos-

ing a bank to act as a transfer agent, the Fire

District should consider timeliness, accuracy,

experience as a transfer agent, and the bank’s

ability to have the bonds preregistered within

72 hours. Banks will charge for this service,

and a Board of Fire Commissioners should

compare costs before selecting the bank that

will act as a transfer agent.

§7:10.2 Bond Anticipation Notes

Bond anticipation notes may be issued in anticipa-

tion of the sale of bonds when it is deemed expedient to

nance a project during the high long-term interest rates

temporarily or to avoid the expense and paperwork of

other bonding processes. Such notes are payable from

the proceeds of the serial bonds when issued.

Bond anticipation notes must mature within one

year from the issue date but may be renewed occasion-

ally. Renewals may not be made for over one year. In

no event may notes or renewals extend more than two

years beyond the original date of issue unless a portion

of the notes or renewals is redeemed from a source

other than the proceeds of bonds within such a two-year

period. Under no circumstances may renewals extend

more than ve years beyond the date of their original

issuance. Bond Anticipation Notes may be sold at either

private or public sale. (See Form 7-6.)

§7:10.3 Arbitrage

Arbitrage is borrowing money at one rate and

investing the loan proceeds at a higher rate. Some

municipalities have sold bond anticipation notes and

invested the proceeds of such notes in this manner. The

oce of the State Comptroller has taken the position

that borrowing for the sole purpose of investing is con-

trary to public policy and an abuse of the tax-exempt

feature of re district borrowings. Arbitrage certicates

frequently accompany the Bond anticipation note to

assure the investor that the money borrowed will be

used for its intended purpose. (See Form 7-4.)

§7:10.4 Purposes

Fire district indebtedness may be incurred for those

related to ghting res. Those purposes may include:

the purchase of vehicles and apparatus (including those

required for emergency relief of re police squads),

the purchase of re alarm systems, the acquisition of

an adequate source of water supply to ght res, and

the acquisition of land and buildings for housing and

storage of equipment and apparatus (such as rehouses,

re stations or headquarters facilities).

§7:10.5 Period of Probable Usefulness

(See Form 7-4)

Fire districts, as well as other local government

units, can add exibility in structuring their debt more

eciently and marketing their obligations more eec-

tively. However, they must comply with the law’s rules

for expenditures. Local Finance Law §§11.00 et seq.

§7:10.6 Weighted Average

In the event the re district needs to sell bonds or

notes based upon equipment or improvements to real

estate that have dierent periods of probable usefulness,

the indebtedness may not be contracted for a period

longer than a combination of the periods of probable

usefulness of the equipment or improvement to real

estate. This combination of the periods of probable

usefulness is called the weighted average.

The weighted average period of probable useful-

ness shall be determined by computing the sum of the

products derived by multiplying the dollar value of the

portion of the proceeds of the indebtedness expected to

be received for each piece of equipment or improvement