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

AuthorRaymond S. DiRaddo
Chapter 7
Bond Issues, Bond Anticipation
Notes, Revolving Loan Fund and
Capital Reserve Funds
New York Fire District Officers’ Guide
§7:10 7-2
Fire districts, as well as other municipalities, have flexibility in the manner in which they issue and repay debt.
In matte rs of deb t issuan ce and de bt repay ment, th e fire district attorney and bond counsel should be continuously
consulted. Under no circumstances should a Board of Fire Commissioners become involved in financing mechanisms
without proper legal advice.
The most familiar method for carrying out a capital improvement program is by using serial bonds. The serial
bond is the evidence of long-term debt. Local Finance Law §62.10. All fire district serial bonds have to be issued
in registered form. Fire districts have two choices for handling the registration requirement. (See Form 7-3).
1. Act as your own agent. The office of the State Comptroller strongly advises against acting as your own
agent because of difficulties that may be encountered in handling transactions in a cost effective and timely
2. Designate a bank as a transfer agent. In choosing a bank to act as 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 make cost comparisons between banks before selecting the bank that will act as a transfer agent.
Bond anticipation notes may be issued in anticipation of the sale of bonds when it is deemed expedient
to temporarily finance a project during the course of high long-term interest rates 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 date of issue but may be renewed from time
to time. Renewals may not be made for a period in excess of 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 two-year period. Under no circumstances may renewals
extend more than five years beyond the date of their original issuance. Bond Anticipation Notes may be sold at
either private or public sale. (See Form 7-6.)
Arbitrage is the borrowing of money at one rate and investing the proceeds of the loan at a higher rate.
Some municipalities have sold bond anticipation notes and invested the proceeds of such notes in this manner.
The office of the State Comptroller has taken the position that borrowing for the sole purpose of investing is
contrary to public policy and an abuse of the tax-exempt feature of fire district borrowings. Arbitrage certificates
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 PURP OSES
Fire district indebtedness may be incurred for those purposes related to the fighting of fires. Those purposes
may include: purchase of vehicles and apparatus (including those required for emergency relief of fire police
squads), purchase of fire alarm systems, acquisition of an adequate source of water supply to fight fires, and
acquisition of land and buildings for housing and storage of equipment and apparatus (such as fire houses, fire
stations or headquarters facilities).
Bond Issues, Bond Anticipation Notes
7-3 §7:10.5
Fire districts, as well as other units of local government, are able to add flexibility in structuring their debt
more efficiently and marketing their obligations more effectively. However, they must comply with the rule set
out by law for the particular expenditure. Local Finance Law §§11.00 et seq.
In the event the fire district needs to sell bonds or notes that are based upon equipment or improvements to
real estate that have different 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 usefulness 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 by the period of probable usefulness, or, if less, the
maximum authorized maturity of indebtedness to be contracted for such piece of equipment or improvement as
determined by the bond resolution authorizing such indebtedness, and dividing the resulting sum by the dollar
value of the proceeds expected to be received by the fire district from the combined indebtedness. Local Finance
Law §11.00a.
In determining the weighted average, bond counsel or a financial advisor should be consulted.
Boards of Fire Commissioners may determine to issue bonds and provide for substantially level or declining
debt service. The determination of whether annual debt service is substantially level or declining shall not take
into account the first twelve months after issuance to the extent that no provision is to be made for the payment
of principal during such period. If a Board of Fire Commissioners determines to issue bonds with a substantially
level or declining annual debt service schedule, the aggregate amount of debt service payable in each year shall
not exceed the lowest aggregate amount of debt service payable in any prior year by more than the greater of
five per cent or ten thousand dollars.
After the Board of Fire Commissioners has determined the purpose or purposes for which debt is to be
incurred, the fire district attorney and bond counsel should prepare the bond resolution. The bond resolution will
set forth the purpose or purposes for which it is desired to issue serial bonds and the estimated maximum cost
and the amount of bonds to be issued together with a statement of the maximum life of the object or purpose
for which such bonds are to be issued. In the case of a multiple purpose bond issue, the weighted average of the
varying periods of probable usefulness will be used.
The bond resolution must first be approved by at least a three-fifths vote of the entire membership of the
Board of Fire Commissioners. It must then be approved by the voters of the fire district at the Annual or Special
Election called or held in the manner prescribed by law. See Fire District Officers’ Guide Chapter 3. If the
proposition for the bond resolution is disapproved by the voters, no future action is permitted. If the proposition
for the bond resolution is approved, the Board of Fire Commissioners may proceed with the undertaking of the

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT