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Date last updated: Thursday, January 4, 16:55 PST

Exploring Volunteer Funding Options

Volunteer Fire Departments ("VFD") provide a critically important link in the overall public protection within our cities and counties. When your VFD needs new equipment or facilities, you should know that there are options when it comes to the financing. While there are a multitude of different approaches, this article will discuss loans, leases and bonds ("Obligations") as the method to pay for equipment, improvements and facilities.

Wouldn't it be nice to always have the required cash on hand to purchase new fire apparatus, an ambulance, station construction and improvements? We all know that saving for these projects may be the conservative approach but there always seems to be less money at the end of the year to "sock away" for these purchases. VFD's do have options and should explore financing these acquisitions as the best way to serve your community. Instead of waiting 10 to 15 years to accumulate the necessary funds, your VFD may be able to borrow the money to replace outdated or unsafe equipment, or expand your station to meet the needs of a growing area.

There are two different types of Obligations, taxable and tax-exempt. With a tax-exempt Obligation, the bank or lender has the benefit of the interest payments being exempt from Federal taxation. As a result, the bank can pass this benefit on to your VFD in the form of lower interest rates. The impact on your VFD is tax-exempt Obligations afford your VFD more buying power, and lower annual payments versus a taxable interest rate. The rules are quite specific so a quick read and review by your accountant or lawyer will be time well spent.

Tax-exempt Leases, Loans and Bonds
Volunteer Fire Departments can be considered tax-exempt for purposes of Section 103 of the Internal Revenue Code. However, in order to enter into a tax-exempt Obligation, your department must be considered a "qualified volunteer fire department", hence, (i) your department must provide firefighting or emergency medical services in an area within the jurisdiction of a sponsoring political subdivision, AND (ii) that area cannot be provided with any other firefighting services, AND (iii) the department must have a written agreement with your local municipality to provide firefighting services.

Once you've determined that your department is a "qualified volunteer fire department", it is necessary to test the use of proceeds. Generally, at least 95% of the proceeds of your financing must be used for the acquisition, construction, reconstruction, or improvement of a fire station or fire truck. A financing would not qualify as tax-exempt if proceeds are used exclusively for an ambulance, or equipment not used in fighting fires. This equipment can still be financed, however it would be done using a taxable rate, as described further in this article.

A public hearing on the nature and/or location of the project to be financed must be held, following at least 14 days published notice. This hearing could be held at a regularly scheduled meeting of your City Council or Board, or it could be accomplished with a special meeting.

After the hearing has taken place, the chief elected official must provide the VFD with evidence that the political subdivision approves the execution of the Obligation documents.

This approval in no way binds legally or financially the sponsoring political subdivision; it is simply and acknowledgement of the financing.

Now all of this may seem like a lot of work, but for the difference in payments, it is truly worth spending a little time now to save your VFD a considerable amount of money in the future. Your prospective lender should be able to walk you through the process to make certain you are proceeding in the proper fashion.

Taxable Leases, Loans and Bonds
If the above seems like too much work, or your department does not fit the qualified fire department rules, you can enter into a taxable Obligation. Once again, the only real difference to your VFD is the difference in the annual payment amounts. With a taxable Obligation, your bank or lender must pay Federal income tax on the interest earnings and therefore will offer a higher interest rate for this financing option.

You can finance just about anything with a taxable Obligation; fire apparatus, ambulances, turn out gear, command vehicles, stations and social halls.

The credit process for either a taxable of tax-exempt Obligation is basically the same. Most lenders will want to review three years' annual financial statements or 990's, see a current budget and understand your need for the equipment or project. Sometimes spending a few minutes putting together a brief "needs assessment" for your lender can speak volumes about your VFD and the critical service you provide to your community. Usually, a lender will review these items and give credit approval fairly quickly, they are looking to see if your department has enough revenue to cover the annual payments and to see how much debt your department can handle.

Prudent cash management, fiscal responsibility and overall department management will definitely prove valuable when you are financing your equipment and projects.

"All loans of Volunteer Fire Departments require the personal guaranty of its members" Most leases, loans and bond obligations of VFD's DO NOT require personal guaranties assuming that the VFD files 990's and has reasonable cash management practices.

"We will always be able to save enough money" As the last few years have proven, sometimes the funds you were expecting are not available, and the specification requirements for insurance continue to make demands on upgrading and improving your equipment. Do not rule out financing as a viable alternative when cash flow becomes tight.

"The majority of our funding comes from fund raisers like bingo, we've been told that we can't get approved" As long as those fund raising revenues have been steady for a few years, these items can be used in the credit approval process.

You should find a lender that has experience in working with VFD's to save time and energy. Ask your fellow members for referrals as there are many banks and private capital companies that specialize in working with VFD's.

Laura Fiemann has 13 year of experience working in the municipal finance industry as a bond underwriter and leasing consultant. Laura graduated from the University of Colorado and currently manages fire/rescue, and real estate financings as Vice President of Business Development at Tatonka Capital Corporation. Laura has been selected to serve as a consultant with numerous organizations in the finance industry, and is regarded as an expert in working with VFD's for equipment and real estate acquisitions.

From their beginning in 1993, Tatonka Capital Corporation ( has provided funding for government finance projects to vendors, manufacturers and government entities nationwide. Specifically, these included tax-exempt and taxable municipal leases, federal government leases, and lending to commercial entities.

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