Firehouse with red doors
Firehouse with red doors

In late 2021 the Putnam Valley Volunteer Fire Department used a unique and little-known financing process to close on a $11,000,000 construction and equipment loan for a new, state-of-the art firehouse to be built in Putnam County, New York. The unusual part of this financing? How about a program that allows Fire Departments to borrow millions over a period as long as 30 years with an interest rate under 4.0%? And further, that you would be able to obtain sales tax and mortgage tax savings or exemptions in connection with your capital project?

The new firehouse will include apparatus bays, equipment storage, radio rooms, and a ready room located on the first floor and a second floor which includes a large meeting hall, kitchen, lounge, offices and a training room. The $11 million also provided financing for the purchase of fire trucks and other equipment used by the firefighters.

The Putnam Valley Volunteer Fire Department used a financing mechanism some have referred to as the “best-kept secret in real estate finance”, namely issuing its own Bonds. A qualified volunteer fire department may issue its own bonds pursuant to (i) the Not-for-Profit Corporation Law of the State of New York, as amended, particularly, Sections 202 and 506 thereof, and (ii) Subtitle A, Chapter 1, Subchapter B, Part IV, Subpart C, Section 150(e) of the Internal Revenue Code of 1986, as amended, which provision authorizes a qualified volunteer fire department, such as the Putnam Valley Volunteer Fire Department to issue tax-exempt bonds for the purpose, among other things, of financing the cost of acquiring, constructing, improving and equipping a firehouse to be used by the qualified volunteer fire department. In addition, pursuant to New York State Tax Law Section 253(3) (which exempts fire companies) no mortgage tax is payable, which for the Putnam Valley Volunteer Fire Department resulted in a savings of over $100,000.

The Putnam Valley Volunteer Fire Department issued its own bonds with the assistance of Signature Bank and its affiliate, Signature Public Finance Corp., which purchased the entire $11 million bond issue. The proceeds from the sale of the Bonds were used to finance the Fire Department’s new firehouse as well as firetrucks and equipment. Typically, the Bonds are marketed and sold to various investors (usually banks, bond funds and institutional investors). Investors are willing to buy the Bonds for investment purposes because interest on the Bonds is triple tax-exempt (exempt from Federal, State and City taxation) for a borrower such as the Fire Department that is a 501c3 entity under the Internal Revenue Code. (For other borrowers that are not triple tax-exempt 501c3 entities, the interest is taxable but still reduced because the bonds are double tax-exempt, losing only Federal tax-exemption but still enjoying State and City tax exemption.)

The Volunteer Fire Department is a not-for-profit, and by virtue of that status, they did not have to pay sales tax on the goods and materials bought in connection with their project.

Prior to engaging an investment bank or other financial institution, the borrower should engage expert counsel to structure the financing and ensure that the bond financing would be beneficial to the borrower. And more importantly, to ensure that the borrower would be permitted to use the tax-exempt financing mechanism. The Putnam Valley Volunteer Fire Department retained Joseph P. Carlucci, Esq. and bond experts from Cuddy & Feder LLP, a law firm based in White Plains, New York to assist them with their bond financing. Cuddy & Feder LLP, which has represented more than 100 organizations over the past 20 years on taxable and tax-exempt bond financings helped the Putnam Valley Volunteer Fire Department work through the transaction, offering guidance and assistance to the Volunteer Fire Department from the initiation of the bond process up to and through the closing of the transaction.

In addition, counsel advised the Volunteer Fire Department on some of the intricate rules of tax-exempt financing. Under state and federal law (Internal Revenue Code), manufacturing companies, airport facilities and not-for-profit entities (such as a Volunteer Fire Department that is a 501c3 entity), can enjoy triple tax-exempt bond financing. For-profit companies cannot enjoy triple tax-exempt bond financing but may undertake (double tax-exempt) taxable bond financing for capital projects. Although the interest rate on taxable bond financing is somewhat higher than tax-exempt bond financing, it is still lower than a conventional commercial bank loan. The interest rates on tax-exempt bond financing can be as much as 50% lower.

If, after consultation with counsel, the borrower determines that bond financing would be beneficial, the borrower then selects an investment banker. The investment banker’s role is akin to that of a financial advisor who will work with the borrower and the borrower’s counsel to structure the transaction and to guide the borrower through the financial aspects of the deal. The Volunteer Fire Department engaged J. Douglas Casey, an investment banker with the investment banking firm of American Veterans Group (AVG) located in New York City. AVG helped the Fire Department to “crunch” the numbers, ensuring that the bond proceeds and the Fire Department’s contribution of equity would be sufficient to undertake and complete the project. AVG also helped the Putnam Valley Volunteer Fire Department structure the repayment of the bonds (the amount of payments of principal and interest the borrower will make during the life of the Bonds). Bonds can have a term for as long as 30-40 years, a much longer repayment period in comparison to a conventional commercial bank loan, customarily 5 to 10 years, which can be a great benefit to a borrower looking to reduce annual debt service.

The investment banker is also responsible for selling the Bonds. In the Putnam Valley Volunteer Fire Department’s bond financing, AVG did not publicly sell the Bonds in the market but rather placed the bonds with one purchaser because a bank was willing to purchase the entire bond issue. A direct placement with a bank is more common these days than in the past when it was financially prohibitive for banks to purchase such bonds. Whether the Bonds are publicly sold in the market, or are privately placed as in this case, the bond financing procedure is similar. The investment banker will also work with the borrower to create a presentation booklet containing, among other information, financials, historical data and a profile of the borrower, the proposed project and suggested financial structure of the transaction. Using that presentation package of information, the investment banker will offer the “shop” the financing around with a number of banks and other bond purchasers who may have an interest in purchasing some or all of the bond issue.

The entire process usually takes up to 3 to 4 months although circumstances can require more time and the costs to the borrower may range from 3% to 5% of the principal amount of Bonds being issued (up to 2% of the Bond proceeds may be used to finance the costs of the transaction). At first glance, the cost may seem high but the overall savings to the borrower are well worth it when compared to a conventional commercial bank loan, including a much lower interest rate and longer repayment term that result in lowering the borrower’s annual debt service and help the borrower to free-up money to be spent for other purposes.

In addition to the benefits mentioned above, there may be real estate tax abatements, energy costs savings and sales tax exemption. The Volunteer Fire Department is a not-for-profit, and by virtue of that status, they did not have to pay sales tax on the goods and materials bought in connection with their project. Manufacturing facilities and other for-profit entities do not automatically have sales tax exemption; however, if they undertake a similarly financed project, they might be able to avail themselves of sales tax exemptions on goods and materials bought in connection with their project. That benefit alone may save hundreds of thousands if not millions of dollars in project costs. In addition, implementing a reduction in real estate taxes through a mechanism called a “payment in lieu of taxes” can likewise save hundreds of thousands if not millions of dollars in property taxes over the life of a project. Also, in some cases a project may received energy at a much-reduced cost if it qualifies under programs created by energy providers.

In comparison to conventional financing, bond financing is a mechanism which offers growing companies, for-profit or non-profit organizations like the Putnam Valley Volunteer Fire Department, the ability to borrow money to finance capital projects at lower interest rates, repayments over very long terms (30 years typically) and provides other savings like sales tax exemption, energy cost reduction and property tax exemption. The volunteers of the Putnam Valley Volunteer Fire Department can attest to this low-cost financing mechanism, as they soon will have their state-of-the-art firehouse with efficient and reliable equipment, which undoubtedly will increase their productivity and efficiency and save lives.


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The following materials, and all other materials on this website, are intended for informational purposes only, are not to be construed as either legal advice or as advertising by Cuddy & Feder LLP or any of its attorneys, and do not create an attorney-client relationship between you and Cuddy & Feder LLP. Please seek the advice of an attorney before relying on any information contained herein.


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