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The more fires you put out, the better you get at it. Practice makes perfect. That is why your people train again and again.
But how often do you have to finance fire stations or apparatus?
Financing is a critical and complex task. It requires careful planning and strategic decision-making. Yet you don’t have to do it often. When we are out of practice, mistakes are common.
Here we cover eight most frequent financing pitfalls that we see with fire departments. We hope this will help you avoid common missteps and secure the funding you need to serve your community.
Fire service is capital-intensive. Price tags run over $300,000 on ambulances, from $500,000 to over $2,500,000 for fire engines, and station construction costs often exceed $1,000 per square foot. You can’t just wing it anymore.
That’s where the Capital Facilities Plan comes in.
A good plan includes:
The Capital Facilities Plan should look at least 15-20 years into the future. Some departments develop 50-year plans.
The plan should be updated every 3-5 years and more often, if necessary. Going more than five years without an update pretty much guarantees that you will be trying to build tomorrow’s facilities with yesterday's dollars. That never works!
With a good Capital Facilities Plan you can timely update your impact / mitigation fees, pursue grants and earmarks, and take advantage of the most favorable financing tools.
Without a plan, you are stuck in a game of whack-a-mole and putting out financial fires. It costs more time, effort, and money than necessary.
Project financing takes time. There is no way around it.
Waiting too long to kick it off leads to missed opportunities that could significantly ease your financial burden.
You want to start talking money at least two years before you need it. This gives you time to apply for federal and state grants and earmarks.
Subsidized government loans, such as USDA, can take over a year to be approved.
If you are going for a bond measure or parcel tax, it will be at least a year before you get the money.
When funding is needed in three months, your options become extremely limited and costly.
A fiduciary acts in your best interest.
The Dodd-Frank Act states that only registered municipal advisors acting as fiduciaries can give financing advice to public agencies. It is meant to protect your department.
Taking financing advice from a non-fiduciary (such as a financing company, a bank, or a broker-dealer) can lead to getting into financing products that are more beneficial to those selling them than to you.
Fire departments have access to a wide range of financing tools.
Bonds, private placements / bank loans, and government loans (such as USDA) each have their own pros and cons.
Financing methods include:
Each one works better in specific situations.
Failing to understand and assess these options can lead to poor financing choices.
We often see fire departments fail to get multiple quotes, choosing instead to go with the first offer or the most persuasive pitch made over a fancy dinner. This can be very costly.
You want to solicit multiple proposals and thoroughly vet each one. Look not just at the interest rate, but also at the terms, covenants, prepayment flexibility, additional fees or charges, etc.
In the world of money, things we don’t understand often cost us way more than they should.
Municipal finance is well regulated, and many players do honest work. But some finance companies do not have your best interest in mind.
You don’t want to be stuck with interest rate mark-ups and hidden fees and commissions.
Make sure you always understand how all parties involved in the financing process are getting paid. Do not be afraid to ask questions about fees and commissions. Transparency is your friend.
Some financing products come with expensive and cumbersome terms and covenants. Common pitfalls include lack of prepayment flexibility, buyout costs, variable interest rates, balloon payments, and hidden fees.
Make sure you fully understand key terms of the financing agreement and seek advice from a knowledgeable municipal advisor and legal counsel. This will help prevent unpleasant surprises.
The Government Finance Officers Association recommends that public agencies retain a municipal advisor prior to proceeding with financing.
A municipal advisor is a licensed and registered professional who is tasked with fiduciary duty to act in your best interest. That is why they are the only party that can legally give financing advice to a public agency.
Having a municipal advisor on your team helps you make sure that you are getting a fair deal and understand the true costs and implications of your financing.
Failing to engage a municipal advisor can lead to overlooked opportunities and costly mistakes.
Being mindful of these mistakes, your fire department can secure better financing for fire stations, apparatus, and equipment.
Ridgeline Municipal Strategies, LLC is a registered municipal advisor helping California fire departments with financial planning and financing for fire stations, training centers, apparatus, and equipment.
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