Dagsboro council casts no-risk support to fire department’s loan venture

 

DAGSBORO – Dagsboro Volunteer Fire Department wants to replace an aging piece of fire-fighting equipment.

A no-risk blessing from the town of Dagsboro will allow the fire department to purchase the 2018 Sutphen engine pumper for less through a tax-free interest venture.

Dagsboro town council at its Sept. 18 meeting set Monday, Oct. 23 as the date for a required public hearing on the proposal. The private bond not to exceed $600,000 is through Fulton Bank.

“I’d like to thank the town for supporting the bond issue and help us save community’s money and get a better rate on the loan for our new fire truck,” said Gary cox, treasurer for the Dagsboro Volunteer Fire Department.

George “Buck” Smith, a tax lawyer with Sergovic Carmean Weidman McCartney & Owens, outlined the scenario at the council meeting.

“The fire department wants to get a loan for a piece of equipment other than an ambulance. It goes to the bank, asks to borrow money,” said Ms. Smith. “The bank says, ‘Of course.’ The bank will charge ‘x’ percent, but if the loan can be constructed so that the interest is tax free to the bank or tax deferred then the bank will charge a lower rate of interest to the fire department. So, they don’t have to spend as much money.”

“To do that you have to have the governmental unit in the area say, ‘We’re not issuing the bond. We’re not loaning the money. But we approve of it,’” said Mr. Smith, adding the town’s credit is no at risk. “Not even one penny.”

A caveat is that the Dagsboro Volunteer Fire Department promises to provide fire-fighting service to the town, Mr. Smith said.

The public hearing requirement is tied to the Internal Revenue Service and a law passed in 1982.

“If you do that, and then the town council approves not a bond issued by the town but issued by Fulton Bank for the benefit of the town then that loan can be tax-free,” said Mr. Smith.

Mr. Smith said there was similar scenario on behalf of a fire department purchase years ago.

“If we get as many protesters as where here eight years ago, which was zero, then hopefully the public hearing goes smoothly and quickly,” he said.

Mr. Smith said there is a written opinion from his law firm that this does not in any way expose the town as well as a written opinion from Fulton Bank, a promissory letter saying, ‘We don’t want your money town, we are not going to hold you liable.”

“As long as we got the letter from the bank and the letter from your law firm …” said Dagsboro councilman William Chandler, who made the motion to place the public hearing and possible approval on council’s Oct. 23 agenda.

The 2018 Sutphen engine pumper has a 1,000-gallon capacity. It will replace a 1982 engine tanker, said Mr. Cox.

News Editor Glenn Rolfe can be reached at grolfe@newszap.com

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