Rules for Missouri Ambulance Districts
XVII. Bond Issues
When an AD needs long-term financing for capital expenditures, the method of raising funds that the Missouri Constitution and statutes provide is to issue bonds (190.065). Examples of capital expenditures include building an additional station, purchasing new equipment that will last multiple years, and making other purchases or improvements of long-term usability rather than normal annual operating expenses.
These bonds come in two types: general obligation and revenue. General obligation bonds use all taxable real estate and personal property in the AD as security to borrow against. Revenue bonds use as security only the revenue to be produced from the project or activity that the borrowing is for. ADs frequently use general obligation bonds because their revenue can come from taxation. There are few situations for which revenue bonds could be used.
Also see Long-term purchases section in Chapter X. Budgets and the Budget Process.
General obligation bonds
General obligation (GO) bonds represent a lien against every taxable property in the AD — even after annexation into a city with its own EMS department; thus, they are more tightly controlled than revenue bonds. GO bonds can be issued only after voters approve a bond issue by an “exceptional” majority. At high-turnout elections (April, August or November) four-sevenths, or 57.1%, is required for approval. At low-turnout elections (February) two-thirds, or 66.7%, is required for approval.
After passage of a GO bond issue, an annual property tax levy raises the revenues needed to redeem these bonds. Should an AD default on GO bonds, every taxable property in the AD would have a proportional lien for its share placed against it. Property could be sold at auction for nonpayment.
As previously stated, revenue bonds do not obligate taxable property in the AD but only the revenue that is expected to be received from the purpose for which the funds were borrowed. An example of when a revenue bond might be used is if an AD contracted with a city adjoining the AD boundaries to provide service for an annual contract fee (190.060.1). Revenue bonds could be used to finance construction of a station inside that city, payable from the contract payments.
Law firms that specialize in bond issues generally assess whether the proposed projects will produce necessary revenues to retire revenue bonds. If a law firm considered the bond issue unlikely to cover its obligations, it would not draw up the bond issue.
As political subdivisions, ADs can issue bonds that are exempt from both state and federal income taxes. This tax exemption makes GO and revenue bonds attractive to investors, which allows borrowing at lower interest rates.
General obligation bonds usually have a slightly lower interest rate than revenue bonds.
The interest rate of AD bonds must be agreed upon in a contract (190.065.4).
AD laws permit borrowing for any term up to 20 years (190.065.4). Whatever the term, the reserves set aside to repay bonds can be no more than amounts necessary to make the current year’s and the coming year’s payments. With GO bonds, each year’s assessed property valuation is calculated against payment amounts needed, the dollar value of bonds maturing, to establish the needed levy amount.
Although AD law (190.065.4) says that bonded indebtedness cannot exceed 10% of the value of taxable tangible property in the AD as shown by the last state or county assessment, the Missouri Constitution (Article VI, Section 26b) says bonded indebtedness cannot exceed 5% of the value of taxable tangible property in the AD as shown by the last state or county assessment. For example, an AD with a $20 million assessed valuation, could only have $1 million dollars in bonded indebtedness.
When certifying annual levies the AD board needs to take into account a separate levy for the next year’s installments and interest payments on bonds. The tax revenues from this separate levy must be deposited into a separate sinking fund for debt retirement that has enough tax revenue for installments and interest payments (190.065.4), usually up to two years’ worth. (Also see the Long-term debt and bond issues section in Chapter VIII. Levying Property and Sales Taxes.)