LOS ANGELES -- A King County, Wash., fire protection district recently became the first issuer to sell limited-tax general obligation bonds under a new statute designed to make long-term debt issuance easier for Washington State's 400 fire districts.
The statute allows fire districts to repay limited-tax GO bonds over a period of as long as 20 years. The maximum term under the old law was six years.
Under both the old and new laws, Washington fire districts have the option of issuing limited-tax GO bonds, which do not require voter approval, or unlimited-tax GO bonds, which require 60% voter approval.
Because unlimited-tax GO bonds always have had a 20-year maximum term, most fire districts have preferred to issue the longer bonds, despite the voter approval requirement, said Shandra Tietze, assistant vice president in the public finance department of Seattle-Northwest Securities Corp.
By contrast, Tietze said, only a small number of limited-tax GO bonds have been issued by fire districts "because it has been so restricted in the past [by the six-year maximum term]."
While the new statute "has opened up the possibilities a little more," Tietze noted, the Revised Code of Washington, the state's administrative code, restricts the amount of limited-tax GO bonds a fire district may issue to three-eights of 1% of the assessed valuation of taxable property within the district.
King County Fire Protection District No. 10's $2.5 million issuance of limited-tax GO bonds, which was priced Oct. 5, is rated A by Moody's Investors Service.
The rating by Moody's made the issue an attractive investment for "all kinds of banks and individuals," said Tietze, whose firm was the underwriter for the negotiated issue.
The issue contained serial maturities from 1994 through 2004, and had a net interest cost of 4.1047%. "It sold very well," Tietze said, noting that the King County fire district "has a strong tax base with higher income residential areas."
Proceeds will redeem $1.5 million in bond anticipation notes issued to provide interim financing to purchase land and to construct a fire station. The remaining proceeds will be used to purchase equipment and more land.
Tietze said she was not certain how frequently the 400 fire districts in Washington will sell limited-tax GO bonds using the statute. About 250 of the districts have all-volunteer forces and virtually no history of long-term debt issuance.
Hugh Spitzer, a partner with Foster Pepper & Shefelman, a Seattle-based law firm and bond counsel for the King County fire district transaction, said the new statute represents "a modest change."
"The 20-year [maximum] is much more in line with the length of non-voter-approved debt obligations issued by libraries, hospitals, school districts, and cities and counties," Spitzer said.
He said the extent to which fire districts "can use this vehicle will be limited by the market's perception of the strength of [a fire district's] regular property tax base."
In Washington, counties and cities are senior taxing districts while fire districts are junior taxing districts, Spitzer said. In overlapping jurisdictions, fire districts' limited-tax GO bonds are subordinated to the obligations of cities and counties, he said.
Legislation that extended the fire districts' maximum term of limited-tax GO bonds was contained in House Bill 1024, written by state Rep. Margaret Rayburn, D-Grandview.
H.B. 1024 cleared the Washington House of Representatives on a 96-to-0 vote, and the Senate by a 45-to-2 vote. It was signed into law by Gov. Mike Lowry and took effect in July.
Roger Ferris, executive secretary of the Washington Fire Commissioners Association, an Olympia-based group that sponsored the legislation, said the new law will provide fire districts an opportunity "to get better interest rates by issuing longer-term bonds."
Ferris said the association's larger fire districts felt hamstrung by having to abide by the maximum debt term of six years It "just wasn't enough time," he said.
Noting that in the past fire districts have had to rely on unlimited-tax GO bonds, which require voter approval, Ferris said that steps leading to a public election are complex and costly.
For an unlimited-tax GO bond measure to pass, not only must the percentage of yes votes must be 60% or greater but the number of voters must equal 40% or more of the number who cast ballots in the preceding election.