I. Financing

Section 103(a) of the Internal Revenue Code (“IRC”) provides that gross income does not include interest on any State or local bond , . Pursuant to §103(c), the term “State or local bond” means an obligation of a state or political subdivision thereof. For the exclusion of §103(a) to apply, the bond must be registered (any bond is “registered”, so long as it is not issued by a natural person, it is of a type offered to the public, it has a maturity date of not less than 1 year, and interest is payable in the United States); and the bond must not be an arbitrage bond (any portion of the bond used to directly/indirectly to acquire higher yielding investments or replace funds which were used directly/indirectly to acquire higher yielding investments: See §148) or a non-qualified private activity bond (See §141).

Pursuant to Federal Regulation Title 26, Volume 2, Section 1.103-16, obligations of certain volunteer fire departments issued after December 31, 1980, shall be treated as an obligation of a political subdivision of a State for purposes of section 103(a)(1) if:

(1) The volunteer fire department is a qualified volunteer fire department within the meaning of paragraph (b) of this section, and

(2) Substantially all of the proceeds of the issue of which the obligation is a part are to be used for the acquisition, construction, reconstruction, or improvement of a fire house or fire truck used or to be used by the qualified volunteer fire department.

An obligation of a volunteer fire department shall not be treated as an obligation of a political subdivision of a State for purposes of section 103 unless both conditions set forth in this paragraph (a) are satisfied. [For example, if an obligation is issued by an ambulance and rescue squad that is a qualified volunteer fire department as required by paragraph (a)(1) of this section, but substantially all of the proceeds of the issue of which the obligation is a part are to be used for the furnishing of emergency medical services, rather than for the purposes specified in paragraph (a)(2) of this section, the obligation shall not be treated as an obligation of a political subdivision of a State for purposes of section 103(a)(1)]

For purposes of paragraph (b) of this section, the term ``qualified volunteer fire department'' means an organization:

(1) That is organized and operated to provide firefighting services
or emergency medical services in an area within the jurisdiction of a political subdivision, and

(2) That is required to furnish firefighting services by written agreement with the
political subdivision, and

(3) That serves persons in an area within the jurisdiction of the political subdivision that is not provided with any other firefighting services.

The requirement of paragraph (b)(2) of this section that a qualified volunteer fire department be required to furnish firefighting services by written agreement with the political subdivision may be satisfied by an ordinance or statute of the political subdivision that establishes, regulates, or funds the volunteer fire department. A volunteer fire department does not fail to satisfy the requirement of paragraph (b)(3) of this section by furnishing or receiving firefighting services on an emergency basis, or by cooperative agreement with other fire departments, to or from areas outside of the area that the volunteer fire department is organized and operated to serve. The fact that tax revenues of a political subdivision served by a volunteer fire department contribute toward the support of the volunteer fire department in the form of salary, purchase of equipment, or other defrayment of expenses will not prevent the volunteer fire department from being a ``qualified volunteer fire department'' within the meaning of this paragraph (b). Moreover, an obligation of a volunteer fire department receiving such support may qualify as an obligation of a political subdivision within the meaning of section 103(a)(1) independently of section 103(i) and this section if the requirements of section 103(a)(1) are satisfied. See Sec. 1.103-1(b) for rules relating to qualification under section 103(a)(1).

``Substantially all'' test. Substantially all of the proceeds of an issue are used for the purposes specified in paragraph (a)(2) of this section if 90 percent or more of the proceeds are so used. Thus, for example, if more than 10 percent of the proceeds of an obligation issued
by a qualified volunteer fire department are used for the purchase of an ambulance or for rescue equipment not to be used in providing fire fighting services, interest on the obligation is not exempt from tax under section 103(i) and this section. In computing this percentage--

(1) Costs are allocated between providing a firehouse or firetruck
and other uses of the proceeds on a pro rata basis; and

(2) The rules set forth in Sec. 1.103-8(a)(1)(i), relating to
amounts allocable to exempt and nonexempt uses and amounts chargeable to
capital account, apply.

II. Discussion Points

• PA funding options

o The Volunteer Loan Assistance Program (VLAP) through the Office of the State Fire Commissioner provides loans at a fixed 2% interest rate to volunteer fire companies for the acquisition and upkeep of apparatus, facilities and equipment. In addition, the Office of the Auditor General administrates a Firefighters' Relief Fund. This state aid is generated from a 2% tax on fire insurance purchased by Pennsylvanians and is distributed to each municipality in which a relief association exists. The associations must use the funds to provide relief funding to volunteer firefighters.

Also, in 2003, Pennsylvania passed legislation that establishes a $25 million one-time grant program for volunteer firefighters and volunteer ambulance services. The program designates $22 million to the Volunteer Fire Grant Program and $3 million to the Volunteer Ambulance Service Grant Program. The minimum grant is $2,500; the maximum is $15,000. The company must sign an agreement to actively participate in the Pennsylvania Fire Information Reporting System administered by the Pennsylvania Emergency Management Agency.

Contacts: Office of the State Fire Commissioner. 2605 Interstate Drive, Harrisburg, PA 17110-9364. Phone: (717) 651-2205. Fax: (717) 651-2210.

Department of the Auditor General. 318 Finance Building, Harrisburg, PA 17120. Phone: (717) 787-1381. Fax: (717) 783-4408.

• Fire company-specific Bylaws

o Clear and distinct mission statement for goals of department

o Department structure
 Division of business/social aspects of the department
• Separate Board if size of department allows
• Allows members with different interests to actively participate and may aide to retain/attract new members

o Bylaws should clearly outline chain of command and also the duties, rights and responsibilities of each officer.
 Set minimum requirements for electing or appointing officers

• Insurance recommendations

o PROPERTY AND CASUALTY

NAMED INSURED
With respect to the fire companies, the named insured of the fire company and
their applicable State Fireman’s Relief Association should be described as a named
insured on the package policy. If a ladies auxiliary associated with a particular fire
company is separately chartered or incorporated, they should also be included as a
named insured. It is also important from a claim perspective to separately
distinguish each named insured as well, for example; Marsh Creek Fire Company
AND/OR Marsh Creek Fire Company Relief Association AND/OR Marsh Creek
Fire Company Ladies Auxiliary.

ADDITIONAL INSURED
The following should be added as an additional insured under each emergency
services organization general liability and automobile liability policies. “Spring
Garden Township, elected officials, appointed officials, employees, successors
and/or assigns, A/T/I/M/A”. If only the township itself is listed as an additional
insured and the Board of Commissioners are sued along with the township, the
municipality would enjoy coverage, but the elected officials, appointed officials
and employees would not.

PROPERTY
Coverage should be provided for the buildings on a “guaranteed replacement cost”
basis, or an “agreed value” replacement cost basis. Contents should be covered
with a replacement cost valuation. Business Income and Extra Expense coverage
should be included, preferably on an actual loss sustained basis over a 12-month
period. “All Systems” coverage should be included, and if the buildings are not up
to current municipal building codes, “Building Ordinance or Law” coverage should
be included. Flood Insurance may also be considered depending upon exposure to
that specific loss.

GENERAL LIABILITY
Coverage should be provided at limits of at least $1,000,000 per occurrence,
$2,000,000 in the aggregate. “Errors and Omissions” coverage or similar policy
language should be included for any mistakes that may be made during any
emergency response. “Medical Malpractice” coverage should be included for all
emergency service organizations, even those who don't normally respond in an
emergency medical capacity. Emergency and training operations pollution liability
should be included in the policy as well.

BUSINESS AUTOMOBILE
In addition to affording liability coverage to the vehicles owned and operated by
the emergency services operation, hired and non-owned automobile liability
coverage should be included in the emergency service organization's business auto
policy. When the municipality, etc. is added as an additional insured, this
coverage can protect the municipality when a firemen is involved in an at-fault
accident while responding on behalf of his or her fire company. The coverage is
normally in excess of the firefighter's personal automobile insurance.
While the Political Subdivision Tort Claims Act will cap lawsuits in state court at
$500,000., a "Diversity of Citizenship" doctrine could be used in serious accidents
involving out-of-state drivers to hear the case in Federal Court, where no cap
applies. Thus, higher limits of automobile liability coverage should be encouraged.
Physical damage on the emergency service apparatus should be afforded on an
“agreed value" or "value-guard" format, meaning that depreciation for the
apparatus is not applied at claim time. Limits of coverage for the apparatus should
be regularly updated to reflect the current replacement cost values for the apparatus
and its attached equipment.

DIRECTORS and OFFICERS or MANAGEMENT LIABILITY
Coverage limits for this policy should start at $1,000,000 each claim, as these
claims are often heard in Federal Court, where political subdivision immunity is
not recognized.

PORTABLE EQUIPMENT
Coverage should be afforded on a blanket (items not specifically scheduled)
replacement cost basis, or guaranteed replacement cost basis. Relief Associations
must be described as a named insured for fire company policies as they own the
lion share of the portable equipment.

DISHONESTY
If the townships are financially supporting the emergency service organization, the
townships should request a certificate of insurance evidencing blanket dishonesty
coverage. Limit of bond should be at least equal to the amount of funds provided
annually.

EXCESS or UMBRELLA LIABILITY POLICY
An umbrella excess liability policy can be used to provide excess coverage over
the limits set in the underlying liability policies. Coverage should be provided
over general liability, automobile liability, and management liability. Ideally,
umbrella coverage should be included in an emergency service organizations'
insurance program, budgetary considerations may hinder its purchase.

• The townships have an insurance professional review the types and
thresholds of coverages that are held currently by the township and all of its
emergency services providers.

• That any changes required by the townships based upon that review be
covered specifically in any service agreements and adopted by ordinance or
resolution.