Can a New York municipality borrow from the State emergency services revolving loan fund as a surrogate for a private fire company or ambulance service?

Plain-English summary

The Secretary of State asked the AG about a workaround that municipalities and fire districts had been using to channel State emergency services loan funds to private not-for-profit fire companies and ambulance services. Under the workaround, the municipality or fire district would apply for the loan, transfer the loaned funds to the private entity, the private entity would buy the equipment using the loan proceeds plus its own money, the private entity would hold title to the equipment, and the private entity would make payments to the municipality to enable it to repay the loan. The municipality was, in effect, a borrowing surrogate.

The AG said this is not authorized.

State Finance Law § 97-pp creates the emergency services revolving loan account in the State Comptroller's custody. The statute is explicit about who can apply (§ 97-pp(5)(a)): "a town, village, city, fire district or county, other than a county wholly contained within a city." Not-for-profit corporations cannot apply. The Assembly Memorandum in Support of the original bill (L 1994, Ch 599) says the fund is "to establish a fund from which the Secretary of State may make loans to cities, villages, fire districts, counties and towns to acquire, upgrade and improve eligible facilities, apparatus and equipment."

The statute also specifies the eligible purposes (§ 97-pp(4)(a)): purchasing fire fighting apparatus, ambulances, rescue vehicles, protective equipment, communication equipment, accessory equipment, and renovating or constructing facilities to house emergency equipment. Once a loan is approved, the applicant must use the proceeds to purchase the listed equipment. § 97-pp(4)(b) lets the Secretary require security and specify lien priorities on equipment "wholly or partially purchased with loaned funds." That lien-priority provision only makes sense if the applicant municipality is also the owner of the equipment. Loaning funds to a municipality so that a not-for-profit could buy and hold title would defeat the lien-priority mechanism the statute was designed to use.

§ 97-pp(5)(b) reinforces the conclusion: "Every application shall accurately reflect the conditions which give rise to the proposed expenditure and accurately reflect the ability of the applicant to make such an expenditure without" a loan. The expenditure is supposed to be the applicant's, not a third party's.

What the statute does allow. The AG was careful to map out the legitimate way private fire companies and ambulance services interact with State loan funds. Chapter 599 of the Laws of 1994 (which created § 97-pp) also amended Town Law § 184(1) and County Law § 225-a(5). The amendments expressly allow a town with a fire protection district to acquire emergency equipment by gift or purchase and to contract with an incorporated fire company to operate, maintain, and repair that equipment. Similarly, a county whose town has such a contract may acquire equipment and contract with the fire company for operation. So a town can use § 97-pp loan funds to buy fire equipment that the town owns and that an incorporated fire company operates under contract for the town's fire protection district. The structure is municipality-owns, fire-company-operates. That works. The structure the surrogate workaround was trying to use (fire-company-owns, municipality-merely-borrows-and-forwards) does not.

The statute also has a built-in priority for small volunteer departments: § 97-pp(5)(c)(ii) requires that at least 50% of annual loans go to applicants whose fire or ambulance protection is provided by an exclusively volunteer department or service whose preceding-year budget did not exceed $100,000.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is the practical alternative to the surrogate arrangement?

The town or fire district applies for the loan and uses the loaned funds to buy the equipment. The town or fire district holds title. Then the town or fire district enters into a service contract with the incorporated fire company or ambulance service to operate and maintain that equipment. The Town Law § 184(1) and County Law § 225-a(5) amendments enacted alongside § 97-pp explicitly bless this structure.

Why does ownership matter so much in the statutory scheme?

Because the statute uses ownership-tied tools to protect the revolving loan fund. § 97-pp(4)(b) allows the Secretary to take a lien on equipment purchased with loan funds. If a private not-for-profit holds title, the State's lien rights become muddier and the public's ability to recover the funds on default suffers. Tying ownership to the municipal applicant keeps the security mechanism clean.

Can a volunteer fire company benefit from this loan program at all?

Yes, indirectly. The volunteer company can operate equipment owned by the municipality under contract. The municipality borrows, owns the equipment, and contracts with the fire company to run it. The volunteer company itself does not need to be a borrower because § 97-pp(5)(c)(ii) prioritizes municipalities whose protection is provided by volunteer departments.

What if the fire company wants to own the equipment outright?

Then it has to find its own financing. § 97-pp does not let State loan funds flow to a private not-for-profit's balance sheet. The fire company could borrow on its own credit from a bank or use donations and fundraising.

Does this rule change if the municipality and the fire company are very close (essentially the same people in different roles)?

The AG does not address this directly, but the statute's text controls. Form matters here. Even if the same people run both the municipality and the fire company, the loan must be made for municipal-owned equipment, not for fire-company-owned equipment. The corporate separation between municipality and private not-for-profit is what § 97-pp's text relies on.

Background and statutory framework

State Finance Law § 97-pp. Created by L 1994, Ch 599. Subdivision (1) establishes the emergency services revolving loan account. (4)(a) lists eligible purposes. (4)(b) authorizes security interests. (5)(a) limits applicants to municipalities and fire districts. (5)(b) requires the application to reflect the conditions giving rise to the expenditure. (5)(c)(ii) sets a 50% set-aside for small all-volunteer departments.

Town Law § 184(1). Amended by L 1994, Ch 599. Lets a town board provide for fire protection within a fire protection district, acquire apparatus and appliances for use in such district, and contract with cities, villages, fire districts, or incorporated fire companies for operation, maintenance, repair, and the furnishing of fire protection.

County Law § 225-a(5). Added by L 1994, Ch 599. Lets a county acquire equipment for use in a fire protection district and contract with the incorporated fire company already under contract with the town for operation, maintenance, and repair.

The 1994 chapter as a whole is designed to give municipalities the tools to fund and own emergency equipment that volunteer or incorporated fire companies operate under contract. The structure forecloses the surrogate-borrowing workaround.

Citations

• State Finance Law § 97-pp (emergency services revolving loan account).
• State Finance Law § 97-pp(1) (account); (4)(a) (eligible purposes); (4)(b) (security); (5)(a) (eligible applicants); (5)(b) (application requirements); (5)(c)(ii) (small-volunteer set-aside).
• Town Law § 184(1) (town fire protection district authority).
• County Law § 225-a(5) (county fire protection equipment acquisition).
• L 1994, Ch 599 (enacting chapter).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/99-F3_pw.pdf

Original opinion text

COUNTY LAW § 225-a(5); STATE FINANCE LAW § 97-pp; TOWN LAW
§ 184(1); L 1994, CH 599.
A transaction in which a municipality would apply for a loan from the emergency services revolving loan account as a "surrogate" for a private fire company or ambulance service is not authorized under State Finance Law § 97-pp.

June 18, 1999
Hon. Alexander F. Treadwell
Secretary of State
State of New York
Department of State
41 State Street
Albany, New York 12231-0001

Formal Opinion
No. 99-F3

Dear Secretary Treadwell:
Your counsel has asked whether you may make a loan to a municipality or fire district from the State emergency services revolving loan account pursuant to State Finance Law § 97-pp when it appears from the loan application that the loaned funds will be used by a private not-for-profit fire company or ambulance service to purchase emergency equipment. Your counsel states that this situation arises when a municipality or fire district contracts with a fire company or ambulance service to provide services to residents of the municipality or district. The municipality or fire district would apply for a loan from the emergency services revolving loan account and transfer the loaned funds to the fire company or ambulance service, which would purchase the equipment using the loan proceeds combined with its own money. The fire company or ambulance service would hold title to the equipment and make regular payments to the municipality or fire district to enable it to repay the loan. In effect, your counsel states, the municipality or fire district would apply for the loan as a "surrogate" for the not-for-profit corporation. We conclude that the transaction your counsel has described is not authorized under State Finance Law § 97-pp. The plain language of the statute demonstrates that the Legislature intended loans from the emergency services revolving loan account to be made to municipalities and fire districts for purchase of emergency equipment by and in the name of these entities. Transfer of borrowed funds to a not-for-profit corporation for its independent use was not contemplated. As we describe more

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fully below, however, a significant part of funds loaned annually to applicants from the emergency services loan account is dedicated for purchase of emergency equipment by municipalities and fire districts for use of such equipment by volunteer fire companies and volunteer ambulance services. State Finance Law § 97-pp(1) establishes the emergency services revolving loan account in the custody of the State Comptroller. It provides that loan applications may be made by "a town, village, city, fire district or county, other than a county wholly contained within a city, provided that the application is otherwise consistent with its respective powers." Id., § 97-pp(5)(a). Thus, only the listed municipalities and fire districts may apply for loans; not-for-profit corporations may not apply. The Assembly Memorandum in Support of the bill that created section 97-pp summarized its provisions as follows: "to establish a fund from which the Secretary of State may make loans to cities, villages, fire districts, counties and towns to acquire, upgrade and improve eligible facilities, apparatus and equipment." Bill Jacket, L 1994, ch 599. The Secretary of State, on the recommendation of the emergency services loan board, may make loans from the emergency services loan account "upon application duly made" for the following specific purposes: (i) Purchasing fire fighting apparatus . . . (ii) Purchasing ambulances or rescue vehicles . . . (iii) Purchasing protective equipment or communication equipment . . . (iv) Repairing or rehabilitating fire fighting apparatus, ambulances or rescue vehicles . . . (v) Purchasing accessory equipment . . . (vi) Renovating, rehabilitating or repairing facilities that house firefighting equipment, ambulances, rescue vehicles and related equipment . . . (vii) Construction costs associated with the establishment of facilities that house firefighting equipment, ambulances, rescue vehicles and related equipment . . . (hereafter "emergency equipment"). State Finance Law
§ 97-pp(4)(a). Because loans may be made only to municipalities and fire districts (applicants) for the specified purposes, it follows that once a loan is approved, the applicant may use the proceeds only to purchase the emergency equipment listed in its approved application. Section 97-pp also provides that "[e]very application shall accurately reflect the conditions which give rise to the proposed expenditure and accurately reflect the ability of the applicant to make such an expenditure without" a loan. Id., § 97-pp(5)(b) (emphasis supplied). This provision suggests that the Legislature intended the applicant (municipality or fire district), and not other entities, to expend loan funds to pay for emergency equipment. Similarly, the statute provides that the Secretary of State may require security for any loan and may specify the priority of liens against any emergency equipment wholly or partially purchased with loaned funds. Id., § 97-pp(4)(b). This provision is consistent with the statutory intent that only a municipality or fire district may use loan funds to purchase and hold title to emergency equipment. The obvious purpose of this provision, to protect the integrity of the revolving loan account, would be jeopardized if municipalities and fire districts were permitted to transfer borrowed funds to third parties who would then purchase and hold title to emergency equipment. We note that incorporated and other fire companies and ambulance services, in providing fire protection and emergency services to fire districts or municipalities, can use emergency equipment purchased by the municipalities or fire districts with loaned funds. Further, the statute requires that at least 50 percent of annual loans made by the Secretary of State be made to applicants whose fire protection or ambulance service is provided by an exclusively volunteer fire department or ambulance service whose budget for the preceding fiscal year did not exceed
$100,000. State Finance Law § 97-pp(5)(c)(ii). Chapter 599 of the Laws of 1994, which enacted State Finance Law § 97-pp, also amended Town Law § 184(1) and County Law
§ 225-a(5). Prior to its amendment, section 184(1) of the Town Law required a town board to provide for the furnishing of fire protection within a fire protection district when it established or extended the district. For that purpose, the town board was permitted to contract with a city, village, fire district or incorporated fire company. Chapter 599 amended this provision by adding that the town may acquire by gift or purchase such apparatus and appliances for use in such district and may contract with any city, village, fire district or incorporated fire company for operation, maintenance, and repair of the same and for the furnishing of fire protection in such district, or both. County Law § 225-a was amended to add a new subdivision 5, which states: Where, pursuant to section one hundred eighty-four of the town law, a town has contracted with an incorporated fire company to furnish fire protection within a fire protection district, the respective county may acquire by gift or purchase suitable apparatus and appliances for use in such district and in conjunction with the county mutual aid program and may contract with said incorporated fire company for operation, maintenance, and repair of same and for the furnishing of fire protection in such district. Significantly, these provisions authorize towns and counties to contract with incorporated fire companies to operate, maintain and repair town- and county-owned apparatus and appliances for provision of fire protection in a fire protection district formed by a town. Thus, funds loaned by the Secretary of State may be used by town and county applicants to purchase emergency equipment for use by incorporated fire companies under contract to provide fire protection in a fire protection district. We conclude that the transaction your counsel has described, in which a municipality or fire district would apply for a loan from the emergency services revolving loan account as a "surrogate" for a private fire company or ambulance service, is not authorized under State Finance Law § 97-pp. Because we conclude that there is no authority for the proposed transaction, we need not address the remaining questions raised by your counsel. Very truly yours,

ELIOT SPITZER
Attorney General