Alternative funding for public safety construction -- USDA Rural Development

CarolinaFireJournal - By Ken Newell
By Ken Newell AIA, LEED-AP, NFPA
07/05/2011 -
“Money’s tight!” You hear that everywhere, especially if you’re trying to get a loan. Five years ago, just about all you needed to get financing for your station project was a physical address and a pulse. But since the Great Recession, finding an institution that will even lend to you — much less with favorable terms — has become much more challenging.

So what’s a department to do if you need funds for a capital project and the traditional lending institutions just aren’t “getting their heart right”? 

There are alternative funding sources available to many organizations that qualify. Credit unions, community foundations, and special state or federal appropriations are a few examples of alternative sources benefiting the public safety community.

For this discussion we will examine a government entity that has provided financial assistance to many public safety departments for capital projects and equipment over the years.

USDA Rural Development

The stated mission of USDA Rural Development is:

“ improve the quality of life for rural Americans. To accomplish this we have the responsibility of coordinating Federal assistance in rural areas of (every state).”

While many metropolitan areas do not qualify for USDA assistance, many “not-so-rural” communities have been surprised at their ability to qualify.

The USDA program that benefits public safety departments is Community Facility Programs. Community Facility loans and grants are made to build or improve essential public facilities in areas or towns of not more than 20,000 population. Eligible applicants include federally recognized Indian tribes, government or non-profit organizations. Examples of loan purposes include health care facilities, nursing homes, daycare centers, public safety facilities and equipment, community buildings and educational buildings.

USDA Community Facility Programs has the ability to financially assist a capital project in two fashions; direct loans and loan guarantees.

Direct Loans

Qualifying departments have greatly benefited from USDA direct loans due to low interest rates and long payback periods. For several years, the average interest rate has been four percent plus. A four percent interest rate is not unusual in today’s market, but the term for pay-back is 40 years! Most Departments budget to pay-off the loan in much less time than 40 years, but the option of that term is considered very attractive.

By amortizing on 40 years, instead of the typical 15-20 years for a normal commercial loan, the loan sum potential is greatly increased. This has often allowed a department to build everything they need instead of having to scale the project down below the cost benefit ratio.

Loan Guarantees

USDA loan guarantees are more typical for projects that require larger capital outlays — several million dollars. The loan guarantee backs up the department who is getting their financing through a more traditional source, such as a local bank. The loan guarantee acts like collateral so that the lending institution has the full resources of the US government acting as surety on as much as 90 percent of the total loan value. The borrower pays a one percent fee to the USDA at the time of closing.

Not only does the loan guarantee benefit the borrower, but it is also attractive to the lending institution. A loan guaranteed by the federal government is a commodity that is easily traded on the mortgage trading market.

Recent History

How much money is available through USDA Community Facilities Programs? Well, that can vary depending on catastrophic events and politics. First, realize that federal USDA funds are yearly appropriated to state levels — not state governments, but sub levels of USDA at the state level.

Let’s look at North Carolina as an example. Since Loan Guarantees don’t require actual funds in hand, the dollar value of the guarantees available at the state level is often significantly higher than available Direct Loans. The yearly cap for Loan Guarantees is rarely in danger of being reached.

Since Direct Loans do require immediately available funds, the funds are typically much more limited. In a typical year, North Carolina has had $12 to $20 million available for Direct Loans. In a year following an unusual event, Congress may make significantly more funds available than normal. An example would be a Hurricane Appropriation after a very damaging hurricane season.

More recently, funds available for Direct Loans exploded as part of the American Recovery and Reinvestment Act (ARRA). In this current year, and after the election of a more fiscally conservative House, the available funds for Direct Loans have greatly diminished. So in our North Carolina example, a four year history of Direct Loans available looks like this;

2008: $15 million +

2009: with ARRA: $150 million +

2010: with ARRA: $250 million +

2011: $12 million +

Several fire separtments familiar with 2009/2010 loan amounts have been surprised to learn that current Community Facility loan values are less than five percent than a year ago.

Extra Considerations

If the USDA track is one that seems beneficial to you, here are a couple of considerations learned from working with fire departments and USDA.

First, you aren’t limited to pursuing only one USDA approach — direct loan versus loan guarantee. The two approaches can be combined. If the availability or your qualification for a direct loan is limited to levels below your needs, see if you can also qualify for a loan guarantee to the funds that you can borrow at a different lending institution. The combination may be enough to put your project back on track.

Secondly, at the end of each yearly funding cycles, unused funds reserved for USDA projects in other states can often be pooled to your state. For example, your department may have applied and deemed qualified for more funds than available at your state level for this year. Your state USDA representative may be proactive in pooling unused funds from other states, or other previously approved projects. Thus, it is possible that funds may be available for your department at the last minute.


To investigate your options regarding USDA Rural Development assistance you can contact your state area office. Contacting design professionals who have significant experience in USDA Community Facilities projects is also a great place to start.

Ken Newell, AIA, LEED AP, NFPA is a senior principal with Stewart–Cooper-Newell Architects, and has personally been involved with the design of over 175 Fire/EMS station projects and fire training facilities since 1988. The firm’s growing resume includes architectural and consulting services for fire departments and municipalities in 22 states across the US. Ken is also a regular presenter at many national and regional fire conferences. Newell can be reached by visiting or emailing [email protected] Stewart-Cooper-Newell Architects can be reached at 800-671-0621.
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