Fire Truck Financing – How to Properly Use FEMA Grants

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There is nothing like the excitement of getting a new fire truck.  Better yet, you received a grant that will pay for most or all of the cost of your new truck.  While grants appear to be free money, they do come with strings attached.  It’s essential to know all the facts when accepting grant funds and obligating yourself to a new truck contract.

This article will guide you through the 3 key factors to be aware when using grants to buy new fire apparatus.

Key Factor #1:  Learn the strings attached to the grant

Each grant has specific requirements and prohibitions that will influence what you can and can not do in buying your new apparatus.  For example, FEMA rules prohibit using the truck being purchased with the grant as collateral.  That means if you need to borrow your share, you’ll need to find another way to borrow the funds and not use the new truck as collateral.  In fact, when you read the fine print, FEMA actually considers itself the owner of the vehicle purchased with an AFG grant and even requires you to obtain permission from FEMA to dispose of the truck before you place it out of service.

Some grants require special reporting or auditing which can cost your department money.  Regardless, it’s essential to understand that free money is rarely free.  The grantee has expectations about the transaction that can cost money and time and potentially affect your operation of the vehicle.

Key Factor #2:  Have the entire funding plan in place before you apply

Most grants require some participation from the grantee when obtaining the funds.  It’s important to build upon the knowledge of the strings attached and develop a comprehensive plan for your entire purchase.  Failure to have a plan in place upfront often leads to very poor financial decisions.

For example, if you are not allowed to use the new truck for collateral and don’t have your share in reserve, you may be forced to borrow funds against another asset, such as your fire station, to pay your small share of the new truck.  This means if something dramatically goes wrong, you may lose your station because you received a “free” truck. 

The best financial plans involving grants I’ve seen include matching grants.  This is where a department has approached outside parties such as local governments or businesses or individuals and exacts a commitment to help pay some or all of the grantee share if the grant is received.  Another good plan is to keep some funds in reserve for such a grant share.

Regardless of your plan, it’s important to have a plan before you apply.  Otherwise, you may become forced to take some drastic financial measures to get your new apparatus.

Key Factor #3: Planned for the unexpected

A very frequent mistake I see is that departments rarely plan for unexpected events such as significant truck price increases during the grant selection period or for change orders.  Another frequent mistake is asking for a grant that is too small because the department thinks they will improve their chances by lowering their request.

I’ve seen many instances where a department will request a grant for their $300,000 price (the price they were ballparked last year) only to find that the truck is now $350,000 this year.  So, the department is forced to contribute $80,000 instead of the expected $30,000 (10% share, for example).  Or, incurring significant change orders during construction that increases the department’s contribution.

Finally, if you need $350,000 for the truck, apply for a grant that will buy a $350,000 truck.  By shortchanging the request, the department will increase its other funding needs.

In Summary

Grants are an effective way to acquire new fire apparatus.  However, grants are not free money and they are rarely simple.  It’s important to use grant funding as part of a comprehensive plan to get the new apparatus you need.

Source by John R. Hill

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