Federal Loan Repurchase Cancels Service Area Protection

Abstract

Public Water District Number 1 of Butler County, Missouri, obtained its original funding from Farmer's Home Administration (FmHA) under a federal law authorizing federal loans to rural water systems. When FmHA was later required to sell these loans, the district opted to repurchase its own debt. The 1990 repurchase, which was financed by general revenue bonds, extinguished all debt owed by the district to the federal government. Subsequently, the city of Poplar Bluff, Missouri, in a series of annexations, extended its corporate limits and provided water service into some of the district's service areas. The district brought suit, seeking to enjoin the city from extending its water service boundaries. The trial court ruled against the district. On appeal, the district argued that it had maintained territorial protection against encroachment of its service area despite the repurchase of its federal loan. The district argued this protection had been maintained because the debt was still in existence even though it was no longer owed to the federal government. The court emphasized that the district had opted to repurchase its own debt and extinguish all obligations to the federal government. According to the court, the loan had ended and with it the service area protections of federal law. The trial court decision was affirmed.