Bedford 'bandos' get financial boost
11/8/2006Bedford Public Schools has found a way to retain its not-for-profit status and still give the Bedford Band and Orchestra Boosters financial support.
"We've come up with an alternative that resolves the problem. We've found a way to maintain legal standards with the IRS," said Ted Magrum, assistant superintendent of finance and operations.
It all started seven years ago.
The Bedford Band and Orchestra Boosters - or "bandos," as they refer to themselves - decided to pick up the $200,000 tab for the three concession stands in the Bedford High School stadium.
In return for this generosity, Bedford Public Schools gave the boosters organization a 3.75 percent interest rate and 10 years of exclusive use of these stands for their fund-raising efforts.
"We decided to pay for these stands in the interest of the community," said Bill Henes, vice president of the boosters. "While we are paying for the construction of these concession stands, we can never own them, because they are on [school] property."
The boosters organization, formed in 1972, helps finance the schools' bands and orchestras, providing money for uniforms, field trips, camps, and even college scholarships for its musicians.
It is staffed completely by volunteers, mainly parents of students or alumni.
Three years ago, the boosters asked the district for an extension of its exclusivity agreement.
"We just wanted to make sure that after we were done paying off this loan, we'd get to finally be able to put some of this money toward the kids' music programs," Mr. Henes said.
Bedford Public Schools recently sent the original agreement to their lawyers to look at the wording and work out a possible extension.
But the lawyers discovered that Bedford Public Schools had mistakenly given the boosters a tax-exempt interest rate of 3.75 percent.
While the schools, as a government entity, are tax exempt, the boosters organization is not.
But, according to Josh Dyer, the director of business and auxiliary support for the school district, there is no precedent that any back taxes would have to be paid on the loans that had been issued at the lower, not-for-profit interest rate.
The boosters paid about $120,000, with interest, toward the concession stands at this lower rate, Mr. Henes said.
The lawyers also discovered that it is not legal to give a non-tax-exempt entity an exclusivity agreement for a tax-exempt facility.
Bedford Public Schools has worked out an agreement with the boosters, whereby the schools will subsidize the boosters' new five-year, 7.25 percent, non-tax-exempt interest rate.
Under the agreement, the boosters will have to pay the district a 4 percent interest rate, or $15,000, over 8 years, for a total of $120,000.
It will cost Bedford Public Schools about $42,000, spread out over an eight-year period, to subsidize the 3.25 percent difference between these two rates, according to Mr. Dyer.
And, in terms of the exclusivity agreement, which started this whole juggling act, Bedford Public Schools has changed the wording to the more legal "right of first refusal."
Last week, the school board granted the boosters this 4 percent interest rate and an exclusive "right of first refusal" for 30 years after the payoff of the original $200,000 note.
The agreement states an additional 30 years will be granted to the boosters after the expiration of the first 30 years upon agreement by both parties.
"This agreement will recognize the boosters' contribution and will allow them - and the students they support - to continue to reap the rewards long past when we are all gone," Mr. Magrum said.
The current right of first refusal will expire in 2043, and the optional renewal would last until 2073.
"People are finally realizing that music not only enhances kids' work in school, but it also enhances kids' lives," Mr. Henes said. "Once these stands are paid off, we can put all this money into the music program."
Contact Benjamin Alexander-Bloch
at babloch@theblade.com
or 419-724-6050.