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Helmut Schmidt, Published May 01 2012

Bluestem floats possibility of filing for bankruptcy

FARGO – A meeting to come up with a new operating agreement for the Bluestem Center for the Arts became tense at times Tuesday, as a board member for the facility’s fundraising group raised the possibility the nonprofit could declare bankruptcy.

Tim Brookins, a Bluestem board member, told five School Board members the nonprofit could look to bankruptcy court to avoid repaying a $2.7 million loan made by the district to build the south Moorhead performing arts facility.

Brookins said the move might be necessary because donors don’t want to give their money to pay old debt.

But School Board President Jim Johnson, and board members Rick Steen and Paul Meyers, repeatedly said the board could not forgive the loan.

The district can’t write off the loan, “but we can delay it,” Steen said. “What else do you want us to say, ‘We’re going to forgive it?’ ”

Instead, the School Board members encouraged Bluestem fundraisers to consider strategies used by other nonprofits – such as churches or colleges – that find themselves with debt that must be paid.

“This is not good people and bad people,” Brookins said. “If I don’t believe that donors will give to debt repayment, then either it’s Chapter 7 or Chapter 13 (bankruptcy).”

“If it’s Chapter 13, you can actually forgive the debt, because it’s bad debt,” said Brookins, who reminded the board that Bluestem has no assets and is made up of volunteers.

“If that would to occur, Tim, what do you think the relationship between Bluestem and FPS would be?” Steen asked.

“Doesn’t matter. If it’s a fiscal reality, it’s a fiscal reality,” Brookins said.

Johnson warned that Bluestem fundraisers may be at an important decision point.

“I believe there’s only two options available to you folks. One is to repay the loan. The other is to dissolve,” Johnson said.

Later in the meeting, Johnson returned to the issue of Bluestem perhaps declining to fundraise to pay the accumulated debt.

“I’ll be real honest. If you do not have the desire and the belief that you can make this work under whatever scenario, then you guys need to have a serious inward look, and decide, ‘Do we want to move forward or not’?

“In one sense, we’re sitting at this table today, primarily like anyone else that gets behind at the bank. And we are the bank right now,” Johnson said.

The Fargo School District took over the day-to-day operations of the Bluestem Center on March 1, but has been seeking an updated operating plan. The district was forced to step in to run the facility after Bluestem – the fundraising nonprofit – failed to make a $286,000 bond payment in December.

That put the group in default in its agreement with the district, which expects to pay at least the next two bond payment in June and December.

The exchange about the possibility of bankruptcy came at an ad hoc committee meeting Tuesday in which a nine-part memorandum of understanding was presented to the Bluestem representatives.

Among major points in that plan, the district:

• Maintains control of the Bluestem Center until Bluestem fundraisers can afford to take on the operating costs again.

• Lays out rents and expenses to be paid for use of the facility by Bluestem and how payments for contracts already signed will be distributed.

E Sets up a loan repayment plan for the $2.7 million loan, which calls for it to be paid in quarterly installments over 20 years, starting Jan. 1, 2014. The loan was given interest-free, without a set payment schedule.

• Will take care of the loan payments on the

$2.1 million remaining in bonds – for now. The district calls for both parties to revisit the issue in a year to see if repayment is possible on that debt.

• Will work with Bluestem to create a membership group to help support the district’s Trollwood Performing Arts School and the Bluestem Center, which is home to that program.

Bluestem President Dave Olig said he hopes to meet with his board yet this week to present the plan to them.

“I don’t think there are any surprises,” said Dave Olig, president of the Bluestem board of directors.

Olig said he is still confident the loan will be repaid. He said talk of bankruptcy is “nothing more than an option. And we don’t even determine that option. The community does. If the community decides they don’t want to invest, then they’ve played our hand for us. We’re going to take our best foot forward, with the expanded programming and all the things we’re doing.”

Johnson said he doesn’t believe the Bluestem board wants to simply dump the debt on taxpayers, and it comes down to fundraising.

“Obviously, at the end of the day, if they can’t pay their bills” they’ll act as any other entity would, he said.

Johnson said he’d encourage Brookins “to look at the broader world of non-profits. Many of them over the years have found themselves in debt and found ways to make their debt payments. I think this group certainly is in a position to do that, too.”

Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583