District may have to pay remainder of fitness equipment loan
|Carbon High baseball coach Lane Herrick works out on some of the equipment brought in through the deal with the National School Fitness Foundation. While over 50 percent of the cost of the equipment has been paid by the foundation, the remainder of the debt on it could fall to the school district.|
When the Carbon School District Board of Education was presented with a new program for installing a complete fitness lab in Carbon High in December of 2002, the entire deal sounded too good to be true. In fact the district's business administrator even had the National School Fitness Foundation investigated by legal counsel and the bill of health on the financial well being of the non-profit organization looked as clean as a well scrubbed first grader on the first day of class.
But now, a year and a half later that first grader has picked up a little grime, so much so that they have stopped sending money to the administration office to make the school financed payments on the equipment.
"I haven't seen anything formally yet, but then we are just sending in our voucher for payment on the loan," said William Jewkes, the school districts business administrator. "But according to other business administrators around the state that I have talked with when they send their bills in, they have been getting a formal reply that the payments have been suspended."
That suspension of payment by the American Fork based non-profit business has sent financial ripples through schools all over the nation, and since the company filed for Chapter 11 bankruptcy last Tuesday, the kettle has heated up even more.
"I feel really sorry for some of the other districts in the state because they went into this thing full steam and still owe a lot of money, "stated Jewkes. "After the first round of getting into this situation we became even more cautious than we were when we first committed."
Certainly what Carbon owes on the equipment is not what some other districts have gotten themselves into. Jordan and Granite school districts both bought into the program at dozens of schools for over $3 million each, and both still owe over $2 million. Carbon's total bill for the equipment that was installed at Carbon High was for $215,901 and as of June 1 the remaining balance came to $105,000. The monthly payment on the loan is $6,326 per month.
"We will have no trouble handling that at all," said Jewkes.
The National School Fitness Foundation was founded in March of 2000 and according to their literature was set up to "combat the alarming trends in childhood obesity."
The fitness foundation claimed from the beginning that it would set up a state-of-the-art exercise equipment lab with a scientifically established physical education curriculum in each school where districts approved it.
"The fitness centers have been a very good thing for us," said Missy Hamilton, assistant principal at Carbon. "It has really worked. The kids have been excited to use the facility and they have wanted to come to gym more because of it."
But the success in the gym has apparently not translated to success in financial terms for the foundation. The company presented itself as operating as a kind of broker for those that are interested in keeping kids healthy. Contributors supposedly included government agencies, private foundations and even companies that were interested in youth fitness programs. The foundation also received money from School Fitness Systems, the company which sold and installed the equipment in school buildings. It all seemed solid to begin with, especially with so many schools raving about the projects in their districts.
"When this was first presented to me it all sounded very good and sound," says Jewkes. "But I was skeptical. I talked with other schools that had taken the program on and to the banks that were dealing with it. I also had a law firm we used at the time in Salt Lake check it out. Everything looked very good at the time."
But Jewkes said his feet got a little frosty later when a proposal was sent to the administration to also put centers in Mont Harmon Junior High and Creekview Elementary.
"I just got uneasy about it," explains Jewkes. "I started asking more questions and then asked for some financial statements so I could see where the funds were coming from. They weren't forthcoming, so we didn't move any farther on those proposals."
Jewkes' feelings may have been correct, although the total records of what has been going on have not been made public. The St. Paul Pioneer Press of St. Paul, Minn. reported on April 21 that the United States Department of Commerce attributed 98.8 percent of the money that the organization was taking in came from School Fitness Systems. The interest in Minnesota began when the states attorney general, Mike Hatch, and state auditor, Patricia Anderson, became concerned about how deep school districts in that state were becoming involved with the non-profit group.
Soon thereafter things seemed to have started to unravel as the federal government began to consider getting a cease and desist order to the stop the company from doing business. In May a Minnesota judge froze nearly $7 million in assets the company has in the state and ordered the company to stop doing business there as well. Last Thursday he extended that order until at least August 16.
Last week the Associated Press reported that court documents from the Minnesota situation revealed that the sports gear was sold to the schools at a high markup rate and that 60 percent of the money spent by schools with the supplier went back to the National School Fitness Foundation.
Nationwide the company had dealt with nearly 600 schools in 20 states, with equipment purchases totalling $77.5 million. Utah has more schools involved with the foundation than any other state with 129 schools placing equipment in their buildings. Ohio is a close second with 107 schools involved.
Every school district in Utah has been involved in some way with only a single district, South Sanpete, getting the installed equipment entirely paid for to the tune of $282,708.
The foundation failed to reply to requests from the Sun Advocate for information about their point of view on Wednesday.
In the bankruptcy the foundation filed last week, the organization listed assets and liabilities of $10 million. The petition also listed 995 creditors.