In the future, the organization must formally apply for accommodations tax money and prove the festivities brings people to the city.
The city is donating approximately $10,000 worth of police, fire, parking and other services and waiving $4,400 in fees for the 2012 Lt. Dan Weekend Sept. 14-15.
The decision was made during Tuesday's city council meeting.
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Councilman Mike Sutton said the event does not meet city requirements for co-sponsorship since Beaufort does not co-sponsor events that involve the sale of alcohol. Many worthy organizations ask the city for money, Sutton said, but Beaufort "can't do everything for free."
"The discussion is not about the event, but we're in a position where we're trying to put a round peg in a square hole," he said.
The festivities are sponsored by the Independence Fund and bring injured veterans from the Iraq and Afghanistan wars to Beaufort for a the weekend and a concert with actor Gary Sinise's Lt. Dan Band. Concerts will be held in the Henry C. Chambers Waterfront Park.
Councilwoman Donnie Beer recused herself from the discussion and vote because of her close involvement with the organization.
Organizations usually have to apply for accommodations tax money and Councilman Mike McFee said in the future, the Independence Fund must follow the application process as well and show how the weekend helps the economy.
Last year, the city made an in-kind donation worth $9,670 by waiving park rental fees and providing fencing and public works and police and fire services, city manager Scott Dadson said.
Had the city co-sponsored the event this year, it would have cost Beaufort $17,125 for the same services and the use of the Downtown Beaufort Marina parking lot, Dadson said.
Independence Fund volunteer Bob Newman said the organization is spending more this year because there will be two nights of concerts, instead of a movie night and a concert night. Water Festival volunteers have offered to help with fencing and set up, which will save money, he said.
Follow reporter Erin Moody at twitter.com/EyeOnBeaufort.