To be a legal station in the US, any broadcaster, no matter how big or small, must pay royalties. Bands can register with ASCAP, BMI or SEASAC and receive a royalty check. It would be small, but any band, even if the their CD was donated, can file for royalties.
This makes the station legal under the DMCA 1999 (Digital Millennium Copyright Act of 1999). Hundreds and thousands of people run illegal stations. I prefer to be honest and pay my royalties.
Parts of the DMCA, 1999 is under constantly under legal review. Congress in the US wants the internet to be open. SEASAC wants higher royalties or more control. The Government of the US wants the opposite. Laws change every so often. But the basic idea of the law has held up for over 16 years and is unlikely to change drasticaly.