Mon, 22 May 2006

Is the Library Really Broke?

From Ellen Schwartz, a Providence CPA:

I am a resident of Washington Park and a volunteer tutor with the after school homework club that used to meet at the Washington Park Branch of the Providence Public Library (PPL). When the library informed the residents that it was closing the branch because of structural damage to the building due to an unrepaired leak in the roof, I could see first hand the terrible effect it would have on the neighborhood. I am also a Certified Public Accountant so I decided to take a look at their financial statements to see why they had been too broke to fix the roof.

All non-profit organizations have to file an informational tax return called Form 990 with the Internal Revenue Service. All of the information in this article is from tax forms filed by the PPL, which are open to public inspection, and which are available on the Internet at www.fndcenter.org.

For the most recent year posted, June 30, 2004, the PPL had an excess of revenue over expenses (called profit in the business world) of over $2.6 million. For an institution with an annual budget of around $10 million, this is not an indication of financial crisis-quite the contrary. But since a single year could be misleading, I also looked at the tax returns for the two previous years. Those two years also showed "profits" of $710,000 and $459,000. But the PPL claims there is a crisis so I decided to look further.

Profit is only one measure of an agency's financial health. I also looked at the Balance Sheet of the PPL. The Balance Sheet shows what an organization owns (such as cash, investments, buildings, computers, books) and what is owes (unpaid bills and loans). The difference is called net assets for non-profits, retained earnings for corporations, and net worth for individuals. The library had net assets totaling $57 million.

The tax return indicates that PPL has investments totaling $34 million dollars. Around $14 million of this amount is the library's endowment. Endowments are restricted by donors so that only the earnings can be spent. This restriction has the force of law. In addition, RI state law requires that a percentage of earning be retained to cover inflation-a sort of "cost of living" adjustment for endowments.

The additional $20 million is unspent income from previous years and constitutes the library's savings. As such, it could be used for any purpose including fixing the leaking roof at the Washington Park Branch. Unfortunately, the Board of Directors has decided to designate this money to be used as if it were an endowment--that is, they decided to spend some of the investment earnings but not the funds themselves. This decision has no legal force; the Board can change this decision and use these funds at any time. The Board has stated that not spending this $20 million in savings is necessary to ensure the future of the library.

I am a great believer in fiscal responsibility. I think saving money for the future is a great idea. But they are times when you have to dig into your savings account-if your kids are sick, or your roof is leaking, or you're thinking of closing two thirds of your branches. The PPL could make all the needed repairs to all the branches without using their endowment and still have savings.

The financial statements indicate that the library was in sound financial health when the Board decided to forgo needed repairs and close the Washington Park Branch. Now they're threatening to close almost two thirds of the branch libraries. What do their budgets say about their future financial health?

The PPL administration is claiming that it will have a $900,000 deficit in its June 30, 2007 budget. When I looked at this budget I was surprised to see that projected income was around $8.5 million for the years ending June 30, 2006 and 2007. The average income for the last five years was $10.5 million. What happened to the other two million? City funding has remained steady and State funding has increased. I then realized that the budget shows no income from the annual fundraising campaign. Where was all the fundraising income?

The answer is complicated. In August the PPL incorporated a new non-profit organization called the Providence Public Library Foundation. One reason for doing this is that the foundation will not be required to comply with the Open Meeting laws. All annual campaign donations will go through this foundation and the Board of Directors of the foundation, not the library Board, will decide (in secret meetings) how much of the library's money to forward to the library. The only way to find out how much money was donated to the foundation is to wait until their tax return is filed. By setting up the foundation the library manages to hide millions of dollars of their money from public scrutiny and make themselves look much poorer than they are.

I love libraries. I think that libraries should be making it easier, not harder, for people to read books. It makes me very sad to request that the City withhold funds from the library until an investigation is completed into PPL and a commitment is made by the library to follow its Mission Statement and support the branch libraries in our community. At the very least, the City has to right to insist that the funds that it gives to the library be used to save the branch libraries in our poorest neighborhoods.

15:49 - 22 May 2006 [/y6/my] link

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