Thursday, June 6, 2013

New Hartford Public Library...A Not-for-Profit Corporation???

That's the question that was brought forth as a result of the New Hartford Public Library's 2012 Financials.

Treasurer Earl Cunningham wrote a memo to Library Board President Linda Romano with a copy to Councilman David Reynolds and Dan Dreimiller. The memo, that was never discussed with the library's Audit/Finance Committee, was inadvertantly made known to Trustee Wiatr, a member of the Library Finance/Audit Committee, who immediately FOILed a copy.

As part of the 2012 audit, D'Arcangelo & Co. found four (4) significant findings. The finding that the memo from Treasurer Earl Cunningham is trying to get clarification on states that:
2012 - 3. Investment~ with Third Party

Condition: The Library has contracted with an independent not-for-profit to invest the 2011 Lally Memorial Garden Fund. The investments are comingled with several other not-for-profits. The agreement does not specify what types of investments are permissible and allows the third party to control the funds. In addition, the agreement does not contain provisions defining management fees or termination.

According to Earl's memo, Mary DuRoss and Connie Stevens contacted Mary Beth Farr from the NYS Education Dept. and she advised them that the library should be considered a not-for-profit corporation. That answer is really surprising particularly if it really came from someone at the State Education Dept. because it is contrary to education law and everything stated on the NYS Education Dept. website.

We did some research to find out if the library ever registered as a not-for-profit corporation, first by looking at records we have on file and then by doing some research on the internet.

According to records we have in our files:


On December 20, 1982, Town Clerk Gail Wolanin Young sent a letter to the State Education Dept. enclosing a copy of Town Board Resolution 353 signed by then Supervisor Gordon Newell. The resolution, certified by the town clerk as correct, states that the library is to be established under Section 216 and 255 of NY Education Law. The 1982 letter, town board resolution and certification can be viewed here.

Section 255 of Education Law refers to the establishment of a library by vote of the town board.

Section 216 of State Education Law refers to chartering a library by the Board of Regents. In part, the law says:
"No institution or association which might be incorporated by the regents under this chapter shall, without their consent, be incorporated under any other general law. An institution or association which might be incorporated by the regents under this chapter may, with the consent of the commissioner of education, be formed under the business corporation law or pursuant to the not-for-profit corporation law if such consent of the commissioner of education is attached to its certificate of incorporation."
For those interested, here is a link to the entire Section 216 of NYS Education Law.

Section 216 clearly states that the consent of the commissioner of education is necessary to be incorporated as a not-for-profit and that consent should be attached to the library's charter.

None of the copies of the New Hartford Public Library Charter that we have in our files, including those that have been obtained directly from the NYS Education Dept., have a consent of the commissioner of education attached to them.

Next...


We searched the online database of the NYS Division of Corporations which lists "all business and not-for-profit corporations, limited partnerships, limited liability companies and limited liability partnerships, as well as other miscellaneous businesses."

More than 500 entries were found when we entered the word "library" as our search criteria, but none of the entries returned for our search even remotely looked like a record of New Hartford Public Library having obtained a not-for-profit certificate of incorporation.

Incidentally, the Dept. of State website makes it very clear the written consent or approval from the commissioner must be attached to the Charter and both must be submitted to the Department of State at the time of application for incorporation as a not-for-profit.

What other sources did we consult?


The Handbook for Library Trustees is often referred to as the library trustees "best friend"; their "bible", if you will. New Hartford Public Library board officers often recite from the Handbook when it agrees with their thinking.

One passage in the Handbook for Library Trustees states:
A municipal library is formed either by a vote of the governing body of a municipality (village, town, city, or county) or by a public referendum to serve the residents of the municipality. Although the board of trustees is an independent corporate entity, the library acts as an agency of the municipal government and is subject to all the laws applicable to public institutions in the state.
The Handbook actually devotes almost an entire page to investment of funds and a quote from the NYS Comptroller's Opinion 95-30 cited by D'Arcangelo can be found on that page.

According to the Handbook for Library Trustees:
Under General Municipal Law and subsequent court rulings, all funds (including privately raised moneys) under the control of a municipal, school district, or special district library must be invested in the following limited number of financial vehicles:

  • Time deposit accounts or certificates of deposit in commercial banks and trust companies located and authorized to do business in New York State;
  • Obligations made by the United States of America or guaranteed by the United States of America, and obligations of the State of New York;
  • Under very limited circumstances, obligations of municipalities and other municipal corporations.
The NYS Comptroller's Opinion 95-30 concludes by saying:
Accordingly, based on the provisions of General Municipal Law, §11, as amended by chapter 708 of the Laws of 1992, it is our opinion that moneys held in the custody of the chief fiscal officer or other officer of a public library, whether obtained from public or private sources, may be invested only as prescribed in General Municipal Law, §11, except that investments of gifts, grants or bequests in the form of a true trust are subject to the "prudent investor" provisions of Estates, Powers and Trusts Law, §§11-2.2 and 11-2.3.
D'Arcangelo's findings conclude:
Effect: The current agreement results in investments that are not permitted by the Library's policy or by General Municipal Law. Further, as stated above, the Library does not have full control of these invested assets.

Recommendation: We recommend that the Library reevaluate its arrangement for investments to ensure compliance with New York State General Municipal Law.
Since the Handbook for Library Trustees agrees that the library cannot invest monies with an independent not-for-profit, the chances are pretty good that the NYS Comptroller opinion cited by the auditors is valid and the auditor's recommendation should be followed asap by the library.


What's the library doing to correct the problem?


At the April New Hartford Library Trustee meeting, Treasurer Earl Cunningham distributed a new investment policy for the board to consider and discuss at the May library board meeting. The policy suggested by Earl merely changed the wording of the library investment policy to make it appear that the investments held at the "independent not-for-profit" were in keeping with General Municipal Law.

Shortly after the meeting, Trustee Wiatr sent a memo to all library board members letting them know that the "new" policy was not in conformance with General Municipal Law.

No further action was taken at the May library trustee meeting to correct the problem. The next library board meeting is scheduled for June 19, 2013 at 7:00 p.m. in Butler Hall.

To be continued...

2 comments:

Anonymous said...

Earl Cunningham, Treasure of the New Hartford Public Library wrote a post script as follows: " This will affect other areas of library operations..."

What did he mean by this statement?

New Hartford, NY Online said...

Anonymous,

We think he is referring to the different regulations that would affect the library if they were a not-for-profit vs. a municipal library, but we are not entirely sure.