[Michlib-l] Libraries with 501(c)(3) status

Fri Dec 13 10:18:52 EST 2019

Hello Rebecca,

I have been working on such a thing for the past 2 years. To my understanding, the library itself cannot be a 501(c)3. Please see this summary: " Public libraries that are government agencies can receive donations, and they are tax-deductible for donors, so the question is, should your Friends or foundation become a 501(c)(3)?" Hence a library CANNOT be a 501(c)3, rather they can have a Friends or Foundation that is a 501(c)3 and provides the library with additional financial support.
http://librarystrategiesconsulting.org/2017/09/should-we-be-a-501c3/

They are then legally and financially separate from the library. This can have positives and negatives.  

My library already has a Friends group that has been operating long before my 6 years here. They are excellent. They have all the requisite paperwork in place and used a lawyer to help them set it up years ago. There is a board with monthly meetings and a treasurer, who happens to be an accountant, who handles all the money and the annual tax returns. The library cannot tell them what to do, since they are legally separate. They choose to give us money and approve what we use it for. This year they gave us $35,000 and we use the money for programming, tech, and furniture - "enhancements" not in our operational budget which is funded by tax dollars and fines.

We are in the process of also creating a 501(c)3 Foundation, with a different mission than the Friends group. The goal of the Foundation is specifically to raise $5 million, which will then be invested and the annual interest income will be given to the library to support our strategic plan initiatives (i.e. a building study, new study rooms, more solid funding for programming, staff and collections).

1.       Did you pay an attorney? Yes, we interviewed 4 attorneys based on recommendations from other libraries or online reviews. There were surprisingly few attorneys in the Milwaukee area that specialized in setting up non-profits. Certainly, you could use any lawyer, not one who specializes. Another area library used an attorney to set up their fund after receiving a $5.5 Million bequest and the total bill was between $10k-20k. Bc the attorney can be very expensive, and we don't have that amount of money, we are writing the bylaws ourselves using other library foundation bylaws as an example. We will then run the final bylaws by the attorney with questions and have her file the official state paperwork and the IRS paperwork. Luckily we have an attorney on the Foundation Board and she has helped us hone things with a legal eye, though her area of expertise is not in establishing non-profits. We are hoping our total attorney costs will be under $5k.

2.       Did you use free legal assistance? In my experience free "legal aid" doesn't do this sort of thing and as mentioned above we were not able to find a local lawyer willing to do it for free. It's still worth the effort to see if you can find an area attorney who will work with you for free or lower cost, or even get them to join the Board.

3.       How long did the process take? Don't be scared off by my saying I have been working on it for two years. We created a very large, ambitious, strategic plan in 2016. In 2017 we started looking at what it would take to create the foundation, then create the investment fund at the area Community Foundation (i.e. the actual investment vehicle), etc. We interviewed attorneys this past Spring, then interviewed people for the Foundation Board, I started the Bylaws based on examples and have been sending them to the board members via email for feedback. We were delayed by a couple urgent big issues that came up and took my time away from the bylaws, and then I got a concussion which resulted in no work on it for 2 months. I am back at it with the goal of finishing the bylaws draft by the end of this month and completing the Foundation paperwork with the lawyer in the 1st quarter of 2020. I would imagine setting up a Friends group would be much easier time-wise. A full foundation for investment purposes is a little more work. 

4.       What are the pros in being a 501(c)(3)? Again a library itself is not allowed to be a 501(c)3. I think the more accurate question is what are the pros and cons of a library establishing a Friends group or a Foundation. The pros are you have people interested in raising money for your library and then giving you the money for library projects. They provide financial support beyond what the municipal tax base provides. They can organize and hold book sales or "wine tastings" as special events. Things that staff don't have the time to do.

5.       Are there cons in being a 501(c)(3)? The cons to a Friends group or Foundation is that they may view the raised money as THEIRS. Their territory. And they may not approve you using it for what you wish, or they turn it into a fiefdom with feelings of power. I have seen very dysfunctional Friends and Foundations and have heard horror stories from other libraries. Thankfully my current Friends group has no drama or power issues. I am working very hard to set-up our coming Foundation so they raise the money, it goes directly into the investment fund, and then the interest income is passed to the library at the end of the year to "support the Library Board approved strategic plan initiatives." The Foundation will have no input in how the money is used and cannot say "no." Another con may be that your municipality may say: Oh, you have $5 million in your foundation so we can cut your budget...  I have found that getting "only" $35k from our Friends group does not impact our municipal funding. When it comes up I explain that the Friends enable us to replace all of our furniture so we didn't have to make a capital request to the Village for it. With the goal of $5 million in a fund, potentially generating interest income of $250,000/year (fyi, our annual budget is $800,00 of which we get $700,000 in municipal taxes), we will protect the money by having donors specifically state what the money is for. i.e. strategic initiatives, not new carpeting or the electric bill.

My advice is to figure out WHY you or someone else wants the library to be a 501c3 - or more accurately - why you want Friends or a Foundation to do fundraising for you and give you extra money. How much? $5,000 per year in book sales or $1 million for a building addition? Knowing your end goal will help you determine if it is worth it. I don't know that it'd be worth the effort for $1,000/yr. But maybe for $5k-10k/yr. Definitely for $35k-250k/yr.

6.       Is your Friends group a 501(c)(3)? Yes

7.       In retrospect, are you glad your library is a 501(c)(3)? Not applicable.

8.       Is the ROI worth it? The ROI on our Friends is totally worth it. The pending ROI on a Foundation remains to be seen, but if we do not raise $5 Million and use it to solidify our funding base, then we will end up having to make major cuts in the future. Avoiding cuts, and potentially finding extra enhancement, makes it worth it to me.

Best of luck on whatever path you take. Feel free to email or call me anytime to ask questions. And check out this article on how my neighboring library set-up and defined what their bequest will be used for (i.e. protecting it from calls to use it for operational expenses). PS I'm totally happy for them but jealous that they got a huge donation and I am working to raise that much. :-) 
https://www.jsonline.com/story/communities/northshore/news/shorewood/2019/11/26/shorewood-residents-left-5-5-million-donation-library/4260561002/

Sincerely,
Nyama

Nyama Y. Reed
Library Director
N.Reed at WFBLibrary.org
414-755-6551 (direct line)

Whitefish Bay Public Library
5420 North Marlborough Drive
Whitefish Bay, WI 53217
414-964-4380 (main line)

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-----Original Message-----

Message: 1
Date: Wed, 11 Dec 2019 15:10:14 -0500
From: Rebecca Higgerson <rhiggerson at brandonlibrary.org>
To: michlib-l at mcls.org
Subject: [Michlib-l] Libraries with 501(c)(3) status
Message-ID: <2681be5dfa69d01ea7f325312ecc4033 at mail.gmail.com>
Content-Type: text/plain; charset="utf-8"

In our current Strategic Plan, we were asked to investigate 501(c)(3)
status for our library.  For those of you who have done this, I would
appreciate getting some feedback:

1.       Did you pay an attorney?

2.       Did you use free legal assistance?

3.       How long did the process take?

4.       What are the pros in being a 501(c)(3)?

5.       Are there cons in being a 501(c)(3)?

6.       Is your Friends group a 501(c)(3)?

7.       In retrospect, are you glad your library is a 501(c)(3)?

8.       Is the ROI worth it?

Thanks in advance!

*Rebecca Higgerson*

Director

Brandon Twp Public Library

304 South Street

Ortonville MI 48462

248-627-1474