Ann Arbor District Library Gets Clean Audit

Ann Arbor District Library board meeting (Nov. 15, 2010): Two financial issues drew much of the focus at Monday’s AADL board meeting.

Dave Fisher of the accounting firm Rehmann Robson was on hand to review the district’s financial audit for the fiscal year that ended June 30, 2010. He described the library as in solid financial shape, especially in relationship to other entities in Michigan that rely on property tax revenues. The library has no long-term debt and its fund balance is strong, he said. But he added a cautionary note that like other taxpayer-funded entities, the library would likely be grappling with a continued drop in property tax revenues in future years.

Property tax revenues emerged again in a discussion during the director’s report. AADL director Josie Parker drew attention to a Nov. 15 column published in The Ann Arbor Chronicle regarding the ongoing negotiations between the city of Ann Arbor and the Downtown Development Authority. The column pointed out an issue that Parker has been tracking as well: the potential for tax increment financing funds captured by the DDA from public entities, including the AADL, to be used to offset a parking fund deficit caused by striking a new parking deal with the city. The board ultimately passed a resolution at Monday’s meeting, directing Parker to seek legal counsel on the issue.

Board member Ed Surovell said he wanted to make sure the board was defending their right to collect taxes, and that they’re being as responsible as possible to the citizens of the district. “I think this is dead serious business,” he said. “The appropriation and misappropriation of tax revenues is the lifeblood not just of this library, but of a democracy.”

Also during her director’s report, Parker described the results of a site review by staff of the Michigan Commission for the Blind, which manages the federal program that the Washtenaw Library for the Blind and Physically Disabled @ AADL is part of. The review, conducted every two years, is the first one since the AADL took over management of the WLBPD from the county, a transition that occurred in early 2009. AADL received several commendations for its approach to providing WLBPD services.

At the end of the meeting, outgoing board member Carola Stearns – who lost her seat in the Nov. 2 election to challenger Nancy Kaplan – gave a poignant speech, thanking the library staff and her colleagues on the board. In connection with a possible downtown building project, she urged the board to explore alternative funding sources, beyond paying for the project solely with taxpayer funds.

City-DDA Parking Contract Negotiations

During her director’s report, Josie Parker alerted the board to a Nov. 15 column published in The Ann Arbor Chronicle. The column, by Chronicle editor Dave Askins, discussed the ongoing negotiations between the city of Ann Arbor and the Downtown Development Authority, and pointed out the potential for tax increment financing funds captured by the DDA from public entities, including the AADL, to be used to offset a parking fund deficit caused by striking a new parking deal with the city.

Parker told the board that she has been aware of this issue, and is following it closely. She said she has attended DDA meetings at which this has been discussed, and it’s known that the library understands the issue and the impact that the parking agreement might have. It’s known that the library is paying attention, she said.

One of the meetings that Parker attended was a DDA retreat in May, during which DDA board members discussed their approach to negotiations with the city over a new parking agreement. From Chronicle coverage:

Parker’s an interested party to the DDA conversations, not just because of the library’s downtown branch. To the extent that payments by the DDA to the city could involve revenues from the DDA’s tax-increment finance district, Parker told The Chronicle before the meeting, she wanted assurance that any excess TIF revenues were distributed proportionally, according to state statute, to all the taxing authorities whose tax levies were “tiffed” – that is, captured by the DDA. The Ann Arbor District Library is one of those taxing authorities, along with the city of Ann Arbor, Washtenaw County, Washtenaw Community College and the Ann Arbor Transportation Authority.

At Monday’s AADL board meeting, Parker said she wanted the board to know that she is aware of the issue, adding “I will need direction as this moves forward.” As tax revenues decline, it’s important to look at how these revenues are used, she said.

Carola Stearns said she appreciated that Parker was staying on top of the issue. But she didn’t think that the library had any control over the TIF funds, and wondered whether that was, in fact, the case. Rebecca Head said she didn’t know, but that it was certainly something they could discuss with their partners – referring to the other taxing authorities that would also be affected by TIF capture: The Washtenaw Community College, the county government, and the Ann Arbor Transportation Authority.

Saying it seemed that the city was attempting to collect money for its general fund through the DDA in a way that’s not appropriate, Ed Surovell felt the board should seek the advice of legal counsel, and proposed doing that as an agenda item later in the meeting.

The board returned to the issue under items for new business. Surovell made a motion to direct Parker, in conjunction with the board’s treasurer and finance committee, to consult with legal counsel about the city-DDA parking agreement, and to seek a legal opinion about how funds are being allocated that would otherwise be coming to the library.

Margaret Leary made a friendly amendment that the director or treasurer make a preliminary report and recommendations to the board at their next meeting.

Surovell said he wanted to make sure the board was defending their right to collect taxes, and that they’re being as responsible as possible to the citizens of the district. “I think this is dead serious business,” he said. “The appropriation and misappropriation of tax revenues is the lifeblood not just of this library, but of a democracy.”

Outcome: The board unanimously passed a resolution directing AADL director Josie Parker, in conjunction with the board’s treasurer and finance committee, to consult with legal counsel about the city of Ann Arbor-Downtown Development Authority parking agreement, and to seek a legal opinion about how funds are being allocated that would otherwise be coming to the library.

Financial Audit

During Monday’s meeting, Dave Fisher of the accounting firm Rehmann Robson was on hand to review highlights of the AADL’s financial audit for fiscal year 2009-10, which ended June 30, 2010. Prior to his presentation, board treasurer Prue Rosenthal reported that the finance committee had met with Fisher and reviewed the audit report in detail. The committee members are Rosenthal, Ed Surovell and Barbara Murphy. She said that Fisher told them the library is in “wonderful shape,” with no outstanding issues. “We’re in good shape – very good shape,” she said. The committee had approved a draft of the audit.

Fisher told the board that AADL has a “very healthy” fund balance. At the end of the fiscal year, the unreserved fund balance for the library’s general fund – that is, money available for spending – was $7.042 million, or 57% of total general fund expenditures. The combined fund balances of $7.65 million represented an increase of $587,757 over the previous year.

The library’s total net assets were $31.693 million at the end of the fiscal year, an increase of $64,809 from the previous year.

Fisher noted that property tax revenues, which account for 91% of the district’s total revenues, have been declining, as they have throughout the state. “That’s going to be a factor, of course, in future budgetary cycles,” he said.

Total revenues were $12.97 million during fiscal 2009-10, down from $15.94 million the previous year. Of that, property taxes accounted for $11.79 million during 2009-10, compared to $14.62 million in 2008-09.

Despite declining revenues, Fisher said the library has a solid fund balance, which is very good – it’s also something that many other government entities don’t have these days, he noted. Fisher also pointed out that the library has no long-term debt, unlike many other entities. That means they don’t have debt payments to make.

When board president Rebecca Head observed that this presentation was likely different from others that Fisher is making, he agreed, saying that school systems in particular are having some issues right now with their fund balances.

Fisher noted that there were no issues this year related to AADL’s internal controls. He mentioned that the IRS has stepped up its audits of governmental and nonprofit entities, in particular looking at issues related to employees versus independent contractors. He urged the library to be vigilant in following the IRS rules related to independent contractors, and to ensure that W-9 forms are obtained when required.

Board members had few questions. Margaret Leary noted a paragraph in the report referring to a contingent liability that she said she thought they have already addressed. The section she referred to is part of the notes to the financial statements, and reads:

The Library in December 1995, effective for the Library 1996-1997 fiscal year, has executed a Library Services Contract with a Township, for the purpose of providing reciprocal library services to the residents of this Township which has its own library. Because the Ann Arbor District Library overlaps in part with this Township Library territory, the contract states in part that Ann Arbor District Library shall pay over to this Township the portion of property tax received on behalf of this Township.

No amounts have been paid over to the Township under the provisions of this Contract. This Township has not since 1996-1997 asserted its right to receive this property tax revenue, and it is unknown what amount, if any, would be required to be repaid in the case this Township elects to assert this right. It is believed that resolution of this matter will not have a material adverse effect on the financial condition of the Library.

Leary wondered whether the report needed to reflect the fact that the library has changed its boundaries. Though board members and staff did not mention the township by name at Monday’s meeting, they were referring to Northfield Township. The board took action at its May 17, 2010 meeting to change those boundaries. From Chronicle coverage of that meeting:

The board voted unanimously to approve a resolution to modify the library district’s boundaries so that there’s no overlap with the Northfield Township Area Library’s district, located north of Ann Arbor. Residents in Northfield Township’s district will continue to have access to AADL resources. [.pdf file of boundary changes]

At Monday’s meeting, Ken Nieman, associate director of finance, HR and operations, pointed out that the issue is addressed in the financial statement’s first footnote. Fisher added that it’s necessary to include this as a contingent liability, to let people know that the situation exists.

Before the vote, Murphy thanked the library staff – in particular Parker and Nieman – for year after year of clean financial audits. Nothing is as damaging to an organization as problems with finances, she said, adding that they’ve now had over 10 years with no problems. [She was alluding to AADL's former finance director, Don Dely, who in 2000 was convicted of embezzling $119,387 from the library between 1997 to 2000. The situation was uncovered in early 2000, when the library discovered that it faced a nearly $1 million deficit. The library director at the time was Mary Anne Hodel – Parker took over as interim director in the fall of 2001, and was appointed director in early 2002.]

Murphy thanked the staff for making the board’s job easier.

Outcome: The board unanimously approved a resolution to accept the financial audit for the 2009-10 fiscal year.

Director’s Report: Games, Kudos

Josie Parker reviewed several items during her director’s report. She noted that for the third year in a row, the AADL hosted the American Library Association’s national gaming day, this year held on Nov. 13. Teens at nearly 50 libraries nationwide competed, and two of the winners – with the user names “Hot_ArmS” and “DingDong” – played at the AADL, defeating players from the Topeka and Shawnee County Public Library. Parker said this pleased Eli Neiburger, AADL’s associate director of IT and product development, since he comes from Kansas. Parker also noted that the platform the libraries use across the country for multi-user gaming – GT System – was developed by AADL staff. [link to AADL's GT System site and to a video of the competition]

Later in the meeting, responding to a query from Jan Barney Newman, Parker reported that the games played were Rock Band and Mario Kart/Super Smash Bros. Brawl. [Here are links to the leaderboards for Rock Band and Smash Bros.] She clarified that teens were in the tournament, not staff. Ed Surovell joked that this kind of gaming isn’t something that happens up at the Soaring Eagle Casino.

Parker also reported on results from a site review by staff of the Michigan Commission for the Blind, which manages the federal program that the Washtenaw Library for the Blind and Physically Disabled @ AADL is part of. The review, conducted every two years, is the first one since the AADL took over management of the WLBPD from the county, a transition that occurred in early 2009.

AADL received commendations for its work, Parker said, which were especially gratifying because there had been skepticism at the state and federal levels about the approach that AADL was taking. Typically, this type of library is handled as a “library within a library,” she said, which is expensive and difficult to administer. The AADL is treating it as a service available throughout the system.

The commendations include:

• Completing comprehensive reviews of patron accounts in 2009 and 2010, and for meeting deployment targets for use of digital technology.
• Taking a proactive stance in managing services, using all of its available staff. “Use of all-staff trainings and development of a staff wiki have provided excellent back-up information to those who do note regularly interact with the WLBPD service population,” the report states.
• Creating outstanding programs and trainings for WLBPD patrons, and for supporting a low-vision book club.
• Assigning specialized tasks to specific employees, to ensure consistent compliance with library standards, as well as best practices for patron services.

Parker said that they cleaned up the database of patrons by calling each entry – about 500 people – when they took over the WLBPD from the county in 2009. That personal touch made a huge difference in how the library was perceived, she said. They also anticipated that the National Library Service, which provides resources to the WLBPD, would transition from tapes to digital recordings, so they made the transition to digital earlier this year. They’re ahead of other libraries in that regard, she said.

The review also included three recommendations for the WLBPD:

• That appropriate staff attend conferences for the Michigan Chapter of the National Federation of the Blind and the Michigan Council of the Blind and Visually Impaired.
• That the library honor volunteers of the WLBPD annually.
• That results of a patron satisfaction survey that’s being developed by library staff be shared with all WLBPD stakeholders.

Parker thanked AADL associate director Celeste Choate, who took the lead on this project, as well as the staff of the outreach, IT and circulation departments, who bear the most responsibility for the WLBPD. The board gave them a round of applause.

“I think it’s truly a model for the future,” said board president Rebecca Head.

Farewell from Outgoing Board Member

At the end of Monday’s meeting, Carola Stearns made a statement, thanking the library staff and her board colleagues and reflecting on her tenure on the board. [Stearns was appointed to the board in mid-2008, following the resignation of Jean King. She ran for a two-year term in the Nov. 2 election, but was defeated by challenger Nancy Kaplan.]

Stearns said she was deeply disappointed that her service would be ending, saying that her voice represented the “politically unconnected, library-loving taxpayer.” She praised AADL director Josie Parker and the library staff, saying that the board had some hard decisions to make, but they always had been provided with the information they needed to make informed decisions. It was impressive that the board’s votes had been unanimous, she said.

The next couple of years won’t be easy for the board, she said. They’ll have to resolve a difficult conundrum. On the one hand, she said she’s sure that now is the time to address the inadequacies of the downtown library building. Yet she’s equally convinced that it’s not the time to finance such a project solely with taxpayer money. Stearns said she was dismayed when, prior to the election, a local blogger asked only one question of her –whether she favored renovating the existing downtown branch, or building a new one. That’s missing the point, she said – when the time comes, the board will make a decision that’s appropriate for the library and for the community. The real issue will be how to finance it.

Stearns urged the board, at their next retreat, to explore alternative funding sources for the downtown library project. It won’t be easy, she said, and it’s not clear that funds are there to be solicited. Yet it is important to keep the library strong, to continue to evolve, and to minimize the financial impact on the individual taxpayer. Future Ann Arborites deserve a strong library as well, she said.

The board and staff gave Stearns a round of applause, and the meeting was adjourned.

Present: Rebecca Head, Margaret Leary, Barbara Murphy, Jan Barney Newman, Prue Rosenthal, Carola Stearns, Ed Surovell. Also: Josie Parker, AADL director.

Next meeting: Regular board meetings are typically held on the third Monday of the month, with the public portion of the meeting starting at 7 p.m. in the library’s fourth floor board room, 343 S. Fifth Ave. The board’s next regular meeting is set for Monday, Dec. 20, 2010. [confirm date]