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Public Library District Toolkit: Strategies to Assure your Library’s Legal and Financial Stability

Establishing the District

“...the improvements made to the library facilities and services to the community far outweigh the challenges of going through the process and dealing with the onslaught of paperwork and legal requirements. I am extremely proud of what we were able to do with the increased and secured funding provided by changing from an association to a public library district.”

Anna Grace, Retired Director, Wadsworth Library

After the School or Special/Consolidated District Establishment Vote

Congratulations! You have taken the first critical step to assure the viability of your library for many years to come. But you aren’t finished. Many libraries find the work required after a successful school district public library or special/consolidated district public library establishment vote to be a burden after all the effort they put into the public vote. But, like any lasting structure, after you build a solid foundation it’s time to construct a building that will withstand the challenges ahead and stand firmly for decades to come. Such an effort takes persistence and patience but, as we know from those who have come before, it is well worth it. Below is an idea of what to expect.

After a successful vote to establish a Special or Consolidated Public Library District or a School District/Joint School District Public Library, it is important to continue to work with your Public Library System contact and Division of Library Development regional liaison to complete the following actions required for operation of the new library. These actions include, but are not limited to, the following:

1. Obtain copies of the following two documents:

  1. A certified copy of the results of the election. The certification of election results for a special legislative district public library is usually completed by the election inspector(s) named in the State legislation authorizing the local election. In the case of a vote to create a school district public library, the certification of election results is completed by the clerk of the Board of Education.
  2. A certified and notarized affidavit of the publication of the notice announcing the election. This document is obtained from the newspaper or other official publication that printed the legal notice announcing the election to create and fund the district and elect trustees. An official at the newspaper that published the notice must sign the copy of the notice and have it notarized.

These documents must be submitted to the New York State Library's Division of Library Development along with the application for a charter for the new library.

2. The newly elected Board of Trustees must meet within 30 days of the election

At this first organizational meeting of the board, trustee terms should be established by lot if they were not specified as part of the election process. In addition, the new board should review and approve a formal application for a charter and associated paperwork. Contact the Library System for assistance in this process. The charter packet to be submitted to the New York State Library's Division of Library Development should include the following documents:

3. Immediate Next Steps

  1. After the charter application is submitted:
    1. Establish bylaws.
    2. Establish policies.
    3. Meet with the municipality.

Within two or three months after the above paperwork has been submitted, upon recommendation by the New York State Library's Division of Library Development, the Board of Regents will formally take action on the new library district’s charter application. Once the Board of Regents has approved the charter for the new library, the new library district board of trustees assumes responsibility for governing the library. Many well-established libraries that have restructured report frustration with the length of this process as well as the requirements for the new library to first obtain a “Provisional Charter” and submit to the registration process. Please keep in mind; from a legal standpoint you have established a new library.

  1. After the charter is granted:

Within 30 days of receiving the library charter, the oath of office should be administered to all trustees. In addition, the new library board must submit an application for registration to the New York State Library's Division of Library Development, which will enable the library to receive public funds. In addition to a copy of the new bylaws the board will need to submit evidence of compliance with all minimum public library standards. It is important to note that a thorough review of the library’s policies will need to take place to account for any adjustments caused by the evolution of a library to a district. For example, if an entity has graduated from an Association library to a district it will need to test its policy inventory to ensure compliance with new laws it may not have previously fallen under, such as Civil Service and the Freedom of Information Law. A list of recommended policies can be found in the Handbook for Library Trustees of New York State. Once finalized, the policies need to be adopted by the board of the new district.

4. Dissolving the old library, transfer of assets, and turning the reins over to the new library

If the new library district is replacing an existing library, the old library board should submit formal paperwork to dissolve and transfer its assets to the new library as soon as possible after the election that creates the new district. Sample forms for these actions are posted on the New York State Library's web site.

The library should first contact the Library System, who will work with the State Library regional liaison prior to completing and submitting any charter-related paperwork, including provisional charters, charter amendments and dissolutions. State Library staff will work with the library contact person to develop the draft petition and resolution for the Library Board's approval, so it is done properly in the first instance.

Once a new library is formed and the new library district board’s application for a charter has been approved by the Regents, the new library board should begin meeting regularly to conduct necessary business. At this point, the old library board should cease to operate as a policy making library board and only continue to meet to complete the asset transfer and dissolution process. When the Board of Regents has approved the dissolution of the existing library, the State Education Department Office of Counsel will send a letter that acknowledges the Regents action and specifies that within three months, trustees of the library being dissolved must petition the Supreme Court in their County for an order directing the disposition of any remaining corporate assets (see Education Law §220external link opens in a new window). Once all assets of the library have been transferred and or disposed of, it should cease operations.

When setting up bank accounts for the new library here’s a suggestion from a CPA/library trustee: “Be aware that you are a government entity and not a charitable organization. When you set up bank accounts you have to know your governmental type. Your local branch will most likely be clueless. You need to go to the specific person that will get you set up with the right accounts. This includes getting the right guarantee letters set up. Please note: Banks use the "governmental account" as a way to give you smaller interest on your accounts.”

As mentioned above, the process for dissolving a library includes the passage of a resolution by the library board being replaced stating that all of the library's assets have been transferred to another nonprofit organization (presumably the new library district) and that there are no remaining debts. This process is usually straightforward when all assets are being distributed to the new library district.

However, the asset transfer process can be somewhat complicated or delayed when there is a building and/or a private endowment involved. For example, a municipality or perhaps a private foundation that is separate from the public library may hold the deed or title to the library building. Special arrangements may have to be negotiated in these cases for the municipality or the foundation to either transfer the title to the new library district or to enable the new library to continue to utilize the facility under a lease or rental agreement. In the event the current library is mortgaged, review your plans with the banking institution. Do not assume they will automatically transfer the mortgage agreement.

Another example might involve an Association Library with a large endowment invested in stocks and bonds. This library may wish to transfer that endowment to a private or community foundation able to invest in stocks and bonds rather than transfer the endowment to the new library district, which as a public entity is limited in the type of investments it can make. In both cases, the asset transfer process and dissolution process may take some time. It is strongly recommended that libraries making the transition to a public library district seek professional advice, particularly through their public library system, and tackle these issues early on in the process so that there is minimal delay in transferring assets or dissolving the existing library.

Libraries rechartering from Association Library status to a “public” library should be aware that the law requires the office of “Treasurer” to be separate from that of “Trustee”. An explanation of the duties of Library Treasurer may be found here.

6. Comply with Civil Service Requirements

Now that you are a truly public institution it is necessary to comply with N.Y.S. Civil Service Law and Regulations. Many libraries have been reluctant in the past to become “public” because of their reluctance to deal with these requirements. Civil Service does in fact place limitations on the library’s ability to hire and fire at will. But the long term value of the Civil Service System has proven itself repeatedly for well over a century.

There are over 100 local civil service jurisdictions in New York State. Each follows its own set of procedures and local regulations. Contact your county or city civil service office, and speak to other special district or school district libraries in your region to learn about what is involved. Special district libraries have generally included language within their enabling legislation that automatically transfers existing employees to the new library “ at the same terms and conditions of employment and at the same rate of pay”. Nonetheless it is critical to work this process through with the local civil service department.

A good way to become familiar with civil service is by reviewing Civil Service 101 for Public Libraries.

7. Comply with New York State Comptroller Regulations

  1. Use an accrual-based accounting system.
  2. You must file an annual report with the Comptroller. Local Governmentexternal link opens in a new window
  3. You must follow the Comptroller’s Guidelines for Purchasingexternal link opens in a new window and Claims Processingexternal link opens in a new window.
  4. You must adhere to the Comptroller’s Regulations for Investing Public Fundsexternal link opens in a new window.
  5. You are strongly advised to follow the Comptroller’s guidelines for Internal Controlsexternal link opens in a new window.
  6. Appoint a paid Treasurer who is not a Library Trustee.

8. Tax Exempt Status

Once the new library is chartered it is automatically state tax exempt. In addition, because public library districts are generally considered by the IRS to be state or local government entitiesexternal link opens in a new window, they are not required to pay federal income tax. If asked by a donor or Foundation to provide a tax-exempt number or determination letter to prove its status as a tax-exempt organization, the library may contact the IRS for a letter describing the tax status of government entities. Information on this can be found on the Governmental Information Letterexternal link opens in a new window page on the IRS web site.

In some cases a library may wish to apply to qualify as a 501c3 tax exempt organization under the tax code rather than as a governmental entity. In this case the new library must file IRS form 1023external link opens in a new window in order to obtain a determination from the IRS.

In any case, it is important to note that the federal tax exemption does not automatically transfer from an existing library to a new public library district.

9. New York State Retirement and Other Pension Plans

One of the significant advantages of becoming a “public” library is the ability to participate in the New York State Employees Retirement System (NYSERSexternal link opens in a new window). This is one of the primary benefits to attract and hold quality employees. Though initial and ongoing costs may appear high, the long term benefit to the organization for recruitment and retention is worthy of serious consideration by the Board.

If a library is currently a member of the New York State Employees Retirement System (NYSERS) they may transfer their employees' membership to the new library. Special or consolidated district libraries have generally included language within their enabling legislation that automatically transfers existing employees to the new library “at the same terms and conditions of employment and at the same rate of pay”.

New school district/joint school district libraries may elect to join NYSERSexternal link opens in a new window. Acceptance of membership in the retirement system is not optional for the Comptroller. There may be charges to the library for credit for “past service.”

Any new special library district may elect to joinexternal link opens in a new window the New York State Employees Retirement System (NYSERS). However, acceptance of membership in the retirement system shall be optional with the comptroller. There may be significant charges to the library for credit for “past service.”

Should the Board elect not to participate in NYSERS, it is strongly advisable they consider alternate pension plans such as TIAA, which provides pension products to thousands of educational organizations in New York and nationwide. Additionally, there are numerous similar options offered by the major insurance companies.

10. Friends of the Library

An existing Friends Group may need to change their name/bylaws/mission statement with the IRS if they want to "come over" with the library. Ad hoc groups that operated under the former library’s 501(c)3 status will need to apply for their own tax exempt status with the IRS. For those that were independent of the former library, they would retain their 501(c)3 status.

11. Create a Compliance Calendar

Library administration should work to create a compliance calendar that notes annual dates of activities that are the responsibility of the new district, for example, filing the AUD report and Property Tax Cap form with the Office of the State Comptroller; annual Civil Service paperwork; and election procedure benchmarks.

Collecting Taxes: School District Public Libraries, Special District Public Libraries and Association Libraries

Even after a successful vote to establish and fund a public library as an independent entity, the library must depend on the municipality or the school district to collect its tax monies. The issues covering tax collections for public libraries are very complex and involve numerous laws, regulations, and opinions of the State Comptroller. The issues, laws, regulations and Comptroller's opinions affecting School District Public Libraries and Special Legislative Public Library Districts also differ. The following is a general summary of tax collection issues for the three types of libraries.

School District Public Libraries

Taxes to support a School District Public Library are usually collected by the school district. Though a library budget vote may take place in the spring, actual tax collections may not occur until several months later. New York State Laws and Regulationsexternal link opens in a new window require school districts to provide sufficient funds for library operations until tax monies are received. Some do this by advancing monies from their general fund to the library. Others may issue Tax Anticipation Notes (TANs) in the amount necessary for the library to operate until tax monies are collected. Though school districts are required to cover the interest on these TANs, many School District Public Libraries elect to pay all or a portion of interest associated with this borrowing. Procedures for funding library services before collection of taxes should be discussed in advance with representatives from the school district.

It is also important to note that school districts are required to promptly turn over to the School District Public Library the exact amount of tax dollars specified in the library budget proposition that was approved by voters. Tax collection shortfalls due to defaults by property owners should be covered by the taxing entity that has the ability to place a lien against properties; in most cases, this is a county or other municipal entity. However, in some cases, it could be the school district. A New York State Education Law Department letter issued in 1949 and Official Opinions of the New York State Comptroller support these positions.

In the case of tax refundsexternal link opens in a new window, overriding previous Opinions of the State Comptroller, the law has been amended to permit school districts to require the library payback for its portion of such a refund.

School districts must pay the funds to the library upon request once the taxes have been collected. Normally this would entail a letter from the library to the school district treasurer asking that the funds be released. The school district must comply with the request when it has collected the taxes, and cannot send partial payments.

Special and Consolidated District Public Libraries

A municipality and/or a school district within the service area covered by the library will collect the taxes resulting from a public vote in support of a Special Legislative District Public Library. In some cases, taxes may be collected by multiple jurisdictions. The responsibility for collecting taxes for a Special Legislative District Public Library usually falls on a municipality. Here are examples:

Example 1: Library A is chartered to serve an area that includes all or portions of several townships, two counties, and two school districts. The library's taxes would most likely be collected by each of the two counties as the largest geographical units. The counties will each determine the assessed value of the property within the area served by the library district and apply an appropriate tax rate necessary to raise the amount of funds specified in the library budget vote. The counties will collect those taxes and pay them to the library. The timing of the library tax collections will likely coincide with the counties’ regular tax collections. In this case, the counties must set the funds aside in a separate account and pay them to the library upon request.

Example 2: Library B is chartered to serve an area that is coterminous with two separate school districts. In this case, the school districts might collect the library's taxes based on the amounts specified in the library budget vote and then set the funds aside for the library. Again, the taxes would be paid to the library upon request.

Neither a municipality nor a school district is required to advance tax monies to ensure sufficient funds to operate a Special Legislative District Public Library prior to the collection of taxes. Therefore, it is imperative that the libraries work hand-in-hand with local municipalities when making a transition to ensure that funds will be available to cover any gap.

A municipality or school district collecting taxes for a Special/Consolidated District Public Library is required to turn over to the library the exact amount of tax dollars specified in the library budget proposition that was approved by voters. Tax collection shortfalls due to defaults by property owners will be covered by the taxing entity that has the ability to place a lien against properties. In most cases, this is the county or other municipal entity. However, In the case of tax refunds, the townexternal link opens in a new window or school districtexternal link opens in a new window is permitted to charge back the library’s portion of such a refund.

Taxes and Cash Flow Issues

In spite of the above protections, it would be wise for all new district libraries to anticipate and prepare for variations in cash flow issues due to variables in tax collections. Such situations vary throughout the state, which may be caused by a number of factors.

First, it is also important to determine when tax collections will occur and to plan for any cash flow needs to cover the gap. Once a proposition is passed to create a School District or Special/Consolidated District Public Library, the Assessor for the municipality or municipalities that will be collecting taxes must add the new district to the tax rolls. This involves a formal process that may take several months, resulting in the new library district not receiving its tax money for a year or more. It is critical for the Library to be in communication both with the Tax Assessor and the Receiver of Taxes for their jurisdiction. For example, the deadline for establishing tax rolls for 2023 tax collections may occur in the spring of 2022. Thus a library district created by public vote in the fall of 2022 may miss the deadline for being added to the tax rolls for 2023 and may have to wait until 2024 to receive its tax money. Libraries making the transition to a Special Legislative Public Library District need to talk to their local Tax Assessor to determine the critical dates for establishing tax rolls and for collecting taxes and then develop a plan for covering any resulting cash flow problems.

Once the district has been established it is also important to discuss with your municipality or school district when you will receive the tax monies approved by the voters. This will vary with the type of library and their particular fiscal year.

Real estate taxes in New York State are generally approved by the public in the spring but not collected till the fall. Often they are due in two installments- fall and spring. In some cases the first installment may be due as late as December or early January of the following year. Additionally, the revenues come in at irregular intervals over the course of the year. This has significant implications for all libraries who depend upon tax support. New districts are well advised to plan ahead with their local taxing authority.

School District Libraries

School district libraries are required to utilize a July 1 - June 30 fiscal year for accounting purposes. This is problematic since tax funds for the year beginning July 1st may not be collected for several months. Though some school district libraries maintain sizable fund balances to cover expenses until the receipt of taxes it is important to note that school districts are requiredexternal link opens in a new window to provide the school district public library with sufficient funds to meet their budgeted expenses. They may do so out of their own general fund balance or through the issuance of debt.

Under Local Finance Law school districts are empowered to borrow “Tax Anticipation Notes” (TANs) in order to cover their cash flow needs until the receipt of taxes. These are short term low interest loans. Though the school district public library is not authorized to issue its own TANS, it may request the school district to do so on their behalfexternal link opens in a new window. The Library is not obligated to pay interest on this loan; but may choose to do so if they are fully funded in the beginning of their fiscal year.

Upon the receipt of taxes the school district is obligatedexternal link opens in a new window to immediately forward the Library’s portion of the revenues collected.

Special and Consolidated District Libraries

Special/Consolidated district libraries are strongly advised to establish a calendar (January 1- December 31) fiscal year within their enabling legislation and to create a fund balance that will forward fund operating expenses until tax monies are received. This will eliminate cash flow issues due to delayed tax receipts. Similar to school district libraries, the municipality or school district which collects taxes for the library is requiredexternal link opens in a new window to forward the library levy once received. It is also advised to consider the best date for the annual budget vote. By scheduling in early fall, the library is able to better plan for the coming year. However, consideration must also be given for the taxing jurisdiction’s assessment and billing deadlines so that, should a revote ever be required, the library would be able to do so within the proper time frame.

Association Libraries

Association Libraries generally adhere to the calendar fiscal year. That said, it is critical for the library to have a clear written schedule of payment with the taxing authority in order to avoid shortfalls due to a delayed receipt of expected tax revenues. Often Associations new to the municipal or school district vote fail to account for the timeline between their vote, the receipt of taxes and their eventual distribution to the library through the year.