Thanks to everyone who responded!!
Phone calls with:
Jennifer Balcom | Library Director | DeWitt District Library
P: 517-669-3156 | jbalcom@dewittlibrary.org
Lance Werner
Director, Kent District Library
616-784-2007 // lwerner@kdl.org
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What you are really doing is setting up a 501 (c)3 as a separate entity. It all has to do with government and public funds. I really recommend you talk to your auditors and an attorney to understand this. –Stephanie Mallak Olson, Iosco-Arenac District Library
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If you have a local Community Foundation you might want to check out setting up the 501(c)3 funds with them for a better rate of return on investments. We have several Friends groups (one is a library Friends group) that set up both an endowment fund and a cash pass through fund. If the Friends set up a 501(c)3 it may open more doors for donations from the corporate world.
So far we have not received any big amounts to warrant going for a 501(c)3. We have heard that you cannot mingle public funds but there are always exceptions to some moneys. We also understand it will need a separate Board.
Good luck and best wishes,
Stephanie Mallak Olson, Iosco-Arenac District Library
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I can only speak to a few of these issues.
Pros of being a 501c3 makes us eligible for some grants, eligible for some TechSoup discounts / other discounts
Cons we have to have a yearly audit done with a 990 being filed every year. This audit costs us around $2500 with an additional $1000 for the 990 preparation;
Our friends group is NOT a 501c3
Not sure the ROI is worth it or not.
That’s just my 2 cents that’s not worth a whole lot.
Good luck.
Nannette Pretzer, Director
St. Charles District Library
132 S. Saginaw Street
St. Charles, MI 48655
www.stcharlesdistrictlibrary.org
989-865-9371
n.pretzer@stcharlesdistrictlibrary.org
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The Sebewaing Township library is also listed as a 501 (c)(3). I would contact your accountant and/or your township administrators as they may be able to clear up some of your questions. Also, I googled 501 c 3 township library and it has a link to the American Library Association and the difference between the different tax statuses. The Library of Michigan may be able to clear up some of your questions without giving legal advice.
Angela Pike
Director
Sebewaing Township Library
41 N. Center St.
Sebewaing, MI 48759
989.883.3520
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I think the new board asked some questions to Shannon White and Clare Membeila from Library of Michigan who got them pointed in the right direction. – Holly Kirsten, hollykirsten@chelibrary.org
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I recently did a 501c3 for our Friends organization. I am not sure of the law concerning doing this for your library. I would contact Clair at the Library of Michigan.
We did use an attorney and he donated his time. There is a $20. Filing fee.
Then there is the IRS. I used a retired CPA for advise but the forms are on line and not too hard to figure out. You must have an ENN number. The 501c3 filing fee was $175.
Once I figured out what to do it took me about 2 months. I still don’t have all the paperwork back and I started the process late Oct of this year. I still have not done the MI forms.
We did this so we could write more grants. There are greater grant opportunities if you’re a 501c3. I would say that is the best reason to apply.
I’d be happy to answer any other questions you have,
Mary
Mary K. Hill
Director
Hillsdale Community Library
11 East Bacon St.
Hillsdale, MI
517-437-6470
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Thanks to Jim MacLean at CADL for forwarding this article to me. I have never heard of a library itself being a 501(c)3 and from what I have read I didn't think it was allowed. So I am now interested in seeing what Michigan libraries who have made this change have to say in response to Rebecca's question.
This is why I love to stay in touch with Michigan libraries despite being in Wisconsin now. Each state has its own way of doing things, plus visionary changes to the usual way for library-ing that we don't hear about.
https://www.grbj.com/articles/80463-irs-approves-nonprofit-status-for-kent-district-library
Sincerely,
Nyama
Nyama Y. Reed
Library Director
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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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 Y. Reed
Library Director
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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Hi Rebecca:
There are circumstances under which a library can be a 501(c)(3), but as Nyama indicated, it is important to consider why the library is interested in becoming a 501(c)(3). Currently, the IRS Tax laws grant public libraries tax exempt status under a different provision of the code, so a public library does not need a 501(c)(3) designation for fundraising.
The big reason I can see for a public library to obtain 501(c)(3) status is grant writing. Many large grant making organizations and foundations require 501(c)(3) status in order to compete for grants. As far as I can tell in research, a big reason for this is that large grant making foundations save time and costs if dealing only with 501(c)(3) institutions because then the grant seekers have already been vetted- the grant makers don’t have to expend extra time and effort verifying the authenticity of applicants.
However, lack of a 501(c)(3) status doesn’t prevent libraries from obtaining ALL grants, and occasionally even the large grants are obtainable after a conversation with the grant making organization and proof of tax-exempt status (which can be obtained from the IRS in the form of a “determination Letter”).
501(c)(3) status requires extra paperwork and reporting annually, and comes with a slate of restrictions and regulations. The regs are not particularly onerous, but it is another layer of administration a library would have to contend with – on top of existing library financial auditing and accounting requirements. That is not to say it isn’t doable – quite the contrary- but it is something to consider.
There are several libraries in Michigan which have 510(c)(3) status. Many are fairly large libraries. The attached memo provides a link to an article that mentions a few of them.
I urge you to consult your accountant/auditor and an attorney before making your decision. If you do go for 501(c)(3) status, you would want assistance from an attorney to complete the IRS form. It is worth the cost!
See:
https://www.irs.gov/pub/irs-tege/eotopicf96.pdf):“A fire department, public library, hospital district, state college, or port authority are examples of state institutions that may be created, controlled by, or closely affiliated with government. And their income may be exempt from federal income tax pursuant to IRC 115(a), (see Appendix), except for unrelated business income tax for certain state colleges and universities under IRC 511(a)(2)(B). Nevertheless, each may also qualify for exemption as a clear counterpart of an organization described in IRC 501(c)(3), if it is not an integral part of a state or a political subdivision, and it otherwise satisfies the organizational and operational tests. The term "instrumentality" has been applied to this type of organization as a kind of shorthand. Technically the term "instrumentality" only has application under the FICA and FUTA (social security tax) provisions. However, for convenience, this article will also refer to these organizations affiliated with governments as instrumentalities. “ This is saying that if a public library satisfies the requirements to be a 501(c)(3),and it isn’t an “integral part of a state or political subdivision,” it could be a 501(c)(3).
I hope this is helpful! Please let me know if I can provide any additional information.
Sincerely,
Clare
Clare D. Membiela, MLS, J.D.
Library Law Consultant
Library of Michigan
517-335-8132
From: michlib-l-bounces@mcls.org <michlib-l-bounces@mcls.org> On Behalf Of Rebecca Higgerson via Michlib-l
Sent: Wednesday, December 11, 2019 3:10 PM
To: michlib-l@mcls.org
Subject: [Michlib-l] Libraries with 501(c)(3) status
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
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