Library foundation dispute comes to light

Noaki Schwartz

NEWPORT BEACH -- Six weeks after library trustees threatened to fire

their fund-raising arm, leaders on both sides are saying detente is

almost at hand.

In October, the library Board of Trustees sent a forceful letter

threatening to sever its relationship with the Library Foundation because

of differences over finances and control, even threatening to banish the

nonprofit group from library premises.

Since then, the two parties have held marathon meetings to come to some

sort of resolution. And they have made a significant amount of progress,

said City Manager Homer Bludau, who has been mediating the weekly

summits.

“Right now, drafts of an agreement are being worked on,” said David

Carmichael, foundation president. “It’s a series of guideposts on how

we’re really going to enhance communications to avoid problems like this

in the future.”

Despite the pending peace agreement, the spat -- which has pitted two of

Newport’s most respected organizations against each other -- has rocked

the usually tranquil library establishment.

The Oct. 19 letter demanded the foundation reduce its operating costs,

regularly give clear financial reports to the trustees and give greater

control of the foundation operations to the city and library board.

If the foundation did not comply with the trustees’ requests, the board

threatened to dissolve its relationship with the foundation. That would

require the foundation to cease fund raising in the name of the library

and “begin the process of vacating the library premises.”

For almost six weeks, both groups have remained tight-lipped about the

details of the disagreement, only saying that nothing illegal has

transpired. An audit conducted on the foundation in September found the

foundation’s finances to be in order.

One of the major issues appears to be whether the foundation should build

up its endowment fund or use donations to meet more immediate needs at

the library. Since its inception five years ago, the foundation has given

about $574,000 directly to the library and has established an endowment

fund of nearly $1 million.

In the foundation’s current budget, most of the money raised for the

high-profile Campaign 2000 effort has been marked to build up the

endowment fund. Of the $1.6 million expected in donations this year,

about $1.3 million would go to the endowment fund, $83,500 to the library

and the rest to operate the foundation.

Another issue for trustees is what they call an increasing percentage of

donations going into operating costs necessary to run the foundation -- a

charge disputed by foundation officials.

The trustees claim the foundation is spending anywhere from 50% to 70% of

the money on operations, said chairman Jim Wood. However, foundation

members maintain the organization runs at below 15% of total donations,

which is typical of libraries.

A key element to that conflict is a disagreement over what constitutes

operating costs. For example, the cost of putting on the Distinguished

Lecture Series is considered by trustees as an operating cost, whereas it

is counted as a program in the foundation’s budget.

“It’s money we have to spend in order to get money to give to the

library,” said foundation member Jim Rubel.

Sally Cullman, the development director at the Los Angeles City Library

Foundation, agreed with the foundation. The Los Angeles foundation

considers any public event as a program cost and not an operating cost.

“The whole role of the library has changed in the last 10 years -- it’s become more of a cultural center,” Cullman said. It’s not just about

books anymore, she added.

The foundation began building the endowment fund, which has a goal of

$2.5 million, in 1997 to insulate the library from the city’s budgetary

ups and downs, Carmichael said.

Former mayor and foundation member Clarence Turner said he had “watched

the coffers slowly drained” during the budget crunch from 1991-94 and

didn’t want the library to fall victim to future economic crises. The

idea was to use the $120,000 expected in annual interest from the

endowment fund as a steady stream of income to support the library.

But in the meantime, that means less money will go to the trustees. For

example, the $83,535 earmarked for the library in this year’s budget is

about 42% less than the average amount given during the last five years,

according to financial records.

That difference appears to be what is fueling the dispute. While the

trustees may feel they are losing control over the money, foundation

members say the trade-off is long-term security with the endowment fund.

The foundation was created in 1994 as the nonprofit fund-raising arm of

the library. Its relationship with the trustees is symbiotic, in that the

money raised is then handed over to the board, which decides how it’s

spent. Funds generally go toward books, the literacy program and new

technology.

The trustees first approached the foundation about the perceived problems

a year ago without much success, Wood said. The more the trustees pressed

the foundation, the less willing they were to talk, he said.

“The agitation grew. They wanted independence and we wanted

accountability,” he said. “The more we needed to communicate, the more

difficult it got.”

But foundation members remember it a little differently. They said they

really didn’t know there was a problem until they received the strongly

worded letter in October.

Both parties, however, have said the problem has been more of a

communication gap than anything else. By opening lines of communication

and having more consistent dialogue, they hope to resolve most of the

issues.

Regardless of when the dispute started, which remains a point of

contention, one thing is for sure -- everyone is ready to come to the

table and solve the problem.

The foundation members, trustees and the city manager all predict they

will be able to reach that agreement by the end of the year.