MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

A firm principle of this service is "don't reinvent the wheel" so here at the start of the answer, I must refer readers to Jerry Nichols' 2005 article, "PILOT Payments--a potential revenue source for public libraries."[1]  The article is an excellent primer on what a PILOT agreement is, and how libraries should cultivate the awareness and use of them (and verify they are getting their fair share of PILOT money!).

The question above asks about the impact of a library's "type" on the ability to benefit from a PILOT; that issue is not addressed by the 2005 article.  So, with the understanding that there is already some good foundational information out there on PILOTS and libraries, this answer will explore that angle.

So, to start: what is a PILOT?

A "PILOT" agreement is a formal arrangement to pay money "in lieu of taxes" by an entity not subject to real estate taxes (such as a new business park, recreational project, or educational facility).  The acronym "PILOT" is used formally (and properly) in connection with regional "Industrial Development Agencies" (or "IDA"'s) who are authorized by law to create them.[2]

The term "PILOT" is also informally (and improperly) used to refer to other types of payments by tax-exempt entities who are trying to cultivate a good relationship with their local municipality.[3]  This answer only addresses the "real" type of PILOT.

When functioning as intended, a PILOT for a development project can ensure that a municipality or school district that uses real property taxes to fund critical services (such as local roads to a new business park, recreational project, or educational facility) has revenue to maintain the critical services, even as some large users don't pay for them in the same way.[4]

Done properly, a PILOT Agreement creates conditions favorable for economic development (exemption from real property taxes while an initiative creates a benefit to its community), but creates and enforces a fair, reliable, and fiscally sound way to replace critical funds.

So, a PILOT is all about the money--money for a town or village, money for a school district, and money of other things powered by real property taxes.  And as Mr. Nichols' article points out, when they are being negotiated, sometimes the "powers that be" can leave out the local library.

Which brings us to the member's insightful questions:

• Are there differences based on the type of public library?
• Or differences based on the taxing entity: special district, town or school district?
• Are there provisions in the legislation authorizing PILOT agreements or in Real Property Tax Law that impact library taxes and PILOT agreements?

When it comes to formal PILOTs, the answers to the member's three questions are:

Yes, but...

Yes, but...

Yes, but...

We'll address those three "buts" all together.[5]

To not get overly technical[6], projects that qualify for exemption from real estate taxes and a PILOT gain their exemption from the Industrial Development Agency (the "IDA") sponsoring the project.  So it is the IDA's tax status, not a particular project's, that creates the exemption from real property taxes.

When it comes to library revenue derived from real property taxes (which IDA's are exempt from) different type of libraries have different types of ways to get tax revenue.   Some municipal libraries simply have a budget in their tax-funded village/town/city budget.  Others have their own municipal levy (a "414").  Still others have a separate budget line on their school district tax bill (a "259"). 

There are any number of permutations of this, but the important take-away here is: a project exempt under GML 854 is immune to real property taxes under any of these approaches.

This is where things can get tricky (and, I suspect, is the genesis of our astute member's questions).

GML 854 authorizes PILOT using the following definitions:

(1) “Agency”—shall mean an Industrial Development Agency created pursuant to this act.

(16) “Affected tax jurisdiction”—shall mean any municipality or school district, in which a project is located, which will fail to receive real property tax payments, or other tax payments which would otherwise be due, except for the tax exempt status of an agency involved in a project.

(17) “Payments in lieu of taxes”—shall mean any payment made to an agency, or affected tax jurisdiction equal to the amount, or a portion of, real property taxes, or other taxes, which would have been levied by or on behalf of an affected tax jurisdiction if the project was not tax exempt by reason of agency involvement.

A plain reading of the definition of "affected tax jurisdiction" could inspire someone to say "This means PILOT only applies to a 'municipality or school district', not the library, or a special library district."

A library-aligned, thoughtful reading of the definitions could inspire someone to point out: "Payments in lieu of taxes can go to not only a 'municipality or school district', but to an "agency" to replace taxes "which would have been levied by or on behalf of an affected tax jurisdiction.  Meaning: an IDA can require, accept, and distribute money to other entities deprived of revenue due to the exemption, if that tax would have been levied by a municipality or school district.

This is borne out when one reviews the NY Comptroller's audits of IDA PILOTs.  For instance, in a 2021 audit of Glen Cove's IDA[7], it was found that PILOT payments that should have been directed to a school district public library were not properly channeled to the library.

While the rules of PILOTS will vary between IDAs, I would that argue the law positions ANY type of library (even an association library) that benefits from a real property tax levy to benefit from PILOT.

Which brings me to the tricky part.[8]

Not too shockingly, dealing with a local IDA can be...improvisational.

Don't take my word for it.  Here is what the New York Comptroller has to say:

"IDAs have a substantial degree of discretion over how PILOT agreements are negotiated, and the criteria used to determine PILOTs differs among IDAs. Such inconsistencies, according to critics, can cause IDAs to compete against each other for business.

In addition, due to unclear PILOT agreements negotiated by IDAs, poor communication with assessing bodies and a lack of monitoring, projects often fail to pay the full amount of PILOTs and thus deprive taxing jurisdictions of needed revenues.

...

Although they are required to adopt a uniform tax exemption policy, IDAs are allowed to deviate from that policy. In these cases, an IDA must explain in writing why there is a need for deviation and notify the affected taxing jurisdictions."

They key is to learn your local IDA's approach, local policy (if any), and to get in line early and regularly as the PILOT is negotiated, formalized, and complied with (this means: get ready to have coffee with your local public and IDA officials).

Because a PILOT can be a significant source of revenue for a local library, this is one where local legal counsel--well versed in the local IDA's way of doing things, or willing to "go deep" and develop that knowledge on the fly--can be worth budgeting for and retaining.

As I have written in another ATL[9],  any use of legal counsel--even if pro bono--should be per a written retainer agreement that confirms the scope of the work.

In the case of an attorney working to help a library negotiate PILOT, a sample scope is:

To represent the Library before the [INSERT NAMES] IDA(s); and 

To assist the Library in monitoring when opportunities for inclusion in PILOT agreements arise; and

To identify and develop timely strategy for securing payments via PILOT in agreements; and

To represent the Library in finalizing benefits under PILOT agreements; and

To assist the board of trustees in monitoring compliance with PILOT payments owed to the Library, and include a summary of such monitoring in the library's annual financial report.

This type of scope for any attorney should not "break the bank;" while there is no way to truly project the hours such work would take, 15 attorney hours per negotiated agreement is not unreasonable, and 3 hours per year to assess compliance is not out of line, either. 

This is an area where any attorney experienced in municipal law--and willing to do their homework on your particular library--should be able to help.  Further, and more critically, as the Comptroller's commentary shows, there is a high degree of subjectivity and flexibility in IDA PILOT agreements, which means a local attorney may have a significant advantage for timely inserting a library into an ongoing PILOT negotiation process.  The right lawyer will know the folks at the relevant IDA, or be willing to get to know them, and will consider (among other things) the following:

• As a result of State legislation passed in 1993 amending section 874 of the General Municipal Law, each IDA is required to establish a “uniform tax exemption policy with input from affected tax jurisdictions … and shall provide guidelines for the claiming of real property, mortgage recording, and sales tax exemptions.”
• The guidelines must include: the period of exemptions; percentage of exemptions; types of projects for which exemptions can be claimed; procedures for payments-in-lieu-of-taxes and circumstances under which real property appraisals are required.
• Although they are required to adopt a uniform tax exemption policy, IDAs are allowed to deviate from that policy. In these cases, an IDA must explain in writing why there is a need for deviation and notify the affected taxing jurisdictions. While approval by these local governments is not required, the IDA is obliged to review and respond to any issues raised by them.

Thank you for an excellent question!  I wish you good fortune in working with your local IDA.

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

This question had me on the edge of my seat until the very end.

          WHAT is this 200-year-old document?

          WHO is this mysterious lender?

          WHAT does the original loan agreement look like?

          WHO took the 20-year-old photos?

Sadly, it's possible I'll never know the answers to these questions since none of that information is required to answer the member's question.

Is there any potential legal ramification to us if we decide to accept the item into our collection as a donation with the value he has listed (around $20,000)- i.e. in a situation like a tax audit?

The answer is: maybe, but no big deal.

Uh...

"No big deal"?

Yep.  Here's why:

For a donor to claim a federal income tax deduction based on the fair market value of a donated object, the donor must back up the claimed amount with a recent[1] appraisal.  But the form the donee must sign to acknowledge the gift expressly says:

This acknowledgment does not represent agreement with the claimed fair market value.

So, unless there are enough circumstances to suggest that things are fishy or outright fraudulent, a donee accepting a gift and signing a tax form to enable a donor to claim a deduction puts the risk of inaccuracy on the donor.

That said...

There are other reasons, aside from concerns from the IRS audit, that merit caution in a scenario like the one described by the member.

When a museum that relies solely on the representation of a donor as to the value of a donated object in their collection, the insurance coverage on that object, which should be based on the value of a collection, is based on third-party information. In a worst-case scenario, that could mean an insurance claim is based on what turns out to be inaccurate information. And of course, clear eyes and scrutiny are warranted when part of a donation's value is because of history and/or provenance.

Assessing value might also be part of a museum’s overall evaluation of whether an object fits within the institution's mission and collection management policy. So even if an independent appraisal isn't possible, having a policy of insisting on one for donations in excess of a certain value might be a good policy...and one that, for special circumstances, could be waived.[2]

As with any transaction, there absolutely could be "legal ramifications" for accepting a document[3] worth $20k+, but in and of themselves, those factors shouldn't pose an impediment to accepting such a gift.

Thanks for a great question.

For more information on gift acceptance, income tax deductions, and appraisals, visit the IRS at: https://www.irs.gov/instructions/i8283#en_US_202112_publink62730rd0e827

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

There's a lot going on in this question, so I am going to be less fun and flowery[1] than usual as I answer it.

I am sorry to report that per NY Tax Law Section 1105(b), an association library must collect sales tax on sales of facsimile services for faxes sent and received within the state.[2]

In part, this is because association libraries, although chartered by State Ed, are regarded by the NYS Department of Taxation & Finance as not-for-profit corporations, not state agencies/instrumentalities.[3]

Now, as a not-for-profit, an association library is exempt from collecting and paying taxes on facsimile services per NY Tax Law Section 186-e--just like any other chartered library or museum would be.  But as the resource cited in the member's question[4] shows, exemption under 186-e doesn't equate to exemption under 1105 (b).[5]

Of course, legal guidance in "Ask the Lawyer" can supplement--but never substitute--guidance from your association library's tax professional or lawyer.  If the accountant or lawyer for your association library finds a way to avoid the obligation to collect tax on sales of intra-state faxes: 1) get that in writing from them before relying on it; and 2) please send us an update!

Thanks for a question that inspired frequent cross-checking of the tax code!  I wish I could offer a more helpful answer.

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

In Greek mythology, the "chimera" is an intact, functioning animal boasting the features of other animals: the head of a lion, the body of a goat, and the tail of a serpent (or a dragon, depending on your source).

Libraries are legal chimeras.

In fact, not only are libraries legal chimeras, but depending on the "type" of library, they are each their own, special type of chimera.

For instance, a village public library/chimera would have: the head of a village, the body of a not-for-profit corporation with municipal fur, and the tail of an education corporation as chartered by the Regents.  An association public library, on the other hand, would have: the head of group of local library-loving people, a furless not-for-profit body...and more options for the shape of the tail.

Why all this chimera imagery?  Once we take the member's question out of the cold, harsh light of logic and throw it into the dappled sunlight of myth, it is easier to unpack the confusion underlying their question.[1]

Following our "hybrid mythical animal" analogy, a special district library has: the head of a three-headed dog[2], and, if the authorities determine that it has the power to tax, the tail of a scorpion, which could render it unable to be regarded as a 501(c)(3).

This "power to tax" part is at the heart of the question.

As set out on page 10 of the "2018 Library Trustee Handbook" posted at https://www.nysl.nysed.gov/libdev/trustees/handbook/handbook.pdf, the mythical creature that is a non-association public library (of any kind) can choose to register as a 501(c)(3):

"Public libraries (municipal, school district and special legislative district) are, by definition, a government entity under IRS code, and therefore tax exempt and not 501(c) (3) corporations. However, public libraries may receive a confirmation of tax exempt status from the Internal Revenue Service to use with grant makers and businesses."

But if a special district created by legislation has a scorpion's tail and can levy a tax, they might not even qualify for the "confirmation."

Why is that?  I'll let the IRS (mostly) do the talking[3]:

Examples of entities that may be considered "separately organized" [and thus able to qualify as a 501(c)(3)] include colleges and universities; hospital, housing, or development authorities; public library boards; water or park districts; public school athletic associations; charitable trusts; and organizations created by inter-governmental agreement.

...[But]..

Under Rev. Rul. 60-384, a government entity will not qualify for exemption if it has powers beyond the scope of section 501(c)(3). For example, where an instrumentality exercises substantial enforcement or regulatory powers in the public interest (such as health, welfare, or safety regulation), it will not qualify.

...[for example...]

Example (3): W is a public library board organized under a state statute authorizing it to determine the tax rate needed to support its operations within specific maximum and minimum rates. W does not impose or levy taxes, but submits the tax rate to the county auditor who certifies it to the county adjustment board. The library tax is collected in the same manner as other taxes by the county treasurer, who transmits to the library board its share of tax revenues. Since W does not itself have the power to levy taxes, but only to determine tax rates, it does not have a prohibited governmental power and may qualify for exemption under section 501(c)(3). Rev. Rul. 74-15, 1974-1 C.B. 126. [emphasis added]

On the flip side, the guidance quoted above confirms that once a "special district" has a substantial government power (like taxation), it does not qualify for exemption as a 501(c)(3).

Now, here's where I go out on a limb: most[4] special district libraries do not have the power to tax directly.  That said, there certainly are "districts" in New York that have the power to sting--I mean, to tax--or other powers the IRS has determined disqualifies the entity from qualifying as a 501(c)(3), so a library should assess this issue before deciding what it qualifies for.[5] But generally,[6] special district public libraries rely on municipalities and school districts (and perhaps other taxing authorities) to collect their annual levy...and per IRS guidance, that means they can qualify as a 501(c)(3), just like the Handbook says.

What is the magical formula by which a library can assess what type of chimera it is for tax purposes?  As of this writing[7], the IRS posts that at:

https://www.irs.gov/government-entities/federal-state-local-governments/governmental-information-letter

And since this ATL is all about the IRS, we'll give them the last word (taken from the link above):

As a special service to government entities, IRS will issue a “governmental information letter” free of charge. This letter describes government entity exemption from Federal income tax and cites applicable Internal Revenue Code sections pertaining to deductible contributions and income exclusion.  Most organizations and individuals will accept the governmental information letter as the substantiation they need.  

Government entities can request a governmental information letter by calling 877-829-5500.

So, you can call Charon[8]--uh, the IRS--and ask them to ferry you across into 501(c)(3)land, for free. 

Good luck crossing over the Styx...I mean, conferring with the IRS on your tax-exempt status!

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

There are a few scenarios where a capital project, such as a renovation, could start with a vote of the electorate of a school district library.[1]  If the project is subject to a bond, requires a tax levy increase, or is somehow tied to a referendum, the voters' go-ahead might be needed before work[2] can begin.  In addition, if a municipality or district was deeding over a gift of real property, that could require a public vote, as well.

However, in the scenario described by the member, the money is "in the bank" and is not conditioned on obtaining further funds from the taxpayers and no additional real property needs to be purchased or funds need to be levied or raised.

With that, while in library law I make it a rule to "never say never" in this case, I don't see a need for a public vote.  Just follow the rules of procurement![3]

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

Before I answer this, I am going to share a story.  Trust me, it’s relevant.

When the workforce restrictions and ban on large gatherings due to COVID-19 started impacting libraries, the first wave of questions to “Ask the Lawyer” were about continuity of operations.  Specifically, they were about continuing payroll and still offering programs, even though staff would need to work from home.

Because Executive Orders and public health restrictions were happening at a rapid pace, answers needed to be developed quickly. 

If there is one thing the lawyers hate, it is quick decision-making.  We like precedent, we like time for research, and we like ample time to reflect on the implications of our client’s decisions.   In a world moving ever-faster, this is one of the things I cherish about my profession: it demands reflection.

But with libraries waiting for input, I didn’t have the luxury of time.  My research indicated that—barring a union contract provision or other express intervening factor—job expectations could be temporarily altered and library programs could continue, re-tooled to meet social distancing requirements (a/k/a “online”) while ensuring legal compliance and limiting liability.  But I couldn’t take a week or two to decide.

So I did what lawyers do when we don’t have time to let advice ferment—I turned to another lawyer.

I called an attorney I knew would appreciate the nuances of a question involving municipal law, Education law, taxpayer money, and the all-seeing eye of the NYS Comptroller.  I laid out the thinking that would eventually form my answers, and asked him to poke any holes he could see (I think I said “Pretend you’re the attorney for an angry taxpayer”). 

He asked a few well-informed, testing questions, and when my legal analysis held up, I felt good. 

But then he asked:

“Cole, do you actually think when this thing is all over, the Comptroller is going to organize a posse and hunt down libraries for trying to help their communities? I mean come on…people are in real need here.  Who would do that?”

I laughed, and it felt good.[1]  I thanked him and said I owed him one (in my world that means he gets to ask me a similar favor, any time, night or day, and I have to deliver).

Here’s the truth, though: although I laughed, my secret answer to his question was: Yes.  Yes, I do think that when this is all over, the Comptroller could audit and expose fiscal mis-steps by well-meaning libraries.  And I am also concerned that frightened tax payers and municipalities, searching for a way to “solve” fiscal panic, could use any small lapses in compliance or transparency to try and reduce budgets next fiscal year (just when they’ll be needing their libraries to assist with ongoing community recovery).  That is why the member’s question is so important.

That said, I got into this business because I believe that law, when well-developed and thoughtfully applied, can ensure justice and create the conditions for a happy society.  And I think the law—even as construed by the Comptroller—will allow for the actions proposed by the member, without the concern that a prohibited gift[2] or shady transaction was engaged in.

How?

I’ll give you three solutions.

But first…

Some Necessary Background

As a primer to each solution, just in case you haven’t checked in on fiscal controls for public libraries, every reader should visit NYLA’s excellent “Handbook for Library Trustees” (2018 edition), pages 50-58.[3]  This section sets forth all the routine requirements for properly accepting, retaining, spending, and accounting for both public and privately sourced funding. 

The solutions below, and the steps to set them in motion, build off the assumption that a library is following the fiscal practices laid out in those pages.

And just one more thing…

Safety First

Okay.  Let’s say your board is ready to assess and approve budget adjustments to initiate the acquisition and distribution of food and PPE.  Your staff and some volunteers are rarin’ to go.[4]   All you need to do is sort out the legal stuff.

But before worrying about how to fund it, or how to characterize the initiative in the budget, the first thing to consider is safety.

No matter what situation the library is in, a written safety plan, informed by OSHA and CDC guidelines, and ideally, confirmed with the local County Health Department, is the first priority for any such initiative.  Before approving funds, a board should review the plan for safety, and be assured that it is as well-developed as it can be (and again, if at all possible, confirmed by experts).[5]

So with that “safety first” caveat, here are the three solutions:

Solution 1: Acquisition and Distribution Only (No programming)

Objective: The library will acquire and distribute food and PPE, without any educational programming component or further conditions for participation (people can just stop by and pick up what they need).

Action Steps:

Step 1: Organizers (who could be board members, or staff, or volunteers…any combination is fine) develop and, with a county health official, affirm a safety plan for the distribution of the resources.  This plan should include how the items will be acquired, transported, and picked up, and what staff and volunteer resources will be used. 

NOTE: to ensure the safety of employees and protect the library from any liability, changes to routine job duties should be confirmed in a short letter referencing the safety plan.

Step 2:  Considering the need they hope to fill, and safety parameters, organizers develop a procurement plan, consistent with library policy and pages 50-58 of the Trustee Handbook, for the supplies to be acquired.  This plan should consider the appropriate sourcing and selection of supplies (PPE meeting CDC guidelines, food suited to re-distribution), and the need to follow relevant procurement laws.

NOTE:  On March 27, the Governor issued Executive Order 202.11, which suspends the public bid opening requirements of General Municipal Law Section 103(2) (of course, 103 only applies to purchases exceeding $20k…that would be a lot of PPE!).

Step 3: The Treasurer develops a budget recommendation for a budget change that will fund the procurement plan, and confirms to the board that any private funds to be used are not barred by donor terms (if all of the steps in this solution are followed, it will be a legal use of tax levy funds).

Step 4:  The board looks through its mission and plan of service and selects the language in those guiding resources consistent with a distribution for the goods to promote the health or general well-being of the community.

Step 5:  The board verifies the above steps, verifies consistency with bylaws and library policies, and sets a meeting under the modified procedures of the Open Meetings Law to adopt a customized version of the following resolution:

WHEREAS it is the mission of the [NAME] Library to [insert] and the plan of service for the library includes [insert];and

WHEREAS the state is currently in a state of emergency as a result of the ongoing COVID-19 pandemic; and

WHEREAS owing to the pandemic and state of emergency, the library’s area of service is in an unprecedented state of need with regard to fundamentals and supplies for personal safety; and

WHEREAS, owing to travel restrictions and the need of essential workers to serve our community, some people within our area of service may not be card-holding members of the community, but still be in need of supplies that will protect the their well-being, as therefore the general health of our area of service; and

WHEREAS the board finds it consistent with the mission and plan of service to adjust the current budget of the library to allocate resources to assist those within our community by supplying fundamental resources to enable the promotion of health and safety during a time of emergency; and

WHEREAS because the library is uniquely situated and widely regarded as a trustworthy and centrally located institution whose resources are freely accessible to all, and regards it as mission-critical to continue that role at this time; and

WHEREAS the library staff has identified a written plan for the safe allocation of such fundamental resources, and such plan has been reviewed by appropriate health officials; and

WHEREAS the library staff has identified and the board has duly reviewed a proposed plan for the responsible and compliant procurement of such resources, which is attached to this resolution and included in the minutes of this meeting; and

WHEREAS the Treasurer has verified that any private sources of funding do not bar the proposed procurement;

BE IT RESOLVED that the current budget be amended to direct [$amount] from [insert] to the acquisition and free distribution of food and personal protective equipment during the state of emergency, and during any period of recovery (the “Community Health Initiative Plan”); and

BE IT FURTHER RESOLVED that the acquisition of such resources listed in the Procurement Plan shall be conducted and accounted for per all the required provisions for procurement; and

BE IT FURTHER RESOLVED that the library shall effect the distribution of the resources only as set forth in the attached Safety Plan.

Solution 2: A Public Health Program

Objective: the library develops a program, consistent with its plan of service, to educate participants on PPE and the importance of good nutrition during a pandemic, and after a short educational program, makes supplies available.  This could even include innovative and fun ideas, like a recipe from a local chef, or instructions for canning food.

Action Steps:

Step 1: Organizers develop and, with a county health official, affirm the content of a short educational program, as well as the safety plan for distribution of the resources. 

Step 2:  Follow all the steps in “Solution 1,” but add this “whereas” clause to your resolution:

WHEREAS the library staff has [developed/identified] a short informational program on personal protective equipment and the important of good nutrition, and such program has been [reviewed by/endorsed by] appropriate health officials;

And add this further action to the resolution:

BE IT FURTHER RESOLVED that in conjunction with the distribution of fundamental resources the library shall promote the short informational program identified in the Safety Plan.

And finally…

Solution 3: The Partnered Program

Objective: together with another entity, and per a written agreement, the library allocates financial, and perhaps other, resources to a joint public health initiative to acquire and distribute supplies.

This one I can’t provide a template for: the permutations are just too diverse.  I can only say, when working with another entity, the library will need to consider every element listed in the above solutions: safety (first, always), mission alignment, employee needs, budget, and proper vetting of the plan by appropriate health officials.

Because of the risks related to compliance, a collaborative approach (unless it is just a donation to one of the above efforts…with that, take the money and get it done!) should be only through a written agreement that has been reviewed by the library's lawyer.  For this reason, it could be more cumbersome than other approaches, but in the event of a worst-case scenario, confirming all those details will be worth it.

For All Solutions

For any of the solutions I have outlined above, a critical contributor may be the library's insurance carrier. Right after the organizers start developing the plan for safety, someone should give your carrier a call, just to make sure there are no “exclusions” from the policy or conditions for your library to consider.

How do you check in with a carrier on this?  Just tell them: “Some lawyer who writes about library legal issues said we should check in with you before we do this.”

While your insurance carrier is probably used to the library developing innovative programming and serving a wide swathe of the population, the distribution of food and PPE during a pandemic is something they might want to weigh in on.  That said, in my experience, most carriers will encourage your initiative.  They might ask questions about where the distribution will take place, who is offering the programming, and how you are sourcing the supplies. 

Since the answers might impact your planning, it is better to call them early in the process, rather than just before the board meets (telephonically, as allowed by Executive Order 202.6[6]) to vote.

And who knows?  They might even have some helpful hints for you as you undertake to support your community.   This whole thing is keeping agents and adjusters awake at night, just like the rest of us.

Thank you

Okay, once I start waxing on about insurance, it’s time to pack it in.  I hope this was helpful, and I hope it can contribute to your library meeting the needs of your community.

Thank you for a great question, for your determination, and your dauntless innovation.

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

Imagine walking through a metal maze, wearing magnet shoes, trying to solve a Rubik's Cube coated in honey.

Visualizing that? Metal floor.  Magnet shoes.  Lots of honey.

Okay.

This…is an even stickier problem.

Why is it sticky?  Because for any library but a school district library, there is no definitive answer.

To show you why, let me extract you from the metal maze and bring you into the weeds of New York's Real Property Tax Law ("RPTL") Section 726.[1]

Specifically, let's look at Section 726, sub-section 1(c), which controls a school district's refund of taxes paid by those who have successfully fought to reduce their property assessment.

Since 2014, this portion of the RPTL has given tax-levying school districts the following authority:

"A school district which levies taxes on behalf of a school district public library [that must be refunded to a taxpayer] may charge back to such public library the portion of such refund attributable to library purposes."

Prior to 2014, school districts had no such express authority.  The law was silent on this topic. This lead the New York State Comptroller to write three decisive opinions (in 1975, 1979, and 1995) stating that school districts who levied funds for public libraries did NOT have that authority.[2]  In other words, if a refund was owed: the district was stuck.

So stalwart was the Comptroller's stance on this ("Comptroller" just sounds like someone in charge, right?) that in 2007, it was cited by the NY Commissioner of Education when they decided that a school district's attempt to "charge back" an association library's portion of a refund--by withholding an equivalent amount from the following year's levy--was forbidden.[3]

So, there we were until 2014: a Comptroller-confirmed approached that was a great deal for libraries.

But not such a great deal for New York's school districts, right? When a refund came a-knocking, they were left holding the bag.

By 2014, the complaints had gotten so loud, the Assembly added the above-quoted section to RPTL 726, while commenting:

Existing law is silent on whether a school district may charge back court ordered refunds. Opinions of the State Comptroller (95-15, 79-103, 75-1210) have consistently, held that school districts are lacking in the necessary statutory authority. This legislation corrects an apparent oversight in Real Property Tax Low [sic]. It was never the intent of the Legislature to prohibit school districts %% inch[sic] levy taxes on behalf of a school district public library from apportioning the library portion of certiorata and small claims assessment review refunds to such libraries. The inequity of requiring a school district to refund a library's share of tax certiorari debt from the school district's own resources is clear.[4]

From a certain point of view, legislation to correct this "inequity" makes a lot of sense.  If you're running a school district, you're probably already struggling to get new orchestra instruments.  Now out of the blue you have to issue a tax refund to the local over-assessed big box store?  The last thing you want to do is also eat the portion owed by the local library.  Good thing the legislature fixed that, right?

But a sharp reader has probably noticed: in trying to clear up one problem, the legislature created another.

What does that language in 726 (c)1 say, exactly?

"A school district which levies taxes on behalf of a school district public library [that must be refunded to a taxpayer] may charge back to such public library the portion of such refund attributable to library purposes."

What's the problem here?  The black letter law of the new section of 726(c)1 only names school district public libraries.  Association libraries, special district, municipal libraries--these are all left out. And even though there are sections of the Education Law where "all types of libraries [are] treated equally,"[5]  and school districts can levy taxes for any kind of library,[6] without clear authority to indicate anything different, I would not be comfortable stating that the new section of 726(c)(1) has positioned school districts to charge back any taxes from anything other than a school district public library.  The language is just too specific.

So, when a non-school district public library gets a charge-back bill from a school district,[7] what's a public library do? 

First, as they say in the intergalactic travel biz: DON'T PANIC.  You'll figure something out.

Second: Gather your paperwork (the charge back bill, the court papers related to the Article 7 assessment challenge if you got them, and the most recent correspondence with the district).

Third: Assemble your team. Who is "your team"?  In New York, it should (at least) be: your Treasurer, your board chair (or other designated member/s), a rep from your system,[8] and a lawyer.[9]

Fourth: After an initial meeting, someone from your team might want chat with the assessor, and maintain some routine contact--you'll want some intel on how much more of this could happen. 

Fifth:  After gathering all the intel you can, your team should formulate a recommended "Response," to be authorized by the library's board. 

What will the Response authorized by the board provide?  I can't say.  Looking at the diversity of library-related legal cases, it is clear that New York's libraries are very diverse in their approach to taxes and risk.  Some, after assessing the validity of the back charge (and the resources needed to fight it), might just eat the cost.  Others might ask the Comptroller for an opinion about the 2014 change to the law, holding off on paying up until they get a reply.  And still others might attack the validity of the adjustment, or band together with other entities to formulate a broader strategy.

What is important is that whatever is done is based on good information, and a well-informed decision of the board.  Whatever strategy your library adopts, it should consider the relationship with the school district as a whole.  Remember, they didn't cause this mess.

Thank you for submitting this sticky question.  I wish my answer was simpler, but right now, the law does not allow for an easy response. 

Someday we'll take off the magnets and put down the honey.

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

This answer comes with many disclaimers, because the legal parameters of room access and rental at chartered libraries in New York is variable territory.  In other words: the answer can depend on the library’s “type” (set by its charter), its fundamental rules (found in the bylaws), its IRS status (the “501 (c)(3) mentioned by the member”), its day-to-day rules (controlled by policies), its lease (not all libraries own the space they occupy), and any deed restrictions (although deed restrictions on the basis of speech would bring concerns).

That’s right: education law, not-for-profit corporation law, tax law, real property law…this question has it all!

That being said, the member’s question centers on federal tax law; specifically, the library’s 501(c)(3) status, which not only makes the library tax-exempt, but allows it to receive tax-deductible donations.  This status is an important fund-raising asset, and its many conditions (including not engaging in politics) cannot be taken lightly.

Here is what IRS Publication 557, the go-to for creating a tax-exempt entity, has to say about political activity:

If any of the activities (whether or not substantial) of your [501(c)(3)] organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization won't qualify for tax-exempt status under section 501(c)(3). Such participation or intervention includes the publishing or distributing of statements. Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c) (3), while other so-called voter education activities may be prohibited. [emphasis added]

Like many guides from taxing agencies, this one is superficially helpful (I put that part in bold), but upon examination, employs a disclaim that gives very little concrete guidance (I underlined that part).  So, what’s a library with a spare room to do? 

As alluded to in both the member’s question and my opening paragraph, this question doesn’t turn solely on the IRS.  Any 501(c)(3) library that rents or allows free use of space should have a robust “Facility Use Policy”[1] that considers not only IRS regulations, but safety, equal access, and operational priorities (requiring users to clean up after their meeting, to not be noisy, to respect the space).  For a library in a municipally-owned building, care must be taken to ensure use fees are applied in a way that does not violation the NYS Constitution.  And for a library that rents, the Facility Use Policy must harmonize with the lease.

But the member’s question is about 501(c)(3).  So, having established that this consideration is but one of many when giving access to or renting space, here are the three things to consider when a 501(c)(3) rents or gives access to space:

1)  Rental income needs to be a very small percentage of the library’s revenue. 

Section 501(c)(3) requires that income from renting space can’t outweigh donations and other sources of income related to the library’s tax-exempt purpose.  This is something to discuss with the library’s accountant; while rental income isn’t barred, it can bring funding ration and tax consequences that warrant the attention of a professional.

2) The use of the space can’t “inure” to the benefit of any one company or individual.

Section 501(c)(3) also requires that a qualifying organization’s resources can’t directly benefit any one person or entity more than the general public.  For example, free use of the spare room by a person conducting a stained-glass workshop with an admission fee (even a nominal one), can be considered an “inurement.” [2]

3)  As raised by the member’s trustee, the use of the space cannot violate the bar on lobbying (influencing legislation) and political activity (supporting a particular candidate for office).

And as reviewed, Section 501(c)(3) bars political activity (as further defined in the excerpt from 557, above).

“Ask the Lawyer,” has had some fairly large answers, but I don’t have space to address every occurrence that could run afoul of the bar on “political activity.” But what about renting space, on the same terms as to any other entity, to an event like the one described by the member?

Here is what the IRS has to say:[3]

Can a section 501(c)(3) organization conduct business activities with a candidate for public office?

A business activity such as selling or renting of mailing lists, the leasing of office space or the acceptance of paid political advertising may constitute prohibited political campaign activity. Some factors to consider in determining whether an organization is engaged in prohibited political activity campaign include:

a. Whether the good, service or facility is available to candidates in the same election on an equal basis,

b. Whether the good, service or facility is available only to candidates and not to the general public,

c. Whether the fees charged to candidates are at the organization’s customary and usual rates, and

 d. Whether the activity is an ongoing activity of the organization or whether it is conducted only for a particular candidate.

When developing a Facility Use Policy, if a library is a 501(c)(3) charitable organization, and wishes to be able to rent space to (among others) political organizations for event, the above-listed factors should be built right into the policy.

Here is some sample language (some of it will sound familiar):

As a 501(c)(3) organization, the NAME library does not participate or intervene, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Therefore, the use of space in our facility by political organizations or for partisan political events is only available on the same rental terms as for the general public, and is subject to a rental fee that is charged equally to any political group or other individual or group.   NOTE: Certain voter education activities or public forums conducted in a nonpartisan manner may qualify for a fee waiver, just as do other free and open events conducted by a charitable entity for the benefit of the public.

So, what about the member’s scenario?   In the absence of a spot-on facility use policy, I suggest the following process:

1. Using the appropriate tax guidance, the library needs to decide if this particular “Meet the Candidates” event complies with 501(c)(3); in particular, is to be a “public forum conducted in a nonpartisan manner?”  Or is it skewed to benefit one candidate over the other? 

2. Is the sponsoring organization a charitable entity, or is there any risk that the terms for using the room would be an “inurement?”  Will donations be solicited?  Is money charged to enter?

3. If the answer to either shows a risk of violating 501(c)(3), then the library needs to consider if it wants to follow the formula to “do business” with a candidate for public office.  This would mean charging for the use as you would any other use.

If the library’s past practices make following those three steps too blurry, it is best to take a pass on this precise event, and take the time to develop an up-to-date and thorough Facility Use Policy that considers the types of uses the library will allow, and how and when it will charge for them. There are many good models out there to draw inspiration from, but before the board passes such a policy, it would be good to have it reviewed by a lawyer (who has ready the charter, bylaws, other policies, lease, deed, and any other relevant documents).

The member’s library is fortunate to have leadership that is thinking about both the first amendment and safeguarding the organization’s tax status.  Good work.  No matter what the final decision, awareness and commitment to these values serves your community.

MEMBER QUESTION

WNYLRC ATTORNEY'S RESPONSE

Perhaps because our nation was born resisting taxes, few things can rile a close-knit community so much as a good old-fashioned tax levy.  This is one area where the legal issues might be simpler than the range of human emotions. 

That said, the laws governing a school district’s support for a library can present significant considerations, if not impediments, before it can be successfully deployed.  So let’s fly at 10,000 feet, and look at the lay of the land.

There are relatively few entity types that can levy taxes based on real property,[1] and school districts are one of them.[2]  In addition to facilitating school funding through those taxes (the school budget “levy”), districts are empowered to raise a separate amount for “library purposes.”[3]

This power to tax for the benefit of libraries comes with some very clear conditions.

First, the amount to be raised for the library must be listed as a separate item on the ballot; the voters must see it as distinct from the funds to be levied for the school(s).[4]

Second, if the proposition passes, the funds must be delivered to the treasurer of the library as soon as possible, and cannot be retained or mingled with district funds.[5]

Third, the amount of taxes attributable to library purposes must be separately stated on each statement of taxes.[6]  Voters should be able to easily discern the difference.

Now, here is where things get really interesting.

There are two ways such a proposition related to a library levy can get on a school district ballot: 1) a vote by library’s board,[7] or 2) a petition directly from the voters.[8]  Since 2007,[9] the precise amount of any proposed levy has to be endorsed by the library’s board[10] (this is so competing or even contrary funding resolutions can’t get on the same ballot[11]).  When a library board votes to request it, the proposition must be placed on the ballot—even if it lacks the support of the school board.[12]

This power can be used to the benefit of any public library: municipal, special district, school district, free association, etc.[13]  This is true even if the precise boundaries of the school district and the library’s chartered area of service don’t match up.[14]

How can that be?  Anyone who follows “library world” knows that there are numerous kinds of libraries: municipal (created by and with the boundaries of a city, town, or village), school district, special district (which can cross and combine municipal borders), and free association.[15]  The permutations of these libraries are vast, but all serve their communities without charge, and thus meet the definition of “library” as used in Education Law §259.  And thus, all qualify as a “library” that may be supported by a tax levy by a school district.

Here is how the New York State Commissioner of Education,[16] quoting an earlier case, put it as recently as 2015:

As stated in Earlville, a school district is among those entities enumerated in Education Law §255 and, thus, is authorized to vote taxes “for library purposes” pursuant to Education Law §259(1)(a).  Earlville noted that, “although only those entities specifically enumerated in Education Law §255 may levy a tax for library purposes under §259(1)(a) [citations omitted], there is no restriction in §259(1) regarding the type of library for which such taxes may be levied.”[17]

Voters, of course, are free to reject the request for support (they can also bring a petition to cease the levy[18]). But the mere act of being asked gives the voters a direct opportunity to consider their community’s overall commitment to educational resources.  In library-philic New York, where we treasure books and learning, this is a critical commitment to education, information access, and community advancement.

It is also a serious vote, since once the levy has been established by the school district, it remains in effect each year until there is a vote to have it removed[19] (which, again, can be initiated by the library’s board, or the voters).

As described by the member, boards considering a school board levy are wise to gather (early) ALL the support they can as they plan for a school board tax levy proposition.  The State Education Department’s Division of Library Development maintains a great starter kit for an initiative.[20]  Reaching out to NYLA, as well as other library advocacy groups, can be critical.  And a lawyer with experience in education law (to help draft resolutions, track the paperwork, and have your back when the unexpected[21] happens) is an essential member of your team.

But while you assemble your team and resources, don’t forget “the people.”  As the famous Tip O’Neall[22] liked to say, “All politics is local.”  So while it’s essential to know a tax levy initiative stands on firm legal ground, nothing replaces careful cultivation of support[23] for your initiative.  That is where the allies listed above, and an attorney looking at the specific circumstances of your library (and always the latest case law), are essential.

Thanks for a great question on a very important topic.  Good wishes for a vote that supports democracy, community, and information access.