Council requests follow-up info on library nonprofits

After a lengthy back-and-forth discussion during last week’s Newton City Council meeting, elected officials voted to table a resolution requesting the Newton Public Library Foundation and the Friends of the Newton Public Library group be included the city’s FY21 audit and all future audits.

Opponents of the city’s resolution questioned the legitimacy of the findings by auditing firm Gronewold, Bell and Kyhnn, which identified both the foundation and the Friends group as “discretely presented component units” and determined they should be included in Newton’s audited financial statements.

Friends of the Newton Public Library is a nonprofit advocacy organization. Volunteers of the group “advocate, educate and raise funds on behalf of the library, its patrons and the community.” The “Friends” purchase equipment to enhance library collections and services and help during library functions.

The Newton Public Library Foundation was established in 1996 as a 501(c)(3). Governed by two library board members, two individuals from Friends of the Library and two citizens, the foundation utilizes private funds to enhance programs and expenses beyond the library’s normal operating budget.

The city argues while the two organizations are legally separate entities, their sole purpose is to support the City of Newton’s library and potentially provide benefits to the city; thus, the auditing firm — whose services were approved by council on June 7 — says they are discretely presented component units.

Terry Townsend, secretary of the Newton Public Library Board of Trustees and a board member of the Newton Public Library Foundation, told council members the foundation reviewed the resolution with their certified public accountant (CPA) and does not meet the criteria of a component unit.

“This specific criteria we do not meet states the primary government is entitled to or has the ability to otherwise access the majority of the economic resources received or held by a separate organization,” Townsend said. “Therefore the library foundation should not be included in the audited financial statements.”

Tom Hollander, a board member of the foundation and Friends of the Newton Public Library, argued the two organizations didn’t even meet the three criteria of a component unit listed in the memo sent by a CPA to the mayor, city administrator and all of the council members:

• The first criteria of appointing a voting majority of an organization’s governing body does not apply to the organizations, Hollander suggested, because the city appoints no one to the foundation or Friends group.

• The second criteria is the ability of the city to impose its will on the organization, which Hollander claimed that since it has no members the city cannot impose its will on the foundation or friends.

• The third criteria for a component unit is the potential for an organization to provide specific benefits or impose specific financial burdens on the city. Hollander said neither the foundation or the friends group give specific benefits to the city and do not have a line item on the budget.

Councilman Randy Ervin asked Hollander if the foundation and Friends group are self-auditing. Hollander confirmed this and said a CPA audits the organizations when they file tax returns. Ervin also wanted to know what the sole purpose was for not wanting the council to “see the books.”

Hollander answered, “The money that we have accrued over the years has been gifted to us by benefactors who may or may not want to be known who they are. They may not even want anyone beyond the foundation to know what has been the reason for the request.”

Rita Baker, a member of the Newton Public Library Board of Trustees and president of the Friends of the Newton Public Library, asked why only the library group was being targeted and not other groups like Friends of Newton Parks. “It’s aimed at the library,” she said. “Pure and simple.”

Newton City Administrator Matt Muckler said Friends of Newton Parks is organized underneath the Jasper County Foundation and has told the city it will “happily open up their books” if there were any questions about the funds being spent. The group is routinely very open with the city, he added.

Ervin raised concerns about the foundation and Friends group not wanting to share the financial records with the city council. But he also empathized with their worries of the city or its elected officials coming after library funding given the recent history between the two entities, particularly involving budgets.

“You feel the only reason we would want to know what’s in your books is so we can help ourselves to it?” Ervin asked.

Baker answered, “Based on the deep and heavy budget cuts aimed at the library over the past two fiscal years and the insinuation that the library board of directors is not fiscally responsible, yes. Pure and simple.”

Hollander even hypothesized the CPA firm hired by the city was asked to write the letter that spurred the resolution.

“Because why is it an issue today when these guidelines, the standard, has been around since 1991,” he said. “It was amended in 2022 and it has not been an issue since this time.”

Councilwoman Evelyn George said “other things have happened” in other states and communities that may sometimes cause an outside firm to make recommendations based on experiences or histories with another client or town. She also addressed the library budget cuts brought up by Baker.

“I wrote a letter to the library board members on my own because I recognized that the salaries for the Newton Public Library were out of line, they were not representative of the other positions within the city, with other comparable libraries,” she said. “And it took the board years to hear what we had to say.”

The Newton Public Library was spending too much money on salaries that it was unable to service and provide for the community, George added, before thanking the board of trustees for getting that message from council and adjusting its budgets.

“I appreciate you doing that because it’s important,” she said. “I wasn’t told to do that. That was me in my own words that were then reinforced by others. We have to make these tough decisions.”

Baker defended the board of trustees, noting the library employees were under a city pay scale that was based on education and entry level. To fault past library board members for that when it was the city’s own pay scale that set those salaries is a bit unfair, Baker said.

“Now we addressed it as a library board,” Baker continued. “Our staff took, in some cases, very significant pay cuts to get us to where we felt you all wanted us to be. And quite frankly that kind of a situation can have a grave affect on morale … Our staff were very gracious in accepting those pay cuts.”

Near the end of the meeting, Muckler said the only time an audit of the foundation and Friends group would be useful would be on a capital improvement budget. He also countered claims the city was trying to grab money from the library by pointing at council’s support of library renovations.

“Certainly we weren’t the main contributor in that project, but the city did bring funds into the recent project that was completed at the library,” Muckler said. “And certainly we would not try to do that if we were trying to get the library’s money.”

After hearing comments, Newton Mayor Mike Hansen recommended the council table the resolution in order for the city, elected officials and members of the organizations to get more information. In particular, Hansen wanted to ask the auditing firm further how they came up with its determination.

Contact Christopher Braunschweig at 641-792-3121 ext. 6560 or cbraunschweig@newtondailynews.com