peninsula library system analysis of options for the ... · 1. organizational structure under the...

PENINSULA LIBRARY SYSTEM

ANALYSIS OF OPTIONS FOR THE ORGANIZATIONAL STRUCTURE OF PENINSULA LIBRARY SYSTEM, PACIFIC LIBRARY PARTNERSHIP AND

CALIFA; OPTIONS FOR BUILDING OWNERSHIP AND MORTGAGE

MUNICIPAL RESOURCE GROUP, LLC 675 HARTZ AVENUE, SUITE 300

DANVILLE, CA 94526 (530) 878-9100

JANUARY 2016

ANALYSISOFOPTIONSFORTHEORGANIZATIONALSTRUCTUREOFTHEPENINSULALIBRARYSYSTYEM,PACIFICLIBRARYPARTNERSHIPANDCALIFA;

OPTIONSFORBUILDINGOWNERSHIPANDMORTGAGE

TABLEOFCONTENTSEXECUTIVESUMMARY…………….………………………………………………………………………………………2I.INTRODUCTION,PURPOSEANDMETHODOLOGY................................................................................5

Introduction...........................................................................................................................................................5

PurposeandMethodology...............................................................................................................................6

II. PLS,PLPANDCALIFABACKGROUNDINFORMATION.......................................................................8

PLSBackground..................................................................................................................................................8

PLPBackground..................................................................................................................................................8

CalifaBackground..............................................................................................................................................9

III.EVALUATIONREPORTANDRECOMMENDATIONS.........................................................................10

1.RECOMMENDATIONSCONCERNINGORGANIZATIONALSTRUCTURE...............................10

CurrentPractices.........................................................................................................................................10

BudgetSummaries......................................................................................................................................11

DiscussionandAnalysis...........................................................................................................................15

RecommendedActions.............................................................................................................................18

2.RECOMMENDATIONSCONCERNINGALLOCATIONSOFCOSTS..............................................23

CurrentPractices/Analysis.....................................................................................................................23


3.RECOMMENDATIONSCONCERNINGMEMBERSHIP/FISCALAGENCYFEES....................26

CurrentPractices.........................................................................................................................................26


4.RECOMMENDATIONSCONCERNINGBUILDINGOWNERSHIPANDMORTGAGE............28

CurrentPracticesandCondition...........................................................................................................28


Exhibits......................................................................................................................................................................32

PLSOrganizationalandBuildingOwnershipOptionsReport January2016MunicipalResourceGroupLLC

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EXECUTIVESUMMARY/KEYRECOMMENDATIONS

The Peninsula Library System authorized this Report to evaluate staffing, revenueallocation and office building mortgage and ownership options among the threemember‐basedentities,PeninsulaLibrarySystem(PLS),PacificLibraryPartnership(PLP)andCalifaLibraryGroup(Califa). MunicipalResourceGroupLLC(MRG)hasevaluatedthedataandfindingsintheReportintheoverallcontextofthecurrentandfuture capacities of the three organizations to deliver effective and efficientmembershipservices. TheglobalfocusoftheReport istoenablethethreeentitiesto: Positionthemselvesforthefuture Meetthefundingchallengesthatarecurrentlyarising,andwillcontinuetodo

sointhefuture Respondtoandtakeadvantageofopportunitiesthatmayariseinthefutureto

improveservicesandserviceareas1. OrganizationalStructureUnderthecurrentorganizationalstructure,PLSistheoperatingentityandprovidesservices to PLP, Califa and NorthNet. Services include administration, operation,accounting,technologyanddeliveryservices,alongwiththerentalofspace.

KeyRecommendationsThethreeseparatePLS,PLPandCalifaorganizationsshouldberetained.

Califa1.1 Califa shouldbecomean independentoperatingentity,with a full time

ExecutiveDirector and its own staff foroperations;Califa should issueanRFPforadministrativeandsupportservicesandincludePLS/PLPinthis process; if PLS/PLP is not the provider of administrative andsupport services Califa should consider whether to continue to rentspacefromPLS.

1.2 Califa shouldexploreavenues forpurchasingcost effectivebenefits foritsemployees.

1.3 Califashouldpaypro‐ratedrentforanyspaceneedsforsharedpositions(assuming a contract with PLS/PLP for administrative and supportservices),aswellasfullrentforCalifapositions.

PLP1.4 PLP should become the operational entity, the “parent” or “umbrella”

organization, for the delivery of services to consolidated regional andlegacycooperativelibrarysystems,aswellaslocalsystemservicesandcontractservices,withafulltimeExecutiveDirectorandstaff.

1.5 CurrentPLSstaffshouldbetransitionedtobecomePLPstaff.


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1.6 PLPshouldemployafulltimeExecutiveDirector.1.7 PLSshouldcontinueholdtitletothepropertyandrentspacetoPLPand

Califa.1.8 PLPshouldreviewthecurrentcostallocationstructureandmembership

fee structure, based on the implementation of the new organizationalmodel.

1.9 Depending upon the transition processes and results, the PLPmembershipfeestructuremayneedtobereviewed.

1.10 PLANservicesshouldbemanagedbyPLP.1.11 ThePLPJointPowersAgreementwouldneedtobeamendedtoprovide

thatPLP,ratherthanPLS,wouldserveasTreasurer/ControllerandfiscalagentforPLP.

1.12 The Califa transition should take place first, followed by the PLS/PLPtransition.

PLS1.13 AssumingtheCalifaandPLS/PLPtransitions,PLPshould,intheinterim:

Clarify and implement new contract costs for PLS staff provided toPLPandCalifa.

IncreasePLSfeesasneeded. ClarifyandimplementadditionalPLANcoststobechargedtoPLAN

members. Identifynewpotentialrevenuesources.

BudgetRecommendations1.14 Budget documents for all three organizations should be revised to

includethefollowing: Staffcomponents,bothpermanentandcontract Summaryoffundsflowingoutandintoeachentity Programbudgets, includingrevenues,expendituresanduseof fund

balance/reserves Fundbalancedetail,includingmulti‐yeartrends Budgetnarratives,includingpurposes,servicesandprojects Overallreviewoffinancialcondition,trends,risks,etc. Eachbudgetshouldbepresentedinasimilarformat.

1.15 Califa should not use its previously accumulated capital to balance itsannualoperatingexpenses.

1.16 PLPandCalifaboardsshouldeachadopta fundbalancereservepolicyand adopt a specific target fund balance equal to an amount between25%and30%ofitsannualoperatingexpenditurebudget.

2.AllocationofCostsPLShashistoricallyusedanestimatedallocationsystemtoallocateportionsofstaffcoststoallthreeorganizations.Startingin2015,staffhasbeguntotrackactualtimespentforeachentity,includingunallocatedmulti‐systemtime.


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KeyRecommendations2.1 Alladministrativestaffshouldtracktheirtimebycontract/entityand

futurebudgetsandcontractsshouldbebasedontimespentonworkrelatedtoeachentity.

2.2 Allentitiesshouldobtainanoutsidecostallocationplaninthefuturetoaccuratelyallocateandchargecostsforservicesamongtheorganizations.

3.Membership/FiscalAgencyFeesWith PLS as the current operating entity, it recovers significant funds from otheragencies, including Califa, PLP, NorthNet (NLS) and other services and programs.PLSallocatesPLANmembershipcostsbasedonanagreeduponfeestructure. PLPcurrentlyallocates itsmembership feesona tieredbasis,basedonthesizeofeachmember’sbudget.Califacurrentlyallocatesitsmemberfeesbasedonthenumberofemployees.KeyRecommendations

3.1 Membership fees should remain as structured; ifmembership fees arenotfullycoveringcosts,andotherrevenueenhancementoptionsarenotproductive,thenmembershipfeesshouldbeincreased.

4.BuildingOwnershipandMortgagePLS currently holds title to the property and the building that houses theadministrativeofficesofPLS,PLPandCalifa.PLScurrentlyhasaloanof$2,250,000ontheproperty. PLShasbeenmakingprincipalprepaymentsoverthepastseveralyears, in addition to the regular monthly principal and interest payments. As ofSeptember15,2015,PLSowed$1,740,694.17inprincipalonthemortgage.KeyRecommendations

4.1PLSshouldcontinuetoholdtitletotherealestate.4.2 PLSshouldprepayprincipaltothemaximumextentpossibleassoonas

possible,whileavoidingtheprepaymentpenaltyandwhilemaintainingatargetfundbalancerecommendedat$900,000.

4.3 PLSshouldagainexplorerefinancingtheexistingloaninFebruary2019,once the prepayment penalty no longer applies. The variable ratemortgage and the balloon payment terms should be renegotiated, ifpossible.

4.4 In the event that PLS does not renegotiate or refinance the loan inFebruary2019, itshoulddevelopa fundingstrategyandmechanismtopaytheballoonpaymentduein2027.

4.5 The contract betweenCalifa andPLS should be restructured to clearlydescribetheamountofrentbeingpaidbyCalifatoPLS.

4.6 PLSshouldobtainacurrentappraisaloftherealestatesothatitisawareofthepropertyvalueandthePLSequityintheproperty.


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I. INTRODUCTION,PURPOSEANDMETHODOLOGY

Introduction The Peninsula Library System engaged Municipal Resource Group LLC (MRG) toevaluate staffing, revenueallocationandofficebuildingandownershipoptions. Inthecourseofconductingtheevaluation,MRGfeltitwasalsoimportanttoanalyzetheorganizational structure, data and recommendations in the context of the currentand future capacities of the three organizations – Peninsula Library System (PLS),Pacific Library Partnership (PLP) and Califa Library Group (Califa) – to delivereffective and efficient membership services. The global focus of the Report is toenablethethreeentitiesto: Positionthemselvesforthefuture Meet the funding challenges that are currently arising, andwill continue to

confronttheorganizationsinthefuture Respondandtakeadvantageofopportunitiesthatmayariseinthefutureto

improveservicesandserviceareasThe missions of the three organizations are distinctly different. PLS is a legacycooperative library system focused on locally provided services to libraries in SanMateoCounty.PLPisaconsolidatedregionalcooperativelibrarysystem,focusedonmanagingandprovidingservicestolegacyandregionalcooperativelibrarysystemsthroughout Northern California. Califa is service bureau focused on providingmember‐enhanced, value‐added statewide services to California libraries. Thecurrent organizational structure is the result of an operational model establishedsometimeago,anditmaynotbethebestfitgoingforward.Itisimportanttoalignthe future organizational models with the individual strategic directions of eachorganization,aswellaswitheachorganization’suniquegeographicresponsibilities,servicesandrepresentation.Throughout this Report, the future drivers of change that the organizations arecurrently facingandwill be facinghavebeen identified, suchas theuncertaintyofState funding for statewide services. These “changedrivers” havebeen integratedintothediscussionsandrecommendationsinthisReport.IndevelopinganoverviewfortheReport,theconsultantstookastepbacktolookatorganizational options, as if the current structure did not exist and the threeorganizationswerebeingdevelopedtoday.UnderthecurrentorganizationalmodelwithPLSastheoperatingentity,serviceshavebeensuccessfullyprovidedtoallthreeorganizations, primarily due to the innovative and demonstrated commitment ofstaff. However, if all three organizationswere being developed today, it is highlyunlikely that the current organizational structure would be the one chosen. ThisReport outlines a recommended new organizational structure for all threeorganizations,tofitcurrentandfuturechallengesandservices.


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PurposeandMethodology The Peninsula Library System authorized this Report to evaluate staffing, revenueallocation and office building mortgage and ownership options among the threemember‐basedentities,PLS,PLPandCalifa. Thepurposesof theprojectareto(1)identifyalternativesto thecurrentpracticeofPLSemployingallstaff,andevaluatepotential impacts and effectiveness of alternate arrangements; (2) identifyalternative recipients of grant revenues, including transferring the federal LibraryServices and Technology Act (LSTA) grant (Infopeople) from PLS to Califa, andevaluate the potential impact on fiscal agency fees and on the member entities’financialsupport;and(3)researchalternativestothecurrentownershipofthePLSoffice building, as well as options for repayment of the existing mortgage, andevaluatethefinancialimpactofeachalternativeonmemberentities. Theevaluationmethodologyincludedeightbasictasks:1) Evaluate the effectiveness of the existing organizational structure, staffing

model,responsibilities,processes,practices,roles,resourcesandotherfactorsinmeetingtheservicerequirementsofPLS,PLPandCalifa.

2) IdentifytheadvantagesanddisadvantagesofCalifahiringitsownstaffand,if

Califawere todoso,whetheritwouldstillcontractwithPLSforaccounting,technology and other support services, and how Califa employees wouldreceivehealth,retirementandotherbenefits.

3) Assess the current accounting practices and procedures related to the

allocationofcostsandevaluateeffectivealternativesthatcanmeetPLS,PLPandCalifagoalswhileminimizingworkeffortandcomplexities.

4) Identify options for organizational structures, responsibilities, processes,

practices,roles,resourcesandreportingrelationshipsnecessarytomeetPLS,PLPandCalifarequirementsandexpectations.

5) Evaluate how shifting of grant funding from PLS to Califa will impact the

revenuebaseofPLSandPLP.6) Identify options for allocating fiscal agency fees, includingmember revenue

and cost recovery revenue, to provide for transparency and to support thefinancialhealthofPLS,PLPandCalifa.

7) Identify options, along with related benefits and challenges, for building

ownership–shouldrealestatecontinuetobeownedbyPLSorshouldtitlebesharedwith,andbepartiallypurchasedbyPLPand/orCalifa?


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8) Identify options, along with advantages and disadvantages, for acceleratedmortgage payments on the existing loan vs. other uses or investmentswiththesamefundsvs.refinancingthemortgage.

Theassessment included interviewswithPLS,PLPandCalifaboardmembers,staffandcontractors,aslistedinExhibitA.ItalsoincludedareviewofkeyPLS,PLPandCalifa documents to assist in understanding and evaluating the entities’organizational structures, member financial obligations, legal commitments, realestate ownership, loan obligations, debt management, investment and cashmanagement strategies, grant requirements and financial condition. Industrystandardsandbestmanagementpracticesweredrawnfromtheauthors’experiencewith library services and municipal finance departments, and a variety ofprofessional sources, including publications of the Government Finance OfficersAssociationandCaliforniaSocietyofMunicipalFinanceOfficers(CSMFO).Itisimportanttonotethatanevaluationofcurrentpracticestendstofocusonareasthat can be improved rather than on existing areas of strength and success. Theresearchrevealedthatmanyofthecurrentpracticesarewelldesignedandeffective.However, this Report focuses on areas where the member organizations mayenhanceeffectiveness.It is also important to note areas that are not the subject of this evaluation andReport.ItwasnotintendedthatthisReportbeanevaluationoftheperformanceofindividual PLS staff members. It was also not intended that this Report wouldevaluate external customer requirements, although the recommendations in theReportaredesignedandexpectedtoenhancememberservices.


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II. PLS,PLPANDCALIFABACKGROUNDINFORMATION

PLSBackground PLSwasformedin1972asajointpowersagency(JPA)bythecitiesofBurlingame,DalyCity,MenloPark,RedwoodCity,SanMateo,SanBrunoandSouthSanFrancisco,the San Mateo Community College System and San Mateo County. PLS was acooperativelibrarysystem,establishedundertheauthorityoftheCaliforniaLibraryServicesAct(CLSA)butnolongerfunctionsinthatcapacity. TheprimaryfocusforPLS is a shared integrated library system called Peninsula Libraries AutomatedNetwork (PLAN). PLS is governed by an Administrative Council consisting ofrepresentatives from each member agency. PLS contracts with, and providesadministrativeservicestoCLSAsystemsNorthNetandPLP,andCalifa.

PLPBackground PLPwasestablishedasa JPA in2009, comprisedofPLS, theBayAreaLibraryandInformationSystemJPA(BALIS),MontereyBayAreaCooperativeLibrarySystemJPA(MOBAC)andSiliconValleyLibrarySystemJPA(SVLS).This consolidated regional system serves the information needs of people in thelarger Bay Area community. Its purposes are to 1) improve the services of itsconstituent member libraries by maintaining prior CLSA programs and leadingresearch and development efforts to ensure libraries are aware of and respond todemographic, economic and other changes, 2) experiment with innovativeapproachestoprogrammingandservices,and3)enhancecollectiveresources.PLP provides services through funding received from CSLA and fees paid bymembers. PLP is governed by an Administrative Council comprised of all librarydirectors of the agencies within PLP. Nothing in the consolidated JPA prevents amember‐legacy system fromcontinuing localbestpractices tomeet itsownneeds,includingitsowncommitteestructure.Goals/BenefitsofPLP:

Achieve economies of scale by investing in a set of shared resources inprogramsandservicesthatwillbenefitpeopleservedbythecommunitiesinthefourlegacysystems

Reduce duplication of effort and investment of resources in redundantactivitiesandprograms

Facilitate the ability of member libraries to work together to increase thequantity and quality of the services and programs for the people in thebroadergeographicarea

Enable each member to be more responsive to the changing needs andexpectationsofitscommunity

Allowmemberlibrariestohaveastronger,moreeffectiveandunifiedvoice


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Capitalize on the talents and competencies of a larger group of memberlibrarystaffandincreasetheopportunitytoshareandlearnfromeachother

Collaboratetoinvestinresearchanddevelopmentofnewinitiativesandpoolresourcestosupportdevelopmentoftheseinitiatives

Investincommoninfrastructure Extend the network and communities of practices among the people who

workinthememberlibraries Provide the structure and support for member libraries with common

intereststocommunicateandshareinabroadergeographicalarena.

CalifaBackground Califa is a statewide membership‐based service bureau formed in 2004 as a501(c)(3) non‐profit organization. There are approximately 220 Califa members.Califa was designed to provide member‐enhanced, value‐added services to allCalifornia libraries. On behalf of its members, Califa brokers and facilitates thedelivery of products and services for those libraries. Califa sponsors state‐wideprojects, receives substantiallyallof its funding fromCaliforniaand federalgrants,andreceivesmembershipfeesfromitsmemberlibraries.Atleast16grantstotalingmore than $5 million have been awarded to Califa and have been (or will be)includedinthecurrentbudget.ThelargestgrantsrelatetotheInfopeopleprogramand to the CENIC Broadband project. Califa is at the forefront of cutting edgeinnovationforlibrariesthroughoutCaliforniaandispositionedtocontinuetodosointhefuture.CalifaisgovernedbyaBoardofDirectors.


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III. EVALUATIONREPORTANDRECOMMENDATIONS1. RECOMMENDATIONSCONCERNINGORGANIZATIONALSTRUCTURE

CurrentPractices Ingeneral,PLPprovidesservicestoJPAmembersrepresentinglibrariesthroughouttheBayArea;PLSprovidesservicesto libraries throughoutSanMateoCounty;andCalifa provides services to libraries throughout California. Thus the three entitiesprovidecoreservicestothreedifferentconstituencies,withsomeoverlap. PLS is the only entity with employees. PLS employs approximately 23 full‐

time equivalent (FTE) positions, of which 12.6 FTE are administrativepositions.

PLSprovidesadministration,operation, accounting, technologyanddelivery

servicestoPLP,alongwiththerentalofspace. PLS provides administrative, accounting and technology support to Califa,

alongwiththeuseofspace. PLPcontractswithandprovidesadministrativeservicestoNorthNet(NLS),a

geographicallylargeNorthernCaliforniaconsolidatedCLSAsystem. PLPprovidesadministration,delivery, systemoperation/committee support

andotherprogramstoitsmemberlibraries. Califabrokersanddeliversproductsandservicestoitsmembers,statewide.

All three entities receive and distribute grant revenues for programs that benefitlibraries.Allthreeentitiesprovidelibraryservicesand/orproductstolibraries.Inaddition, the California State Library (CSL) funds all three entities for certainservices, such as those provided through LSTA grants. All three entities often actonlyasthefiscalagentforlargegrantsandnotastheproviderofservices,whichareperformedbythirdpartycontractors.Forinstance,underthelargeInfopeoplegrant,Califacurrentlyactsonlyasfiscalagentandnotastheproviderofservices.AttachedasExhibitsB,CandDarebroadorganizationalchartsforthethreeentities.AttachedasExhibitEisanexistingorganizationalchart,byposition.


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BudgetSummaries

PLSBudget Initsadoptedfiscalyear2015/16budget,PLSprovidesthefollowingservicesatthefollowingcosts:Table1:PLSServices,FY2015/16Services FY2015/16BudgetCommunicationandDelivery $448,144Administration $1,376,343SystemOperations $28,079PLSBuilding $360,500PLANCentral(servicestoallmembers) $1,299,160PLANLocal(servicestoindividualmembers) $1,800,000TotalExpenditures: $5,312,226ThebudgetforPLSBuildingexpendituresincludes$268,000indebtservice,whichisapproximately$97,000morethanthescheduleddebtservice,andwhichisinlargepart supported by drawing down on the PLS fund balance. The purpose of thisadditionalamountistopayprincipalonthemortgageatafasterratethanrequiredbythemortgagenote.The fiscalyear2015/16PLSbudget shows that theabovePLScostsare fundedbythefollowingsources:Table2:PLSSourceofFunds,FY2015/16RevenueandSourceofFunds FY2015/16BudgetFederalgrants(indirectfeesforFY14/15LSTAandNEHgrants) $200,000Otheragencies:Califacontract$730,950PLPcontract$352,883NorthNetservices$83,510Deliveryservices(SVLS,CLSA,etc.)$66,000Califaservermaintenance$15,034Other$9,000

$1,257,377

PLANsharedcost(allmembers) $1,280,626PLANreimbursablecost(pass‐thrupaidbyindividualmembers) $1,800,000PLANrecoverycost $3,500Communication&deliverysharedcost(allmembers) $382,144Workshopfees $4,000Rentalincome:PLP/PLAN$60,000Non‐librarytenants$216,000

$276,000

Interestincome $24,079Useoffundbalance(foroptionalmortgageprincipalpayments) $84,500TotalBudgetedRevenueandSourceofFunds $5,312,226


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In summary, in its fiscal year2015/16budget,PLSprimarily receivesmoney fromadministrative fees on grants, contracts to cover administration, PLS members tocovercommunicationanddeliveryandPLANcosts,reimbursementsfrommembers,andrentalincome.PLSfinancialconditionisalsoreflectedbytheextenttowhichtheentity’sreservesandundesignated fundbalanceareadequateandstable,orwhethertheyarebeingusedtosupportongoingobligations.FiscalYear2015/16PLS: Reserves Undesignated Total

BeginningFundBalance $255,533 $1,519,708 $1,775,241 EndingFundBalance $217,533 $1,519,708 $1,737,241Total fund balance for PLS decreased by approximately $260,000 in fiscal year2013/14, increased by approximately $264,000 in fiscal year 2014/15 and isprojectedtodecreaseby$38,000infiscalyear2015/16.ThePLSBoardadoptedanOperatingReservesReservePolicyinJune2015whichestablishedatargetoperatingreserve equal to threemonths of operating costs, excluding reimbursable or pass‐through programs, depreciation, in‐kind and other non‐cash expenses. The totalprojected fund balance at June 30, 2016, represents approximately 32% of totalbudgeted fiscal year 2015/16 expenditures, or approximately 49% of 2015/16expendituresif$1.8millionofPLANreimbursablecostswereexcluded.BasedontheReserve Policy requirement noted above, e.g. three months of operating costs, or25%,thecurrentyearfundbalanceisnearlydoubletheamountrequired.

PLPBudget In its fiscal year 2015/16 budget, prior to mid‐year budget revisions to add inadditionalgrants,PLPprovidesthefollowingservicesatthefollowingcosts:Table3:PLPServices,FY2015/16Services FY2015/16BudgetAdministration $620,943Delivery $290,010SystemOperation/CommitteeSupport $461,127PublicLibraryStaffEducationProgram(PLSEP)(LSTA) $96,430TotalExpenditures: $1,468,510The fiscalyear2015/16PLPbudgetshowsthat theabovePLPcostsare fundedbythefollowingsources:


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Table4:PLPSourceofFunds,FY2015/16RevenueandSourceofFunds FY2015/16BudgetMemberparticipationfees $550,762Otheragencies(NorthNetadmincontract) $134,641StateCLSAgrants $360,013Federalgrants:Indirectfees$137,644PLSEP$96,430

$234,094

Reimbursablefrommembers $175,000Workshopfees $8,000Interestincome $6,000TotalBudgetedRevenueandSourceofFunds $1,468,510In summary, in its fiscal year2015/16budget,PLPprimarily receives its revenuesfrom member participation fees and reimbursements, state CLSA grants, NLS forcontractadministrationservices(whichincludesstateCLSAfunds),andfederalandstategrants.PLP financial condition is also reflected by the extent to which the entity’s fundbalanceisadequateandstable,orbeingusedtosupportongoingobligations.Fiscalyear2015/16PLP:

BeginningFundBalance $1,052,399 EndingFundBalance $1,052,399Total fund balance for PLP increased by approximately $245,000 in fiscal year2013/14, increased by approximately $125,000 in fiscal year 2014/15 and isprojected tonot change in fiscalyear2015/16. Theprojected June30,2016, fundbalance of $1,052,399 represents approximately 72% of budgeted fiscal year2015/16expenditures.Under the PLP contract with PLS, PLP pays PLS $462,393 for administration,operation and accounting services ($352,883), delivery services to PLP memberSVLS ($26,000) and administration services to NLS ($83,510). At the same time,underaPLPcontractwithNLS,NLSpaysPLP$124,641,includingthe$83,510inNLSadministration services, $28,800 for a NLS Coordinator and $12,331 formiscellaneousPLPadministrativecosts.PLPcontractswithNLSontherevenuesidebecausePLPisseenastheregionalentityforservicestoNLS,andthencontractswithPLS on the cost side, even though it would be more efficient for NLS to contractdirectly with PLS for those services. However, aligning NLS with PLP, a similarorganization,supportsorganizationaltransparencyandmirrorssimilarrelationshipsinthestatewhereconsolidatedregionalsystemsadministerotherregionalsystems,eitherconsolidatedorlegacy.PLPisconsideredaconsolidatedregionalsystemandPLSisconsideredalegacysystem


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CalifaBudget In its fiscal year 2015/16 budget, Califa provides the following services andprogramsatthefollowingcosts:Table5:CalifaServices,FY2015/16Services FY2015/16BudgetOperations(includes$3.5millioninvendorpass‐thrupayments) $4,173,477E‐books $300,000ENKILibrary $250,000Califagrant(CaliforniaLibraryCollaborativeGrant) $261,818EarlyLearningwithFamiliesStatewideInitiative:Year3(ELF) $645,820GetInvolved:Expanding/SustainingSkilledVolunteerEng. $78,800TotalExpenditures: $5,709,915CalifacontractswithPLSforadministration,accountingandtechnologysupportforCalifaoperations. Thetotal fiscalyear2015/16contractequals$745,986,ofwhich$494,512ispaidoutofOperationsshownaboveandtheremaining$261,818ispaidoutoftheCalifagrantprogramshownabove.Thefiscalyear2015/16Califabudgetshowsthat theaboveCalifacostsare fundedbythefollowingsources:Table6:CalifaSourceofFunds,FY2015/16RevenueandSourceofFunds FY2015/16BudgetGrants–IndirectfeesonFY2014/15grants $239,269Specialgrants–IndirectfeesonCSLBroadbandServices– Year1 $112,500Califamembershipfees $68,000Interestincome $8,200Incomefromproduct/vendor $155,000Workshopfees $13,000Vendorpass‐through $3,500,000Useoffundbalance:Safaridatabase$200,000ENKIlibrary$200,000Other$77,508

$477,508

Databaserevenue $100,000ENKILibrarysubscriptions $50,000LSTAgrants:Califa$261,818ELF$645,820VolunteerEng$78,800

$986,438

TotalBudgetedSourceofFunds $5,709,915The 2015/16 amount shown for indirect fees on CSL Broadband Services is to bereviewedbasedupontimetrackingbystaff.


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In addition to the above revenues, Califa plans to amend its fiscal year 2015/16budget atmid‐year to includemore than $4.8million in active grants and relatedreimbursements.Thisincludesapproximately$1.8millioningrantrevenuesfortheInfopeoplegrantandEurekaLeadershipProgramgrant(whichwasformerlypartofthe Infopeople grant), approximately $1.8 million in grant revenues and memberreimbursementsfortheCENICStatewideBroadbandYear1grant,andtheremaining$1.2milliondispersedovertwelveadditionalgrantprograms(includingfourgrantscarriedoverfromtheprioryear).In summary, Califa primarily receives its revenue from grant indirect fees,membership fees, income from products/vendors, vendor pass‐through revenues,databaserevenue,subscriptionsandgrants.Califa financial condition is also reflected by the extent towhich the entity’s fundbalance is adequate and stable, or whether it is being used to support ongoingobligations.Fiscalyear2015/16Califa:

BeginningFundBalance $2,031,290 EndingFundBalance $1,553,782Total fund balance for Califa decreased by approximately $120,000 in fiscal year2013/14, decreased by approximately $470,000 in fiscal year 2014/15 and isprojectedtodecreaseby$477,508infiscalyear2015/16.Intotal,byJune30,2016,theCalifafundbalancewillhavedroppedbymorethan$1millionsinceJuly1,2013.Theprojected June30,2016, fundbalanceof$1,553,782representsapproximately27% of $5,709,915 in fiscal year 2015/16 expenditures initially budgeted orapproximately15%of approximately $10,709,000 in fiscal year expendituresoncesignificantmid‐year budget adjustments are adopted. However, if $3.5 million ofvendorpass‐throughcostsand$2.5millionofInfopeople,EurekaLeadership,EarlyLearning with Families and Get Involved Volunteer Engagement grant costs arededucted(forwhichCalifaservesonlyasafiscalagent),thereservewouldrepresentapproximately34%oftheannualnet$4,509,000inoperatingexpenditures.Thebudgetedfiscalyear2015/16Califareductioninfundbalanceisforthepurposeof $200,000 support for the ENKI Library program, $200,000 support for SafariDatabaseexpendituresand$77,508supportforgeneralCalifaexpenditures.

DiscussionandAnalysisPLSvs.PLPasOperatingEntityAsnotedabove,underthecurrentstructure,PLSistheoperatingentity,employingall staff, who provide programmatic and administrative services to contractingorganizations, including PLP, NLS and Califa. This organizational structure is the


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resultoflegacyoperationalmodels,e.g.PLShavingbeenorganizedin1972vs.PLPin2009 and Califa in 2004, but it can no longer be considered the most effectiveoperationalmodelgoing forward. It is important toalignthe futureorganizationalmodelswiththeindividualstrategicdirectionsofeachorganization,aswellaswitheachorganization’suniquegeographicresponsibilities,servicesandrepresentation.In essence, there are three types of services provided by the three entities. Localservices includeprogrammatic andadministrative services andunique (non‐CLSA)services,suchasPLAN,providedtoanymemberconsolidatedorlegacycooperativelibrary system. Regional services include programmatic and administrative CLSAand related services toboth consolidated regional cooperative library systemsandlegacy cooperative library systems (PLP and NLS, and their legacy cooperativesystem components). Contract services include administrative services to anyorganizationthatchoosestocontractforsuchservices,suchasCalifa.Under the proposed model, PLP is the most suitable operating entity. This newmodelwould address the strategic direction of the parent organization (PLP), andpositionitstrategicallyforfuturegrowthandchangeasbotharegionalcooperativelibrarysystemserviceproviderandasacontractserviceprovider. Under thenewmodel,therewouldbeafulltimeExecutiveDirector,andcurrentPLSstaffwouldbetransitionedtobecomePLPemployees.ExhibitFprovidesaproposedorganizationchartthatreflectstheproposedchangestotheorganizationalstructure.

ExecutiveDirectorPosition All employees associated with the three entities are currently employed by PLS,althoughmanyadministrativeemployeesappear towear threehats–one foreachentity. For example, one position serves as Executive Director for PLS, as ChiefExecutiveOfficer forPLPandasExecutiveDirector forCalifa. Thisraisespotentialcomplicationsforallthreeentitiesrelatedtosettingprioritiesamongtheentitiesandtothepotentialappearanceofconflictsofinterestbetweenthethreeentities.Whilethere is a need to prioritize workflow in any organization, it becomes potentiallymoreproblematicwhen three separate entities are servedby one leadership staff.The priorities among and for the three organizations are not clear to some boardmembersandstaff.Whiletherearesomeefficienciesinhavingstaffsupportallthreeentities,thisReportrecommendsthatCalifaretainitsownfulltimeexecutivedirectordedicatedtoCalifaactivities.ThiswillallowCalifatoclearlyfocusonitsobjectiveofprovidingservicesand products to libraries statewide and to foster cutting edge activities like theCENIC Statewide Broadband program. A Califa executive director would overseeCalifaoperationsandstrategicplanning.SeparatingCalifaoperations fromPLSandPLPoperationsanddecision‐makingwouldclarifytherolesofstaffandallowCalifatooperateindependently.


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CalifaiscurrentlypayingPLSfor19hoursperweekoftheexecutivedirector’stime,ata costof$110,000peryear. The incremental costofemployinganew full timeCalifaexecutivedirector,alongwithclericalhelp, isestimatedtobe$170,000moreper year than what Califa is currently paying PLS for administrative services,assumingthatCalifaemploysafull‐timeexecutivedirector.Similarly,ifCalifaemploysitsownexecutivedirector,thepaymentthatPLSreceivesfromCalifawoulddeclinebyapproximately$110,000(forthecostof theexecutivedirector),andthiswouldincreasetheannualnetcosttoPLSandPLPby$110,000,ifPLS/PLPcontinues toemploya full‐timeexecutivedirector. Inaddition,aspartofthisshift,itwouldbeappropriateforCalifatopayrenttoPLSratherthanthecurrent5%overheadratecollectedtocovertheCalifauseofspace.

CalifaSupportStaff There have been challenges for administrative staff in balancing the workloadprioritiesof the threeentities. ThisReport recommends thatCalifa create itsownemploymentbase,byhiring itsown full timeexecutivedirectorandemploying thefourexistingPLSpositions (2of thesepositionsare currentlyvacant)dedicated toCalifa activities to conduct the business operations. It is recommended that thesefour positions devoted entirely to Califa activities be transitioned to Califaemployment,reportingdirectlytoaCalifaExecutiveDirector,inparttoaddressthisissue, but also as part of the overall transition to a separately administered Califaentity.

FundingImplications When grant opportunities are considered by staff, it is not always clear how it isdeterminedwhichofthethreeentitieswillapplyforthegrants.ItappearsthattheCSL tries to balance grants to various systems so that indirect fee revenues arereceivedbyallentities,butthisisnotconsistentlyevident.Ageneralpracticeinthepast,onthepartofPLS,PLPandCalifa,hasbeentocontinuetousetheentity thatpreviously applied for a grant to apply for a renewal of the samegrant. Recently,however, a federal grant for the Infopeopleprogram,with$1.5million inprogramcosts,wasappliedforandawardedtoCalifaforfiscalyear2015/16followingmanyyearsofhavingbeenawarded toPLS. The Infopeoplegrantprogrampredated theformation of Califa, so PLS was the original grantee for this grant. This changeallowed for a statewide program to be aligned with Califa, an entity providingstatewide services, consistentwith theExecutiveDirector’s strategicdirection thatstatewide programs be alignedwith the statewide organization Califa, rather thanwith one of the regional CLSA systems. This change raised issues about settingprioritiesamong the threeentitiesandalsomoved$190,000 inannual indirect feerevenuesfromPLStoCalifabeginninginfiscalyear2016/17,baseduponthecurrentmethodology employed by PLS (where indirect fees are recognized in the yearfollowingreceiptofrelatedgrantrevenues).Sincethisannualsourceofrevenuehasbeen part of the balanced PLS budget in the past, PLS must address a revenue


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shortfallofapproximately$190,000beginninginfiscalyear2016/17.Ontheotherhand, this shiftwill strengthen the budget of Califa by adding new revenue to theCalifabudgetbeginninginfiscalyear2016/17.IfCalifadoesseparatefromPLS/PLPandhireitsownemployees,asdescribedabove,then the PLS annual budgetary deficit would increase from $190,000 toapproximately $300,000 if PLS continued to employ a full‐time executive director.However,ifafull‐timePLS/PLPexecutivedirectorpositioniscontinued,PLSandPLPwouldsharethestaffcosts,basedupontherelativeallocationofcostsbetweenPLSandPLP.TheanticipatedPLSbudgetshortfallinfiscalyear2016/17isalsotiedtothefactthatthere are staff costs not recovered through contracts with Califa or PLP. This isreflected in the fiscal year 2015/16 budget, which shows a $172,470 cost of PLSsalaries and benefits not recovered through the contracts with the other entities.This includes a full‐time Building Manager, half‐time Accountant, two part‐timeOffice Assistants and two part‐time Account Clerks. These costs have beenessentiallyfundedbyindirectgrantfeerevenues.TotheextentthatthesepositionsservePLPandCalifa activities, they shouldbepaid forbyPLP andCalifa. To theextent that these costs benefit PLAN activities, such costs should be recoveredthroughhighermembershipfeesforPLAN.CSL has informed Califa that within four years, CSL will eliminate the current$261,000grantreceivedbyCalifa,aswellasthe$165,000InfopeoplegrantindirectfeerevenuetobereceivedbyCalifabeginninginfiscalyear2015/16.Thesechangeswould not necessarily affect the fiscal year 2015/16 net Califa fiscal operationsbecause Califa could terminate the services of the contractors for the Califa grantactivities. The loss of these grant revenues from CSL highlights the uncertaintysurroundingthecontinuedreceiptofothergrantsandthesustainabilityofCalifaifitcontinues to dependupon such grants. At the same time, Califa fills an importantroleasastatewideentityinfulfillingCSLstatewidegoals,sotheremaybemotivationforCSLtocontinuefundingCalifa.BudgetFormatsandContentTheworkflow, priorities and structure of the organizations are not obvious in thebudgets of the three entities. While the budgets appear to properly account forsignificantrevenuesandexpenditures,thereislittlenarrativethataccompaniesthebudgetnumbers.Thebudgetdocumentsdonottellaneasy‐to‐understandstorynordo they clearly communicate the flow of funds between the three organizations.Someboardmembershavebeenunclearabouttheroleofeachentityandthishasledtoquestionsaboutinteractionsbetweentheentities.

RecommendedActions: The three separate PLS, PLP and Califa organizations should be retained.While there are overlaps in the areas they benefit, they serve separate


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constituencies in different geographical areas and no obvious materialbenefits would accrue should any of the organizations be eliminated ormergedwithothers.

CALIFA1.1 Califa should become an independent operating entity, create its own

employment base and hire its own executive director and simultaneouslytransfer the four existing PLS positions dedicated to Califa activities toconductthebusinessoperations,sothatitmayclearlyfocusonitsobjectiveofproviding services and products to libraries statewide and so that it mayfoster cutting edge activities like the CENIC Statewide Broadband program.By separating Califa operations fromPLS and PLP operations and decision‐making, this would clarify the roles of staff and allow Califa to actindependently.Theissuesofestablishingprioritiesandpotentialappearanceofconflictofinterestamongthethreeentitieswouldbeeliminated.PLS,PLPandCalifawould thenbe inaposition toapply forgrantswith less concernabout priorities among the three entities. They may even compete for thesamegrants.TheCalifaBoardofDirectorswouldneedtobecomeinvolvedinthisprocessandthecurrentPLP/PLS/CalifaExecutiveDirectorwouldneedtotakealeadroleinworkingwiththeCalifaBoardtofacilitatethistransition.The incremental costof employinganew full timeCalifa executivedirector,alongwithclericalsupport,wouldbeapproximately$170,000peryear.Atthesame time, the contract payment from Califa to PLS would decline byapproximately$110,000fortheproportionatecostoftheexecutivedirector.Califashouldconductarequestforproposals(RFP)forsupportservicessuchas technology support, accounting support and clerical support, and includePLS/PLPinthisRFPprocess,asthiscouldbemoreefficientthanhiringnewsupportstaff.

1.2 If Califa hires its own employees, it would need to explore options forpurchasing cost effective benefits for its employees. This may beaccomplishedby contractingwith the currentPLSbenefit serviceproviders.Ifthisisnotfeasible,healthinsuranceisalsoavailablefrominsurancebrokerssuch as CalNonprofits Insurance Services, which provides benefits tomanynon‐profitemployers,includingthosewithfewemployees.Thereisaprocesstogothroughtosatisfyinsurancecompanieswhentransferringemployeestoanemployer forwhichnopreviousemploymentexists,butbrokersarewellversed in the spin‐off process and can assist Califa in securing coverage.Therewouldalsobe theneed toestablish apersonnel system (which couldmirror theexistingPLSpersonnel system)and therewouldbeaminorcostassociatedwiththistransitionandongoingmanagement.TheimpactshouldbeminimaltoCalifaifthepersonnelsystemismanagedbyPLS/PLPandtheassociated costs are included in the PLS/PLP administrative contract withCalifa.


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1.3 Pro‐rated rent for space occupied by shared positions (assuming Califacontinues to contract with PLS/PLP for administrative support services)shouldbe recovered fromCalifa, aswell as full rent fordedicatedpositions.(See “RecommendationsConcerningAllocationsofCosts” foradiscussionofallocatingcosts forthesepositions.) IfPLS/PLPisnotthecontractentityforadministrativeandsupportservices,CalifashouldconsiderwhetheritshouldcontinuetorentspacefromPLS.

PLP1.4 PLP should become the operational entity, the “parent” or “umbrella”

organization, for thedeliveryofservicesto legacyandconsolidatedregionalcooperativelibrarysystems.ThemissionsofPLP,aswellasPLSandNLSarealigned.However,PLPservesabroaderregionalconstituency,andassuch,isbetterpositionedtobearegionalserviceprovider.WhilePLShashistoricallybeentheoperationalentity,itnolongermakessensetohaveregionallibraryservices provided by an organization thatwas designed for amuch smallergeographic service area and service population. PLP is a broader JPAwithmultiple JPA members. This configuration would be more effective inproviding services not only to PLS, but also to other PLPmember JPA’s, aswell as other consolidated regional cooperative library systems or legacysystemsnot currently servedbyPLP. Additionally, itwouldensure thekeyrole of the broader regional PLP Board for operational decision making.ExhibitFisaproposedorganizationchartoutliningthenewmodel.

1.5 The transition from PLS to PLP as the operational entity would entail thetransitionofexistingstafffromthecurrentemployertoanewone,aswellasestablishment of new fiscal systems, developed specifically for the regionalnetworkmodel. See Recommendation 1.2 above for additional informationontransitionissues.Ifstaffneedsassistanceinimplementingthistransition,PLS/PLPshouldbringinconsultantstoassistwiththisprocess.Whileitwillrequire some effort to complete the transition, the new organizationalstructurewill positionPLP in amuchmore effectivemanner to be a futurefocusedserviceproviderofconsolidatedregionalandlegacysystemservices.Additionally, the transfer of organizational responsibilities fromPLS to PLPwilleliminatethecurrentrevenue/costconflictwiththeNLScontracts,asNLSwouldonlycontractdirectlywithPLP.

1.6 Under the reorganized structure, PLP should employ a full time executivedirector. Akeychangedriver is thatPLPmembersare interested inhavingthe organization provide a broader range of services and this requirement,combined with future service model changes and additions, supports therecommendation for a full‐time executive director. This changedrivermayalsoresultinnewanddifferentstaffingmodels,asPLPcontinuestoalignitsstaffingcapacitieswithmemberserviceneeds.


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1.7 PLSshouldcontinuetoholdtitletothepropertyandleasespacetoPLPandCalifa.SeediscussionsaboveinRecommendationsregardingCalifaandbelowinSection4regardingrecommendationsonfinancingoftheproperty.

1.8 TheestablishmentofPLPastheoperatingentitywillsignificantlychangeoreliminate someor all of the cost allocationprocesses. At thepoint that thePLS/PLPtransitionoccurs,anewcostallocationplanwillneedtobecreated,particularlyifCalifacontractswithPLPforadministrativesupportservices.

1.9 Dependinguponthetransitionprocessesandresults,thePLPmembershipfeestructuremayneedtobereviewed.

1.10 PLANservicesshouldbemanagedbyPLP,andPLANstaffshouldbecomePLPstaff. While PLAN services are currently provided only to PLS members,positioningPLANaspartofthebroaderregionalserviceorganizationwouldallow potential future growth of shared system and technology relatedservicestootherconsolidatedorlegacyregionalsystemmembers.

1.11 SectionV.(a)ofthePLPJointPowersAgreementwouldneedtobeamended

toprovidethatPLP,ratherthanPLS,wouldserveasTreasurer/ControllerandfiscalagentforPLPinorderforPLPtobecometheoperationalentity,subjecttolegalreview.

1.12 The establishment of Califa as an independent operating entity should takeplacefirst,followedbythetransitionfromPLStoPLPasanoperatingentity.

PLS1.13 TodealwithanapproximateannualPLSbudgetshortfallof$300,000ifCalifa

hires its own executive director and PLS/PLP employs its own full‐timeexecutivedirector,PLSshouldconsidertakingacombinationofthefollowingactions: IdentifyhowmuchofitsemployeecostsnotcurrentlychargedtothePLP

andCalifa contractsareactuallyassociatedwithPLPandCalifa services,andthenincreasetheshareofcoststoPLPandCalifatocoverthosecosts(seeRecommendationsConcerningAllocationsofCostsbelow);

IncreasePLSmemberfeesbyamountsnotrecoveredfromPLPandCalifa; Identify additional existing PLAN Central costs not currently charged to

PLSmembers,ifany,andthenchargethosecoststomembers; Identifynewpotentialrevenuesources.

In theoryand inpractice,allPLScostsshouldeitherbeforservicesthatare

recoverable throughmemberbillingsorcontracts forservices,orberelatedtothebuildingandfinancedbyrentalincomeandcontractcharges.


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BudgetRecommendations1.14 Thebudgetspresentedto thePLS,PLPandCalifaboardsshould include the

followingadditionalelementstoenableabetterunderstandingoftheflowoffunds,allocationofresourcesandinterconnectednessofthethreebudgets.Ifstaffneedsassistance in implementing thesechanges,PLP/PLSshouldbringinconsultantstoassistwiththisprocess. A schedule should be added to each budget describing the number of

employees and contract staff associatedwith each entity. The scheduleshould show, for each position, the job title, the number of hoursemployed perweek and the number of hours scheduled towork undercontract for each entity receiving contract services (PLS, PLP, Califa andNLS).

Aclear summaryshouldbeadded foreachof the threeentitiesshowinghowmuchmoney is flowing from each to another entity, including PLS,PLP, Califa, NLS and the State of California (separating out state CLSAfundsandfederalpass‐thruLSTAfunds).

Program budgets should clarify revenues, expenditures and use of fundbalanceorreservesforeachprogram.

Budgets should include information on beginning and ending fundbalances and reserves, and trends showing increases and decreases infundbalancesandreservesoverrecentyears.

Anarrative shouldbe added to eachof the threebudgets explaining thepurposeof theentityand the services tobeprovidedandprojects tobeundertakenduringthebudgetyear.

Narratives should be added to each budget describing current financialcondition,financialtrends,financialrisks,financialopportunities,currentinitiativesfundedinthebudgetandthefocusofeachbudget.

Each of the budgets should be presented in a similar format for easierreadingandcomprehension.Forinstance,allthreebudgetsshouldhaveasummary budget schedule combining the activities of all programs anddivisions.Currently,onlythePLSbudgethasasummaryschedule.

1.15 Califa should not continue to rely upon use of its previously accumulated

capital to balance its budget, particularly because of the uncertainty ofcontinuedfundingfromtheState.ThebudgetshortfallforCalifa(basedonthecurrentfiscalyear2015/16budget)isprojectedtobe$477,000ifCalifadoesnot become an independent organization, or $647,000 if Califa hires a full‐timeexecutivedirector.Optionstobalancethebudgetwouldincludereducingor eliminating the ENKI Library and Safari Database subsidies and/orincreasingmembershipfees.

1.16 ThePLP andCalifa boards should each adopt a fundbalance reservepolicyandadoptaspecifictargetfundbalanceequaltoanamountbetween25%and30% of its annual operating expenditure budget. The Government Finance


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Officers Association (GFOA) recommends that entitiesmaintain aminimumfund balance equal to at least 2 months (or 17%) of annual expenditures.However,becauseofthecurrentenvironmentwheresomegrantrevenuesareuncertain,thethreeentitiesshouldhavebalancesonhandbetween25%and30% of annual budgeted operating expenditures, excluding member pass‐throughcostsandexcludingsignificantcostsassociatedwithgrantrevenueswheretheentityservesonlyasafiscalagentandnotasaproviderofservices.SpecificfundbalancetargetsarerecommendedinTable7. ThetargetswerecalculatedusingthelatestactualorprojectedbudgetinformationprovidedbyPLSstaff,butexcluding$1,800,000forPLSforPLANreimbursablecosts,andexcluding,forCalifa,$3,500,000invendorpass‐throughcostsand$2,500,000in pass‐through grant costs. The current Califa “operating reserve” of$225,000wouldbepartofthetargetfundbalance.

Table7:RecommendedFundBalanceTargets RecommendedFund

BalanceTargetProjectedFundBalance

atJune30,2016PLS $900,000 $1,737,241PLP $400,000 $1,052,399Califa $1,200,000 $1,553,782

2. RECOMMENDATIONSCONCERNINGALLOCATIONOFCOSTS

CurrentPractice/Analysis Currently, PLS employs approximately 23 full‐time equivalent (FTE) positions, ofwhich 12.6 FTE are administrative positions. Two of the authorized positions forCalifa (the Accounting and Administrative Coordinator and theMembership/OutreachManager)arenotcurrentlyfilled.The administrative positions and the current budgeted allocations to the threeentitiesarepresentedinTable8:


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Table8:BudgetedPositionAllocationsClassification WorkWeek PLP Califa PLSChiefExecutiveOfficer Fulltime 52.5% 47.5% ChiefFinancialOfficer .85 55.0% 30.0% OfficeManager Fulltime 30.0% 70.0% BuildingManager Fulltime 100%Secretary .75 37.5% 37.5% OfficeAssistant .45 24.0% 21.0%OfficeAssistant .45 45.0%Accountant .25 20.0% 5.0% 50.0%AccountClerk .60 60.0%AccountClerk .80 56.0% 24.0%ProjectManager Fulltime 100% OperationManager Fulltime 100% Accounting/AdminCoordinator Fulltime 100% Membership/OutreachMgr. Fulltime 100% ITManager/Support .10 10.0% PLS staff hasbegun to track theactual staff time spent for eachentity for someoftheseadministrativepositions.ActualtimespentoneachentityfortheperiodJulytoOctober2015ispresentedinTable9:Table9:ActualPositionTimeAllocationsClassification

PLP/NorthNet

Califa/Infopeople/

CENIC PLSMulti‐System*

ChiefExecutiveOfficer n/a n/a n/a n/aChiefFinancialOfficer 30.34% 36.26% 20.86% 12.54%OfficeManager 36.75% 20.46% 11.44% 31.35%BuildingManager 29.68% 12.96% 36.60% 20.76%Secretary 13.32% 16.88% 33.06% 36.74%OfficeAssistant 15.71% 44.17% 40.12% 0.00%OfficeAssistant 22.72% 26.03% 36.87% 14.38%Accountant 7.44% 50.35% 27.26% 14.95%AccountClerk 15.41% 60.93% 22.94% 0.72%AccountClerk 23.20% 28.79% 32.53% 15.48%*Multi‐system time represents time spent on activities such as staffmeetings andpayrollprocessthatarenotdirectlyrelatedtooneentity.The above Tables show that time is being spent differently from time chargedthrough the allocation of positions in the budget and contracts. For instance, theOfficeManagerpositionisbudgetedtospend30%oftimeonPLPactivitiesand70%ofthetimeonCalifaactivities,whereastheactualtimetrackedshows36.75%oftimeon PLP activities and 20.46%of time on Califa activities, in addition to 11.44%oftime on PLS activities (each of whichwould be adjusted upwardwhen themulti‐systemtimeisallocatedproportionatelytothethreeentities).However,theperiod


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tracked is only for a portion of a fiscal year andmay not reflect the relative timespentduringtheentireannualprogramandaccountingcycle.Itisnotsurprisingthatactual timespentwoulddiffer fromallocationsof time,because timehasnotbeenpreviouslytrackedinanorganizedmanner.

RecommendedActions: 2.1 It is recommended that all administrative staff track their time by

contract/entityandthatfuturebudgetsandcontractsbebasedontimespentonwork related to eachentity, including consolidated regional systems likeNorthNet,asmeasuredbytimelogs.Timeshouldbetrackedforanentireyeartofullycapturetheebbandflowofprojectsandworkdemands.Unallocatedmulti‐systemtimeshouldbeallocatedbacktoeachentityintheratioofdirecttime spent for eachposition foroneentity as compared to totaldirect timespentonallentities,undertheassumptionthatmulti‐systemtimebenefitsallentitiesinthesameratio.[For instance, if the Accountant spent an average of 10 hours on PLP perweek, 15 hours on Califa, 5 hours on PLS (for 30 hours of direct time perweek)and10hoursonmulti‐systemactivities,thetenhoursofmulti‐systemtimewouldbeallocatedbacktoPLP(10/30x10hours=3.33hours),toCalifa(15/30x10hours=5hours)andtoPLS (5/30 x 10 hours = 1.67 hours).ThentotalweeklyaveragehoursforPLPwouldbe(10+3.33=13.33hours),hoursforCalifawouldbe(15+5=20hours)andhoursforPLSwouldbe(5+1.67=6.67hours).]

2.2 All entities should obtain an outside cost allocation plan in the future toaccurately allocate and charge costs for services among the threeorganizations(ortwoifCalifaisacompletelyseparateentity).


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3. RECOMMENDATIONSCONCERNINGMEMBERSHIP/FISCALAGENCYFEES

CurrentPractices

PLSFiscalAgencyFees PLSrecoversfromitsmembersandcontractorsthefollowingannualamounts:Table10:PLSMemberPaymentsFY2015/16SourceofFunds MemberPaymentsOtheragencies:Califacontract$730,950PLPcontract$352,883NorthNetservices$83,510Deliveryservices(SVLS,CLSA,etc.)$66,000Califaservermaintenance$15,034Other$9,000

$1,257,377

PLANsharedcost(allmembers) $1,280,626PLANreimbursablecost(pass‐thrupaidbyindividualmembers) $1,800,000PLANrecoverycost $3,500Communication&deliverysharedcost(all members) $382,144Workshopfees $4,000Rentalincome:PLP$35,000PLAN$25,000

$60,000

PLS allocates its PLAN membership costs to the seven member cities, San MateoCountyand theSanMateoCountyCommunityCollegeDistrict (SMCCCD)primarilyon the basis of resident circulation and technology. A base fee is charged to alljurisdictions,with a higher base fee for SMCCCD than for non‐academicmembers.Additional costs are allocated to all entities other than SMCCCD on the basis ofresident circulation (50%)and technology (50%withequalweightinggiven to thenumberofnetworkdevices,thenumberofwiredPC’sandtheaveragenumberofWi‐Fiusersperday).ThisformulawasapprovedinFebruary2013andisbeingphasedinthroughfiscalyear2016/17.Theformulaappearsreasonableasitincludesabasefeeandallocatesmostcostsonthebasisofmemberuse(circulationandtechnology).PLSallocatesitsPLANdeliverycoststothesevenmembercities,SanMateoCountyandtheSMCCCDprimarilyonthebasisof thenumberofdeliverystops(25%)andvolume(75%).Again,thisappearstobeareasonableallocationtiedtouserbenefit.SpecificPLScostsbenefittingindividualmembersareseparatelychargeddirectlytothosemembers.Rental income shown in Table 10 is separately discussed in “RecommendationsConcerningBuildingOwnership.”


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PLPFiscalAgencyFees PLPrecoversfromitsmembersandcontractorsthefollowingannualamounts:Table11:PLPMemberPaymentsFY2015/16SourceofFunds MemberPaymentsMemberparticipationfees $550,762Otheragencies(NorthNetadmincontract) $134,641Reimbursablefrommembers $175,000Workshopfees $8,000PLP currently allocates itsmembership feesona tieredbasis, basedon the sizeofeachmember’sbudget.Theschedulesetsfeesforpubliclibrarysystemsatabasefeeof $5,641 (to recover 30%of costs). An additional fee is based on the size of theagency’sbudget,withaminimumof$2,000andamaximumof$55,000.Aseparateschedulesetsfeesforacademiclibraries,withnobasefeeandwithaminimumfeeof$1,500andamaximumfeeof$5,000,basedonthesizeoftheagency’sbudget.Thisformulawasdevelopedwithstakeholderinputandwasphasedinoverseveralyears.Specific costs benefitting individual members are separately charged directly tothosemembers.

CalifaFiscalAgencyFees Califarecoversfromitsmembersthefollowingannualamounts:Table12:CalifaMemberPaymentsFY2015/16SourceofFunds MemberPaymentsCalifamembershipfees $68,000Workshopfees $13,000Incomefromproducts/vendors $155,000Califa currently allocates its membership fees based on the number of member‐agency employees,with fees ranging from$100 to $500, except that consortia arecharged$150.Thisappearstobeareasonablefeestructure;itenablesmemberstoacquirebrokeredlibraryservicesandmaterialsatminimalcost.Califahasbeenableto keep its member fees reasonable because it has brought in other supportingrevenuefromgrantindirectfeesandincomefromproducts/vendors.

RecommendedActions: 3.1 Membershipfeeallocationsshouldremainasstructured.Califamembership

feeshaveremained lowduetothesubsidyofLSTAfundsandthereceiptofother revenue. However, if it is determined that PLS, PLP or Califamembership fees are not fully recovering PLS, PLP or Califa costs,respectively,andifothermethodstobalancethebudgetsarenotproductive,then membership fees should be increased to recover more of the costsbenefittingthosemembers,andtobalancethebudget.Califashouldcoveritsbase operating costs through membership fees and use other revenues tocovervariablecosts.


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4. RECOMMENDATIONSCONCERNINGBUILDINGOWNERSHIPANDMORTGAGE

CurrentPracticesandCondition:

OwnershipandUse PLS currently holds title to the property and the building that houses theadministrativeofficesofPLS,PLPandCalifa.ThebuildingcurrentlyhastenantscomprisedofPLP,PLAN(partofPLS),Califaandfiveprivatebusinesses. Rent is charged toPLP in theamountof$35,000peryearand to PLAN in the amount of $25,000 per year. Rent is charged to the five non‐library tenants for a total of approximately $216,000per year. Rents range from$1.92to$2.85persquarefoot.RentisnotchargedtoCalifaforuseofspace;insteada$35,523overheadpayment,basedon5%ofstaffcostsprovidedbyPLStoCalifaischarged to Califa under the PLS/Califa contract, which has been considered toincludetheuseofspace.When commercial leases expire, PLS staff checks market conditions so that theappropriate rent is included in leases. (See “Recommended Actions 1.4” forrecommendations concerning recovery of costs for the use of space by entities towhichPLSprovidesservices).Totalleasablespaceamountsto13,245squarefeet.PLSadministrationandthePLSmeeting room inhabit a combined 25% of the space; PLP and PLAN inhabit acombined17%ofthespaceandthefivebusinessesinhabittheremaining58%ofthespace.SincePLS owns title to the real estate, neitherPLPnorCalifa have any ownershipstakeintheproperty.Thedeedoftrustforthemortgagehasa“dueonsale–consentbylender”clausethatallowsthelendertocallthefullamountdueuponthesaleortransferoftheproperty.Therefore,atransferofownershipmaytriggertheneedforanewmortgage,atnobetter thantheexistingratesandterm,andwouldservenoparticular purpose. In addition, shared ownership could lead to disagreementsamongownersregardingrealestatemanagementoftheproperty.

Mortgage ThebuildingwaspurchasedbyPLSin2002for$4,750,000withadownpaymentof$1,500,000 and a mortgage of $3,250,000. The property was refinanced to takeadvantage of lower interest rates on February 15, 2012, with a new loan of$2,250,000,84 initialmonthlypaymentsof$14,234.61throughFebruary15,2019,andaninitial interestrateof4.5%. TheinterestratebecomesavariablerateafterFebruary 15, 2019, and will be based upon the 8‐year Federal Home Loan BankClassicAdvanceRateplusamarginof2.25%.Thenext95payments,fromMarch15,2019 through January15, 2027are scheduled tobe $14,335.44 each, assuming an


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effectiveinterestrateof4.62%duringthatperiodoftime(althoughthatinterestrateand thesemonthlypaymentswould change if theFederalHomeLoanBankClassicAdvanceRateincreases).TheinterestrateineffectafterFebruary15,2019,cannotbelessthan4.5%andcannotbemorethan13.0%. Aroughestimateofthe“worstcase”monthlypayment, if interestratesdidclimbto13%afterFebruary15,2019,wouldbe$21,000permonth(or$252,000)peryear.Aballoonpaymentof $781,033.82 (assumingnoprepaymentshavebeenmade) isdueon the last paymentdate, February15, 2027. PLShasnot addressedhow thisballoonpaymentwouldbe funded in2027,and if themortgage isnotrenegotiatedorrefinancedin2019,afundingsystemwouldneedtobeput intoplacetopaytheballoonpaymentin2027.Themortgageallowsforprepaymentsontheloan.Theprepaymentpenaltyfortheremaining loan period between now and February 15, 2019 is 1% of the amountprepaid. However, PLS may prepay principal up to 20% annually without aprepaymentpenalty.PLS has been making additional principal payments without paying prepaymentpenalties as allowed under the terms of the loan. During fiscal year 2014/15, PLSprepaidmore than$264,000 inprincipal. PLS iscurrentlymakingprepaymentsof$7,765.39 each month. As of September 15, 2015, PLS owed $1,740,694.17 inprincipal.PLSstaffrecentlyresearchedthefeasibilityofrefinancingthemortgageagaintotakeadvantage of reducing the interest rate and savingmoney, but the available termswerenotbetterthantheexistingterms.OptionsavailabletoPLSconcerningpaymentofthemortgageinclude:

1) Makethescheduledpaymentsonly,withtheriskofhigherinterestratesafterFebruary 2019 and the continued requirement of a balloon payment inFebruary2027.ThisapproachwouldmeanthatPLSwouldstopmakingextraprincipalpaymentsof$7,765.39eachmonth.

2) Continue making extra principal payments of $7,765.39 per month, whichwouldreducetheoverallprincipalamount,reduce interestpaymentsonthemortgage, reduce the impact of the interest rate risk after the interest ratebecomes variable in February 2019, and reduce the amount of the balloonpayment due in February 2027. In addition, making the extra paymentsallowsPLS touse idle cash topayoff anobligation costing4.5% in interestwhen it isonlyearning0.3%onthe idlecash(although,as interestratesonidlecashincreaseovertime,thisinterestratespreadwillnarrow).


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3) Payoff asmuchof the loanbalance as possible using idle cash in February2019whenthereisnoprepaymentpenalty,tomitigatethepotentialimpactofan increase in interest rates. Thiswould allowPLS to improve its financialcondition by using idle cash currently earning 0.3% interest to pay off anobligationcosting4.5%in interest. However, thisoptionwoulddeplete idlePLScashatthatpointintime.

4) RefinancetheloanafterFebruary2019toeliminatevariableinterestcostsatatimewhentheprepaymentpenaltyonafullloanpayoffwouldbezero.Thefeasibilityandviabilityofthisoptionwoulddependontheinterestratesandotherloantermsavailableatthattime.

5) Payprincipaldowntothemaximumextentpossibleassoonaspossible,whileavoiding theprepaymentpenaltyandwhilemaintaining the targetPLS fundbalanceproposedinRecommendedAction1.16.ItwouldbeprudentforPLStouseidlecashtopayoffanobligationcosting4.5%ininterestratherthantoinvestthiscashandonlyearn0.3%ininterest.Sincetheoutstandingbalanceontheloanisabout$1.7millionandtheloanallowsforannualprepaymentsofupto20%oftheprincipalbalancewithoutpenalty,PLScouldmakeuptoapproximately$340,000inextraprincipalpaymentsthisyear,avoidapenaltyand still maintain a fund balance in excess of the reserve target. (Otherfinancial issuesdiscussed inthisReportwouldalsoneedtobeaddressedtomaintaintherecommendedfundbalance.)

RecommendedActions: 4.1 PLSshouldcontinuetoholdtitletotherealestate.Thebuildingrepresentsan

investmentforPLS.Thereisnocompellingreasontotransfertitle,anddoingsowould likely triggeranewmortgagewith ratesand terms thatare likelynot better than the existing mortgage. In addition, a transfer among theownerscouldcreateopportunitiesfordisagreementconcerningtheuseoftheproperty. If PLS determined that it is more economical to move itsadministrative operations and/or PLAN operations to another location andpayrentatthenewlocation,whilerentingoutitscurrentspaceintheexistingbuilding,thatoptionwouldexist.

4.2 PLS should prepay principal to the maximum extent possible as soon as

possible, while avoiding the prepayment penalty and while maintaining atarget fund balance recommended at $900,000. This would allow PLS toimprove its financial condition by using idle cash to pay off an obligationcosting 4.5% in interestwhen it is only earning 0.3%on the idle cash, andallowPLStomaintainareasonablereservefund.

4.3 PLSshouldagainexplorerefinancingtheexistingloaninFebruary2019,once

theprepaymentpenaltynolongerapplies.Thevariableratemortgageandtheballoonpaymenttermsshouldberenegotiated,ifpossible.


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4.4 IntheeventthatPLSdoesnotrenegotiateorrefinancethe loaninFebruary

2019,itshoulddevelopafundingstrategyandmechanismtopaytheballoonpaymentduein2027.Nosuchstrategyexistsatthecurrenttime.

4.5 AcontractbetweenCalifaandPLSshouldclearlydescribetheamountofrent

tobepaidbyCalifatoPLS.Therentchargedshouldincludetheuseofspacefor both Califa staff (including existing four Califa assigned staff, newCalifaexecutivedirectorandnewCalifaclericalstaff)andapro‐rataportionofanyPLS/PLPstaffwhoworkpartlyonCalifasupportactivities.

4.6 PLSshouldobtainacurrentappraisaloftherealestatesothatitisawareof

thepropertyvalueandthePLSequityintheproperty.


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ExhibitA–Interviews Duringtheevaluation, interviewsandmeetingswereheldwithPLS,PLPandCalifarepresentatives. Appreciation is expressed to the following individuals for theircooperation,insightsandassistanceinthisevaluation. LindaCrowe CalifaContractorandformerPLSExecutiveDirectorAnne‐MarieDespain PLSBoardChairandSanMateoCountyLibraryDirectorSusanHildreth PLSExecutiveDirector,PLPChiefExecutiveOfficerand CalifaExecutiveDirectorTerryJackson PLSContractormanagingPLPPaulaMacKinnon CalifaAssistantDirectorDonnaTruong ChiefFinancialOfficer,PLS,PLPandCalifaEleanorUhlinger CalifaBoardPresidentandNavalPostGraduateSchool UniversityLibrarian

EXHIBIT B

PENINSULA LIBRARY SYSTEM

ORGANIZATION CHART

Established under CLSA as a JPA in 1972

Administrative CouncilExecutive Director

Administration

Operations

PLAN Member Services Delivery

HR

Payroll & Benefits Budget

Finance

Bill/Invoice Processing

PLS provides administration and all staff support in order to fulfill contractual obligations to PLP, BALIS, MOBAC, SVLS, and NorthNet, (all CLSA Library Systems); CALIFA; and other entities such as the California State Library and Infopeople.

Organizational and Governance Description

Contract Management Infopeople CLSA Systems CALIFA State Library (CSL)

EXHIBIT C

PACIFIC LIBRARY PARTNERSHIP

ORGANIZATION CHART

Established under CLSA as a JPA in 2009

Executive CommitteeAdministrative Council

CEO

PLS (JPA)

Managing Partner

NLS (JPA)

Contractee

NBLS MVLS NSLS

BALIS

Partner (JPA)

MOBAC

Partner (JPA)

SVLS

Partner (JPA)

PLS provides administration and all staff support in order to fulfill contractual obligations to PLP, BALIS, MOBAC, SVLS, and NorthNet, (all CLSA Library Systems); CALIFA; and other entities such as the California State Library and Infopeople.


EXHIBIT D

CALIFA

ORGANIZATION CHART


CALIFA contracts with PLS to provide the necessary administration and staff, human resources support, financial support, including budget and audit compliance, contract administration and invoicing/bill paying. The CALIFA Board of Directors approves its annual budget and its contract with PLS.

Created by PLS with LSTA funding in 2002/03. CALIFA was established as an independent 501(c)3 in 2004.

Board of Directors

Executive Director Partnerships SCLC CSL Contra Costa County Library

R&D / Product Development ENKI DPLA Administration

HRPayroll & Benefits

BudgetAudit Compliance

Bill/InvoiceProcessing

Contract Management LSTA (distributed by CSL) Direct Federal (Dartmouth/NSF)Project Management

Zip Books Books 4 U 21st Century Library

EXHIBIT E

EXISTING STAFF ORGANIZATION CHART

Updated: 2016

Administration Accounting

Marci HaghniaAccountant

Califa, NLS, PLP and PLS

Susan HildrethExecutive Director


Monica SchultzIT Director

PLS

Donna TruongChief Finance Officer


PLAN

Alex GingerichAdmin ClerkCalifa, NLS, PLP and PLS

Wendy CaoOffice Manager


Kevin TeradaBuilding & Database Manager


Wayne WalkerCalifa Operations Manager

Paula MacKinnonCalifa Assistant Director

Innov/Dev

Vicki BrettSecretary IICalifa, NLS, PLP and PLS

Califa Member Services/Outreach Manager

Angel KaoAccount Clerk IINLS, PLP and PLS

Kelly CaoAccount Clerk ICalifa and PLP

John BoggsDatabase Manager IIPLS

Jonathan LumNetwork AdministratorPLS

Josh ShrefflerSystems EngineerPLS

John SarmientoNetwork EngineerPLS

Kristen HuiAdmin ClerkCalifa, NLS, PLP and PLS

John FelschSenior DriverPLP and PLS

Jeff BreitensteinDriver II

Bill GalloDriver

Ben SorianoSorter

Dennis LindroosSorter

Dennis KongSorter

Gary BrittonSorter

Delivery

EXHIBIT F

PROPOSED NEW PLP ORGANIZATIONAL MODEL

PROPOSED NEW PLP ORGANIZATIONAL MODEL

Pacific Library Partnership

Executive Committee

Administrtative Council

Executive Director

PLP Staff

REGIONAL

(Program and administrative support service s,

e.g. CLSA system services, training)

Pacific Library Partnership

(Regional System Services)

BALIS

MOBAC

PLS

SVLS

NorthNet Library System

MVLS

NBLS

NSLS

LOCAL

(Program and administrative support services for legacy system services)

PLAN

CONTRACT

(Administrative support services for non‐CLSA organizations, e.g. finance, IT, HR)

CALIFA

peninsula library system analysis of options for the ... · 1. organizational structure under the...

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