Practical Implications of the ALA Operating Agreement (ALA Policy 6.4: Divisions)

1. Practical Implications of the ALA Operating Agreement (ALA Policy 6.4: Divisions) An Overview of the PLA/ALA Business Relationship

2. Legal Status • ALA is one legal entity of which PLA is a part • ALA was incorporated in 1879 in state of Massachusetts • ALA is a 501(c)3 • charitable, educational nonprofit organization for the public benefit • not a “professional association” • limits in terms of lobbying and political activity (may not work on behalf of a particular candidate) • Tax exempt from some taxes—on revenue from dues, conferences, sales of books, etc. • Pay taxes on advertising revenue

3. Division Authority • ALA divisions are specifically given the “authority to act for the ALA as a whole on any matter determined by Council to be the responsibility of the division.” (ALA Bylaws, Article VI)  • Only members of ALA may belong to PLA • ALA Organizational Structure • ALA Council is governing body of the Association • Council may delegate responsibilities to the divisions and determines all policies of the Association • ALA Executive Board includes the officers (president, president-elect, treasurer), immediate past president, and eight members elected by Council from among its members

4. Brief History of Operating Policies • 1952—grants were made to ALA divisions from ALA endowment capital to enable them to have executive secretaries, and to develop and maintain more effective programs • 1970s—ALA funded divisions from income derived from division dues and other revenue • 1976—dues transition document ended inclusion of division membership within ALA Basic dues • Divisions assumed financial responsibility for the cost of their staff, publications and program, with the ALA General Fund assuming responsibility for a defined set of “indirect cost” items, including office space, administrative services, and other kinds of expenses • 1982—“Operating Agreement Between ALA and Its Membership Divisions” The operating agreement is the contract that outlines the ‘business relationship’ between ALA and the Divisions • 1989—Revised “Operating Agreement,” currently in force

5. Operating Agreement—Guiding Principles • ALA will provide general administrative, financial, membership and publishing services to the Divisions • Divisions assume financial responsibility for their staff and programs, including some indirect costs (overhead) for Division activities and services provided by ALA • Divisions are assessed overhead on certain revenues as means to share in the ongoing operational costs of ALA

6. Key Points of the Operating Agreement The Operating Agreement defines the relationship between ALA and the Divisions, including financial responsibility. Specifically, the Operating Agreement: • Reflects current organizational values of ALA • Provides a process for implementation and ongoing review • Provides a list of ALA services which must be used by divisions • Spells out ALA fiscal policies and procedures • Describes approval process for Division national conferences • Spells out practices related to ALA Annual Conference and Midwinter Meeting

7. Practical Implications for Divisions Divisions have the ability to: • Establish their own dues structure • Conduct strategic planning in their area of responsibility • Seek external funding to pursue and enhance priorities and projects • Purchase furniture and equipment beyond the basics provided by ALA • Accumulate net revenues (net asset balance) • Establish or add to existing endowments (long term investment) • Hold a national conference, institute, seminar, preconference

8. Financial Responsibilities Divisions receive these ALA services at no direct cost and PLA must use these exclusively: • Human Resources • Membership Services • Fiscal Services • Information Technology and Telephone (ITTS) • Legal Counsel • Office space • Utilities • Library Services and Archives • Rights and permissions • Basic furniture/equipment

9. Financial Responsibilities Divisions receive some ALA services at actual, or direct, cost (as defined in the Operational Practices): • Specialized data processing • Maintenance for equipment purchased by divisions • Printing and duplication • Certain telephone services • Postage; subscription and order billing services • Central production unit services • Marketing services

10. Specifics Related to ALA-provided Services:Staffing • Personnel • PLA budget supports all PLA staff salaries and benefits • PLA adheres to ALA personnel policies, including salary structure and hiring process • PLA Executive Director is responsible to the ALA Senior Associate Executive Director as well as the PLA Board of Directors • PLA Executive Director and PLA staff serve on a variety of internal working groups related to ALA management and services

11. Specifics Related to ALA-provided Services: Conferences • ALA and PLA Conferences • ALA provides space for meetings/programs and equipment at ALA Midwinter Meetings and Annual Conferences. Equipment for pre-conferences/institutes is charged to the Division • ALA pays for PLA staff travel to Midwinter and Annual Conference • PLA provides programming for ALA conferences • PLA must receive approval from the ALA Executive Board to hold National Conference at least two years prior to the event; Divisions are prohibited from conducting business meetings at National Conferences • PLA must notify state and regional ALA chapters in contiguous states about intent to hold a national conference and seek their cooperation four months prior to the proposal going before the ALA Board

12. Specifics Related to ALA-provided Services: ALA Offices • Services of ALA Offices • ALA reviews press releases for PLA • ALA provides services of staff in Executive Office, Washington Office, and other ALA’s offices and library • ALA Publishing • ALA manages rights and permissions • PLA may purchase production/distribution services from ALA • PLA may offer its books to ALA or may self-publish • PLA must offer books to ALA before going to outside publisher

13. Specifics Related to ALA-provided Services: Financial • The PLA budget process is tied to ALA timelines and policies • The ALA Board approves the PLA budget after the PLA Board has approved it at Annual Conference • PLA pays ALA direct costs for IT services, equipment, printing, long distance phone calls, and supplies other than “basic” • ALA charges an indirect cost/overhead rate on non-dues revenue. For the 2010 National Conference, PLA paid $678,027 in overhead • Divisions may build a fund balance, i.e., accumulate and carry forward revenue. PLA fund balance at the start of FY 2012 is $970,000 • Divisions do not receive interest on fund balances

14. Specifics Related to ALA-provided Services: Finances (cont’d) • Divisions may establish an endowment once the division has met its minimum recommended fund balance (sum of 33% of average operating expense, based on last 4 years). • Divisions retain the interest income from their endowment; it may be reinvested in endowment or transferred to operating • Endowment principal may not be removed without significant penalty • PLA Board voted to establish an endowment at the 2000 Annual Conference. PLA endowment at end of FY 2011 is $989,355

15. Specifics Related to ALA-provided Services: Finances (cont’d) • 100% of the overhead rate is assessed on conference revenue and 50% of the overhead rate on publication revenue • Currently, web courses are considered “publications” and are charged at 50% of the overhead rate • Overhead exempt revenue includes: dues, donations, interest income, ALA royalties, separately ticketed events at conferences (e.g., meal functions), and advertising in those publications provided to division members as a perquisite of membership • Divisions pay ALA $1/ticket on ticketed eventsUnrelated business income tax (UBIT) is paid by PLA on advertising revenue • The ALA overhead rate for FY2012 is 25.5% on gross revenue.

16. Questions? The financial and operational structure of ALA and its Divisions is complex and operational practices continue to evolve. If you have any questions about the information presented here or PLA operations or finances in general, please don’t hesitate to contact: Barb Macikas, PLA Executive Director Phone: 312.280.5028 Email: bmacikas@ala.org Thank you for your support of PLA and public libraries.