Finances

One of the many reasons public libraries like to collaborate with “Friends” groups on fundraising is the added flexibility Friends groups (and other non-governmental groups) have when it comes to money. For example, Friends groups:

• Can buy goods and services without competitive bidding;
• Can make decisions about money whose records are not subject to the Freedom of Information Law; and
• Can invest money without following the restrictions of the General Municipal Law (GML).

It’s this last one that impacts the question. Municipal, school district, and special district public libraries have to follow the GML’s requirements for investment of public money, and that takes a lot of options off the table.

This prohibition is so complete, it even stops public libraries from keeping donated shares of stock that don’t meet the requirements. Any stock that is received as a gift has to be liquidated (sold) and replaced with either cold, hard cash or a compliant investment.

Except investments in a “true trust.”

What is a true trust? For purposes of this question, a true trust is a gift where the beneficiary getting the money has ZERO control or ownership of the asset generating a payment but gets the benefit of the gift.

Here is an example:

After a 70 years as a successful designer of board games and a shrewd investor, Ms. Superflua Affluence dies. In her large and complicated will, Ms. Affluence leaves her local public library roughly one million dollars in shares of stock. However, not trusting the library board to manage the money, Ms. Affluence decides not give the library the money outright. Instead, Ms. Affluence puts her lawyer, Estee T. Planning III, in charge of the stock shares as a trustee. Ms. Affluence (from beyond the grave) further specifies that the library will never, ever, ever actually own the stock outright, but will get the benefit of the stock for ten years. After ten years of the library getting whatever revenue is generated, the stock shares will go to the local cat shelter, Whisker Pops, who will own it outright.[1]

That is a “true trust.”

In a true trust, the assets are never under the control of the library, but the library gets the benefit of the legacy. This is allowed by the interaction of two laws: General Municipal Law Section 11 (which put the rules about investments in place) and Estates Powers & Trusts Law Section 11-2.2 (which creates the powers of trustees).

Where does this complicated lore come from? In 1995, the Office of the State Comptroller issued Opinion No. 95-30, which set all this in motion. The Comptroller did not use a cat analogy but set things out pretty plainly: public libraries must follow the GML’s restrictions on investments, but a “true trust” managed under Estates, Powers & Trusts Law (EPTL) Section 11-2.2 just has to follow the EPTL’s requirements.

The reason the Comptroller had to lay it all out was that the law had recently been changed (in 1992) to specify that public libraries were subject to GML Section 11. Several times prior to the change, the Comptroller had clearly stated that public libraries could keep donated investments. When the Comptroller laid out the new requirements in 1995, he stated, “other prior opinions are hereby superseded to the extent inconsistent with the above.”[2]

Since three decades is a pretty short time span in Libraryland, it is possible that some public libraries still have investments that don’t meet the requirements.

If a public library finds that this is the case, this is a good one to bring to a lawyer. Depending on how the stocks were acquired, they could be in a trust; if they need to be converted, it is more important that it be done properly than quickly. This is not one to handle without experienced advice and guidance.

Thank you for a great question on a complex but critical bit of law!

A line of credit and a credit card are like a paint roller and a paint brush—they might perform the same basic function, but they work differently.

A line of credit or “revolving credit” gives a person or entity the ability to borrow money, without the borrowed money being tied to a particular purchase.

A credit card, on the other hand, is generally for the use of borrowed money to make particular purchases, with each purchase itemized on a borrowing record (i.e., the credit card bill).

This difference is why, generally, an entity subject to New York State’s Local Finance Law[1] must steer clear of the less controlled “roller” effect of a “line of credit,” but can—working with the more precise “brush” of making itemized purchases—use a credit card.

This difference is why some municipal entities can use credit cards but not a line of credit. As the New York State Comptroller put it, rather quaintly, in 1979:[2]

This Departments has expressed the opinion several times that a municipality may not use a multi-purpose credit card (such as VISA) issued by one of the major commercial credit card firms…

Our primary concern in those opinions was that the use of a credit card of this type involves the use of credit of a third party that is... not authorized by the Local Finance Law (Local Finance Law, §§ 20.00, 176.00).

Upon re-examination of this subject, this Department now takes the position that the provisions of section 20.00 and 176.00 of the Local Finance Law were not intended to apply to this type of credit situation. Accordingly, if a “multi-purpose” credit card company is able to comply with the certification of claim requirements… it may issue cards in the name of a town for the use of its employees and officers for, among other things, reimbursable travel expenses incurred in the performance of their duties, provided that claims submitted by such company are paid within a reasonable time to avoid incurring unnecessary service or interest charges. Anything to the contrary, in any prior opinions of this Department is hereby superseded.

So why might a library or municipality be under the impression they can’t use credit? The distinction between “line of credit” and “credit card” isn’t always drawn so clearly. Check out this Comptroller opinion from 1988:[3]

In our opinion, the “line of credit” transaction described above neither complies with the provisions of the Local Finance Law applicable to the issuance of capital notes nor with the provisions applicable to any other type of obligation authorized by section 20.00. Accordingly, we conclude that a line of credit is not an authorized type of municipal debt…

If there is any doubt about the ability of entities subject to the Local Finance Law using credit cards in 2024, we can dispel that doubt by visiting the State Comptroller’s web site, where it says:

Credit Cards

Your local government or school district may authorize designated employees to use a credit card issued in the name of the local government or school district to pay for certain travel and conference expenses.

... and here, where it says:

Cost-Saving Ideas: Credit Card Accountability - Minimizing the Risk of Error, Misuse and Fraud

When employees need to make small one-time purchases, it is often more convenient for them to pay with a credit card than to fill out a procurement request form and wait for it to be approved. This also saves time and energy for procurement staff.

As the member writes, use of credit cards is of course not without restrictions. More information on the “strong policy” entities who must follow local finance law can be found here.

Thank you for an interesting question!