Earned Income Committee Summary - Final

Library Earned Income Activities

Summary Finding

By Earned Income Committee

22 September 2005

The Earned Income Committee (EIC) was charged by the Library’s Executive Council (LEC) to independently review current and proposed income generating activities in the Libraries and to report back their findings. The objective was to provide an independent fiscal analysis. In order to remain objective and to secure the unthreatened cooperation of the individuals involved in the activities, the EIC was initially not charged with making recommendations regarding the value or continuation of any of the activities. Due either to the size, scope and/or complexity of the activity, the EIC did not include in its current review ILL, Library Fines, Photocopy and Room Rentals.

The activities reviewed for this report include the Gifts-in-Kind, EPSL and Judaic book sales, earnings from EBSCO Lending, Personal Binding, Online Gift Shop and the various earned income activities in Nonprint, PAL and Archives & Manuscripts. During the summer and fall of 2004, the EIC conducted site visits, interviewed and gathered data from the staff primarily involved in the oversight of these activities. Where possible, the EIC used the data gathered from staff to prepare a revenue/cost analysis for each activity. A separate report summarizing what we learned about each activity was submitted to LEC in the Spring of 2005. After submitting its findings, the Committee was asked to make recommendations about current and future earned income activities. Recommendations are presented at the end of this report.

WHAT WE FOUND

• Many of the activities are infrequent and lack substantive volume.
• A variety of activities are offered some of which do not recover costs.
• Revenue is being deposited into a variety of accounts, including Foundation and state gift accounts, which in most cases, is a violation of University accounting polices and procedures.
• Most of the units kept or tried to keep all the revenue they received for their own use, even though a sizable portion of their costs was paid out of the Libraries operating budget.
• The Libraries’ operating budget is not being reimbursed for most of the labor, materials and overhead costs associated with these activities.
• Under the present structure, most of the costs (i.e. postage, shipping, etc.) are not being identified, tracked or linked to the activities they support.
• Libraries resources are being diverted from core services in order to pursue earned income activities.
• Many of our entrepreneurs lack the skill, knowledge, perspective and/or motivation to accurately account for costs and revenues.
• There is a conflict of interest inherent in situations whereby entrepreneurs fiscally monitor themselves.
• Many of the activities generate goodwill with outside individuals, groups, organizations and with UM students and faculty.
• Some activities may be considered by some as essential to the Libraries’ mission while others may support secondary objectives or unrelated activities.

The Libraries’ revenue generating activities fall into two major categories, retail sales and fee-based services. The online gift shop, personal binding, and the sale of individual publications are retail sales activities. Staff assisted copy/duplication services, document search and retrieval, select lending activities, and in-depth research services are fee-based services.

In its simplest form, the Libraries’ primary mission is to facilitate access to information. With the exception of Photocopying Services, the Libraries are not in the retail sales business (i.e. selling small number of items to individual consumers). The resources consumed in such activities often exceed the revenue received. The net effect is that limited resources are being siphoned from the Library’s primary mission. The revenue we earned is further capped by our taxpayer subsidized status. Although the campus promotes entrepreneurship, it does so for major efforts bringing in thousands or even millions of dollars. It is clear that the Libraries do not have and should not have income-earning enterprises in this league.

Therefore the EIC recommends that the following activities be discontinued:

• Friends of the Libraries’ online gift shop,
• personal binding,
• sales of videos (i.e. Writer’s Block), books, CDs etc.,
• sale of individual publications (i.e. EPSL’s and Gifts-in-Kind’s online book sales).

The Committee recommends that the Libraries continue bulk sales to commercial vendors of donated material that is not added to the collection. These activities are less frequent and less labor intensive thus providing a better return on the Library’s investment. The proceeds from such sales should be deposited into the Library’s Collection Development/Acquisitions account and used to purchase additional items for the collection. Included in the bulk sales category would be the current sale of Judaic gift material and Gifts-in-Kind’s used-books bulk sales. Items not selected or sold via bulk should be donated to charitable or educational organizations or otherwise disposed.

The Library should not enter into externally funded agreements that would require the retail sale of a product (books, videos, CDs, etc.). Exceptions should be rare, integrally linked to the Library’s mission, and require prior approval from the Library’s Executive Council. At a minimum, sufficient external funding should be required to adequately cover the Library’s production, overhead, sale and distribution costs. A limited retail sales life for the product should be built into the agreement as well as the disposition of excess inventory as promotional items or returns to the external funding source. The Committee also recommends that existing inventories of for-sale books, videos, CDs, etc. be donated or distributed free as promotional items to area libraries or other relevant organizations. The Libraries’ communications coordinator and development officers should be consulted for ideas or appropriate avenues for distribution.

Our fee-based services facilitate user access to our collections. Although beyond the scope of our fully subsidized services, they are intrinsically linked to our mission and therefore should receive some subsidy from the Library. The amount of the subsidy would depend upon what the Libraries can afford to divert from other priorities. Given our financial situation, those subsidies will have to be at the expense of filling positions. Obviously, not filling positions hurts other priorities.

Within the context of our mission, affordability determines what we offer and at what price. If we charge for a service, we do so because the service is not one of the Libraries’ highest priorities and therefore is beyond what is normally provided for free. We charge for a service to moderate demand and to recover costs. If the price is set too low, then demand will exceed what the Library can afford to offer. If staff-assisted copying/duplicating services are free, demand presumably would exceed the Library’s ability to absorb the corresponding increase in costs of supplies, materials, equipment and staff and, in so doing, other higher priority programs would be deprived of support.

We have already reached this point with some of our fee-based services. Demand is not being sufficiently managed and fiscal stability has not been achieved. Costs exceed revenue and demand is outstripping our ability to provide these services without additional resources. Staff, equipment and supplies are being diverted from other priorities to maintain these services. The Library’s shrinking levels of fiscal and human resources add to the problem.

If an increase in our fiscal commitment to these fee-based services is beyond what the Library is willing to subsidize, then the Committee recommends an increase in pricing to help moderate demand, moderate the drain of Library resources and more closely reflect Library costs. We also see a need for a simpler pricing model that could be more universally adopted and greater consistency in pricing across Library units.

The Committee acknowledges the Library’s Personnel and Budget Office’s expertise in cost analysis, its access to relevant cost data, and recommends that they be more actively involved in future price setting decisions. To improve accounting/processing consistency and compliance with University requirements, the Committee recommends that all future revenue be deposited, by Library’s Personnel & Budget Office, into the Library main operating account. Units should be allowed to retain what they have already collected but not be permitted to add additional earned income to their accounts after the implementation of these recommendations. To offset the loss of revenue which has been used to help support current fee-based activities, the Committee recommends that A&M’s and PAL’s L&A allocations be increased by $6,500 and $2,600 respectively (their most recent estimates of annual earnings). Similar to other requests for incremental funding, additional financial support would require the approval of the Library’s Executive Council.

This report concludes the activities of the Earned Income Committee. It can be reactivated or reconstituted to consider any proposal for any new revenue generating project and to make recommendations to LEC.

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