Members of the Maywood Public Library Advisory Committee

140 More Years and Beyond: The Report of the Maywood Public Library Advisory Committee

DECEMBER 2013

MEMBERS OF THE MAYWOOD PUBLIC LIBRARY ADVISORY COMMITTEE

State Rep. Emanuel "Chris" Welch, 7th District

Trustee Melvin Lightford, Liaison for State Sen. Kimberly Lightford

Rev. Elliot Wimbush, Maywood Library Board Member

Tanya Butler, Maywood Library Board Member

Stan Huntington, Maywood Library Executive Director

Theresa Kelly, District 209 Board Member

Theresa McKelvy, District 209 Board Member

Loretta Gustello, District 89 Board Member

Diane Williams, District 89 Board Member

Enoch Clarke-Bey, Maywood Park District Executive Director

Bill Hampton, Maywood Park District Commissioner

Mayor Edwenna Perkins, Maywood

Trustee Michael Rogers, Maywood

Bishop Dr. Reginald Saffo, United Faith Bible College

Courtney Eiland, Liaison for Bishop Dr. Saffo

Isiah Brandon, Youth on the Move (Community Representative)

ACKNOWLEDGMENTS

The Committee would like to thank the staff and board members of the Maywood Public Library for their patience, consideration and accommodations. We would like to thank the generous contributions of Fisher, Cohen, Waldman and Shapiro, whose principals offered many hours of invaluable financial advice pro bono. And we would like to thank Michael Romain, Editor/Publisher of The Village Free Press, for his in-depth and exhaustive coverage of this issue.

PREFACE

The following is the official report of the Maywood Library Advisory Committee. This Committee was convened by State Rep. Emanuel "Chris" Welch (D-7th) in the wake of the Maywood Public Library's reopening on Tuesday, November 12, 2013. Prior to that date, the library had been closed for approximately two weeks due to financial strain. This report is based on the collective analyses and recommendations of Committee members, various community stakeholders and select outside experts. The recommendations contained herein are strictly voluntary and are designed to be used as a guide for Maywood Public Library board members and staff. The Committee as a whole also intends for this report to function as a catalyst for more robust collaboration and dialogue between library officials; community stakeholders (such as civic leaders and regular citizens); local businesses; and anchor institutions (such as local hospitals, schools and community colleges). This report is not a tool with which to indict or impugn the motivations and/or actions of any person or entity. The primary goal of this document is that of the Committee that commissioned its authorship--and we believe that of the larger Maywood community as well--to see to it that the Maywood Public Library stays open, stays vibrant and stays vital for 140 more years and beyond.

A RICH HISTORY[i]

Founded on December 29, 1874, the Maywood Public Library is among the oldest municipal libraries in the State of Illinois. It even predates the Village of Maywood's incorporation by more than five years. In 1904, the library received a generous $12,000 donation from businessman and philanthropist Andrew Carnegie to construct a permanent 1,000 square foot home. What's now come to be known as the Maywood Public Library's Carnegie Building was dedicated in April of 1905 and on March 31, 1906, its now-venerated doors opened to the public.

With the Village of Maywood buoyed by the 1920s boom years, the library rode an expansionary wave, opening two branches--the first in 1924 at Garfield School and another in 1928 in a real estate office on 17th Avenue. The second branch was eventually moved to another storefront nearby, where it would serve patrons for nearly 70 years before closing.

During the Great Depression, in October of 1936, the Maywood Public Library Board of Trustees applied for a Public Works Administration grant to remodel the Carnegie Building. The resulting $27,000 remodeling project improved the library's accommodations by adding a second floor boardroom, a main reading room and a community room, among other additions. The Carnegie Building would undergo more renovations in 1960 and 1970.

The post-1970s decline of American manufacturing predominance hit the Village of Maywood hard. Once home to a Montgomery Ward, two movie theaters, a Sears, several large grocery stores, a rich entrepreneurial environment, excellent schools and the sprawling 18-acre American Can Co. plant, the Maywood that emerged out of America's "rust-belt" period is a shadow of its former self.[ii]

The Village's economic decline was precipitated by the closing of the American Can Co. in 1975 and the closing of a nearby bottling plant around the same time. In the wake of these economic shocks, Maywood underwent a steep population decline that has been a primary source for a host of diverse problems--not the least of which is a severely diminished tax base. Throughout the 1980s and 1990s, Maywood's economic and tax base contracted gradually and with the contraction came governmental complications.

For the vast majority of its nearly 140-year history, the Maywood Public Library was an agency under the taxing jurisdiction of the Village of Maywood. In 1991, after it was discovered that, over the years, the Village of Maywood had reallocated the library's tax dollars to be spent for other purposes, the residents of Maywood passed a ballot referendum to allow the library to constitute its own taxing district. As a result of this referendum, the Maywood Library District was formed.

A PERFECT STORM

The collective decision made by the residents of Maywood to form the Maywood Library District allowed the Village’s oldest institution to begin collecting the amount it was due. The increased revenue, in addition to bonds from Mellon Bank, allowed the library to fund one last expansionary phase. In 1998, the library’s state-of-the-art annex was dedicated. The following year, the $8 million, 42,000 square foot building, designed by the architectural firm of Ross, Barney & Jankowski, won the prestigious Distinguished Building Award from the American Institute of Architects Chicago.

The library’s fiscal liberation from the Village of Maywood, however, also presented some challenges. As a separate taxing body, the library has the ability to levy its own taxes; but unlike a municipality, the library cannot raise additional taxes on top of the property taxes that it is apportioned. While the library may have freed itself from some of the Village's administrative baggage, it also effectively severed itself from the Village's much larger pool of tax revenue (which may or may not have been used to infuse the library with the extra funds it needed). In addition, the library’s fiscal separation from the Village may have also resonated symbolically, straining even more a relationship that, by many accounts, seems to have already been strained enough.

Since 2000, the storm that would nearly capsize the library had been gathering momentum. The 2010 U.S. Census proved to be something of a canary. It reports that Maywood’s population decreased by more than 10 percent throughout the previous decade.[iii] At one library board meeting, Maywood Public Library Executive Director Stan Huntington put this data point in striking perspective. “Between the Civil War to the year 2000, the population of Maywood hasn’t varied more than 100 people between any ten-year period,” he said.[iv] In the first decade of the 21st Century, Maywood lost roughly 3,000 residents (See Appendix A).

The U.S. banking and housing crisis that began in 2007 would only exacerbate Maywood’s negatively trending population rate—along with a host of other negatives. The combination would create the perfect storm, the peak of which the library would experience on October 26, 2013—the day it closed. Hindsight has revealed an array of factors that may have contributed to the library’s closing. The most important are as follows:

Financial Straightjackets

The financial crisis of 2008 substantially weakened the US banking industry. Since the crisis, as Simon H. Kwan of the Federal Reserve Bank of San Francisco noted, bank failures "skyrocketed" and bank stocks "plummeted."[v] The Maywood Public Library would feel the direct consequences of the crisis when First Suburban National Bank, which at the time held the loan the library took out to pay down the balance of the Mellon bonds, failed on October 22, 2010, and was subsequently acquired by Seaway Bank and Trust Co.

Economic journalist Robert Kuttner outlined the straightjacket in which many community banks throughout the nation found themselves after 2008. In the immediate wake of the crisis, the government injected $205 billion of virtually free capital into the financial sector, 97 percent of which went to banks popularly deemed "too-big-to-fail."[vi] Unfortunately, these were the very banks that created the crisis in the first place by securitizing shady debt instruments such as subprime mortgages. Moreover, the government's capital injection didn't do what it was intended to do--which was to free up good bank credit so that it could be lent to small businesses, commercial and industrial enterprises, and vital community entities such as the Maywood Public Library.

Kuttner writes, "Only 3 percent [of the $205 billion capital injection] went to the community banks that do more than 60 percent of America's small-business lending. At the end of June 2008, just before the crisis hit, America's largest banks, those with assets of at least $100 billion, had outstanding commercial and industrial loans of $962 billion. By the end of 2010, that had dropped by more than 28 percent, to $693 billion, according to the FDIC [Federal Deposit Insurance Corporation]. Smaller community banks, despite having something like 60 percent of their lending collateralized by some form of real estate (whose value was plummeting), also cut back, but by only about 9 percent."[vii]

Community banks and too-big-to-fail banks are in two different lines of work. The former lend to local institutions, enterprises and households, while the latter generate their major profits by way of "investment banking, the creation of complex securities, and proprietary trading." During periods of economic recession, as loans become delinquent and their balance sheets deteriorate, community banks tend to raise their lending standards, "even for their most reliable customers."[viii]

After the crisis, the government's regulatory standards for small banks tightened to a menacing degree, even as its standards for the "too-big-to-fail" banks relaxed. In turn, the tendency of community banks to tighten their loans would be especially pronounced. "If an examiner found nonperforming loans in a bank's portfolio," Kuttner writes, "the bank would have to either come up with additional capital--very difficult in a recession--or cut back on lending."[ix]

Given this reality, what happened in January of 2013 was not surprising. Despite the library's good financial stewardship--since 2007, it had allocated at least 30 percent of annual revenue toward servicing its bank debt (which it consistently paid on time) and had implemented various austerity measures, such as furloughing employees, freezing salaries and cutting operating hours--Seaway tightened its loan conditions. As a result, the portion of the library's annual revenue that went to servicing its debt increased to 40 percent.[x]

If one considers Seaway's financial standing in the context of the regulatory reality outlined by Kuttner, its actions appear born much less of hard-heartedness than of the base pressure to survive. In 2007, according to American University, Seaway's troubled asset ratio was more or less in line with the national median. By 2011, Seaway's troubled asset ratio had reached nearly 60 percent, roughly 50 percentage points above the national median.[xi]

According to American University’s bank tracker website, “Generally speaking, higher values in this ratio indicate that a bank is under more stress caused by loans that are not paying as scheduled" (See Appendix B).[xii] Likely pressured by federal regulators and concerned about its own solvency, it would seem reasonable for Seaway to increase its capital reserves, tighten its lending conditions and decrease its troubled assets--which is precisely what it appears to be doing even to this day, two years after reaching that troubling 60 percent plateau (See Appendix C).

Housing and Its Discontents

When news of the library's perilous financial standing began rustling throughout the community, the culprit most often cited by library officials was Maywood's high foreclosure rate--and justifiably so. The Village has one of the highest foreclosure rates among municipalities in Illinois, a state that posted the highest foreclosure rate in the country in 2012. The real estate website realtytrac.com monitors the ratio of foreclosure actions to housing units for municipalities throughout the country. The ratio is measured on a litmus scale that ranges from high to low. Dark blue indicates a high ratio, light blue indicates a low ratio. Maywood is the darkest of blue (See Appendix D). The total foreclosures filed per month in Maywood since January 2013 range from at least 30 to more than 60. In Maywood, the percentage of foreclosed units by area is 0.34. In Cook County, that percentage is 0.19. In Illinois, it's .14. Nationally, it's 0.09.[xiii]

Although it's hard to precisely quantify the neighborhood effects of foreclosures, the Chicago Tribune nonetheless reported that recent "studies have pegged the blow [from foreclosures] to nearby property values at anywhere from half a percentage point to more than 8 percent."[xiv] Perhaps the most significant calculable consequence of such a high volume of foreclosures is the effect they almost certainly have had on Maywood's Equalized Assessed Valuation (EAV), which is the primary measure by which Illinois sets property tax rates. Put simply, lots of foreclosures tend to imply falling property values and falling property values tend to imply decreased EAV. When EAV declines, municipalities tend to raise their tax rates in order to compensate for the lost tax revenue resulting from the diminished property values. The Maywood Library District, however, is not allowed to increase tax rates above a certain ceiling.

According to Mr. Huntington, the EAV of property in the Maywood Library District fell by almost 25 percent between 2011 and 2012, tumbling from $340 million to $270 million. As a result, the library experienced a 22 percent loss of tax revenue in the Fall of 2012. In the Spring of 2013, the loss was at 28 percent.[xv] For a comparison, the 2012 EAV of property in the Broadview Library District was a little over $280 million. Broadview has a population of about 8,000 people--one-third the size of Maywood.[xvi]

In sum, when 40 percent of a revenue base that's already diminished by 28 percent is allocated toward servicing debt, there remains less than half to allocate toward salaries, utility bills, maintenance expenses and programming.

Management Deficiencies

It is hard to find flaws in the library's consistency in, and devotion to, paying down both its bond and bank debts. And we have a tremendous respect forthe sacrifice of the library’s employees, many of whom worked without cost of living adjustments and pay increases. The dedicated grant-writing efforts of Mr. Huntington, who himself has taken an 88 percent pay cut, have been particularly invaluable to the library's existence during the last several years.

To a person, the library staff is to be commended, because without their tirelessness, the library might have closed its doors a long time ago and perhaps for longer than two weeks. Rather, the most serious flaws that were revealed by the library's recent closing are deeper than personnel issues. They're structural flaws.

The most glaring of these structural flaws was the lack of institutional safeguards that could possibly have either mitigated, or (albeit a much less likely possibility) prevented altogether, the crisis with which the library is currently confronted. A voluntary audit conducted by financial experts called in by this Advisory Committee revealed a troubling array of deficiencies, such as the absence of a finance committee to provide formal and external oversight, the absence of strict financial monitoring (such as monthly budget comparisons) and comprehensive long-term financial planning measures. In addition, the library's budget projections seemed much too unrealistic, failing to seriously take into account Maywood's distressed tax base, which--the precipitous 2011-2012 decline in revenues notwithstanding--was not unforeseeable given the Village's historical economic trends (See Appendix E; Tables I and II).[xvii]

There is also the matter of the library's extreme underutilization of an $8 million, 42,000 square foot annex that is the pride of the community. The number and diversity of ideas that could've been implemented to attract more patrons to, and marshal more support for, the library prior to its current woes boggles the mind. That serious dialogue about implementing such ideas is just only now being had is just as mind-boggling. This lack of administrative creativity runs parallel to a lack of organizational capacity. Currently, the library has no robust volunteer or fundraising corps. Neither does it have a sufficient community outreach apparatus in place that could leverage the human capital of Maywood's citizens, the investment capital of Maywood' local businesses, and the resource capital of Maywood's other taxing bodies and anchor institutions to the library's benefit. Thus, while the library is excellent at serving the residents who patronize it voluntarily, it is poor at attracting the attention of others. This reinforces a general pattern of organizational passivity and reaction.