Public libraries, private company: the outsourcing compromise

At meetings of national city and county associations, the only library exhibitor is often Library Systems & Services, LLC (LSSI), the first company to offer full outsourcing (or privatization, to some) of public libraries. LSSI offers a seductive line: it can do more with less. As local governments squeeze budgets, LSSI, which has a history in both outsourced federal government libraries and virtual reference, sees more business, even though it has fewer than ten public library contracts at this point. In July, the city of Germantown, TN, hired LSSI to run its branch; the decision to go independent saved money but meant cardholders could no longer borrow books from the Memphis - Shelby County system it had left. It's unclear whether city managers anticipated that, but outsourcing often brings compromises - ones perhaps more apparent to professional librarians than their municipal bosses. LSSI can boost professionalism in struggling libraries, at least for the short term, and guarantee certain service benchmarks. Indeed, LSSI clients - mostly local officials, not librarians - praised the company's performance, according to a 2002 report by the Florida House of Representatives. Outsourcing can save money, but at what cost? LSSI's performance eludes full evaluation - statistics like hours, circulation, and spending provide only a sketch. But LSSI's record suggests tensions between a profit-seeking company and a public agency. Savings may go to profits instead of services. Fully outsourced libraries no longer control compensation - and LSSI saves money on staff. Also, the library may be less publicly accountable. The company makes some librarians uneasy. Barbara Custen, executive director of the Metropolitan Cooperative Library System (MCLS), Pasadena, CA, notes that when cities ask her what it would cost to run their own libraries, MCLS provides 'an objective number.' LSSI, she points out, may advise a city on how to run its own library, then bid on that same service.

A profession confronted

The library profession has not fully addressed the outsourcing issue. Outsourcing cataloging, processing, and some other professional tasks has become routine, but the extension to book selection and management was a shock. As a result, the American Library Association (ALA) established a task force on outsourcing and privatization after the Hawaii State PL System outsourced all book selection to Baker & Taylor in 1996 and Riverside County, CA, officials hired LSSI to run the Riverside County Library System (RCLS) in 1997. The task force observed that good library work is closely tied to the community, not 'a simple commodity,' and that libraries represent a 'public good,' essential public services most efficiently provided by the government, not the marketplace. The task force recommended that ALA oppose 'privatizing core library services to for-profit corporations,' but, in 1999, ALA Council found the task force's work too speculative. Council instead approved a study that looked at the outsourcing of cataloging, two cases regarding materials selection, and two concerning management (Riverside and NASA libraries). The study observed that the condition of libraries in Riverside 'continues to be poor' because of underfunding but concluded that 'outsourcing has been an effective managerial tool' - a statement LSSI reproduces on its web site (www.lssi.com). To the investigators, no case study constituted privatization. Led by Robert Martin, then professor in the School of Library and Information Studies at Texas Woman's University, Denton, and now head of the federal Institute of Museum and Library Services, they found the task force's terms unworkable. They defined privatization as relinquishing policy control to a vendor - a shift that no vendor had sought. In 2001, Council endorsed a milder statement opposing the 'shifting of policymaking and management oversight of library services from the public to the private for-profit sector' - which has no effect on LSSI contracts since the library board or municipality makes policy. While some communities - such as Fargo, ND, and Finney County, KS - hired LSSI after learning about the company from ALA or the Southwest Kansas Library System, LSSI no longer pitches management services at library conferences. 'We're a company that brings value to our customers and improved library service,' company CEO Frank Pezzanite tells LJ . He notes that LSSI's Virtual Reference service, since sold to Tutor.com, was welcomed by many. '[But] I get the impression from time to time that we're considered to be the Darth Vader of the industry.' Profit pressure LSSI generally manages the entire library budget, whether it employs all staffers or just senior managers. VP Bob Windrow told the Dallas Morning News in 2001 that the company "earns money through streamlining procedures, automation, changing procedures, and staff training." The article doesn't mention that LSSI charges some clients (though not RCLS) general and administrative costs up to 15%, which include handling fees on materials of 5%. Additionally, the difference between the budget and what is spent contributes to profit. Also, while LSSI can ramp up libraries that have lagged technologically, Windrow's statement sidesteps a key LSSI strategy: saving money on staff. In a proposal to the Dallas PL (DPL) board last year, Windrow acknowledged, according to board minutes, that the company would keep costs down by paying lower salaries and benefits, hiring fewer librarians, and choosing less-educated employees than current DPL staff. Fargo PL director Charles Pace, a former LSSI staffer, sees the tension between quality and profit. He was hired in June 2001 by LSSI to run Fargo PL. In 2003, he was employed directly by the city after the library board canceled its LSSI contract, dismayed that the company fell behind on several bills. Pace notes, as do two board members, that LSSI's temporary director in Fargo, Lynn Wheeler, stabilized the library, which had lacked leadership. LSSI, according to the Florida report, also significantly reduced the time it took to bring books to Fargo PL shelves. LSSI, Pace recounts, "brought in well-respected library consultant Ron Dubberly" - a member of the company's Advisory Council - to help with strategic planning and also "provided a collection development expert." However, says Pace, after a few months in his job, "the positive phase of LSSI's accomplishments here came to an end. There was a considerable amount of pressure [from LSSI] to look at ways we could generate revenue and not to spend out the full library budget." LSSI also requested a 28% budget increase and got 11%. Pace adds, "It was very difficult to serve two masters." Company spokeswoman Terri Armand says, "LSSI does not typically comment on statements made about LSSI by former employees or clients."

Riverside: a showcase?

"We've accomplished more growth in service, developed more functional partnerships, and completed more building projects (without a tax increase or bonding) in the last seven years than I have ever witnessed in a system of comparable size and resources," says Gordon Conable, LSSI's executive VP of public library operations. Recently, RCLS and neighbor San Bernardino jointly upgraded musty automation systems. LSSI points to RCLS as evidence it can boost service elsewhere. But RCLS is an unusual case, as Ronald Baker indicated in "Outsourcing in Riverside County: Anomaly, Not Prophecy" (LJ 3/15/98, p. 34 - 37). Once part of a combined city-county system, RCLS offers stripped-down library service, with no central library - nor coordinators for collection development or youth services. More than 90% of staff - a notably high number - work on public service and local library operations. The system - with 28 branches, two bookmobiles, and two other facilities - has 33 MLS librarians, a respectable ratio out of 139 FTE staff but one that indicates basic branch coverage. LSSI itself operates leanly. According to a 2002 county audit, the company used 5.29% of the contract for overhead - well below the 10% charged previously by the city of Riverside as an administrative fee. Pezzanite, an automation veteran, oversees some contracts himself, as does his wife, Judy, the COO and a librarian, from LSSI's Germantown, MD, office. In "Why Outsourcing Is Our Friend" (American Libraries, 1/98, p. 72 - 74), LSSI advisor Dubberly called the Riverside/LSSI model "eminently replicable." Gary Christmas, Riverside county librarian from 1997 until this July (when he became deputy county executive officer), praises LSSI, noting the county sought the most service, not the lowest bid. Still, he acknowledges that RCLS's experience "can't be a model for anyone else, because they don't have the circumstances we do." As Baker, who formerly headed the combined system's central library, wrote, the county had a white elephant library administrative service center - which now costs $567,432 a year in debt service. In June 1998, less than a year after outsourcing, RCLS found a tenant for that building. Now tenants pay nearly all that debt service, expanding the budget for the library - something not mentioned in LSSI accounts of Riverside. Service at RCLS can be seen through two distinct lenses. Hours, materials, and the number of librarians have jumped, thanks to increased public funding and the service plan developed by LSSI and the county. Still, with a per capita budget under $14 for its 892,800 constituents, RCLS lags behind most peer libraries. The materials budget, $180,000 in 1997, now includes $450,000 from the library fund, plus $600,000 in mitigation fees from new residential development. However, materials funding remains less than half the $2.61 per capita figure - the level of the lowest quartile of peer libraries - that LSSI's own consultant, Dubberly, recommended back in 1998. Meanwhile, RCLS cardholders account for 40% of the library's checkouts in Rancho Mirage, a Riverside County community with a well-funded independent library.

Workers shortchanged?

At conferences, LSSI distributes a 2002 article from The American Enterprise (published by a conservative think tank) that lauds LSSI's work: "For vested interests like unions, however, the company's ability efficiently to meet terms set by local officials offers no solace." Some LSSI practices, such as a reliance on paraprofessionals, reflect tactics adopted by other cash-strapped libraries. According to the Riverside County audit, LSSI spent 50.02% of its budget on direct labor and 13.12% on fringe benefits - somewhat less than many comparable systems. LSSI prefers having all library employees work for the company. "We have much more control. We can incent them," says Pezzanite. "If an employee does a good job, we like to give them a $5 gift certificate to Borders Books or Mrs. Fields." Existing RCLS workers were offered the same salary; Pezzanite notes they were happy to gain stability. Future hires received lower pay, according to the ALA report, which also acknowledged "vague indications of increasing workloads and decreasing compensation - especially in terms of benefits." Pezzanite asserts, "If you took the pension out of the equation, the [benefits] scale would be tilted in our favor. Throw the pension on there, maybe it's equal, or maybe it slides the other way a little bit." The difference in retirement benefits, unspecified in the ALA report, is stark. Those working for LSSI get a chance to contribute to their own 401(k) plan - a sum subject to market vagaries - to which LSSI provides a match it wouldn't specify. By contrast, 20-year Riverside city or county employees who participate in California Public Employees' Retirement System (CALPers) are eligible for a lifetime pension at age 55 of 40% of their annual salary. The loss of civil service rights and pension vesting has alarmed unions and library groups. "Having that package changed on you is very disruptive to the entire institution," notes Pat Tumulty, executive director of the New Jersey Library Association (NJLA). Last year, staff at the Passaic PL, NJ, joined a union to fight a proposed LSSI contract that would have made them all company employees. NJLA, which had not opposed LSSI contracts where the company provided managers but staff remained public employees, says the proposed contract - since dropped - would have been the state's first privatization of a public library.

The volunteer dilemma

Staff costs make up the largest chunk of a library budget, so at an LSSI library, volunteers embody not only community spirit but also potential profit. New management may liberate untapped energies; when the company took over the library in Calabasas, CA, formerly a branch of the County of Los Angeles PL, it initiated a Friends group. Asked to comment on the use of volunteers, Sally Reed, executive director of the Friends of Libraries USA and a critic of outsourcing when on the ALA Executive Board, says, "There should be full disclosure that money saved through volunteer services may well translate into increased profits for a private company ...making the company look better." In Lancaster, TX, LSSI operates a building more than three times the size of its predecessor, even as the number of FTE staff has increased from seven (three MLS) to 8.5 (two MLS). Volunteer hours have more than quadrupled, though Armand points out that they represent little more than 1 FTE and that the library has new sources of volunteers via the Texas court system and from teens. The library has seen significant turnover: seven of nine employees listed on the library web site since outsourcing have left. Armand would not say whether volunteers did work such as reference or processing but did stress that LSSI "does not use volunteers in lieu of paid library staff or as a means of controlling costs."

The bottom line

It's hard to determine how much profit LSSI makes. Only Riverside County has released a full audit of its LSSI contract; an analysis of 2002 expenditures showed that LSSI earned only an $80,000 profit (1.02%) on the contract that year beyond its overhead. Is that good negotiating by Riverside, an LSSI willingness to make the library a showcase, or both? In Texas, LSSI representatives said they didn't "foresee a profit in the first few years, but their number one goal is to have a presence in the area," according to Lori Iwanicki, assistant to the Lancaster city manager. LSSI has since signed contracts in two other Texas jurisdictions. LSSI has apparently made a profit in Lancaster, a Dallas suburb, though the numbers are unclear. Some 42.7% of Lancaster's 2002 budget and 45.7% in 2003, according to statistics provided to the state library, constituted "other operating expenses." What's in that category? "As long as they're doing what they need to do, we're not going to ask them to detail every expenditure," says Iwanicki. Meanwhile, spending on staff and materials went down; LSSI's Armand says its profit also went down but would not provide details. For salaries/benefits, Lancaster spent 50% of its budget in 2002 and 48% in 2003, losing one of three MLS librarians. Three neighboring library systems spent from 64% to 80% on staff (with more librarians), yet they also spent a greater percentage on materials. Though 15% spending on materials is considered good, Lancaster spent 8% in 2002 and 6.6% in 2003. The city's new building opened in 2001 with a new collection, just as it began outsourcing. Notes city spokeswoman Opal Mauldin-Robertson, "The materials budget will increase as necessary to keep the collection fresh." Lancaster had a higher circulation rate in 2003 than two neighbors (by 11% and 32%) but also a 14-day rather than a 21-day loan period. Similarly, in Finney County, KS, spending on staff went from 59.5% in 2002 to 51.9% in 2003, while materials spending declined from 12.4% to 11.4%. Armand says LSSI's profit also went down but would not elaborate. Board chair Pat Fishback, asked how LSSI makes a profit, says, "There are certain things since they are a private company that's not required to be public knowledge. We know the amount of money we pay them for the services we contract for, and we are satisfied." Previously, two board members, concerned about the loss of local control, resigned in protest when the county hired LSSI. When the city of Linden, NJ, ended its LSSI contract early, Linden mayor John Gregorio said the city would save $300,000 - about 15% of the library budget - by running the library itself. Six of 37 staff members had retired, but the budget LSSI was managing had held constant.

Marketing claims

Some LSSI marketing claims are, at best, imprecise. In a February 14, 2003, pitch letter to potential customers, then-LSSI West Coast director of sales and marketing Lee Ireland claimed that LSSI manages "over 45 public libraries across the United States." At that time, LSSI had seven public library contracts but managed some 45 public library buildings. A flyer distributed at the New Jersey Conference of Mayors last April said, "LSSI is currently managing libraries for these communities"; the 20 communities listed represented seven contracts, two of which had expired by that time. LSSI press releases say the company recruited new directors for the libraries in both Lancaster, TX, and Finney County, KS. LSSI did provide veteran interim staff for the libraries, which had had long vacancies, but the directors ultimately hired had applied for the positions before the communities officially contracted with LSSI. A 2002 LSSI press release cited more than $250,000 in grants gained in Lancaster - part of the reason the Northeast Texas Library System later named Lancaster's Cami Loucks the library employee/director of the year for 2003. However, the library must share nearly half the money: two grants totaling $225,000 underwrite shared services in Lancaster and neighboring Cedar Hill.

Compromising transparency

As public agencies, libraries should be transparent, but this ethic does not necessarily hold for a private company. In the past, LSSI has trumpeted good news but been elusive when asked tougher questions. When the city of Linden, NJ, ended its LSSI contract early, it contractually agreed to portray the management change in the "most positive manner possible" and an effusive quote from Mayor Gregorio appears on LSSI's web site. Neither that endorsement nor the subsequent LSSI press release acknowledges the city's $300,000 savings. Because of a contract clause preventing current Jersey City PL (JCPL) top managers from discussing LSSI, it's hard to evaluate fully LSSI's performance at JCPL, where it operated from 1999 to 2001. A study by Arthur Andersen noted that the library "lacked automation, training, and leadership prior to LSSI's arrival." The New Jersey State Librarian had refused to release grant funds. Allan Kleiman, head of reference at Westfield PL, NJ, and a one-year employee of LSSI at Jersey City, says, "I don't know who could have done it outside an LSSI type that could bring in a heavy-duty team." When the contract ended, LSSI sought to block criticism from new director Priscilla Gardner - who once criticized LSSI vocally - and the assistant director. The nondisparagement clause might have been a quid pro quo. Board chair Mofalc Meinga tells LJ, "It was a mutual agreement, because they let us out of a contract early," thus avoiding a potential "sizable fee" to terminate. "I would give them a good recommendation," he adds with a laugh. "I'm not gagged on that." Former employees say LSSI has required them to sign a nondisclosure agreement. LSSI would not comment on that. This requirement was not mentioned in either the Florida or ALA reports on outsourcing.

New ventures

In most LSSI libraries, budget pressures limit service, but it is a constraint LSSI can embrace. Steve Coffman, LSSI VP for business development, has called for libraries to be run more like bookstores, questioning how much the differences (reference, cataloging) are worth to library patrons - and LSSI recently proposed such an "efficient library" project. Most recently, he has argued that libraries should emulate public radio and raise private operating funds. In June, LSSI released a report on such "plural funding," written by a veteran public radio consultant and partly funded by three library entities (see News, LJ 7/04, p. 22ff.). Coffman's crusade - which has sparked criticism from those who emphasize more public support - also could boost LSSI, though Coffman notes, "LSSI is not selling any of these concepts." The web site for the "Plural Funding Project" (www.pluralfunding.org) declares, "Dedicated to improving the funding for America's libraries," but the site, which provides useful resources but does not represent a nonprofit organization, is owned by LSSI. The pilot plural funding project will be in Riverside, which means fundraising might increase LSSI's profits or burnish its showcase. For now, LSSI's fundraising record in Riverside lags behind its own goals. The RCLS Foundation LSSI established as part of its contract has raised about $60,000, though company consultant Dubberly said in 1998 that it should raise $200,000 by the close of FY00. LSSI cites a lag in board members; Christmas points to a lack of foundation staff and that residents identify with branches, not the county. A foundation brochure, which LJpicked up at an RCLS branch in January, lists the foundation's web address as www.lssi.com/rclfoundation, but the web site has never been built.

Last resort

If LSSI didn't exist, would it have to be invented? Fargo PL tried hard to find a director before turning to LSSI. The New Jersey State Librarian welcomed the company to supply top managers at Jersey City. The NJLA's Tumulty says LSSI's presence points out that libraries must practice long-term planning and boards must be actively involved. In Paterson, NJ, the board considered an LSSI proposal but instead found a new automation-savvy director, Cindy Czesak. "I'd have no trouble hiring LSSI to do consulting, but I have real questions about them running a whole system," says Czesak, a former NJLA president. "I think they worry less about developing long-term relationships within the community." The Florida report concluded that outsourcing fits only libraries with multiple problem issues that can't be solved in-house. Libraries in crisis, NJLA said in 2001, should consider outsourcing management a last resort and first ask the state library for help. Last year, when the Passaic PL board considered an LSSI contract, pushed by the mayor, the state did such a review. If communities outsource, a professional librarian might best monitor the contract, as Riverside County officials have recommended; LSSI's other, smaller contracts are mostly monitored by nonlibrarians. Riverside's Christmas helped in collection development and sat in on most interviews to hire librarians, while elsewhere LSSI takes on those roles, under the policy guidance of the board. As long as LSSI meets contract terms, there is little incentive for communities that find their problems solved to look too closely. That suggests a role for library groups to monitor the contract process with the checklists ALA and state units have promulgated. The California Library Association states, for example, that "the rights of library workers to negotiate the conditions of their work must be preserved." The Public Library Association asks, "Have library staff had the opportunity to participate in the planning and decision-making process?" Former LSSI employee Pace suggests that management companies be paid separately from the library budget and that the fee be all-inclusive. That might help address a fundamental question unmentioned on the checklists: If a company runs a library for a profit, how much profit is fair, and what might be sacrificed in the process?