Budget and FinanceBudget and Finance

LS 530LS 530

Dr. WeddleDr. Weddlejweddle@slis.ua.edujweddle@slis.ua.edu

De Jure vs. De Facto De Jure vs. De Facto Financial ResponsibilityFinancial Responsibility

The Board (de jure)The Board (de jure)

The Director (de facto)The Director (de facto) Financial planningFinancial planning Income/revenueIncome/revenue CostsCosts Budget Construction & PresentationBudget Construction & Presentation Implementing Capital CampaignsImplementing Capital Campaigns Often Ill-Prepared Often Ill-Prepared

Financial PlanningFinancial Planning

Budgeting Annually (short term Budgeting Annually (short term mentality)mentality)

Three Year Financial Plans (long range Three Year Financial Plans (long range thinking)thinking)

Financial Plan Financial Plan Projects Revenues & Expenses within context Projects Revenues & Expenses within context

of community needs and library aspirationsof community needs and library aspirations

Financial Planning: The Financial Planning: The StepsSteps

Analyze the library’s financial statusAnalyze the library’s financial status Analyze the situation: All factors influencing the Analyze the situation: All factors influencing the

librarylibrary Do a market analysis: Current and potential Do a market analysis: Current and potential

patrons, programs, services and products; patrons, programs, services and products; identify the competitionidentify the competition

Make assumptions about the future regarding Make assumptions about the future regarding financial goals and objectivesfinancial goals and objectives

Project the outlook for 3-year periodProject the outlook for 3-year period Design funding strategies for proposed growth & Design funding strategies for proposed growth &

developmentdevelopment Evaluate and assess the success of the planEvaluate and assess the success of the plan

RevenuesRevenues

Bulk of revenue comes from public Bulk of revenue comes from public sources:sources: LocalLocal State State NationalNational

RevenuesRevenues

Many planners regard 50% local, Many planners regard 50% local, 30% state and 20% federal support 30% state and 20% federal support as ideal distributionas ideal distribution

Spread is closer to 85-95% local, 5-Spread is closer to 85-95% local, 5-10% state and 5% (indirect) federal10% state and 5% (indirect) federal

RevenuesRevenues

Should public money support Should public money support libraries?libraries? Library is a “public good.” (Consumption Library is a “public good.” (Consumption

has no effect on supply)has no effect on supply) Produces “positive externalities,” Produces “positive externalities,”

beneficial outcomes for whole society.beneficial outcomes for whole society.

RevenuesRevenues

Arguments against public support of Arguments against public support of libraries:libraries: Built on “voluntary use.”Built on “voluntary use.” Doesn’t meet test of “public good,” Doesn’t meet test of “public good,”

because primary users are not entire because primary users are not entire communitycommunity

Those who use library make it less useful Those who use library make it less useful for othersfor others

Fees can pay for services & the poor can Fees can pay for services & the poor can get vouchersget vouchers

Public Funding (Local)Public Funding (Local)

Property Taxes (regressive) are Property Taxes (regressive) are major funding sourcemajor funding source

Local income and sales taxesLocal income and sales taxes ““Intangible Property”: Intangible Property”: Assessed on many Assessed on many

types of intangible personal property (such as mutual types of intangible personal property (such as mutual funds, stocks, and accounts receivable). It is assessed on funds, stocks, and accounts receivable). It is assessed on both businesses and individuals.both businesses and individuals.

Penal FinesPenal Fines Dog TaxesDog Taxes

Public Funding (State)Public Funding (State)

Grant-in-aid programsGrant-in-aid programs State funding began in 1930s to help State funding began in 1930s to help

strapped communities continue strapped communities continue library service; to help underserved library service; to help underserved and rural areas have service; to and rural areas have service; to distribute the tax burden; and distribute the tax burden; and equalize service and thus diminish equalize service and thus diminish gap between rich and poorgap between rich and poor

Public Funding (State)Public Funding (State)

Four patterns:Four patterns: Substantial supportSubstantial support (Hawaii and W. Virginia) (Hawaii and W. Virginia) Support of larger systemsSupport of larger systems whose boundaries whose boundaries

are established at state level (Illinois and NY)are established at state level (Illinois and NY) Financial assistance with minimal regulationFinancial assistance with minimal regulation

(California, Florida, South Carolina)(California, Florida, South Carolina) Aid to any legally established libraryAid to any legally established library

(Massachusetts)(Massachusetts)

State Aid FormulasState Aid Formulas

Generally based on per-capita / geographical Generally based on per-capita / geographical features modelfeatures model

Some states confer discretionary grants, aid area Some states confer discretionary grants, aid area administrations, or reimburse libraries for certain administrations, or reimburse libraries for certain servicesservices

Most states impose eligibility requirements that Most states impose eligibility requirements that local communities must meetlocal communities must meet Minimum local budgetMinimum local budget Availability of trained personnelAvailability of trained personnel Sufficient hours of public accessSufficient hours of public access Membership in networks, cooperatives or systemsMembership in networks, cooperatives or systems Willingness to share materials with other librariesWillingness to share materials with other libraries Series of supporting documents, including annual state Series of supporting documents, including annual state

reportsreports

LSTALSTA

Replaced LSCAReplaced LSCA Administered through state library Administered through state library

agenciesagencies Both competitive and non-Both competitive and non-

competitive grants are availablecompetitive grants are available

LSTA: Competitive GrantsLSTA: Competitive Grants

Outcomes Based Evaluation (OBE)Outcomes Based Evaluation (OBE) Services for Children at Risk (Small Library Services for Children at Risk (Small Library

DevelopmentDevelopment Services for Children at Risk (General)Services for Children at Risk (General) Services for Those with Disabilities (General)Services for Those with Disabilities (General) Services for Persons Having Difficulty Using a Services for Persons Having Difficulty Using a

Library (General)Library (General) Services for Non-English Speaking Persons Services for Non-English Speaking Persons

(General)(General)

APLS also provides conventional applicationsAPLS also provides conventional applications

LSTA: Competitive GrantsLSTA: Competitive Grants

Child Online Protection Act (CIPA)Child Online Protection Act (CIPA) If federal funds will be used in a project 1) If federal funds will be used in a project 1)

to purchase computers used by a public to purchase computers used by a public library or a public school library to access library or a public school library to access the Internet or 2) to pay for direct costs the Internet or 2) to pay for direct costs associated with a public library or a public associated with a public library or a public school library accessing the Internet, then school library accessing the Internet, then any participaating public library or pubolic any participaating public library or pubolic school library will have to be in compliance school library will have to be in compliance with CIPA before a contract will be issued.with CIPA before a contract will be issued.

LSTA: Non-Competitive LSTA: Non-Competitive GrantsGrants

Two Types:Two Types: Technical Assistance Consulting GrantTechnical Assistance Consulting Grant Professional Training Grant for the MLSProfessional Training Grant for the MLS Formerly, a Library Service Education Formerly, a Library Service Education

Grant was available. Cut due to budget Grant was available. Cut due to budget constraintsconstraints

Private Funding (Soft Private Funding (Soft Money)Money)

Endowments: Endowments: Designed to produce interest Designed to produce interest income for library; ordinarily, the principle can’t be income for library; ordinarily, the principle can’t be touchedtouched

Gifts: Gifts: The Board or Friends solicit this, never the The Board or Friends solicit this, never the staffstaff

Grants: Grants: Usually program or project-oriented; can Usually program or project-oriented; can push you in direction you might not otherwise gopush you in direction you might not otherwise go

FinesFines Other FeesOther Fees

Expenditures: Two Kinds of Expenditures: Two Kinds of FundsFunds

OperatingOperating Everyday expenses, such as:Everyday expenses, such as:

Personnel = about 60% of operating costsPersonnel = about 60% of operating costs SalariesSalaries Fringe benefitsFringe benefits

Materials and supplies = about 20-30% of Materials and supplies = about 20-30% of operating costsoperating costs

Remaining 10-20%:Remaining 10-20%: All other expenses, such as building & All other expenses, such as building &

maintenance costs, equipment, and so forthmaintenance costs, equipment, and so forth

Expenditures: Two Kinds of Expenditures: Two Kinds of FundsFunds

CapitalCapital Large, one-time purchases, such as:Large, one-time purchases, such as:

New buildingNew building RemodelingRemodeling New furnitureNew furniture Computer systemComputer system

Direct and Indirect CostsDirect and Indirect Costs

Direct Costs: Personnel, materials Direct Costs: Personnel, materials and suppliesand supplies

Indirect Costs: Overhead, such as Indirect Costs: Overhead, such as administration, finance, utilities, administration, finance, utilities, security and custodial servicessecurity and custodial services

Cost Benefit: Weigh Costs Cost Benefit: Weigh Costs Against Demand and Projected Against Demand and Projected

BenefitsBenefits Formula to determine indirect costs:Formula to determine indirect costs:

Annual salaries and benefits, prorated Annual salaries and benefits, prorated proportional to time required for taskproportional to time required for task

Summarize other direct costs (materials, Summarize other direct costs (materials, supplies, telephone, postage & equipment)supplies, telephone, postage & equipment)

Estimate indirect costs by multiplying all Estimate indirect costs by multiplying all direct labor costs by library’s total labor direct labor costs by library’s total labor costscosts

Determine actual program costsDetermine actual program costs

Choosing ProgramsChoosing Programs

High Demand, Low CostHigh Demand, Low Cost Low Demand, High CostLow Demand, High Cost Low Cost, Low DemandLow Cost, Low Demand High Cost, High DemandHigh Cost, High Demand

Projected BenefitsProjected Benefits

PurchasingPurchasing

All legitimate vendors have the right All legitimate vendors have the right to participate in public enterprisesto participate in public enterprises

Libraries should spend the least Libraries should spend the least amount on products and servicesamount on products and services

Conflicts of interest should be Conflicts of interest should be avoidedavoided

The BudgetThe Budget

Derived from long and short term plansDerived from long and short term plans Is an itemized summary of probable Is an itemized summary of probable

expenditures and incomes for a given time expenditures and incomes for a given time periodperiod

Usually includes a systematic plan for Usually includes a systematic plan for meeting expensesmeeting expenses

Is itself a planning document, typically Is itself a planning document, typically presented in standard accounting format, presented in standard accounting format, emphasizing revenues, expenditures and emphasizing revenues, expenditures and costscosts

The BudgetThe Budget

Two sections:Two sections: Operating Operating

Describes annual costs of service by Describes annual costs of service by department or program, and anticipated department or program, and anticipated revenuerevenue

CapitalCapital Often covers several years. Includes moneys Often covers several years. Includes moneys

for equipment, construction and other large for equipment, construction and other large projectsprojects

Budget TypesBudget Types

Line Item (Most Common)Line Item (Most Common) Zero-Based Zero-Based Program Program

Line-ItemLine-Item

See text example, p. 491See text example, p. 491

Zero Sum BudgetingZero Sum Budgeting

This involves battle over limited This involves battle over limited resources either implicitly or explicitly. resources either implicitly or explicitly. Modern economic theory (dating back to Modern economic theory (dating back to the Enlightenment) makes it clear that the Enlightenment) makes it clear that the world is not like that - buying and the world is not like that - buying and selling creates value; confiscation selling creates value; confiscation destroys it. destroys it.

Starts from zero each year and built Starts from zero each year and built from the ground upfrom the ground up

Program BudgetingProgram Budgeting

Programs are isolated and costs, both Programs are isolated and costs, both direct and indirect, are attached. Costs direct and indirect, are attached. Costs are allocated between the various are allocated between the various programs so alternatives can be logically programs so alternatives can be logically considered and adopted. For libraries, considered and adopted. For libraries, this generally includes: Acquiring, this generally includes: Acquiring, organizing, disseminating and organizing, disseminating and interpreting materials through interpreting materials through circulation, administration, reference circulation, administration, reference and outreachand outreach

The Budget ProcessThe Budget Process

Director has primary responsibility, Director has primary responsibility, but staff should be part of the processbut staff should be part of the process

Previous year’s budget and Previous year’s budget and expenditure statements are starting expenditure statements are starting pointpoint

Data collected as output measures Data collected as output measures help with budget distributionhelp with budget distribution

Be flexible but cautious: Don’t move Be flexible but cautious: Don’t move funds to a new line without permissionfunds to a new line without permission

The Budget ProcessThe Budget Process

Budget guidelines prepared several Budget guidelines prepared several months before start of fiscal year and months before start of fiscal year and distributed to participantsdistributed to participants

Participants given timetable for stages of Participants given timetable for stages of submission and informed of any constraintssubmission and informed of any constraints

Departments & administrators gather info Departments & administrators gather info about current operations, future programs, about current operations, future programs, personnel and equipment needs, and other personnel and equipment needs, and other unusual expensesunusual expenses

The Budget ProcessThe Budget Process

Departmental budgets are merged and Departmental budgets are merged and presented to Finance Committee of the presented to Finance Committee of the Board for considerationBoard for consideration

New programs and other expenditures are New programs and other expenditures are explainedexplained

The Board approves the final budget, The Board approves the final budget, which is then transmitted to funding which is then transmitted to funding body(ies) and explained at public hearingsbody(ies) and explained at public hearings

Municipality collates all budgetary Municipality collates all budgetary requests and allocates funds based on requests and allocates funds based on assessment of need and meritassessment of need and merit

Retrenchment BudgetsRetrenchment Budgets

Retrenchment: Retrenchment: A cutting down or back; reduction. A cutting down or back; reduction. A curtailment of expenses. A curtailment of expenses.

Sometimes, only three strategies are Sometimes, only three strategies are available:available:

Cut servicesCut services Increase organizational productivityIncrease organizational productivity Identify new sources of financial resources Identify new sources of financial resources

Retrenchment BudgetsRetrenchment Budgets

Freeze employmentFreeze employment Reduce or eliminate part-time Reduce or eliminate part-time

employeesemployees Use seniority system in future cutsUse seniority system in future cuts Reduce materials budget (most Reduce materials budget (most

common)common) Implement the proposed cuts in Implement the proposed cuts in

segmentssegments

Capital Budgets Capital Budgets

Multi-year plans for “big ticket” itemsMulti-year plans for “big ticket” items Based on capital improvements list from Based on capital improvements list from

library’s plan and arranged in priority of library’s plan and arranged in priority of execution, assigned probable costs, possible execution, assigned probable costs, possible methods of financing, and other pertinent methods of financing, and other pertinent informationinformation

Use same budgeting principles as do annual Use same budgeting principles as do annual budgetsbudgets

Draw on different sources of revenue, Draw on different sources of revenue, referenda, specific fund-raising campaigns, or referenda, specific fund-raising campaigns, or borrowingborrowing

Budget Presentation: Getting Budget Presentation: Getting Your Library’s “Fair Share”Your Library’s “Fair Share”

Fair Share = How much you receive in Fair Share = How much you receive in relation to other agenciesrelation to other agencies

Credibility and Community ConfidenceCredibility and Community Confidence Mirror the best self-image of the decision Mirror the best self-image of the decision

makers (Be efficient, effective, devoted and makers (Be efficient, effective, devoted and careful)careful)

Be forthright and honest with officialsBe forthright and honest with officials Aim is to make case that past funds used Aim is to make case that past funds used

effectively and requested funds are necessary effectively and requested funds are necessary and will be well-spentand will be well-spent

Statistics and visual aids can be helpfulStatistics and visual aids can be helpful Translate request Into service termsTranslate request Into service terms

Financial ReportingFinancial Reporting

Monthly statements of revenues and Monthly statements of revenues and expenditures are prepared for the Boardexpenditures are prepared for the Board

Generally compare current status with Generally compare current status with anticipated amounts based on budget anticipated amounts based on budget forecastsforecasts

These reports feed into annual financial These reports feed into annual financial reportsreports

Libraries must arrange for an annual audit Libraries must arrange for an annual audit conducted by an independent CPA conducted by an independent CPA (Competitive bidding required)(Competitive bidding required)

Financial PracticesFinancial Practices

Handling money:Handling money: Fines and other feesFines and other fees Photocopying, etc.Photocopying, etc.

Should be accounted for and deposited Should be accounted for and deposited quicklyquickly

Petty cash fundsPetty cash funds Pay for small, everyday expenditures. Must Pay for small, everyday expenditures. Must

be carefully recorded and monitoredbe carefully recorded and monitored

Financial PracticesFinancial Practices

Library BookkeepingLibrary Bookkeeping Keep expenditures and encumbrances Keep expenditures and encumbrances

within the budgetwithin the budget Endowment funds are separated from Endowment funds are separated from

municipal appropriations for purposes of municipal appropriations for purposes of accountabilityaccountability

Financial PracticesFinancial Practices

InsuranceInsurance Need up-to-date inventories and Need up-to-date inventories and

evaluations of library materials, catalog evaluations of library materials, catalog records and equipmentrecords and equipment

Fire and extended coverage insurance is Fire and extended coverage insurance is usually maintained on buildings and usually maintained on buildings and contentscontents

Financial PracticesFinancial Practices

Three elements used to estimate Three elements used to estimate amount of insurance needed:amount of insurance needed:

1. Average per volume cost plus acquisition 1. Average per volume cost plus acquisition and accession feesand accession fees

2. Rare books or other materials which may 2. Rare books or other materials which may be listed and evaluated separatelybe listed and evaluated separately

Contents of the catalog, the cabinets or Contents of the catalog, the cabinets or computers and the terminals themselvescomputers and the terminals themselves

Financial PracticesFinancial Practices

Rate of obsolesce for materials varies by Rate of obsolesce for materials varies by discipline, and must be accounted for in discipline, and must be accounted for in insurance estimateinsurance estimate

Library should have document listing size of Library should have document listing size of collections according to classification, with collections according to classification, with average cost of replacement for each average cost of replacement for each disciplinediscipline

The policies should be reviewed every 3-4 The policies should be reviewed every 3-4 years to make sure coverage remains years to make sure coverage remains adequate adequate

SummarySummary

Financial responsibility, the Board Financial responsibility, the Board and the Directorand the Director

A budget is a planA budget is a plan Funding sourcesFunding sources Presenting your proposed budgetPresenting your proposed budget Financial practicesFinancial practices