Fiscal Responsibility: Practicalities & Realities

Fiscal Responsibility: Practicalities & Realities
MHLS Across The Board | Fall 2007

“Your community will be much more willing to provide the resources necessary for high-quality library service when they know library finances are carefully controlled and monitored.”

– Handbook for Wisconsin Public Library Trustees

In part one of our two part series on Fiscal Responsibility we talked about oversight of your library’s finances. This issue of Across the Board addresses practical ways to go about budget development and implementation.

The steps for budget development are:

Step One: Identify services based on community need
Step Two: Determine the costs of running the library
Step Three: Calculate your total receipts for the budget year

While the development of a budget is a team effort, involving the library director, staff, trustees and the community, the actual drafting of the budget is handled by the library director and a Budget or Finance committee of the board. The whole board will then review it with the director, propose changes, and finally approve a finished budget.

Step 1
Begin by defining the library’s goals for the upcoming year based on the plan. What services will be expanded, reduced or maintained at the previous year level to meet the community needs identified through the planning process? Are there new services you will want to implement this year? Base the budget on those needs. For example, if the community identified one of your primary roles as providing reading, listening and viewing materials for pleasure then the board should examine the previous years activities and decide if the library needs more materials to meet the demand or will the previous material budget be adequate remembering possible inflation. The goal is to be sure the materials line is sufficient to satisfy community needs for the next year. Another example would be if you intend to increase programming, what will the cost be for materials and speakers? How much will you budget for extra staff time to plan programming? What publicity costs are needed?

Step 2
Examine your budget categories. Review what you spent the previous year and consider the changes you identified in Step One. Major budget categories are:

  • Personnel: If your library services are expanding, pay careful attention to increased demands on staff time. Budget annually for cost of living increases for staff. Related to the Personnel line is the benefits line. You must budget for FICA (Federal Insurance Contributions Act), and must also consider health and retirement plans. Providing good staff benefits helps keep good employees and creates a more positive working environment which will be reflected in better customer service to your community.
  • Materials: With the increased demand for a variety of material formats, you will want to build a materials budget that can meet this need. Included in this category should be a line for access to electronic databases. Offering new and more materials is one of the most visible reasons people will vote for an increase in the budget.
  • Building Operation and Maintenance: Calculate these based on previous years plus possible increases in utility costs, insurance and an assessment of ongoing capital improvements. Major capital improvements should come, not from operations budget, but from a capital fund. Included here is office equipment such as copiers, fax machines etc.
  • Technology: This is a category that many boards have neglected, but it must be included in every public library budget. You should be replacing between ten to twenty percent of your PCs every year. This means if the library has twenty computers, you should consider buying two to three new ones annually. If you intend to expand public access workstations, that would be additional. Although this may sound exorbitant, computers have a life span of five to seven years and if you do not regularly add new machines, you will eventually find yourself needing to purchase ten machines in one year. You must also annually consider adding bandwidth. If you intend to add public access or staff workstations, this is a must, but even maintaining your current level of Internet access will not allow you to keep up with new web sites patrons want to use. More and more web sites and web-based applications are being designed for high bandwidth use. Sites like YouTube that are multimedia and distance learning applications that involve interactivity take up more bandwidth than traditional web sites.
  • Continuing Education: You should budget for staff to attend workshops and conferences. The MHLS Incentive Program offers some reimbursement for this, but the library needs to support staff in continually developing and learning the skills necessary for their ever changing environment.
  • Programming: If you do not have this category, you should add it. Putting even a small amount in a budget category will create recognition of that service and give it room to grow.
  • Programming: If you do not have this category, you should add it. Putting even a small amount in a budget category will create recognition of that service and give it room to grow.

Regular, annual budget increases will be necessary to keep salaries up with cost of living and to deal with ever rising costs for basics like heating oil, books and other operating expenses. Paying for new or expanded services may also contribute to an increase. Additional resources for new services can also be made available by reallocating resources from a lower priority to a higher priority service or by eliminating programs or services that are no longer a community priority.

Step 3
Determine your expected income for the coming budget year. Different libraries have different vehicles for obtaining funding. Depending on your type of library you may have a public vote on your budget or you may need to present your budget to your municipality. You also receive some county funds, state funds (Local Library Services Aid) and income from gifts or endowments, library charges or interest. If there is a gap, you can either attempt to get an increase in your tax support or identify areas in your budget that you might be able to secure funding from other sources or ask your Friends group for a specific item. As you read in Part 1 of this series, securing adequate funding is the responsibility of the board. Trustees are especially effective budget advocates as you are taxpayers yourselves, volunteering your time to the library. Your neighbors are more likely to listen to your justifications as you are taxing yourselves as well as them. It is your job to speak up in support of your library’s budget.

  • Budget Calendar & Cash Flow: To streamline the process of budget development and to allow adequate time to gather input from all stakeholders it is advisable to create a budget calendar. Your budget calendar should begin 6-9 months prior to your fiscal year and include dates for completion, definition of tasks and assignment of responsibility. [Sample available on the MHLS Trustee Resources web site]
  • Cash Flow Management is the process of monitoring, analyzing, and adjusting your income and expenses. The most important aspect of cash flow management is avoiding cash shortages caused by having too great a gap between cash intake and disbursal. Mark when payments from your tax source or municipality come in, your fundraising appeals and county monies come in as well as when regular bills are due – for example, electric, payroll, FICA, retirement, etc. You can borrow, set up a line of credit or – more desirably- build a fund balance to cover these gaps. A fund balance is a reserve fund that is based on a percentage of your budget. Determine how many months you need to function, before your funding comes in. If it is three months, you should consider having a fund balance at 25-percent of your operations budget.
  • Implementation & Monitoring: While smaller libraries often still use a cash basis system, most libraries should use an accrual system. On a cash-basis system revenues are recognized when cash is received and expenses are recorded when bills are paid. In accrual-basis accounting, income is realized in the accounting period in which it is earned rather than when the cash from these fees and donations is received. Expenses are recorded as they are owed (e.g. when supplies are ordered, the printer finishes your brochure, employees actually perform the work, etc.), instead of when they are paid.

The Board can fulfill its fiscal oversight role beyond the approval of the budget, by establishing financial policies (purchasing, gifts/donations, investment) and by reviewing all library expenditures. Basic library financial procedures are as follows:

  1. The library board approves the annual budget and any budget adjustments necessary during the year. The board should define the circumstances under which a budget amendment would be necessary. A general rule of thumb is that overspending more than ten percent of a budget category would trigger a required board approved budget amendment.
  2. The library director is delegated authority to make purchases within the budget and according to board-approved purchasing policy (samples available on the MHLS Trustee Resources web site).
  3. The library director should provide a monthly:
    • Total Budget
    • Year-To-Date receipts and expenditures
    • Balance of Budget
    • List of checks written that month
    • Explanation of major changes
  4. At the monthly board meeting, the library board reviews the expenditures, and reviews and approves the financial statement.

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