Budget and Finance Budget and Finance LS 530 LS 530 Dr. Weddle Dr. Weddle [email protected] [email protected]
Dec 18, 2015
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