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AE 13: Developing the Library Budget

This Administrative Essential covers:

  • The process of budget development
  • Sources of funding
  • Donations and grants
  • Desirable budget characteristics
  • Terms and distinctions
  • Sample format of a minimal library budget

The development and execution of the library budget is one of the library director's most important tasks. The process should be integrated with the planning and evaluation of library services. Once reviewed and approved by the library board, the budget serves as a roadmap for the delivery of library services in the subsequent year. This chapter will outline a typical procedure for creating and approving the library budget. The next chapter will discuss the execution and administration of the budget.

Why budget? Although library boards are vested "exclusive control of the expenditure of all moneys collected, donated or appropriated for the library fund," the municipality is empowered to levy a tax or appropriate funds to operate a public library. Consequently, the library fund is included in the budget of the municipal body that established the library. While there is no statutory requirement that libraries develop budget requests to submit to their governing authorities, most municipalities require them, and a carefully considered budget is one of the responsibilities you have in your role as a steward of public funds. In order to operate effectively and maximize your ability to obtain appropriate local funds, you and your board should create and follow a budget each year.

By going through a formal budget process, you, your library board, and your municipality establish a fiscal foundation for library operations. The budget process provides you with an opportunity to request necessary funding for established services, as well as supplemental support to address increased use or provide new services. The budget also creates a way to track required revenues and reportable expenditures. Finally, since the municipality is required to hold a public hearing, it allows public input on municipal services, including the library.

Some municipalities may not invite input on the library appropriation, choosing instead to budget a minimal amount or a fixed sum. But Wisconsin law requires that "every municipality shall annually formulate a budget and hold public hearings thereon," s. 65.90(1). Consequently, even if municipal officers want to budget a fixed sum for library operations, the budget process and the public hearing requirement may be the library's only opportunity to request additional funds.

The process of budget development

The first step in developing a library budget is to consider what the library hopes to accomplish in the next year. The availability of a current long-range plan will make this step much easier, because the plan should already document your community's library service needs and the library activities necessary to meet those needs. If you have a long-range plan, ask your board to review it and make any necessary adjustments or revisions (see AE 16: Planning for the Library's Future). You might solicit suggestions from library staff on what additional materials or personnel may be required or ways to adapt current resources to meet the service plan. Then discuss with the board how the library's goals may affect the budget-what resources will be required to carry out the service plan, and whether the goals are still reasonable, considering the current economic climate.

The second step is to determine the total financial resources necessary for what the library wants to accomplish in the coming year. Often, increased funding is required because of higher costs, increased usage, or new services that will be offered. Funding for new services can also be made available by shifting resources from a lower priority service that can be reduced or eliminated to a higher priority service. Project the amount of other revenues you might expect based on past use or current trends. Using information from your municipality and vendors, try to gauge appropriate increases for regular budget items such as health benefits, retirement, energy costs, and subscription rates. You should be able to estimate the county payment for non-resident use. If you have contract income from neighboring communities, you should ascertain whether any change may occur.

You and library staff should prepare draft budget documents for your board following the format used by the municipality or county (see attached Sample Format of a Minimal Library Budget for an example). The library board president or a finance committee may have input or guidelines for the development of budget drafts. The board of trustees will then review the draft budget with the director, propose changes, and eventually approve a final budget.

After the written budget documents are approved by the board and submitted to the municipality or county, the final step in the budget process is securing the funding needed to carry out the planned service program. You or the board may be asked to make a presentation to the governing body of the municipality or its finance committee. Trustees, as volunteer public representatives, are especially effective budget advocates. Trustees may help to justify budget requests and request support from the municipality's governing body. And because the municipality is required to hold a public hearing on the budget, library supporters and advocates can express support for the library budget that was approved by your board. (See also AE 18: Library Advocacy Public Relations and Marketing.)

The municipal governing body must adopt a budget in time to submit to the county clerk for the tax levy. If the funding requested by the library is not appropriated by the municipality, the board may need to make adjustments to the final library operating budget. Budget changes may also be required during the budget year if, for example, certain expenditures are higher than expected, or costs are lower than expected.

Typical budget calendar:

  • February-March: the director reviews the annual report and the previous year's data to ascertain trends, patterns, and changes.
  • Spring: Library board reviews long-range plan and library service goals in light of trends.
  • Mid-year:
    • Library director and board review expenditures and revenues to determine if current budget is on track.
    • Municipality begins budget process, establishing budget calendar and guidelines.
    • Director reviews budget guidelines and obtains direction from the board for budget preparation.
  • Late summer: After discussion, director drafts a preliminary budget for the board.
  • Late summer/early fall: Board reviews preliminary budget and approves or revises the budget. The director makes adjustments to the budget based on board input and submits the board-approved budget request to the municipality.
  • Fall: Budget is reviewed by the mayor, administrator, or finance committee, who may request additional information from the director or board. Municipality holds a budget hearing, reviews budget, and may make amendments. Public may comment on programs or services before a final budget is approved.
  • Year end: Depending on municipal appropriation, the director and board may need to adjust expenditures.

Sources of funding

Local tax support: The bulk of the funding for most Wisconsin public libraries is provided by the municipality or county that established the library (or, in the case of a joint library, each of the municipalities).

Fines may be a source of library revenue, but the practice of charging fines is the subject of debate in the library community. Some argue that fines' effectiveness in recovering materials is questionable, the revenue stream is minimal compared to other sources, and fines can create ill feelings among borrowers, or discourage use of the library. Others say that, without fines, patrons would not consistently return materials on time. In establishing a fine policy, a library board should consider not only the possible revenue but also the potential negative public relations effects.

Under Wisconsin Statutes Section 43.52(2), public libraries may not charge fees for information-providing services. Fees and charges for such things as making computer printouts and using a copy machine are permitted. Most fees, charges, and sales by public libraries may be subject to the Wisconsin sales tax and any county and special sales taxes

County support: Under the county funding section of the law (Wisconsin Statutes Section 43.12), counties are  required to pay each public library in the county or in an adjacent county at least 70 percent of the cost of library services provided to residents of the county that do not maintain a public library. The only exception to this requirement is counties with a population over 500,000. Cost calculations for this requirement are to based on total library operating expenditures not including capital expenditures and expenditures of federal funds. Some counties provide higher levels of support, or may have additional agreements to reimburse for cross-municipal borrowing (compensation when the borrower from one community that provides library service instead uses another community's library).

Other county library funding considerations:

  • Municipalities can exempt themselves from the county library tax if they tax themselves for library service at a higher tax rate than the county. [Wis Stats. 43.64(2)(b)]

State funds: While Wisconsin does not directly fund public libraries with State funds, library systems are operated with funds appropriated by the State, based on the library's system membership, and your library system may provide grants or project funds to member libraries.

Federal funds: The Library Services and Technology Act (LSTA) program supplies seed money for projects that improve library services. The Wisconsin LSTA program is administered by the Division for Libraries and Technology in the Department of Public Instruction. Libraries can apply for grants in specific competitive categories. Other non-competitive categories are available to library systems, which may be distributed to member libraries.


Donations and Grants

Grants and gifts can be an excellent source of supplementary funds for special projects. In addition, community citizens are often willing to make significant donations to cover part or all of the costs of a new or remodeled library building.

Grants or donations should never be used to justify reducing or replacing the community's commitment to public funding. By doing so, you risk disenfranchising your benefactors-donors may stop giving, volunteers may disappear, and granting organizations may cease awarding grants to your library if they see that their efforts are resulting in reduced public funding for the library instead of improved service. (See also TE 24: Library Friends and Library Foundations.)

Desirable budget characteristics

There are four practical characteristics that your budget document should include.

  1. Clarity: The budget presentation should be clear enough so every board member, every employee, and every municipal governing body member can understand what is being represented.
  2. Accuracy: Budget documentation must support the validity of budget figures, and figures must be transcribed and reported carefully, without variation from the documentation.
  3. Consistency: Budget presentations should retain the same format from period to period so that comparisons can be easily made. All budgets are comparative devices, used to show how what is being done now compares with what happened in the past and what is projected to happen in the future.
  4. Comprehensiveness: Budget reports should include as complete a picture of fiscal activities as is possible. The only way to know the true cost of the library operation is to be certain that all revenue and expenditure categories are included within the budget.

Terms and distinctions

Types of budgets:

A line item budget is probably the most common form, listing specific revenue sources (such as levy, county payment, fines, print & copy, etc.) and expenditure categories (such as personnel, supplies, equipment, print materials, AV, serials, etc.)

A program budget (sometimes called cost center or product budget) is further broken down into particular program or project areas of service such as reference, collection, and programs (which may have further divisions such as youth, adult, and outreach).

A Zero base budget (more common in private industry than in local government) requires that each program be justified each year.

Types of guidelines for budget development:

When your municipality issues budget instructions, the guidelines may fall into the following categories. Steady state (or cost to continue) assumes no changes in the budget or allows only an increase for inflation. Controlled growth establishes a determined percentage for the total increase in expenditures. Selected growth establishes targeted or permitted increases (e.g., no new personnel but added funding for wage increases and health insurance). Overall reductions (what we dread most) calls for a set percentage for total decrease in expenditures, whereas selected reductions targets specific decreases (e.g. reduced staff hours; lower expenditures for materials and supplies; reduced hours and personnel).

Note that sometimes two types are combined. For instance, guidelines may allow increases for a set wage percentage increase and health insurance increases, but require a reduction in other expenditures. And, keep in mind that, while the municipality may establish budget goals with specific budget freezes in certain categories, it is ultimately the library board's authority to determine how the municipal appropriation and other available funds may be used to address library service needs in the community.

Operating vs. capital costs

In planning for the financial needs of the library and recording financial activities, it is important to keep operating and capital activities separated for reporting purposes. Operating activities are those that recur regularly and can be anticipated from year to year. Included as operating expenditures are staff salaries and benefits; books and other media acquired for the library; heating, cooling, and regular cleaning and maintenance of the building; and technology support contracts. Capital activities, in contrast, are those that occur irregularly and usually require special fundraising efforts or municipal borrowing. These would include new or remodeled library buildings, major upgrades of technology, or the purchase of expensive equipment or furnishings. Many municipalities have cost thresholds for purchases or projects to be considered capital expenses, such as projects in excess of $5000. You should present the operating and capital activities separately in your library budget. Some municipalities may have separate budget processes for capital requests, since they may borrow for large projects, then include the debt retirement in the general budget.

Revenue vs. expenditures

In both operating and capital budgets, you will need to show revenue (or income) and expenditures. Revenue should be broken down by the source of the funding-for instance, municipal appropriation, county reimbursement, system state aid, grant projects, gifts and donations, fines and fees. Expenditures are sometimes grouped in categories with lines representing similar products or services-for instance, personnel costs (salaries, wages, benefits, and continuing education), general operating costs (including office supplies, utility and communications costs, building and equipment maintenance, and insurance), contract fees (such as shared automation system), and collection costs (broken down into print materials, audio and video materials, and electronic services).

Municipal accounting vs. library accounting

As specified in state law, municipalities or counties make payment from the library fund only upon authorization of the library board. [Wis Stats. 43.58(2)] Since the municipality must hold the funds, it will also keep records of how those funds are used. This municipal accounting should be available to the library board upon request. However, even though your city, village, or county is performing this accounting function, it is advisable for the library to also maintain its own set of records. This will allow the board and director to know the status of finances in a timely manner (if there is a delay in getting figures from the municipality) and to help assure that there are no mistakes in how the municipality has recorded transactions and balances. In addition, there are types of funds (gifts, bequests, devises, and endowments) which can be managed directly by the library board; if the board chooses to manage these funds it must, of course, keep records for accountability. [Wis Stats. 43.58(7)] (See also Administrative Essential #14: Managing the Library's Money.)

Sources of additional information

Library of Michigan Financial Management Guide, Chapter 6, "Budgeting," Lansing Michigan, Library of Michigan, 2014. Available here: http://www.michigan.gov/documents/hal_lm_finmanref3_66296_7.pdf

DPI article, "Sales Tax Issues for Wisconsin Public Libraries:" https://dpi.wi.gov/pld/legislation-funding/sales-tax

Library Services and Technology Act (LSTA) grant program: https://dpi.wi.gov/pld/lsta

Sample Format of a Minimal Library Budget

Note: This simplified budget roughly corresponds to the Wisconsin Public Library Standards 2005 minimum operating budget of $60,000. Actual amounts will vary depending on local needs.

Operating Income

2005 Actual 2006 Budget 1st 6 months 2006 2006 year end estimate 2007 Budget Request
Municipality $ 34,700 $ 35,500 $ 35,500 $ 35,500 $ 36,300
County $ 22,000 $ 21,800 $ 21,800 $ 21,800 $ 22,000
State / library system $ 950 $ 950 $ 1000 $ 950 $ 1,050
Federal (LSTA) $ 550 $ 800 $ 385 $ 800 $ 1,050
Funds carried forward $ 0 $ 600 $ 500 $ 600 $ 525
Fines $ 700 $ 900 $ 390 $ 900 $ 945
Donations $ 500 $ 500 $ 360 $ 500 $ 500
Fees/other* $ 100 $ 100 $ 45 $ 100 $ 105
Transfer from gift fund $ 500 $ 500 $ 0 $ 500 $ 525
Operating Income Total $ 60,000 $ 61,650 $ 59,980 $ 61,650 $ 63,000
 

Operating Expenditures

2005 Actual 2006 Budget 1st 6 months 2006 2006 year end estimate 2007 Budget Request
Salaries and wages $ 24,150 $ 24,700 $ 13,100 $ 24,700 $ 25,650
Employee benefits $ 16,750 $ 17,000 $ 9,000 $ 17,000 $ 16,350
Books $ 6,465 $ 6,700 $ 3,900 $ 6,700 $ 7,035
Periodicals $ 1,330 $ 1,400 $ 600 $ 1,400 $ 1,470
Video materials $ 950 $ 1,000 $ 400 $ 1,000 $ 1,050
Audio materials $ 380 $ 400 $ 300 $ 400 $ 420
Software and databases $ 475 $ 500 $ 200 $ 500 $ 525
Contracted services $ 950 $ 1,000 $ 450 $ 1,000 $ 1,050
Staff, board continuing education. $ 950 $ 950 $ 650 $ 950 $ 1,050
Public programming $ 475 $ 500 $ 200 $ 500 $ 525
Telecommunications $ 1,425 $ 1,500 $ 450 $ 1,500 $ 1,575
Utilities $ 3,800 $ 4,000 $ 2,800 $ 4,000 $ 4,200
Equipment repair $ 475 $ 500 $ 300 $ 500 $ 525
Supplies $ 1,425 $ 1,500 $ 1,000 $ 1,500 $ 1,575
Operating Expenditures Total $ 60,000 $ 61,650 $ 33,700 $ 61,650 $ 63,000
 

Capital Income

2005 Actual 2006 Budget 1st 6 months 2006 2006 year end estimate 2007 Budget Request
Municipality $ 2,000 $ 3,000 $ 3,000 $ 3,000 $ 3,000
 

Capital Expenditures

2005 Actual 2006 Budget 1st 6 months 2006 2006 year end estimate 2007 Budget Request
Equipment replacement $ 2,000 $ 2,000 $ 1,200 $ 2,000 $ 2,000
New shelving   $ 1,000 $ 200 $ 1,000 $ 1,000
Capital Expenditures Total $ 2,000 $ 3,000 $ 1,400 $ 3,000 $ 3,000
 

Total of All Expenditures

$ 62,000 $ 64,650 $ 34,750 $ 64,650 $ 66,000

*State law requires that all information-providing public library services be provided free of charge. (See Trustee Essential #8: Developing the Library Budget for details.)


Administrative Essential: A Handbook for Wisconsin Public Library Directors was prepared by the Division for Libraries and Technology. © Copyright 2008 Wisconsin Department of Public Instruction. Duplication and distribution for not-for-profit purposes permitted with this copyright notice.