Chapter 4: Finances
After reading this chapter, you will know the following:
- Where library revenue comes from
- How to determine spending and create a budget
- The role of the board in approving and implementing a budget
- What needs to happen with monthly and annual finance reviews
How a budget is crafted sets the stage for how the library will run. The budget determines where to focus your energies over the next year by allocating funding to the areas that require the most focus. Understanding where the library funding comes from and how it is expended is important in ensuring a financially stable library. A budget includes revenues and expenditures. While the library director and staff do the work of crafting the budget, the board plays a critical role in approving the budget and monitoring the ongoing expenditures. When well crafted, the budget becomes a tool that library director and board will use as a guide throughout the year.
Where does the library’s money come from? Many libraries receive the majority of their funding from local or municipal funding. While every library is different and different states have different funding models, this section discusses a typical breakdown for Illinois libraries and provides an example budget in table 4.1.
Property taxes usually make up the majority of a library’s revenue, but other types of taxes can also be included. In Illinois, many libraries receive personal property replacement tax and some libraries receive sales tax from their local municipalities, county, or state.
Federal or State Funding
Depending on their state, libraries may receive regular, sustainable funding or it may be more project or need based. Federal funds come from the LSTA (Library Services and Technology Act) and E-rate (Universal Service Program for Schools and Libraries) and may flow directly to the library or through the state.
Fines and Fees
This revenue category includes fines for overdue and lost books, copier and printing fees, as well as things like rental fees. Examples of such fees include meeting room rentals or equipment rentals. For example, a library might rent out its meeting room and charge a fee to use the room or not charge to use the room but charge for the use of equipment in the room.
Grants are often a way to supplement the library’s budget. Some grants have a simple application process and can be applied for annually, which means they can be used as a regular source of income, while others may be a one-time grant to fund a special project. Depending on the state laws for your budgeting process, you may want to keep a grant line in your budget and allocate some money in that line, even if you don’t expect to apply for or receive a grant. In some states, you will not be able to expend funds if you have not delineated those funds in a budget line.
Foundations and Friends of the Library
Foundations and Friends of the Library are separate organizations from the library, though their mission is to fund-raise for the needs of the library. If these groups supply a consistent source of funding, consider making them a separate budget line. The library director will typically have a close relationship with a Foundation or Friends of the Library group, and being able to track the funding more closely can be helpful in ensuring you recognize these groups for their efforts.
Donations, Bequests, and Endowments
In addition to donations made in honor of someone, the library may also receive bequests, which are donations left to the library in someone’s will. Some libraries receive an annual revenue stream called an endowment, which is typically from a group or organization that has invested funds that accrue interest. The monies from the interest are given to the library on an annual basis to supplement the expenses of the library. An endowment may specify how the monies from the endowment may be spent, such as on collections or programming, so a library will need to determine if it wants to accept the terms of the endowment before receiving the monies. A library might also get larger donations for capital projects, which would increase this category’s percentage of the budget.