Wednesday, September 29, 2010

Budget and Finance: A Librarian's Guide to Effective Budgeting: Day One

When I saw the announcement for this PLA course I knew that it was just what I needed for my own staff development. Even though I had the experience of managing the AskUsNow! Grant budget for several years, and now have had the great learning experience of coordinating the WMRL budget process through two cycles, I knew that it would be very useful to get a better understanding of the types of budgets that are used by organizations and determine how to most effectively relate the budget to the programs offered by the WMRL (especially as we launch into a new strategic planning process). So yesterday I drove up to Saratoga Springs, NY and spent today (Wednesday, Sept. 29, 2010) in the community room at the Saratoga Springs Public Library with instructor Sandra Nelson and a group of about 40 participants ranging from NY, MA, NH, CT, OH, two of us from Maryland, and even one person from Missouri. Most people are library directors or assistant directors, and there are even a few trustees in attendance.

The part of the day that I felt was the most insightful was about the different types of library budgets. There are four types, and each has benefits and drawbacks.

Line Item Budgets (#1) are most commonly used (as at WMRL). Many libraries are required to use line item budgets by their county or other funding agency. They are familiar and in common use and serve as the first step for most other types of budgets. The drawback is that they don’t show you the cost of specific programs and tend to reinforce the status quo, since libraries tend to simply increase or decrease budget lines as funding varies. Stuff tends to collect that may no longer be priorities.

Program Budgets (#2) takes a line item budget a step further and shows you subsets. It informs you about your investment and shows you the relationships among programs since it links the priorities of the strategic plan to the budget. It can show you how expensive a program is that you hadn’t realized had a very high cost (such as having 2 staff take 2 days to create up a bulletin board display). A drawback is that it’s more time consuming since it adds a step. Doing a Program budget may make some staff uncomfortable if they interpret that you don’t trust them, when in fact you really just need to be able to make data-driven decisions. You’ll want to use a Program budget to develop a cost-benefit analysis. It is useful when you are seeking funding for a specific program. Grants are a common example of a Programmatic budget. Most libraries go as far as selective program budgeting.

A Performance Budget (#3) starts with the Program budget, but goes to the next step and prescribes outcomes, which are expected to be achieved. It encourages accountability and forces the library to take the program budget seriously. The lead drawback is that this type of budget can be very time consuming and if the plan isn’t good it can result in something that just doesn’t make sense.

A Zero-Based Budget (#4) is really the complete opposite of a Line Item Budget and starts out with no funds being authorized for anything in particular. Every cent must be justified every budget cycle and every moment of staff time is developed programmatically. The benefit is that you know how much every single thing costs and it allows you to let your funders know exactly what you do. As a new director, applying some of the zero-based approach to your own planning can help to force you to do the math. The drawback is that it’s a brutal process: It’s extremely time consuming and barely any organization stays with it after going through it once. Staff of course feel highly threatened. Very few people know how to do this type of process properly and generally only organizations that have been specifically asked by funders to take part in the zero-based approach do it.

Useful points made during the day (some are simply affirmations of what we’d already expect):

1. The projection for libraries isn’t good. Libraries need to embrace the greatest good for the greatest number of people. We can’t be wimps about getting complaints from one or two people, whether they be members of the public or staff members. Don’t be afraid to reallocate resources!
2. Budgets are data-driven, defendable, and defensible.
3. The most important part of the strategic plan is the implementation.
4. Don’t take a crisis to your board/funder. Give them a solution. A budget that is monitored appropriately gives you the forewarning to solve a potential budget problem before it’s a crisis. For instance, if you’re spending a lot more on heating during the winter than usual, don’t wait until the spring to try to resolve it.
5. Use budget as a tool for accountability and make the adjustments as necessary.
6. Sooner or later you need to figure out how long it takes to complete a specific activity. What does it cost to deliver a specific service? That leads back to the programmatic budget.
7. The current reality is that the public is not willing to pay for the services that they receive. As long as that dynamic remains, special tax districts are doing better than libraries receiving a line item in the general fund.
8. Each of us is always talking about our own unique library situation, which makes is very hard to compare apples to apples. However, thankfully you can compare budgets year within your own organization.
9. Libraries are moving in the direction of greater public/private relationships – that’s why foundations are becoming increasingly important. Libraries will be unlikely to be able to maintain current levels of service without developing these relationships.
10. It’s usually better to have a board member present the budget to the county than a library employee. They have more authority in the funder’s eyes. Board president and library director presenting together would be fine, but you want to avoid having the library employee seem to be in a self-serving role.
11. In some library budgets, Personnel must be totally separated from Operations and other expenses. Usually this is due to a county requirement to control increase/decrease of FTEs.
12. Some place in the budget you need to show that you have planned for capital maintenance: replacement for the roof (20 years), HVAC (10-15 years), carpet (5 years), etc.
13. Training is the last thing that should be cut from library budgets, although it’s often the first to go (Sandy’s opinion, which I agree)

That’s all for Day 1. More tomorrow! I may not get a chance to post until the weekend though, since I plan to drive back tomorrow evening. Thanks for reading. :)

-Joe

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