Budgeting for the twenty-first century

The Bottom Line

ISSN: 0888-045X

Publication date: 1 March 2000

Keywords

Citation

Holt, G. (2000), "Budgeting for the twenty-first century", The Bottom Line, Vol. 13 No. 1. https://doi.org/10.1108/bl.2000.17013aab.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2000, MCB UP Limited


Budgeting for the twenty-first century

Keywords Financial planning, Decision making, Organizational change

My library has just completed its Year 2000 fiscal year budget. In preparation for the millennium, dramatic shifts, right? Big changes, right? Not at all. But not more of the same either. If you look back to 1990 or 1995, the FY2000 budget is significantly different from those of the recent past. If my budgeting officers and I are right, this budget forms another step in transforming our library to make it viable in the twenty-first century.

Like all the other institutions that form the skyline of a community's cultural landscape, library professionals fall prey to all the trendy management-trends that float airily through the business world. It is axiomatic that these feel-good seminars never provide training in the craft of budgeting.

Real library leadership involves a director's willingness and ability to make hard decisions at the right time. The hardest of these decisions involve staff (selection, retention and disciplinary action) and the budget (crafting it and keeping it).

The annual budget is where all the talk about change falls into a cold bath of fiscal reality. The annual budget is where a director's values shine through the clouds of good intentions, visions and plans.

Leaders who understand budgeting recognize it as the principal tool by which a director moves an institution forward. Changes in budget lines cater not only to this year's spending needs but also a director's strategic sense of where she/he expects the library to be in two or three years. The annual budget, therefore, is the primary tool on which libraries build their future.

No two institutional budgets are ever alike. But all of today's budgets to a greater or lesser extent have to respond to similar external and internal realities. This column is about some of these realities and how my administrative staff and I dealt with them for the FY2000 budget.

Affordability

Affordability is determined by the amount of annual income compared with what an administration and board sees as needing to be done. Libraries, unfortunately, are facing a higher inflation rate than Allen Greenspan and his colleagues keep reporting for the economy as a whole. Books and serial prices, healthcare costs and salaries for all levels of knowledge workers are increasing faster than the official inflation rate. The latter condition is exacerbated by the labor-intensive ways in which library services often are organized, advancing public-sector unionization, and the enormous pressures on local government to pick up services previously performed or at least paid for by federal and state governments. In the face of these conditions, it takes steady budget increases just to stay even. Because of this situation, my financial admonition to library directors is this: whining does no good. If you don't have money, figure out how to get it. If you can't get it, either learn to deliver services within your means or get out of the way so others can make the attempt. Because St Louis Public Library's tax support will increase slightly in FY2000, I allowed the FY2000 budget to increase by 4.5 percent. I allowed this (by our standards) generous increase, first, because we had the money and, second, because FY2000 is a significant transition year for us. The probable percent-increase will be smaller in FY2001 and yet smaller in 2002.

Incrementalism

Even the best of libraries do not change quickly. Because of the complex bureaucracy that library professionals have built around their occupation, cutting one line item has influences that go throughout the system. If the budget is used as a change tool, unless an unexpected crisis occurs, directors will make mostly incremental shifts in budget lines. SLPL's "big change" for FY1999 and FY2000 is to hold down the rate of its salary-line increase. SLPL's total FY2000 salary line, which constitutes almost exactly 50 percent of the institution's annual operating expense, is only 3 percent greater than actual salary expenditure in FY1999. Stated another way, this decision means that in an annual salary budget of $7.4 million, all individual merit increases and all changes in base and range of SLPL salaries for 255 FTEs in FY2000 must come out of a pot of $268,000. This financial reality is softened by the closure of two or three branches for remodeling part or all of the year. Staff "float" as a result of construction, temporary sequestering and/or reassignment of positions, a vacancy rate higher than in the three recent years and redefining some jobs will add considerable salary savings. And, of course, every dollar saved on salary is a smaller but still obvious saving in FICA, retirement costs and other benefits.The limitation of a salary increase to 3 percent, therefore, has ramifications for work styles, training, communications and morale through the entire financial system.

Statistical basis for financial decision making

Statistics tell a library policy maker how the institution is doing, not what to do to reach a bright future. A rich statistical system provides a sound platform for budget making. My best budget example comes from collection development. In 1995, SLPL was able to increase its collection development budget from $2 million to $3 million annually. Combined with major changes in our collection-development policy and a deep-weeding program, this increase has allowed us to rapidly modernize our collections, both those on paper and film and those that are computer-based. This expenditure has had differential effects. Youth circulation along with attendance at outreach programming and library visitation has increased at nearly every location. Adult use of paper-based reference and research collections, meanwhile, has declined. At the same time, demand for computer-based information has increased. An excellent in-house statistical gathering and reporting system has helped SLPL make sound future-oriented decisions. The system's great weakness is that we have just begun to find ways to measure computer and Internet usage. However, the overall statistical system has allowed us to know what is and is not circulating, busy and slow locations, increased reference everywhere and dramatically increasing attendance. Without such information, budget decisions would have to be made blindly and/or as acts of faith. SLPL's FY2000 budget carries an increase of only $174,000 (6 percent) over the $2.6 million actual collection-development expenditure for FY1999. That 6 percent will not keep up with rising costs of paper and electronic materials. Material selectors will have to make still more choices, often between paper and electronic items just as they have been doing in previous years.

Benefits

As it does for most cultural institutions and businesses, healthcare insurance drives SLPL's benefits costs, and, they threaten to drive the whole annual budget. From FY1993 through FY1999, SLPL's cost for healthcare insurance rose by around 3 percent annually. In FY2000, the increase will be 20 percent. And that figure will provide the same coverage that was available in 1999. From 1993 to 2000, the dollar amount for SLPL healthcare cost increased from $343,000 to $450,000, an overall rise of 31 percent. In 1993 and again in 2000, healthcare occupies 3 percent of the library's total operating budget. This similar percentage is the product of a dynamic increase in SLPL's tax revenues. Now, however, SLPL's budget is flat, and healthcare costs will continue to escalate. It is no wonder that so many private-sector companies are moving away from paying full healthcare costs. If the costs continue to rise, it is inevitable that the library will have to move to greater benefits cost-sharing with employees.

Training

If libraries are going to maintain their place as high-quality knowledge institutions, staff need lots of training. In 1990, SLPL spent more on recruiting new staff than it did on training current staff. In that year, staff training expense occupied less than 1 percent of the total budget. In FY2000, contract and staff-instructed training will account for over 3 percent of the total operating budget. And that percentage will grow in the years ahead. Hidden away in "professional fees" is a similar level of expense to pay for contract staff who will provide computer training to the public. In a city with high poverty and low family computer ownership, the library is absorbing a great deal of the training shock. Currently we are providing nearly 160 hours of public computer training per month. By early 2000, that number will have moved to over 200. And this effort is for a city with only about 340,000 population. Training for staff is an absolute twenty-first century necessity. Training for the public is in great demand in our town. It is a new role or function for the St Louis Library. Budget adjustments had to be made to accommodate the new activity.

Grants

Years ago, SLPL administrators and board decided that grants and gifts would be accounted for separately outside the operating budget. Looking at the library's overall operating budget without considering major grants is to miss the options that "soft money" creates. For example, grants from the Gates Foundation and the State of Missouri have paid for a large amount of SLPL's recent computers and automation software. Other major gifts and grants have strengthened children's services and collections. Some grants, however, are like Trojan horses. Grants like those from the Gates Foundation are particularly tricky. Accepting Gates computer-lab money creates the budgetary commitment to provide computer training for the public. The public training discussed previously above is partly an effort to fulfill SLPL's commitment made when the institution accepted Gates Foundation grants.

Capital construction

SLPL has to undertake all of its capital projects out of a single revenue source that also includes all funds for operations. The library's board last year issued $16.5 million in revenue bonds to hasten the investment in facilities. The administration's double-barreled budgeting job, therefore, is to limit spending to pay for current operations and buildings while at the same time limiting future expenditures so that bonding interest and principal payments do not overwhelm future operations. In this setting, managing a multi-year $50-$60 million construction budget within a $17 million annual budget is a little like my little mouse sleeping with your big elephant.

An additional problem occurs because many libraries' incomes, including that of St Louis Public, lay flat from year to year or rise (or drop) dramatically in a single year. Managing incremental changes in staff and services in these conditions is like the picnic planner trying to match packages of six hot-dogs and eight buns. Working a capital program into such budgets is perplexing, especially when furnishings, plumbing and materials all wear out on quite different schedules. Putting off maintenance is no solution. It only makes later maintenance and or rehab more expensive.

Program cuts

Should cuts be in most-visible or least-visible ways? If the national and regional economy shudders downward or if an individual library has to absorb some large shortfall, it makes more sense to cut whole programs than to nickel-and-dime healthy programs into decline.

Leaders of financially healthy institutions also make budget cuts. Although she had financial room to operate, my predecessor at St Louis Public Library closed five branches in one year. A great deal of the library's current financial health is based on that unpopular 1991 action.

Along with trimming back certain collection categories, SLPL administrators have trimmed many maintenance, facilities and marketing lines as well. Most of these reflect improved resource management in recent years. Some of the reductions are benefits of greater attention from the electronic and print press. These benefits are derived from a systematic and prolonged marketing effort.

I could provide many more examples. Whether cuts or increases, they all make the same point: budgeting is a primary tool for institutional change. The more knowledge and the more ability to actually control annual budgets, the more a library director and/or the library board can determine the future of the institution. Talking about change is easy. Making and holding the line on decisions about the amount of money on particular budget lines is how library leaders move from their institutions from stagnancy to a brighter future.

Glen Holt is Executive Director of the St Louis Public Library