Long-range financial planning for libraries

Citation

Holt, G. (2002), "Long-range financial planning for libraries", The Bottom Line, Vol. 15 No. 3. https://doi.org/10.1108/bl.2002.17015cab.001

Long-range financial planning for libraries

Long-range financial planning for libraries

Keywords: Planning, Financial planning, Long-range planning, Expenses, Taxation, Organizational change

"Where's the money coming from?" This question, sternly voiced by a board member at a recent monthly meeting, is one that trustees and city officials expect every library director to be able to answer. If a library is going to reach its future service goals, carry out its community mission or erect a new building, the funds have to be available. Often that happens only by planning in the long term. Long-range financial planning goes hand in hand with institutional strategic planning that makes possible change carried out to keep the library essential to its users.

The American Association of Law Libraries (AALL) states the need for a long-range financial plan in the following way:

A … Financial Long-Range Plan is based on the principle that the association should be moving in the direction that its leaders have planned. It should address the basic question of what financial resources will be needed for the future growth and stability of the organization … How will we get where we want to go? How will we know when we get there? What will it take to get there? What kinds of plans should be developed for various exigencies?

The Financial Long-Range Planning Committee recognized that AALL is now a mature and sophisticated organization that cannot make financial decisions in a vacuum, or respond to requests for financial support without sound policies and principles to guide our leaders. Our Association requires valid projections for the future, and methods for providing the resources required for future activities. We also wanted to identify a course for attaching the annual budget of the Association to the priorities stipulated in the Strategic Plan (AALL, n.d.).

This column outlines a set of questions that usually require answers during the creation of a medium- or long-range financial plan. The terms I have used may not be those you will use, but the issues will be similar. Here are the questions:

1. 1.

   Does your current annual budget justly reflect institutional mission and goals? My library's budget philosophy is registered in a simple phrase: "If you want to see what our library values, follow the money." No budget segment reveals this philosophy more than one institutional goal statement that states our commitment to promote "public use of modern information technology". Achieving that goal has led to a sizeable annual budget expenditure on training the public in how to use computers and the Internet, on buying and setting up networked computers for public use within our buildings and on the development of a rich-content Web site for virtual users as well. "Follow the money" and institutional values become clear.

2. 2.

   How has money been budgeted and spent in the recent past – say for a period of five years? Answering this question is a matter of historical accounting. Likely the figures already exist in recent budgets and expenditure reports. The larger and more complex the institution, the more likely it is that all change will be incremental. Matching that reality, library budgets also tend to be incremental. Changing institutions, however, tend to experience non-incremental shifts in the way their budget categories and subcategories are proportioned. Change-resistant institutions usually show fewer category changes or none at all. Libraries that show change-resistant budget tendencies will experience greater difficulty than those that have a record of recent changes. As with other social and economic shifts, recent past behavior is a good predictor of future possibilities. And, inflexible budgeting in the recent past usually predicts big trouble in making large budget shifts that are part of long-range financial plans.

3. 3.

   In examining the recent historical data, have particular expenditure categories experienced more pressure for increased spending than others? One recent example in most institutions is the transition from paper publications to online electronic data sources. How have you handled this budget pressure? By shifting paper-collections funds for electronic product funds? By adding money from some other expenditure category? By one time donations like Gates Foundation grants for Internet computers and software? Such pressures and your institutional responses to them may demonstrate a new budget trend that needs to be handled openly at the expense of some other important category.

4. 4.

   Is an anticipated long-range expenditure likely to generate new income that will cover it fully or partially? Library capital expenditures often are covered by bonding or by significant appropriations from another governmental entity or from fund-raising. Significant increases in operating revenue often precede substantial increases in the materials and services budget lines. And increased spending in technology and/or collections may pave the way for a consortium alliance that generates new income. When institutions think about changes that require large shifts in budgets, income from outside or new sources can make those shifts a lot easier.

5. 5.

   How will future plans affect long-term operating expenses? My library has been fortunate in being able to expand some old and build several new facilities. Many of these have generated new usage – and the need for increased staff. In the long run, libraries like all businesses need to control operating expenses. In St Louis, we have held down staff costs by a vastly expanded training program. This increased training capacity has broadened our ability to hire less-expensive staff while creating new employment opportunities, a reality that the community appreciates. At the same time, we have held down staff costs even as we expanded new library service spaces.

6. 6.

   What assumptions shall we make about the future in order to provide a framework of our financial plan? Here are the assumptions taken from a recent public library long-range financial plan:

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  moderate inflation;

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  stable or moderate changes in the prime interest rate;

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  no significant contingencies or catastrophes (i.e. law suits; fire; flood; etc.);

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  no major technological changes (other than the scheduled migration to a client/server environment) that would render our current revenue generating activities;

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  no significant change or further erosion of the library's tax base;

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  no significant changes or discontinuation of the current revenue generating activities resulting from economic conditions or legal prohibitions (Kansas City (MO) Public Library, 1997).

1. 1.

   What is going to happen to sources of revenue and the amounts they yield? Revenue projection is a critical part of long-range financial planning. If you and your staff are wrong about revenues, expenditure planning will be tenuous at best. Here are some broad categories worth considering in revenue projection:

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  Current tax revenues. What kinds of taxes yield which revenues? Will any of these sources change during the planning period? Is it politically possible to increase taxes or appropriations so that the library can look forward to major revenue increases?

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  Back taxes. A recent change in the management of a city licensing office increased our tax revenues substantially – but only for a few years. Then the largess was gone.

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  Replacement tax revenues. With the movement to tax abatement and tax increment financing eroding the property tax, most libraries' chief source of revenue is the community's political leadership arranging for replacement taxes, payments in lieu of taxes (PILOTs) or new taxes that yield as least as much revenue as that taken away.

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  Interest on investments. During recent years, my library has experienced a large drop in interest income as rates have fallen and fallen again. Hence, interest, which once yielded 3 percent to 4 percent of our operating revenues now yields less than 1 percent. Will you as a policy maker proceed on the assumption that interest rates will go up, go down or stay the same?

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  Fines and fees. In many European and Asian library systems, fines and fees make up 20 percent to 40 percent of institutional income. US libraries are charging rental fees for hot books, copy fees to reproduce facsimiles, document delivery fees for speeded up service, user fees for the Internet and research fees for library staff work beyond some set point. Can fines and fees provide major new income? What will you do about fees for photocopying, document delivery, online subscriptions and other value-added services that your staff perform for certain users? And, what will be the impact on the library's relationships with its user-taxpayers and those who hold the keys to continuing adequate or higher levels of public funding?

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  Consortia income. Most public libraries engage in partnership or consortia arrangements. Sometimes as a matter of convenience (inter-system book loans) they have been absorbed or held at artificially low levels. Is your library engaged in consortia tasks, which are too much one way? Which consortia arrangements deserve payments to your library for services delivered?

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  State and other government aid. In the USA, aid from the states ranges from petty to substantial. The easiest money that all of us in the public sector get is tax money. A shift in formulae for state aid and/or library development can make an enormous amount of difference in the financial outlook. If that is not possible, is it possible for your public library and other public libraries to become part of statewide service or purchasing consortia. In our case, buying high-speed Internet service from a statewide network operating as part of the state university system is a lot cheaper than buying it from a for-profit vendor. And, becoming part of a state purchasing system saves us money almost every time we make a purchase under negotiated state contract prices.

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  Non-library funding district initiatives. The Bill and Melinda Gates Foundation library initiatives added tens of thousands of computers in libraries throughout the USA, Canada and other nations as well. This investment was sufficiently substantial in my library that we carried it as a capital budget item for two years, using the money previously scheduled for new and upgraded computers for other purchases. A different kind of governmental initiative is found in countries like the UK and Germany, where the national government has articulated and funded library development and computer literacy initiatives that affect financially all or many different local systems.

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  Redefining service constituencies. One reason the State of Ohio gives heavy financial aid to public libraries is because all are expected to serve users from every part of the state. Redefining service constituencies to add users and pick up revenue in the process may have policy merit.

1. 1.

   Which persons within the organization are responsible for controlling costs and keeping the library on its long-range financial track? The obvious answer is everyone in the organization. The workable answer is that upper-level managers must be responsible budget watchers. The wrong answer is to pile all the responsibility on the chief executive officer or on the chief financial officer. Usually that creates antagonism without explanation. Management has to agree on budget purposes and budget constraints, and management must explain budget purposes and the budget situation to all staff. Most importantly, new institutional objectives probably have to be scaled back to accumulate the funds needed for moving on an important institutional priority.

2. 2.

   How tightly should a long-range financial plan be budgeted? In the near future, the terms probably ought to be reasonably tight. In the longer term, because of changed conditions and contingencies, the plan probably should be looser. As with most long-range plans, annual review adds perspective and more accurate estimation.

3. 3.

   How often should the financial plan be renewed? At least annually, at the time of calculating the next year's budget and possibly semi-annually to analyze expenditure variance against achieving mission and goals.

I expect that other directors writing on this topic would organize the process of long-range financial planning around different questions. Even if your questions are different, however, the exercise suggested here should have validity for most libraries. I, therefore, hope this column will provide the baseline questions that will aid directors in achieving the bright financial and institutional future that we all want for our organizations.

Glen HoltExecutive Director of the St Louis Public Library, St Louis, MO, USA