During this budgeting season, be sure to review the Trustee Handbook’s guidelines about your fiscal responsibilities.

This information below & much more can be found in the Trustee Handbook.

Budgets and Finance

Public library boards are legally responsible for the library’s finances and financial management. As custodians of public funds, trustees must be accountable in their management of the library’s money.  All too often library boards fail to live up to their duty to secure adequate funding for the library’s service program and to exercise appropriate fiduciary oversight.

The Budget Process

Every public library, regardless of size, must prepare and adopt a written annual budget. In larger libraries, budget preparation is primarily the responsibility of library management. The board of trustees defines the library’s mission, and the director translates that mission into programs with specific costs that form the basis for a draft budget. The best budgets are developed in relationship to the library’s long range and strategic planning process. 

During its development, the budget draft should be reviewed and scrutinized by the president, the library treasurer or the board finance committee, depending on local practice. The final budget draft should be the product of careful review and discussion by a number of people even before it is presented to the full board. If a budget is presented to the electorate or a local government for approval, the entire board should review, discuss, and approve it.

Directors must be full partners in the budget development process in libraries of all sizes. As the manager of the library, the director has an important perspective on the library’s programs, services, and costs that trustees do not. Smaller libraries may also seek assistance from their public library system.

A budget is a flexible document, not a rigid rulebook. Plans and circumstances will change during a fiscal year and the board has both the authority and the responsibility to revise the budget to accommodate new situations.

Fund Accounting

Depending on its circumstances, the library may have more than one fund. The operating fund is the account from which the library’s day-to-day income and expenses are received and disbursed and it is usually the account through which almost all receipts pass.  This is the primary fund for the library’s annual budget.

A capital fund is a separate account established for special one-time, unusual and usually high cost activities such as construction, renovation, or major equipment purchases.  Often end-of-year surplus from the operating fund is transferred into the capital fund for future use.

A library may also have an endowment fund, which exists independent of the operating fund and whose purpose is to generate supplemental revenue for the library.  Often such funds are designated for specific purposes.

Library boards may establish other special purpose funds for accounting and planning purposes.  Monies may be transferred into and out of such funds only with formal board approval.  Each such fund must be identified in the library’s annual audit and its purpose understood by every trustee.

Having acquired funds from a local government, community taxpayers or other sources, the board has an obligation to spend the money! Although a reserve fund is prudent and appropriate, the library should not hoard excessive amounts of money as a hedge against the proverbial rainy day. Local governments, voters, and donors do not give or appropriate money to the library so the board can put it away in a safe place. They are buying service from the library!

Audit and control of funds

Under New York State law, the board of trustees has sole authority over the expenditure of funds appropriated for library purposes. The board, therefore, must have a method in place for the review and approval of all expenditures. All trustees should receive a monthly financial statement prepared or approved by the library treasurer, showing receipts, expenditures, and a comparison with the budget.  All expenditures of library funds must be approved by the library board either prior to the expenditure or, for such items as petty cash, recurring utilities or subscriptions, soon thereafter.  Each library should have a policy governing such transactions.

 All libraries are required to submit a financial report as part of their Annual Report to the Division of Library Development.  In addition, all public libraries are required to submit an Annual Update Document (AUD) to the N.Y. State Comptroller and all association libraries should submit Form 990 to the Internal Revenue Service as not-for-profit educational entities.

External Audits

Boards should also authorize annual external audits by an independent certified public accountant in order to assure that the financial management and control system is functioning properly.   The purpose of an audit is to certify the accuracy of the library’s financial statements.  The auditor is testing the financial control system for reliability. The audit is an opportunity to verify and confirm the library’s proper financial management and to learn from outside financial professionals.  Several years of independent audits are often required when libraries seek to borrow funds or issue municipal bonds for capital projects.

Though not required by law, libraries are strongly advised to conform to the highest accounting standards recommended by the Governmental Accounting Standards Board in their management of public funds.

Library Funding

The library board is responsible for obtaining sufficient funding to provide appropriate service to the local community. Adequate funding is not the job of the library director.  The library is an essential cultural, recreational, and educational resource in the community and trustees must be closely involved in the search for support. A public library is a public service and stable, reliable public funding is the most appropriate way to pay for it. A public library is not a charity!

In addition to tax monies, public libraries seek out funds from a variety of other sources. These include government and foundation grants, gifts and bequests, fundraising campaigns, fines and fees and investments. All of these sources can provide important added dollars for the library’s budget, but they should always be considered supplemental to tax support. The public library system can provide information on grants and other supplemental funding sources available.  To rely on donations for critical operational expenses such as salaries, building maintenance and utilities is inviting a crisis for the library.  Libraries finding themselves in such a crisis situation are well advised to investigate alternative models for funding library service as demonstrated by the public library district model.

Investment of funds

Because trustees act as custodians of public funds, they are subject to very tight restrictions on eligible investments.  As the State Comptroller recommends:

“The primary objectives of the library’s investment activities should be, in priority order, 1) to conform to all applicable federal, state and other legal requirements (legal), 2) to adequately safeguard principal (safety), 3) to provide sufficient liquidity to meet all operating requirements (liquidity) and 4) to obtain a reasonable rate of return (yield.)” 

Under General Municipal Law and subsequent court rulings, all funds (including privately raised moneys) under the control of a municipal, school district, or special district library must be invested in the following limited number of financial vehicles:

  • Time deposit accounts or certificates of deposit in commercial banks and trust companies located and authorized to do business in New York State;
  • Obligations made by the United States of America or guaranteed by the United States of America, and obligations of the State of New York;
  • Under very limited circumstances, obligations of municipalities and other municipal corporations.

Except for gifts given to the library as a true trust, even privately acquired funds are subject to these investment limitations.  Under certain circumstances, and with the express permission of the State Comptroller, gifts of stock may be held until a fiscally appropriate time for sale.

Association libraries are not subject to General Municipal Law and therefore have more flexibility and discretion in their investments. However, it is strongly recommended that public funds under the management of an association library board be invested only as described above. Private funds should be subject to a sound investment policy. The board must always understand its accountability to all those who support the library, in whatever fashion.

Capital Projects

When the time comes for a major expansion or renovation public libraries generally seek public approval to borrow the necessary funds from a financial institution or to issue municipal bonds through an authorized agency such as a school district, Industrial Development Agency or the Dormitory Authority of the State of New York.  Libraries are not authorized under state law to issue municipal obligations on their own.  Such financing is quite complex. Professional legal and financial assistance is strongly recommended.

Fundraising

Association library boards, as private not-for-profit corporations, are permitted to engage in fundraising activities for the benefit of the library in their capacity as board members. 

Public library boards generally take care to separate private fundraising efforts (such as direct personal solicitations as opposed to seeking grants from foundations or government agencies) from normal library operations and board activities since there are restrictions on the appropriate use of public funds.  Many boards entrust the fundraising role to Library Friends and/or Foundations.  Of course, trustees are private citizens too and may certainly work to raise money for the library as individuals.  For further discussion on this topic please refer to the chapter on Library Friends and Foundations later in this Handbook.