Transcript STRATEGIC FINANCIAL THINKING Instructor: Anne M. Turner [email protected] An Infopeople Workshop Summer 2007 This Workshop Is Brought to You By the Infopeople Project Infopeople is a federally-funded grant project supported.

STRATEGIC
FINANCIAL
THINKING
Instructor:
Anne M. Turner
[email protected]
An Infopeople Workshop
Summer 2007
This Workshop Is Brought to You By
the Infopeople Project
Infopeople is a federally-funded grant project
supported by the California State Library. It
provides a wide variety of training to California
libraries. Infopeople workshops are offered
around the state and are open registration on a
first-come, first-served basis.
For a complete list of workshops, and for other
information about the project, go to the Infopeople
website at infopeople.org.
Introductions
•
•
•
•
Name
Library
Position
Tell us if you’ve had to prepare a budget
for your institution or for a grant.
Was it fun?
Today We Will Talk About
• Creating a library budget
• Revenue sources
• Privatizing and contracting out
• Cutting the budget
• Strategic financial planning
Dry Creek--a Garden Spot In
California: Notes on the City
• 76,000 people on edge of Central Valley
• Gated communities built outside demand
service
• Economy impacted by shift in agricultural
growing and processing overseas
• Budget exceeds revenues
Notes on the Library
• Department of City of Dry Creek
• Advisory Board
• Three facilities:
– Main, the Barely Adequate Branch, and the Abysmal
Branch
• 38,591 registered adult borrowers
• 10,732 registered kids
• 503,600 checkouts last year
• 51 FTE staff, 14 of them professionals
Creating a Public Library Budget:
What’s in It and How Did It Get
There?
Three Elements
• Personnel
• Supplies & services
• Capital outlay
Personnel
• 68% of the Dry Creek Library budget is
for personnel.
• 25% of the Personnel amount is
benefits, which are 35% of salaries
• Look at how personnel costs are
spread across the Library divisions
Dry Creek Library Personnel
Expenses by Library Division
Administration
Facilities
Management
Technical
Services
Public Services
Supplies & Services
• Objects that are flexible
Library materials or training
• Objects that are not
Electricity or rents
Exercise #1
1. Make a list of the elements of the
Dry Creek supplies & services
budget that are flexible and those
that aren’t
Why Is This Important?
• Inflexible item cost is going up 5%
• Must hold budget to 2.5% increase
• Where’s the difference going to come
from?
The flexible items or capital
outlay, or personnel
The Budget-making Process
1.
2.
3.
4.
5.
6.
Get requests
Establish the cost of the inflexible items
Create Draft #1
Ask questions and cut
Create Draft #2
Take it to the Board, to the City, and to
City Council
Draft #1: Everything’s In
• But everything’s questionable, too
The “What-Why-What-Couldn’t
We?” Model
• What part of the library program does this item
or service support?
• Why do we need this particular item, and not
some other?
• What will happen if we don’t buy this item or
service
• Couldn’t we save money by buying or doing
something else?
Capital Outlay
• Capital Outlay is comprised of all the
equipment and other items costing more
than $5,000 each, plus a summary line for
all those things in the under $5,000
category.
• Shelving, shelving, shelving, and computer
equipment
But Capital Outlay Also Includes. . .
• Big repair or building maintenance items,
like $40,000 for the new roof at the Main
Library or $25,000 to re-do the HVAC
system.
Exercise #2
Analyzing & Asking Questions
1. Look at the Object from the 2006-07 Dry
Creek Library Budget assigned to your
Group. Pretend this is a request for
2007-08.
2. Using the “What-Why-What-Couldn’t
We?” model, develop a list of specific
questions about the items requested.
Adding a New Program
• New programs easier to add
• More $ for day-to-day needs is harder
• Package as a new service?
Elements of a New
Program Proposal
•
•
•
•
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What is the need?
Who will be served?
Why the library is the best group?
How much will it cost?
How much will it save?
Draft #2: The “Final” Draft
• Put everything together to achieve a final
number you think you can live with.
• Take it to the Library Board
• Objective is to get active support
• Present the new program
• Talk about the imperatives of the new roof or
whatever
• Add what Board members can’t live without
The Guys in Suits
• The City Manager and the Finance
Director will both look over the “final”
budget
• They, too, will wonder why, ask questions,
and suggest/demand changes
And Finally
• Presentation to city council or the board of
supervisors
• Questions from elected officials
• The role of the library board with the
council
Other Budgeting Methods
• Program budgets
• Performance budgets
– See also PPBS
• Multi-year budgeting
• Zero-based budgeting
Where Does Dry Creek Get Its
Money, and Who
Pays for the Library?
Revenue Sources
• Taxes
• Borrowing money
• Fundraising
• Fees and fines
• Grants
• Bequests and gifts
The Four Basic Taxes
• Property tax
• Parcel taxes
• Sales taxes
• Excise taxes
Property Taxes
A.K.A. Real Estate Taxes
• Ad valorem; based on the assessed value of the
property
• The chief source of revenue for local
governments in the U.S.--$1,118 per capita
collected by local jurisdictions and the states.
• Tax limitation measures like Prop 13 require
workarounds
Three Other Points
• Tax Rates: What people pay depends upon the
assessed value of their property, and the rate set
by the governing body
• Revenue from property taxes are flexible
• Not all property is taxed
Churches, schools, libraries, government
buildings, and university and community college
campuses are exempt
Parcel Taxes
• Not Ad Valorem
• A fixed amount placed on every property
to (usually) do something specific
• A favorite of the schools--$21 on every
property for class size reduction
Sales Taxes
• Have to have something worth taxing
• Respond to the economic cycle:
collections are good when times are good,
but go down when times are bad
• The “Point of Sale”
concept
Excise Taxes
• Taxes on specific commodities produced
within a nation
• A way to tax wealthier people, and also to
“control” use of harmful substances—
tobacco, alcohol, etc.
Impact Fees
• A fee imposed on the developer of a new
housing project
• Compensates for the city resources in
place that the new residents will use
• Not enormous, but better
than NO fees
Where Does the City Put
the Money It Collects?
• It puts it into funds
– Enterprise funds
– General fund
– Library fund
– Internal service fund
Borrowing Money
• “G.O.” Bonds, or General Obligation
Bonds
• Revenue Bonds
• Special Assessment District Bonds
• Tax Increment Financing
• “C.O.P.s” or Certificates of Participation
• Impact Fees
An Important Fact about
Borrowing Money
It has to be paid back!
Other Revenue Sources
• Fees and fines
• Gifts and bequests
• Grants
• Fundraising
Funding the Dry Creek
Library Projects
• Different money for different projects
• Planning and talking about what’s coming
Exercise #3
3. Where will we get the money?
Paying for a Library Building
• The powers that be agree that a Special
Improvement District should be
established to replace the Abysmal Branch
• There is an election in 18 months
• What will the library and its supporters
have to do to win?
Economic Growth
• A city whose growth is limited to the 2.5%
annual CPI increase is NOT growing and
is in economic trouble
• Death by 1,000 cuts: TEL
[Tax and Expenditure limitation laws]
• Growth beyond the 2.5% rate is required
“Let’s Have a Bake Sale”
Fundraising for Libraries
• Bake Sales—or book sales—are not going
to support the library budget
• Build community support, but they don’t
pay the bills
• Use fundraising to support special projects
but not the basics
Raising Money
Uses Resources
• Volunteers are a resource
• Evaluate fundraising ideas in terms of their
real cost
• Help the Friends develop a method for
evaluating fundraising ideas—a protocol
Evaluating Fundraising Ideas
• What is the purpose?
• How much will it raise?
• From whom?
More Evaluation Criteria:
• How much work will be required?
• Who will do it?
• How much will the project cost?
Best Fundraisers
• Are Signature Events
• Understandable to the public
• Require as little work as possible
Exercise #4
• Evaluating fundraising ideas
And Finally
Privatizing & Outsourcing
A.K.A.
The private sector can
do it cheaper, right?
Privatizing
• Definition: moving a whole department or
function of government into the private
sector.
Ex: Waste Water Treatment
State Prisons
Libraries
Outsourcing
A.K.A. Contracting Out
• Definition: Hiring other people to do a
piece of work that is not key to the
organization’s primary mission
Ex: Shipping and delivery
Janitorial Services
Privatization
• A matter of political philosophy
• Elected officials make privatization
proposals to solve difficult political or
budget problems
How Does a Private Firm
Like LSSI Save Money?
Two ways:
1. Takes the employees out of the public
sector benefit system
2. Centralizes back-of-the-house services
Pros of Privatizing Libraries
• Cheaper
• Consolidating can make economic sense
• Gets rid of a department the elected
officials don’t understand
• No need to negotiate a regional alliance
Cons of Privatizing Libraries
• Cost savings are ephemeral at best. What
about next year?
• Unfair to library workers
• Who will advocate for library services?
• Puts a beneficial public service into private
hands
• Reduces public accountability
Contracting Out
• “We’re not in the cleaning business. We’re
in the city government business. It is a
waste of our resources to be spending as
much time as we do supervising janitors.”
--a City Manager
Analyzing a Proposal to Outsource
Four elements:
1. What needs doing
2. Direct costs
3. Indirect costs
4. Social costs
What Needs Doing?
• Develop a detailed specification list
• Be careful what you wish for
• Develop objective measures for the
quality of the service
What Are Direct Costs of
Outsourcing Janitorial Services?
• Personnel
• Supplies
• Supervision
What Are the Indirect Costs?
• Damage to employee morale
• Low productivity of the existing
in-house workers
What are the Social Costs?
• Called the “negative externalities”
• Failure to calculate these makes the price
of the product artificially low
– Air pollution example
Social Costs Summarized
• Loss of equity
• Loss of public participation
• Loss of accountability
• And a final question: will the outsourced
contract be particularly vulnerable to
budget cuts because public employees are
not doing the work?
Library Core Functions:
Could They Be Outsourced?
• Cataloging and processing
• Reference service, virtual and otherwise
• Story hours
• What else?
Exercise #5
Contracting Out
The Bottom Line
• Outsourcing can be a useful tool
BUT
• We have to define and protect our core
competencies
• We have to be sure to compute all the
costs
Cutting the Budget
• The bad news: Tax revenue collections
are lower than expected
• The Dry Creek city manager has imposed
level funding on all departments for the
new fiscal year
What Does This Mean?
• Personnel slated to increase 4% =
$147,119
• Fixed cost items will increase 2.5% =
$23,125
• You have to find cuts worth $170,246 in
the FY 2006-07 budget
Evaluating Potential Cuts:
Four Criteria
1. Will the cut be visible to the public?
2. Is it a short or long term cut?
3. Does the cut require staff layoffs?
4. Which library constituency will be most
affected?
Visibility
• Public must understand it costs $$ to run
the library
• Invisible cuts help people think that the
library can continue to deliver services
with less and less money
• Hard to get invisible cuts restored
• What are some visible cuts?
Short or Long Term Cuts
• Is the city-imposed cut temporary or longterm?
• Can we live without this item forever?
Long Term Cuts Are Hard to
Achieve
• Closing a branch, reducing open hours,
etc.
• They involve painful staff layoffs, but that
isn’t what makes them hard to achieve
• It’s the politics
Will It Involve Staff Layoffs?
• Almost always, the layoffs are at the
bottom of the library staffing array
• BUT: easier to get back support staff to
restore open hours than a reference
librarian
• Watch out for bumping rights
Which Constituency Is Most Affected?
• Who benefits? Nobody
• Who is hurt the most and what kind of
power do they have?
• Again, a political issue
11/6/2015
75
Three Things to Avoid
at All Costs
• Cutting off your nose to spite your face
• Allowing groups to pit one branch or
service against another
• Handing the issue to a candidate for office
11/6/2015
76
Don’t Take It Personally
Exercise #6
Cutting The Dry Creek Library
Budget
Strategic Financial
Planning
What is it and why do we bother?
The Larger Planning Process
• ALA’s Planning for Results model
Major Dry Creek Needs:
• Replacement for Barely Adequate Branch
• Upgraded ILS system
• Improvements at Abysmal Branch
• Other smaller projects
How Much and When?
• Planning means putting dollar costs on the
project and making a timing decision
Timing the ILS Upgrade
• It must be done next year
– Because the PCs are wearing out
– Because the vendor is demanding migration
• It could be delayed two years
– Because the staff is good at fixing things
– The vendor is using scare tactics
Replacing the Barely Adequate
Branch
• Throwing good money after bad on rent
• Really needs more space for youth
services
But
• Checkouts are only 27% of total
• New service demands are from nonresidents
Where Will the Money Come
From?
• G.O. Bonds?
• Special District Bonds?
• Certificates of Participation?
Financial Planning is more than
Understanding Revenue Sources
• Getting good advice on the economic
situation of the community
• Doing community opinion polling
• Developing a political action plan and
implementing.
Exercise # 7
• Which is the most important project?
Are We Done Yet?
• No, not until you have filled out your
Evaluation Form.