FINANCIAL PLANNING FOR LIBRARIES Ann E. Prentice 2nd ed.; Lanham, MD: Scarecrow Press, 1996 Chapter V - BUDGET DESIGN Budgets are classified in a number of ways: by expenditure character, by the user, by who is responsible for preparation, by time span or by some other category. The expenditure character, with which we are concerned here, classifies the document according to whether it is an operating budget, a capital budget, an emergency budget, or some form of extraordinary financial plan. Budgets can also be classified according to the comprehensiveness of their coverage-that is, whether they are general budgets for the entire library, special budgets for departments, or financial plans for special purposes. They can further be differentiated by degree of internal breakdown. The major distinction is that between expenditures for current operation and those for capital improvements. The former are treated in the present chapter and the latter in the chapter that follows. The general types of operating plans most often discussed are the traditional line-item budget, the program and the performance budget. Zero-based budgeting enjoyed some popularity during the late 1970s but because of the complexity inherent in its preparation, its use has declined and all but disappeared.' Despite this, many of the planning elements of zero-based budgeting are useful and for this reason it is discussed here. This breakdown furnishes the outline for the present chapter. Budgeting, as has been stressed, is a goal-setting activity, a selection of clearly defined ends and of means to achieve those ends. The purpose and function of the budget have changed over the years from a means of control by the funding agency or by the executive to becoming an integral part of the planning process. Formats and systems of budgeting have changed as well, developing from formats with ease of executive control (line-item) to formats with an emphasis on planning and with built-in mechanisms for accountability (program, performance, zero-base, etc.) BUDGET SCHEDULE Typically, budgets are prepared for one fiscal year but may be part of a long-term budget planning cycle. The fiscal year for which budgets are prepared varies widely. In designing a budget for a public library, it is not uncommon to plan on the basis of a local government fiscal year beginning January 1, anticipate state funding based on a fiscal year beginning July 1, and federal funding for programs on a year beginning October 1. This variation in beginning dates of fiscal years affects the budgeting activities of all types of information services, although the impact on those that are part of larger organizations is likely to be less than upon agencies such as the public library that are directly dependent on allocations from several government levels. The accounting and reporting cycles are also affected strongly by differences in fiscal years. There must be appropriate reporting to meet deadlines that occur throughout the year. Most publicly supported agencies operate on an annual budget cycle, with little or no opportunity to carry over funds from one year to another. There is increased pressure in a number of agencies to plan and budget on a long-term cycle. Many programs are long-term and funding them on an annual basis produces uncertainty on the part of those carrying out the programs, as there may be no assurance that funding will continue for the life of aprogram. With an increasing emphasis on long-range planning, the budgeting aspects of the planning process have become more carefully developed. The long-range budget covering several years may be outlined in a tentative fashion, with annual budgets more carefully developed. Although the long-range budget, like the long-range plan, is subject to review and revision, it does provide a direction and a means of projecting costs for activities that extend beyond the fiscal year. BUDGET DEFINITION Budgets are defined by the nature of their expenditures. Operating budgets are annual budgets that outline the cost of operating an agency and its programs for a fiscal year. They include personnel costs, costs of maintaining the physical plant, or purchasing supplies and similar operating costs. An emergency budget may be necessary in the case of unusual or unforeseen circumstances. If tax revenues have fallen well below anticipated levels or if some other financial crisis has occurred, an emergency budget which reallocates operating expenditures may be required. If there has been a major internal problem, such as fire or water damage which makes the library building inoperable, emergency funds from the funding agency may be provided. Emergency budgeting is usually a one-time activity designed to meet an unexpected critical need. If it is not in response to fiscal crises, it is in addition to the operating budget and the two are kept separate but used in parallel by the administrator. Budgets can also be defined by the sources of revenue. In most not-for-profit services, funding comes from tax revenues or contributions from citizens. These vary according to the level of government and whether the funds are general purpose or for a special purpose. Contributions vary from membership fees to bequests or other gifts. Budgets differ in comprehensiveness. The general or overall budget covers the operating costs of the entire library. There also may be special-purpose budgets to meet specific needs. Departments will have their own budgets which are subsets of the general budget. Reference service, technical services, extension services, etc. usually have their own budgets. There are also budgets designed to meet the requirements of a federal or state grant or similar special project. Bequests may be part of the library's income and if they provide special-purpose funds, they may require separate budgeting and accounting. Budgets can be defined according to the expenditure classifications that were emphasized in discussion of the planning process. They may be program-oriented, with goals and objectives as the basis of the planning process, or means-oriented with goals assumed or unexamined. BUDGET FORMATS Budgets are also differentiated in more general terms as to whether they are traditional line-item documents or program or performance, or whether they follow elements of the zero-based format. This classification serves as the basis of this and the following chapters. Each type of