Your Library and Its Finances
| Site: | MSL Learn |
| Course: | Montana Library Budgets and Finance |
| Book: | Your Library and Its Finances |
| Printed by: | Guest user |
| Date: | Friday, 12 June 2026, 11:57 AM |
Focus on Four Components of Library Finances
There are four main content sections for you to learn about
- Local Government Accounting
- Library Board Authority and the Role of Local Government Officials
- Sources of Revenue
- Common Expenditures and Expenses
If you have experience with government budgets and finance, this will be a good review with library-specific information.
If you are new to library finances, this overview will hopefully give you vocabulary, definitions, and a good foundation for understanding library budgets and finance.
Local Government Accounting
What is the purpose of government accounting?
There is a reason behind the structure and formatting of governmental accounting. Local governments, including libraries, receive funds from the public and are accountable to the public for how the money is managed and spent.
Governmental accounting is structured the way it is to show
- how much money governments received and how they spent the money
- that governments had the authority to request the money and to spend money the way they spent it
This is very different from our personal checkbook or a private business.
What are some of the principles at work in Montana’s local government accounting?
Understanding these principles and looking for them during the budgeting process and when reviewing financial reports can help you better understand the library’s financial picture.
MCA
The Local Government Budget Act (Title 7, Chapter 6, Part 40 of the Montana Code Annotated) spells out the process for adopting a budget, amending it, and general principles local government officials should follow.
Fund Accounting
Local governments use fund accounting. A fund is used to account for everything associated with that service. There is a library fund in larger governmental entities. All money that is used for library services is accounted for within that fund.
BARS
Local governments use BARS – Budgetary Accounting Reporting System – which is based on generally accepted accounting practices (GAAP), uses the fund system, and has a standard list of accounts used by governmental entities to report their revenues and expenditures.
Revenue
Local governments – much like private business – need to manage their cash flow.
Many units of local government receive their revenue in two large payments. Departments will receive almost half of their revenue in December/January and the other half in May/June. This is because property taxes are paid in two installments.
Reserve
To manage this cash flow local governments will carry a certain percentage of money in reserve. This money is found in the cash balance. Clerks and finance officers will track how much money a department has in its cash balance to determine whether the department has enough in reserve.
Explore the Local Government Services Webpage
Additional resources can be found on the Montana Department of Administration’s Local Government Services webpage.
The page looks like this:
This department provides support resources and training to local clerks and accounting staff.
Local Government Budget Act
The Local Government Budget Act spells out the process for adopting a budget, amending it, and general principles local government officials should follow.
This act drives so much of the library’s budget process. Clerks, treasurers, and finance officers use this act as their guiding document. The act itself is not very long and worth reading to get a sense of what counties and cities must consider and do when creating, amending, and adopting a budget.
Take a few minutes to review the section titles and contents of the law. You can click on the section titles to view the most current version of the Act. Use the back button to return to the course.
Part 40. Local Government Budget Act
- 7-6-4001 Short title -- applicability
- 7-6-4002 Definitions
- 7-6-4003 Budget and levies supplied to department of administration
- 7-6-4004 Budget fund structure
- 7-6-4005 Expenditures limited to appropriations
- 7-6-4006 Appropriation power -- requirements
- 7-6-4007 through 7-6-4010 reserved
- 7-6-4011 Use of bond proceeds and borrowed money
- 7-6-4012 Fee based budgets -- adjustable appropriation
- 7-6-4013 Fees for services -- hearing and resolution
- 7-6-4014 Restriction on tax-financed expenditures if voter approval required
- 7-6-4015 Payments for judgments
- 7-6-4016 through 7-6-4019 reserved
- 7-6-4020 Preliminary annual operating budget
- 7-6-4021 Notice of preliminary or amended budget
- 7-6-4022 District court budgets
- 7-6-4023 Repealed
- 7-6-4024 Hearing on preliminary budget
- 7-6-4025 Receipt and expenditure of money prior to adoption of final budget
- 7-6-4026 through 7-6-4029 reserved
- 7-6-4030 Final budget -- resolution -- appropriations
- 7-6-4031 Budget amendment procedures
- 7-6-4032 Emergency expenditures
- 7-6-4033 Expenditure limitation
- 7-6-4034 Determination of fund requirements -- property tax levy
- 7-6-4035 Tax levies for boards and commissions -- bond exemption
- 7-6-4036 Fixing tax levy
- 7-6-4037 Cause of action -- failure to adopt or submit an annual operating budget
- 7-6-4038 Filing of claims against local government entity -- disposition by department as prerequisite
Review of the Local Government Budget Act
Key points to remember after reviewing the Local Government Budget Act
- Don’t spend more money than you are authorized to spend.
- Give plenty of public notice before adopting or amending (changing) a budget.
- Follow the guidelines and rules of the Department of Administration’s Local Government Services Bureau when designing your budget, changing your budget, developing financial statements, and submitting annual reports.
- In most cases, the county or town clerk or finance officer will take care of the financial reports and submitting annual reports for the library.
- Review 7-6-4020, MCA. Preliminary annual operating budget to understand what the county or city needs to report as part of the budget.
- Carry the correct percentage of funds in your cash reserves
Quiz Questions for Local Government Accounting
Library Board Authority and the Role of Local Government Officials
Know Your Governing Structure
The authority your board has over the library’s money and budget process is determined by your governing structure.
Before reviewing this section, find out if your library is
- an independent library district
- governed by an interlocal agreement
- a city or county library
- a library that belongs to a city that has a self-governing charter
Governing Structure is Key
The authority your board has over the library’s money and budget process is determined by your governing structure. This is one of the most important things you, as a trustee or director, need to know about your library.
Knowing the differences between governance types can help as you compare libraries, how they do their budgeting, and how that might be very different from your own library.
City or County Library Duties
Duty Description |
Library Board Responsibility |
City Council or County Commission Responsibility |
|---|---|---|
| Create a budget for the library | X | |
| Decide on the bottom line of the budget (the taxes available for the library to use) | X | |
| Adopt the library’s budget | X | |
| Levy taxes to provide public revenue funds for the library | X | |
| Monitor the library’s revenues and expenditures to make sure things are on track | X (with the help of the director) |
Library with an Interlocal Agreement Duties
| Duty | Library Board Responsibility | City Council or County Commission Responsibility |
|---|---|---|
| Create a budget for the library | X | |
| Decide on the bottom line of the budget (the taxes available for the library to use) | X | |
| Adopt the library’s budget | X | X (as part of the city/county budget) |
| Levy taxes to provide public revenue funds for the library | X | |
| Monitor the library’s revenues and expenditures to make sure things are on track | X (with the help of the director) |
Independent Library District Duties
| Duty | Library Board Responsibility | City Council or County Commission Responsibility |
|---|---|---|
| Create a budget for the library | X | |
| Decide on the bottom line of the budget (the taxes available for the library to use) | X | |
| Adopt the library’s budget | X | |
| Levy taxes to provide public revenue funds for the library | X (at the request of the library district board and not to exceed amount approved by voters) |
|
| Monitor the library’s revenues and expenditures to make sure things are on track | X (with the help of the director) |
City Charter
What about city libraries that are part of a city with a charter?
Library boards in this situation need to review the city’s charter to determine their powers. The board may have the power and authority outlined in 22-1-309, MCA.
However, these libraries are more likely to have advisory boards. The board may suggest a budget for the city, but the city manager or city council has full authority over the budget and the bottom line. The board can only advise the local government officials on what the library needs financially.
Please remember to review your city's charter as it will determine whether the library board sets the budget or a city official sets the budget. If you have any questions, please contact one of the MSL consultants.
Quiz Questions for Library Governance
Sources of Revenue
There are many different sources of revenue for libraries. This course focuses on the most common types
- local revenue sources (usually property taxes)
- state entitlement share
- state revenue for libraries
- private revenue sources
Local Revenue Sources
Tax Revenue
Local governments can tax properties to obtain revenue that is used for shared services. They can also charge fees for some services. The most common example of a fee-based service is water and sewer.
Bonds
Local governments can also go to the people to request funding for bonds to pay for large capital projects or extra tax money to pay for specific purposes like funding for a library.
Property taxes
Property taxes are the most common source of revenue for libraries and local governments.
Property Values
The Montana Department of Revenue appraises property to determine its taxable value. That information is sent to local governments. It is used to determine how much the local government needs to assess property owners in order to meet the budget requirements of local government services.
Tax Revenue is Limited
There are limits on how much money a local government can raise. MCA 15-10-420 provides guidance to local governments on how to calculate property tax levies to stay within allowable limits.
Oil and Gas
Oil and gas tax proceeds are common in areas of Montana where there is a lot of natural resource extraction. Companies that extract natural resources pay a tax on the extraction. These taxes are provided to local governments and are used by local governments to pay for services.
Intergovernmental Revenues
Many libraries receive funds from both a city and a county.
The funding received from the entity that established the library is typically tax revenue.
Funding received from another local government entity as part of a contract to provide library services is referred to as intergovernmental revenue.
Fines and Fees
The library may charge fees for services like printing and copying. It might also charge fines for overdue materials.
Whether the library does this and how much it charges is determined in a policy adopted by the library board.
State Revenue Sources
Please note that state revenue sources often go to the local government body – the city or county – to be deposited in the library’s account.
State Aid Per Capita
This funding source is given to public and tribal college libraries in Montana.
It is an appropriation from the Montana state legislature and can be used in whatever way the director and board needs. The Montana State Library sends a check to library directors in November each year.
In order to be eligible to receive the funds, the library must meet the public library standards adopted by the MSL Commission.
Federation Grants/Funds
Montana's public libraries are part of a regional library network called a federation.
There are currently six federations in Montana.
[Map of Montana Library Federations. Tamarack, Pathfinder, Golden Plains, Sagebrush, South Central, Broad Valleys.]
Learn more about federations on the MSL Federation webpage.
The legislature appropriates coal severance tax money for library federations. The federation determines how much money each library spends and how that money can be used through a budgeting process that happens each spring at a federation meeting.
The Montana State Library Commission reviews and adopts the budget requests of each federation at their June meeting.
State Entitlement Share
This is revenue that goes to each local government. It was created with the Montana legislature overhauled the property tax appraisal and revenue system in 2001.
Local governments receive this funding to offset losses that occurred with the overhaul of the taxation structure in Montana. Many libraries receive a portion of these funds. It is roughly equal to the library’s percentage of the overall mills of a local government.
Private Revenue Sources
Donations, grants from non-profits, and funding from library support groups all fall in this category. Whether the money has stipulations on it is determined by the funding body.
Library boards should have a gifts and donation policy to guide the director on when to accept a donation.
If the library has a friends or foundation group, it is wise for the director and perhaps one board member to have a relationship with that group. Attendance at their meetings and regular communication can ensure that the library support group is assisting the library in meeting the needs of the community.
Grants to non-profits can extend library services and help the library find funding for one time only projects or pilot programs the library wants to try. These grants usually have stipulations on how the funds may be used, so directors will want to monitor and track the expenses paid for with grant funds.
Quiz Questions for Sources of Revenue
Common Expenditures and Expenses
The topics in this section are some common areas of expenditure. We will use the categories found in the Local Government Budget Act.
They include
Within these larger categories there are nuances. The board and library director will need to work with the county or town clerk to understand specific line items within these categories. This is particularly true of operations and maintenance.
Salaries and Wages
For most libraries this is where the largest percentage of your funding is spent. This includes the salaries/wages for the library director and staff as well as the cost of their benefits.
If you can offer health insurance or retirement, those expenses will fall in this category.
Other items found in this category include payroll taxes such as social security.
This is also where you will find the line item for worker’s compensation.
Please Note – 22-1-310, MCA gives boards the authority to set salaries and wages. However, that is usually done in conjunction with local government officials.
In order to receive health insurance and/or retirement, library employees are usually employees of the city or county. To be fair, local government officials might adopt a pay matrix. The board should consider following that pay matrix. If necessary, the board should consider using classification systems or negotiating with the city or county to pay library employees fairly.
Operations and Maintenance
This is the other significant part of the library’s budget.
It includes funding for library materials, programming, technology, and repair of the building. The line items in this category are the things you need to offer library services to your community.
This is the portion of the budget where a training with the director and/or the clerk can help you understand what types of expenses fall under certain line items.
The clerks are obligated to use the Budgetary Accounting Reporting System (BARS) to organize and account for revenues and expenses. Since this system is used statewide, there are some limits to what a clerk can offer the library board and director. A training from them can help you better understand what items are within this category.
Capital Outlay
If the library needs major building work such as all new windows or a complete renovation, you will need to budget for this expenditure.
Think of items in this category as lasting longer than 5 years or costing more than $5,000. This is where major work on the library or large equipment purchases need to go when budgeting for the library.
Library Depreciation Funds
Information about library depreciation reserve funds can be found on the MSL Consulting webpages, including a handbook on this topic.
The Library Depreciation Reserve Fund (LDRF) is a type of reserve fund specifically for libraries, as defined in Montana Code Annotated (MCA): Library Depreciation Reserve Fund Authorized
22-1-305. Library depreciation reserve fund authorized.
The governing body of any city or county or a combination of city and county in Montana may establish a library depreciation reserve fund for the replacement and acquisition of property, capital improvements, and equipment necessary to maintain and improve city, county, or city-county library services.
22-1-306. Moneys for library depreciation reserve fund.
Moneys for the library depreciation reserve fund are those funds which have been allocated to the library in any year but which have not been expended by the end of the year. Such moneys include but are not limited to city or county or city-county appropriations, federal revenue sharing funds, and public and private grants.
22-1-307. Investment of fund.
The moneys held in the library depreciation reserve fund may be invested as provided by law. All interest earned on the fund must be credited to the library depreciation reserve fund.
As the law states, a depreciation reserve fund is a separate dedicated fund which a library may use for one-time purchases and improvements for the library. This is similar to a capital improvement fund but has fewer restrictions on how the funding may be spent. This allows the library to set aside funds for future needs and long-term projects. It also gives the library board the full authority over the use of the funds.
For example, libraries around Montana with Library Depreciation Reserve Funds have used those monies to pay for computers and networking equipment, HVAC systems, security equipment, new windows, furniture upgrades, roofing, exterior improvements, and more.
Debt Service
Most libraries do not have this category. If your library has successfully obtained a bond in the past, you will need this category to record debt payments once they start.
Transfers Out
Transfers out isn’t as likely to be used by the library.
It’s primarily a category for local governments.
One exception to this is if the library has a library depreciation reserve fund. In that case the library board will need to make a motion to transfer funds from the library’s general operating fund (usually numbered 2220) to the library depreciation fund (usually starts with a 4).
The library director will need to work with the correct person at the city or county to transfer the money. If the library needs to transfer money to another city or county department, please work with your clerk or finance officer to determine how to budget for that item.