Budget and Finance Terms

Montana's 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.

MCA 7-6-616. Capital improvement funds refers to local governments and their capital improvement funds. 

Libraries may fall under this law OR they may have a library depreciation fund. 

Library depreciation funds do not have the same $5,000.00 and 5-year limit rules as capital improvement funds.

This expenditure category is used if the library needs major building work such as all new windows or a complete renovation. 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.

Carry the correct percentage of funds in your cash reserves – 33 1/3% for counties; 50% for cities. This information can be found in MCA 7-6-4034. Determination of fund requirements – property tax levy

Most libraries do not have this expenditure category. 

If your library has successfully obtained a bond in the past, you will need this category to record debt payments once they start.

1. salaries and wages
2. operations and maintenance
3. capital outlay
4. debt service
5. transfers out

See expenditure.

There are some common areas of expenditure that can be covered in this course. We will use the categories found in the Local Government Budget Act. They include salaries and wages; operations and maintenance; capital outlay; debt service; and transfers out.

The library is part of a regional library network called a federation. There are currently six federations in Montana. You can determine which federation your library belongs to my viewing the map located on the federation website. 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.

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.

The state annual fiscal year, or fiscal year (FY), is July 1 to June 30.

Federal fiscal year is October 1 to September 30.

Some budgets run on other fiscal year schedules or may be tied to a calendar year.

It is important to know what source and fiscal year your funding is tied to.

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.

A fund is used to account for everything associated with a service. 

There is a library fund in larger governmental entities. 

All money that is used for library services is accounted for within that fund.

generally accepted accounting practices

The authority your board has over the library’s money and budget process is determined by your governing structure. It may be one of the following:

• 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.

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.

 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.

The Library Depreciation Reserve Fund (LDRF) is a type of reserve fund especially for public libraries under Montana statute:    

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.  

The library may want to establish a library depreciation reserve fund to pay for major repairs and upgrades. 

For more information please refer to the Library Depreciation Reserve Fund handbook on the MSL website.

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.

The Montana Local Government Services Bureau is a division of the Montana Department of Administration.

Local Government Services (LGS) works with local governments (counties, cities & towns, school districts and special districts) to ensure uniform financial accountability, and to assist the local governments in complying with their statutory financial and budgetary reporting requirements, including provisions of the Montana Single Audit Act and the Local Government Budget Act.

Local Government Services consists primarily of two sections:

• The Local Government Accounting and Reporting Section provides technical assistance and training to local government accounting and financial personnel in the areas of local government accounting, budgeting and financial reporting.
• The Local Government Audit & System Section works with local governments and independent CPA firms to ensure that financial and compliance audits meet statutory requirements and professional standards. The Section also ensures that all documents submitted by local governments are made available to the public on the LGS website.

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. 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
• Oil and gas proceeds
• Intergovernmental revenues
• fines/fees

A mill levy is a source of funding where a majority of voters have agreed to pay higher property taxes to receive a service. A mill is one thousandth of the total property certified taxable valuation of a taxing jurisdiction. Thus, if the total taxable valuation of a city is $2,000,000, a one mill levy would yield $2,000 in property tax revenue ($2,000,000/1,000). Source: Montana Municipal Officials Handbook)

22-1-304, MCA is the piece of code that allows libraries to ask the voters for more funding. It spells out the process for going for more mills. Either a city council or a county commission can pass a resolution to put the issue on the ballot or they can ask library supporters to go through a petition process to gather signatures from 5% of the resident taxpayers to place the issue on the ballot. If library supporters gather enough signatures, the local government body will pass a resolution placing it on the ballot. Supporters will then campaign for a “yes” vote. If a majority of voters say yes, the library will receive additional mills. There is a delay in receipt of funding. The additional mills need to be added to property tax bills and paid by taxpayers before it is given to the library.  A separate group is usually created to run the campaign. It often includes members of library support groups as well as other community members who are passionate about the library. 

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.

This expenditure category 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.

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 donation policy to guide the director on when to accept a donation.

Property taxes are the most common source of revenue for libraries and local governments. 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. 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.

To manage 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.

Carry the correct percentage of funds in your cash reserves – 33 1/3% for counties; 50% for cities. This information can be found in MCA 7-6-4034. Determination of fund requirements – property tax levy

There are many different sources of revenue for libraries. This course focuses on the most common types

1. local revenue sources (usually property taxes)
2. state entitlement share
3. state revenue for libraries
4. private revenue sources

This expenditure category 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.

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 the check to library directors. In order to receive the funds, the library must meet the public library standards.

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.

State revenue sources often go to the local government body – the city or county – to be deposited in the library’s account. The following sources of revenue are the most common:

• State aid per capita
• Federation grants/funds
• State entitlement share

This expenditure category isn’t likely to be used by the library. It’s a category for local governments. 

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.