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Public Library District Handbook
Task P Eight: Determining Costs and Levy
Determine the cost of the new district. Because you are working on plans for personnel and facilities, you should be able to make a much more accurate estimate of first year and long term costs for the new district. Montana property tax laws determine maximums that can be levied each year. Tax laws are complicated, so contact your city clerk or recorder for help.
Estimating the Budget for a New District
Prepare a draft first year operational budget for the new district. Estimate the costs of services and then the amount you expect to collect from non-levy sources. Non-levy income sources include gifts, fines, fees, rental payments, etc.
First Year Operations
The district will not receive money from a levy until well into the first year, so you need to plan for how you will pay for the first year.
How can the new district cope with this problem?
Continued City/County Support Cities/Counties are sometimes willing to continue funding the library until tax dollars are collected for district library services. Discuss this possibility with the local government. If the city or county accepts the idea, develop a memorandum of agreement. [Refer to Planning Phase Form C: Sample Memorandum of Agreement with City at the end of this section.]
Current Levy Property owners during the transition year will continue to pay current levy, which the library should receive. The old levy will be replaced by the district levy.
Non-payment of Taxes Consider the problem of non-payment of taxes when determining the levy for the new district. Find out from your county clerk, what amount is normally collected in your area. Use this figure to determine how much you will need to levy to cover your operations. For example, if 90% of the amount levied is collected, the new district's levy should be 10% higher than what is actually needed, so that what is collected will meet the needs of the library. Remember you can only do this up to the legal levy limit. Please refer to MCA 15-10-420 for more information about levies.
Cash Reserve The new district will need to have a cash reserve. The fiscal year for a district runs from July 1 to June 30. Because tax dollars come in at various times in the year local government entities are expected to carry a cash reserve to meet their obligations. Be sure and build this cash reserve into your operational expenses. For more information about cash reserves, contact the Montana State Library or refer to MCA 22-1-707.
Tax Increase Limitations Current law limits the annual increase in taxes for taxing districts. The maximum increase is based on the inflation average of three years. Taxing entities can only increase the taxes by half that average inflation rate. The first year budget is the base budget, so it is best to guess high on expenses. Once the base budget is set, it will not be easy to change.
Financial Planning and Public Relations Public financing is complicated and difficult for the public to fully understand. The group needs to create a plan for financing the district for at least the first five years of the district's life. Describe what a typical taxpayer will pay in each year of the plan. Figure out the taxes that would be assessed on houses with a taxable value of $50,000 and $100,000, a farm worth $100,000, and a business with a value of $200,000.
Someone in the group should acquire a more in-depth understanding of how taxes and tax rates are figured. The County Assessor can help him/her learn more about tax exemptions and other tax information when figuring out actual tax charges. This person can then discuss the tax implications of library districting.
NOTE: If a taxpayer wants to know how much the district will raise his/her taxes, the taxpayer should speak with the County Assessor or an individual working for the county who can calculate the figures.
Prepare a fact sheet showing the expected operational levy for each year under the plan. Explain the factors outlined above in the fact sheet. Anyone speaking for the district should understand the financial plan for the first five years. Be prepared to speak about it.
Discuss costs and services together, so the community understands the relationship between the two. Estimate replacement costs (what would it cost an individual to obtain the service if the library district did not provide it) to highlight the potential savings a district might render.
Accompany the fact sheet on levy rates and typical tax charges with a sheet showing the typical cost of a book in a bookstore, a trip to the closest library to borrow a book, the cost of magazine subscriptions, the cost of purchasing a talking book tape, the cost of video rentals, the cost of access to electronic databases, and other information sources.
Anticipated Cash Flow Chart the district's anticipated cash flow for the years of the districting project. Use this chart to show when you expect income and what kind of income to become available. Use it to identify grant application and other deadlines that are important for obtaining income.
Decreasing City/County Levies Because the district will be taking over city and/or county obligations to run the library, the city and/or county budget should probably decrease when the first district levy is budgeted. This will happen if the county/city levies a separate library levy. This levy will be replaced by the library district levy. If the county or city uses general fund dollars to pay for current library services, they have the ability to reduce the property taxes. Many voters are skeptical that the city and/or county will decrease taxes when the district begins providing its library services. Negotiate this issue with city councils and/or county commissioners. Statements from city and/or county officials indicating that they will remove or plan to remove library taxes and not merely shift them to other budget categories are necessary.
NOTE: Although the group can put together a plan for district finances, only the new district board will have the power to implement the plan.