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Copyright © 2003 by Steve Coffman and LSSI, Library Systems and Services,
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For further information please contact:
Vice President, Product Development
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Table of Contents Why Diversify Funding?
Your Current Library Funding Strategies for Diversifying Funding Patron Support Library Membership Program Major Gifts Program Sponsorship Programs Retail and Other Business Ventures Retail Other Taxes Estimated Revenue Potential for Your Library Why Diversify Funding?
This report is designed to provide an overview of the new concept of diversified or Other plural funding for public libraries, and to help 9% Federal Taxes you evaluate the potential these new sources 1% of support may have for your library. But first a little background.
State and Local Over the past few years the funding crisis in Taxes 90% state and local governments has severely affected public libraries. According to the Public Libraries American Library Association, “America’s Libraries are now facing the deepest budget Taxes cuts in history. Across the country libraries 14% Business Ventures are reducing their hours, cutting staff or 4% closing their doors—drastic measures that Individuals 51% were not taken even during the Great Sponsors 31% Depression.” Public library budgets have been heavily impacted in 44 out of the 50 Public Radio states, and if your community hasn’t been affected yet, there’s a good chance it could be in the near future, as long as municipal Taxes Investment finance continues to suffer. 18% 19%
local and state tax revenues decline --- public libraries have little or nothing to fall back on Zoos to help make up the difference. Contrast that with the much more diversified funding strategies developed by public radio, zoos, museums and other local cultural institutions which do not rely exclusively on any one source of funding; when one source of revenue declines, several others are available to help fill in the gap.
Even in the best of times, public libraries have found there are some serious liabilities to being so heavily dependent on tax revenues o Funding Not Tied to Use. When libraries rely heavily on tax support, increases in use and patronage do not necessarily translate to increases in funding We all know that local governments have many concerns and priorities, and may not be able to provide additional funds to the library, no matter how many new patrons sign up or how successful library programs are.
o Funding Lags Behind Need. Even when government can provide additional funding, that funding often lags well behind the need.
Long budget timelines in state and local government often mean new funding is not received until well after it is needed.
o Libraries Forced to Compete With More Critical Services. When libraries rely on local government for most of their funding, they are forced to compete with many other critical services like police, fire, public health, schools, and other services that also receive much of their funding from local taxes. And while we librarians like to think of ourselves as indispensable, there is little doubt that public safety, health and education have to take priority … and so libraries are often one of the first services in line when it’s time to make cuts, and one of the last in line when increases are being doled out. Some librarians used to claim that the library budget was so tiny that we could fly under the budget radar and avoid the scrutiny larger departments received, but this has certainly proved to be wrong in the past few years, and having such a small budget that nobody cares what happens to you is hardly a prescription for a healthful, thriving service.
For a number of reasons, now may be an excellent time for those of us who care about books, reading, literacy and libraries to ‘take a page out the book’ of public radio, museums, zoos, orchestras, nature centers, and most other cultural and educational institutions in the community have been following for some time now, and work to diversify the revenue base of the public library.
Plural Funding for Public Libraries Most cultural institutions today operate on a ‘plural funding’ model --so-called because their operating revenues come from a variety of sources. Although percentages and emphases vary from one organization to another, the most common sources of income in plural
funding models are:
For public libraries, individual contributions, sponsorships, and retail ventures are the most likely sources of new revenue --- and in the rest of this report, we’ll take a look at how each of these three revenue sources might be developed in libraries. Grant and foundation support are already important sources of funding for libraries … but those monies cannot normally be used for operating support. Charging admission is not usually an option for public libraries where there is a long tradition of free access to all. However, there may be some cases where admission fees may be appropriate --- for access to special collections, for example, or for non-residents. Finally, no matter how effective you are at developing supplementary funding sources, tax revenues will remain a significant source of support for the public library, just as they are for most other cultural institutions; all we are suggesting here is that they need not be the sole source of support --as they are at present.
Riverside County Library Current Funding Profile Before we explore what plural or diversified funding could mean for your public library, let’s start by taking a look at how your library is funded right now.
Library: Riverside County Library
How Do They Work?
Membership programs and annual funds work in essentially the same way: supporters can either become members of the organization for an annual fee, or they agree to make an annual contribution to help support the operating budget of an organization. Often there are a number of levels of membership or contribution (Individual, Family, Benefactor; Silver, Gold, Platinum; etc.) with different levels of benefits. There typically are a range of membership fees, running from as little as $10 up to $2000 or more, allowing patrons to contribute at a level that is affordable for them.
Organizations solicit new members in a variety of ways. Of course, the one most of us are quite familiar with are the on-air pledge drives that public radio and television hold several times a year, but the most common approach is normally through direct mail; telemarketing, telethons, and special members-only programs and events are other common methods.
Retaining current members is just as important as signing up new ones, since the cost of acquiring new members is high, and it can take some time before a new member begins to generate net revenue How Much Could We Make?
Although individual contributions to annual funds tend to be relatively modest … the average contribution to public radio in 2002 was $105.15, for example --- collectively these memberships and contributions can generate a significant amount of unrestricted revenue which can be used in any way the organization desires. In fact, they account for over 50% of the total revenue at many public radio stations, and are the single largest source of revenue for many public cultural and educational institutions.
How Would It Work in Libraries?
Libraries have had little experience with annual funds or membership programs to date, but the success enjoyed by many library capital campaigns suggests that patrons may be willing to contribute towards the ongoing expenses of the library as well. Although it is premature to say what approaches might be most appealing to library supporters, campaigns focused on purchasing books for the library and supporting children’s services have done well in the past. Most likely ways of reaching potential supporters would be through direct mail, special events, and telemarketing, because most libraries do not have the option of organizing a pledge drive.
The potential value of membership programs in libraries could be substantial. If we use public radio as a guide, where 1 in 12 listeners is a member, and the average annual contribution per member is $105.16 per year, then a modest-size public library with 300,000 card holders might expect to have 25,000 members generating $2,629.000 in revenue. And there is some evidence to suggest that membership programs might work even better for libraries than they have for public radio, because many people seem to be willing to contribute to the library even if they don’t use it, while with public radio, a person almost has to be a listener before he will become a member. Hence the potential ‘membership’ audience for the public library may be much greater than it is for the very successful programs in public radio.
Projected Membership Revenues for the Riverside County Library
Best of all, the revenue from membership programs grows at a pretty predictable rate as your audience grows, meaning that if you are successful and your library attracts a growing audience, you will generate additional membership revenue to help support it.
How Long Will It Take?
Membership programs typically take about three years before they begin to break even and generate net revenue. This is because the initial acquisition cost of members is quite high --- (direct mail, advertising, software, labor, etc) --- and it takes some time to recover these costs. However, a successful membership program will usually be self-sustaining after the third year; it is possible to predict whether it will be self-sustaining much earlier than that, normally within about 6 months.
How Much Will It Cost?
Start-up costs for a modest program typically run about $35,000 to cover the cost of mailing lists, advertising, postage, and other direct expenses. If the program is successful, this money will be recouped by the third year, and if the program is not going to be successful, it is normally possible to anticipate problems before all the start-up funds are exhausted. In an unsuccessful program, the loss is unlikely to exceed $15,000 of the initial $35,000 start-up funding. Once the membership program is established, about 25-30% of the revenue raised will cover the costs of fundraising.
What Limitations Are There?
The one thing almost all major gifts have in common, no matter what form they take, is that they all require careful cultivation of potential prospects. It often requires a number of years of thorough research and consistent wooing to convince a major donor to contribute to your organization, and most gifts are given based on establishing close personal relationships between the donor and top-level executives of the institution and its advisory boards.
All of that takes a fair amount of infrastructure to accomplish, so most organizations that are serious about pursuing major gifts have a fullfledged development office with at least one development officer assigned just to major gifts, along with a major gifts Board, comprised of members with close ties to potential prospects.
How Much Could We Make?
A major gifts program depends so heavily on the individual donors and the kind of relationship you have with them that it is almost impossible to predict the revenue potential of any major gifts program in advance. That said, major gifts have been an important source of revenue for some libraries --- particularly those in large urban areas and with noteworthy special collections. In some cases revenue from these bequests and endowments can amount to many millions of dollars. However, you don’t necessarily have to be a large urban library to institute a successful major gifts program. For example, the University of California Santa Cruz Library set up an ‘Endowed Collections’ program that allows donors to fund a collection in any subject area they choose for a contribution of $10,000; the contribution may be spread over 5 years at the rate of $2000 per year.
UC Santa Cruz has raised over $600,000 with this program in just a few years --- and the ability to spread the donation over a number of years has attracted many smaller donors who might not otherwise have considered a major gift. This sort of program could also work well in many public libraries where community organizations, clubs, and businesses --as well as individual donors --- might be very interested in endowing a collection in their area of interest for a mere $2000 a year.
Another way to help gauge the potential of a major gifts program at your library is to check in with your local museums, nature and science centers, and other local cultural institutions to see how effective they have been in raising money from major benefactors. Museums and performing arts organizations, in particular, have learned to exploit this source of revenue very effectively---some receive upwards of 90% of their budgets from major gifts and endowment--- and if they have been successful, there is a good chance your library could be successful as well, given the right approach and enough time.
How Would It Work In the Library?
Major gifts programs work the same in libraries as they do in other non-profit organizations: your development staff and fund raising board identify and cultivate potential contributors, and try to convince them to make a substantial gift to the library. In exchange, the library can offer them a variety of benefits, including naming rights for a room, wing, or collection … or even the entire facility,f the gift is large enough, recognition in the Annual Report, and in a special awards dinner, and other incentives … as well as a tax deduction. An ‘endowed collections program’ like that at UC Santa Cruz is unique to libraries and may prove to be a very effective method of attracting major gifts.
How Long Will It Take?