Iowa Code 384.3 states that all money received for city governmental purposes from taxes and other sources "must be credited to the general fund of the city, except those monies received for the purposes of...trust and agency funds...." Funds unused by governmental agencies at the end of the fiscal year (June 30) may revert to the general fund of the city. Funds remaining in the library account at the end of the year will revert unless the city has given authority to the library board to carry over the funds in the library account or unless the funds are designated to a trust account.
One of the biggest mistakes a library board can make is to not have plans for unexpected funds. It is not unheard of for Iowa libraries to have funds diverted from the library to the city’s General Fund because there were no plans for the funds and no encumbrances, or trust accounts established.
A trust account may be established for funds being saved for a particular project; if there is no purpose for the trust account other than accumulating money, the trust account may not be allowed. The library board, working with the library director, should plan for unexpected funds: Is there a need for an addition or new building for the library? Is new shelving needed? Are more computers needed? Does the library intend to automate or purchase a different automation system?
The money in a trust account:
- will carry over from year to year until the purpose for which it was established is accomplished
- is not to be used for day-to-day operation of the library unless the trust provides, such as an endowment trust
- will not revert to the city General Fund
- will be expended only by a motion of the library board and only for the purpose specified in the trust, such as the “library building project.”
There are different types of trust accounts. A gift that allows the Library to spend both principal and interest would be accounted for in a “Special Revenue Fund, Expendable Trust” account. A gift that allows the Library to spend only the interest but not the principal would be accounted for in a “Permanent Fund.”
If the library has plans for year end funds, the board should request that the city council pass a resolution to authorize carryover of the fund balance or establish a trust account. The resolution should indicate, among other things, the title of the trust, the purpose of the trust, and whether the interest on the fund is to be added to the trust. The city council then passes a resolution establishing the library trust account to accumulate funds for a planned purpose or project.
A word of caution: Gifts and donations given to a public library must be retained and accounted for by the public library. These gifts and donations are “public funds” upon receipt by the public library and may not be simply turned over or given to another private organization such as a library foundation.