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State will keep fiscal tabs on three cash-starved Washington school districts

La Conner, Mount Baker and Marysville districts are all dealing with budget shortfalls and trying to regain their financial footing.

Mount Baker School building with its name painted on has the mountains and dense forests in the background.
Mount Baker School District is one of three cash-starved public districts where spending is being monitored by state education officials. (Hailey Hoffman/Cascadia Daily News)
By Jerry Cornfield Washington State Standard

As students return to Washington classrooms, state education officials are closely monitoring how three cash-strapped public school districts are spending money.

Marysville, La Conner and Mount Baker districts, all located in western Washington and part of Northwest Educational Service District 189, are in this position because they are beginning the school year without a balanced budget as the state requires.

In August, each inked an agreement with the Office of Superintendent of Public Instruction requiring the districts to regularly file budget reports and restore financial reserves to certain levels by a prescribed date.

Signing the so-called “binding conditions” pacts, which span at least two years, assures the district’s access to money needed for operations. And it empowers OSPI and the Educational Services District to “closely review and recommend school district decisions related to their current financial condition,” according to letters sent to each district’s superintendent.

“The goal is to ensure the district restores a healthy financial position,” reads the letter signed by T.J. Kelly, OSPI chief financial officer, and Larry Francois, superintendent of Educational Service District 189.

Fewer than 20 such agreements have been signed in the last two decades. Having three districts come under state financial oversight in the same month “is a bit unusual,” Kelly said in an interview.

While each district’s situation is unique, all three are dealing with the fiscal effects of lower enrollment, an end of federal pandemic aid, and increased costs of labor and supplies.

Plenty of other districts are too which has Kelly wondering if this could be a sign of things to come.

“We’ll certainly be paying much more attention in the upcoming school year to help districts identify fiscal issues and see if we can offer ways to solve them or to avoid them,” Kelly said. “I don’t want to speak to the probability of whether or not we’ll be sitting here a year from now with 10 to 12 districts on binding condition, but it could happen.”


A path for solvency

Washington doesn’t want its public school districts to become insolvent. It requires districts to submit a balanced budget to the Office of Superintendent of Public Instruction. Those that cannot and foresee a deficit can seek permission to borrow against future local tax revenue to cover a shortfall.

The state schools office won’t approve a request unless the district agrees, in writing, to certain binding conditions for a period of two years.

Circumstances dictate specific requirements for districts coming under the state’s watch. 

Examples may include:

– Providing budget status reports monthly to the state school’s office and educational service district.

– Attending quarterly meetings with state and local education officials to review expenditures and revenues, enrollment trends, staffing levels and cash flow projections.

– Submitting comprehensive spending plans.

– Achieving a minimum ending fund balance for a designated school year. 

OSPI enforces the conditions but “cannot force a school board to take any specific action,” Kelly said.

Unless, after two years, the situation is not improving. Then it can get more involved as state law lays out a process that could lead to a district being placed under “enhanced financial oversight” or even dissolved. That last happened with the Vader School District in Lewis County in 2007.

Smaller districts, smaller deficits

In Skagit County, the small La Conner School District is starting the fiscal year, which runs from Sept. 1 to Aug. 31, with a negative fund balance of $300,000. 

In the district’s “binding conditions” letter, leaders of the 550-student district cite several factors that brought them to this point including declining enrollment, overestimating their beginning budget balance for the year, and overstaffing.

They expect to turn things around and end the budget year with $600,333 in reserves, about 5% of the district’s general fund expenditures. The agreement with the state calls for an ending fund balance of $1.28 million in the district’s 2024-25 budget.

In Whatcom County, the Mount Baker School District is dealing with a projected deficit of just under $1,175,000. 

Under terms of its agreement with the state, the district of roughly 1,700 students must erase the shortfall by the start of the 2024 school year. 

District leaders told the state it reached this point because of difficulties with inflation in the price of goods and services, salary costs not covered by state funding, expiring federal aid, declining enrollment and a reduction in levy equalization dollars from the state.

The Mount Baker district also had an unexpected change in finance directors.

Classes started Aug. 30 in the La Conner and Mount Baker school districts.

A tide of red ink

Marysville School District in Snohomish County is facing a $17,500,637 deficit in its current budget – even after eliminating jobs and making spending cuts. 

It is little surprise the district of roughly 10,000 students is in this situation.

In 2022, voters twice rejected renewal of the district’s four-year local property tax levy which generated around $25 million a year for staff and programs not paid for by the state. That left the district without those local dollars in 2023.

Voters did approve a new four-year levy in February’s special election. But the first collections of this local property tax won’t arrive until spring 2024.

Compounding the challenge, district leaders say, is federal pandemic aid is going away, enrollment has been declining, and state funding they receive is inadequate. 

The district’s agreement with the state envisions a three-year period to get back on stable financial footing. In the short term, it will need a loan, to be repaid with future local tax collections. As The Daily Herald in Everett reported this week, the district is working on terms with the Snohomish County treasurer.

On the eve of the Aug. 31 start of school, the district issued a statement reassuring families and students the financial troubles won’t impede education.

“The effects of the current financial crisis should feel seamless to children as they meet and greet their teachers and classroom support staff,” the statement said. “There will still be supervision of students, buses to take them to and from school, nutritious meals, cleaning and maintenance, and caring adults to attend to their needs.”

Kelly met with district officials a few weeks ago to discuss the situation.

“They all understand they are in a challenging spot,” he said. “I think they appreciate there will be a second set of eyes on things.”


Washington State Standard is an independent, nonprofit news organization that produces original reporting on policy and politics.

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