WSD borrows from capital fund to cover costs

School district grappling with revenue shortfall, fewer students

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The Washougal School District is borrowing money from itself to meet its short-term financial obligations as it continues to grapple with financial challenges brought on by lower-than-expected enrollment and rising costs.

The Washougal School Board passed a resolution Dec. 12, that authorizes the district to transfer an amount not to exceed $3.5 million from its capital projects fund to its general fund to cover cash flow deficits in the general fund over the next two years.

School district leaders said they expect to receive certain revenues over the next 24 months, including state of Washington education funds and taxes from the district’s educational programs and operations levy.

“Pending receipt of such money, the district has an immediate need to pay various general fund expenses to address budget destabilization in the aftermath of COVID, and the district does not have available sufficient money in the general fund to pay the general fund expenses,” the district stated in the resolution approved by the school board Dec. 12.

Washougal School District officials said they will fully repay the interfund loan within 24 months.

“There is a plan for repaying this loan,” Washougal School Board member Jim Cooper said during the Dec. 12 meeting. “It’s a very temporary situation. I would hope that we move forward over the course of the next year to rebuild the reserve fund so that we don’t need to borrow from ourselves and pay interest to ourselves.”

According to the district, the transfer of funds is allowed under a state code that permits Washington school districts to make loans from capital projects funds to the general fund — which pays for the buik of the district’s educational needs, including teacher salaries and benefits.

Another state law, Revised Code of Washington 28A.505.130, states that the “proceeds of any interfund loan must not be used to balance the budget of the borrowing fund, except in fiscal year 2024, when such loans may be used to address budget destabilization in the aftermath of the COVID-19 pandemic.”

The school board also approved a resolution Dec. 12, allowing the district to repurpose $318,682 from state forest money in its debt service fund to meet its capital building needs.

“We have a large donation for a new scoreboard at Fishback Stadium, so we would like to use some of those funds to fill out the rest of (our) needs so that we can have a scoreboard for the next football season that actually works,” Washougal schools superintendent, Mary Templeton, said. “The community has made a wonderful investment into Fishback Stadium over the past six years. We have brand new bathrooms. We have brand new concession stand, brand new seating and our turf is in pretty good shape. But this then becomes something that is needed. Most recently, we made sure that all of the lights were adjusted, cleaned and replaced. Those are some of the investments that we would like to use some of the money for as we transfer it from the debt services account.”

WSD to host ‘listening tour’ Feb. 13

The district’s ending general fund balance has significantly decreased in recent years. At the end of the 2015-16 school year, the district’s general fund reserves were at 27%. That number dropped to 13% in 2019-20 and will be at 5% by the end of the current 2023-24 school year.

“We must continue to align our expenditures with revenue and bring staffing in line with the prototypical funding model, using the priorities in the strategic plan to guide the adjustments,” Washougal School Disrict Finance Director Kris Grindy said. “We are at a point where our ending fund balance has fallen below the 6% level set in board policy, which may necessitate the interfund loan that the board approved to meet payroll in some months.”

Grindy said the problem is not unique to Washougal.

“We have seen our neighboring districts and districts within our state facing similar budgetary challenges that result in the need for budget reductions,” Grindy said. “We are actively seeking ways to reduce expenditures in the current year while planning for next year.”

Grindy projects that the ending fund balance will hold steady at 5% through the current school year, then drop to 2% by the end of the 2026-27 school year.

“We do have some work to do to rebuild, to get to our goal of a minimum board fund balance of 6%,” she said during the Dec. 12 meeting. “We’re working towards that with action steps now, in the current school year, to reduce expenditures. What do we need to plan for in the future to achieve at least our minimum (fund balance) and get off of our need to have an interfund loan? If we do nothing for the 2024-25 school year and beyond, we’re going to see a significant decline in our ending fund balance.”

The district is preparing to cut between $2 and $3 million from its budget in the next year, according to Templeton.

“The future financial status is going to require some very difficult decisions,” she said. “I’m just going to be upfront about that. It’s not going to be pleasant or enjoyable. Our students and community are counting on the school district, and we will do what we have to do, not because we want to, but because we have to in order to make sure that we are fiscally resilient and fiscally responsible. There’s going to be difficult conversations for the future, and I don’t want that to be a surprise, but I also want the board to know that we have a plan, and that as superintendent, I will do what is necessary.”

WSD Assistant Superintendent Aaron Hansen told Board members during their meeting on Tuesday, Oct. 24, that initial counts showed the WSD was about 20 students short of the 2,663 students it projected when putting together its budget for the 2023-24 school year.

“The bottom line is that our September enrollment was less than we had planned,” Hansen said. “If we’re down 20 now, by the end of the school year, we’ll probably be down 30. What’s the impact of that? Well, we get about $10,000 per FTE (full-time equivalent), so that’s about $300,000 (that we’re going to be losing), and we need to make some plans to adjust.”

Most notably, the district eliminated the Washougal Learning Academy principal position, which was held by Jason Foster, who now teaches science at Jemtegaard Middle School.

The district will continue to make “in-time adjustments” as needed, according to Templeton.

“We have been working closely with our school leadership and making adjustments each time a position has opened up through the year, which has been helpful,” Hansen said. “We have shared more information with our staff and the leadership with the (district’s employee unions) so they are well informed and able to help share this with their membership.”

As a result, hiring decisions “are not made quickly,” according to Grindy.

“We evaluate and make sure that (the position) is still something that we need to replace,” she said. “We’re asking everybody to look at what kind of things they are purchasing. Do you need it? Can we suspend or reduce or pause expenditures until we get some traction on our budget reductions?”

The district ended October with an enrollment count of 2,672 students, down from 2,726 in the 2022-23 school year.

“That’s a huge part of our narrative,” Grindy said of the lower enrollment, which means the district receives fewer per-pupil dollars from the state. “We will continue to be conservative with our enrollment forecasting until something changes. Another enrollment decline reality for us is that is causing us to have to roll back our EPO levy amount, limiting our ability to collect up to the taxpayers’ approved dollar amount to stay within our per pupil allocation for the levies.”

District leaders said they plan to share information and solicit feedback about the school district’s budget process at two upcomgin events — a “superintendent’s roundtable” Jan. 11, and a “board listening tour” Feb. 13.

“The board is working closely with leadership to gather feedback from the community so we can adopt a budget that continues the excellent progress we have made while keeping us on the right path,” Washougal School Board President Angela Hancock said. “We will advocate for the resources we need while making adjustments to get reserves back to where they need to be.”

Grindy said that, if school district officials decline to take action, the district could be subject to binding financial conditions under the requirements of the Washington Office of Superintendent of Public Instruction (OSPI).

According to Washington state law, binding conditions occur when a school district cannot submit a balanced budget to the state because its expenditures exceed its revenues. Once in this type of situation, school districts are closely monitored by OSPI and must file regular budget reports and restore their financial reserves within a specific timeframe. “That’s not something that I’m interested in doing,” Grindy said. “I know the executive team is not interested in doing it. We’re going to continue to talk through the next steps to make sure that we’re not putting ourselves in that position.”