Washougal School District receives ‘financial warning’ from state

The Washougal School District (WSD) has received a “financial warning” from the Washington Office of Superintendent of Public Instruction’s (OSPI)’s School District Financial Health Indicators Model, indicating that the district is “facing potential difficulties.” OSPI created the model after the passing of Substitute House Bill 1431 in 2011 that directed the agency to develop a tool to provide information about the financial health of school districts. The model uses four weighted conditions — fund balance to revenue ratio (40%), expenditures to revenue ratio (35%), days cash on hand (15%), and four-year budget summary plan (10%), which measures how many years a district reported a negative fund balance deficit. “We had already been communicating concerns about our enrollment, our expenditures versus our revenue, and to see that we are identified on a list based on these indicators was very concerning,” WSD’s interim superintendent, Aaron Hansen, said. “It was alarming. We knew we were approaching a very concerning level with our fund balance. We knew that we were going to need to make some reductions. This just affirmed that.” The model assigns point values (0 to 4) to districts in each of the four categories. Each district’s total score is the sum of each indicator’s score multiplied by the weighting factor. The combined score, conceptually similar to a student’s grade-point average, determines the district’s financial health category. “This tool uses financial information to provide a snapshot view of the district’s overall financial health,” according to OSPI. “The snapshot is as of the end of the last fiscal year and the most recent four-year budget summary plan. The summary plan includes an estimate of funding necessary to maintain the continuing costs of program and service levels and existing supplemental contract obligations. Also included are the three previous years of financial indicator scores for each district in order to provide a basis for comparison and analysis. The tool will be updated on an annual basis using the most recent year-end financial data when available. “Users of this data are encouraged to review financial information over several years, as financial condition over time is a more effective indication of a district’s financial health than a single snapshot.” Districts with scores ranging from 0 to 1.75 receive a “financial warning” label. Nineteen of the 265 school districts in Washington state received the label for the 2022-23 school year, including WSD with a score of 1.55. Forty-three districts received a perfect 4.0 score. The Camas School District received a score of 3.35. “The Financial Health Indicators Model — which OSPI is required by law to create each year — uses data that lags,” said OSPI Chief Communications Officer Katy Payne. “The most recent data in the model is from the 2022-23 school year, and we won’t have the data for the 2023-24 school year inputted into the model until the data are finalized in March or April of 2025.” Districts with higher scores generally have more ability to adapt to unforeseen budget cuts, revenue losses, unexpected expenditures, or other “extraordinary items” that could occur, according to OSPI. “This is just one metric that we’ve discovered, that we’re aware of,” Hansen said. “But certainly, we definitely want to be off the ‘warning list.’ This is one of our goals, to be good stewards of our resources and make sound fiscal decisions, and I believe we are doing that. We’re going to be conservative. I think (the district’s business manager, Shelese McConnell,) is doing an excellent job of tracking our spending and revenue, and working with our building teams and directors.” The district announced a series of staffing and educational program eliminations in the spring of 2024 to reduce its expenditures by about $4 million for the 2024-25 school year. Currently, the district has 380 employees, down 9.5% from its 416 employees at the start of the 2023-24 school year. “We did the really challenging work in the spring,” Hansen said. “Our approach was to identify positions that needed to be eliminated; since 85% to 86% of our budget is staffing, that’s where we started. We also reduced contracts with Education Service District 112 and other memberships, so hopefully, the ratios of fund balance to revenue expenditures to revenue will be better off.” The district’s year-end fund balance has been dwindling in recent years, from a high of 18% in 2017-18 to 5% in 2022-23. It increased slightly to 5.71% at the end of the 2023-23 school year. “We’re excited about 5.71% because we talked a lot (during the 2023-24 school year about) what it could be; I think we showed graphics and tables (that predicted that we’d end the year at) 4%, and 4% again for 2024-25 and then lower if we didn’t make adjustments,” Hansen said during the Washougal School Board’s Oct. 22 meeting. “We clearly made adjustments. Because of moves that we were making last year, our fund balance is moving in the right direction.” The WSD’s enrollment dropped 2.7% from 2022-23’s rate of 2,726 full-time equivalent (FTE) students to 2,653 FTE students in 2023-24. The district originally projected an enrollment figure of 2,530 for the current school year. “At the end of September, we came in at 2,545, so that’s really good,” McConnell said during the Oct. 22 meeting. “We’re 15 over what we budgeted. But we’ve actually declined 127 students (from the previous school year). Budget-wise and funding-wise, we’re going to get more state apportionment than we budgeted, but FTE-wise, we still have gone down.” Hansen said that the school district currently has no plans to make additional cuts during the 2024-25 school year. “I would say, based on our current information, we are set,” he said. “However, things that might come up that we’re not aware of (right now). But I would not predict that we will need to make any reductions right now.” McConnell told Washougal School Board members during the Oct. 22 meeting that the district’s revenues, which come mostly from the state’s per-student appropriations, fluctuates from month to month, creating challenges in the budgeting process. “The worst time we had last year was December through February,” she said. “In those three months, our expenditures were higher than our revenues. The state looks at the revenue it’s going to get and says, ‘We can give you this percentage,’ and it’s never at the best time for the school district. Getting 12.5% in July is great, but you really needed it, obviously, back in December, January, February, and you didn’t get it, so you’re happy to have that fund balance to be able to survive those winter months.” McConnell said that, at one point in February 2024, the district’s cash flow dipped down to $513,978, less than 1% of its $50.4 million general budget. “I wasn’t here (at the time),” she said, “but I’m pretty sure everybody was very stressed because it was extremely low, and if you had gone one more month with expenditures being too high, you would have been borrowing from the county.”

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