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November 12 Budget Update Explained

At the Tuesday, November 12, School Board Regular Meeting, Assistant Superintendent of Business & Operations Angela Von Essen and Director of Business and Finance Art Clarke presented an update of the District’s current financial position to inform the planning of the District’s 2025-26 budget.

Presentation | Video Recording

​The key information for members of our community to take away from this report is:

  • Our efforts to save money have helped us get through the past two years, and we need to continue expenditure reductions into future years to bring expenses in line with revenue. 
  • Our 2023-24 position was better than projected and current year (2024-25) projections show improvement; however, we face a significant budget deficit for next year (2025-26).
  • Substantial reductions will be necessary to address both immediate needs and long-term financial health.

The Upside:

  • We ended 2023-24 with approximately $2.8 million more in unreserved fund balance than budgeted, as previously shared would possibly be the case following recent years’ patterns and what is typical for most school districts.
  • This ~$2.8 million improvement is due to:
  1. ~$1.8 million higher beginning fund balance from 2022-23
  2. ~$1 million difference in higher revenues and lower expenses in 2022-23 than budgeted due to:
  • Student enrollment is higher than budgeted
  • Additional mid-year state funding
  • Reassigned a portion of reserved funds to unreserved  fund balance to cover educational program costs
  • Bargaining contract pauses and reductions after the budget was approved in August 2023
  • Implementation of districtwide spending reductions (in particular, contract pauses, strict spending limitations, and strategic hiring freeze)
  • This equals an estimated ending unreserved fund balance of $7.1 million (4.19%) for 2023-24, which is within the target of 4-5%.
  • For 2024-25, our current budgeted ending unreserved fund balance is $3 million (1.7%).
  • Considering the possibility of a roughly $2 million increase in fund balance due to conservative budgeting, the district could end the year with up to $5 million (2.8%) in unreserved fund balance. Note: We will not know the actual amount until we close the financial records in November 2025.

The Downside:

  • Overall, expenses for 2023-24 still exceeded revenue by just over $1 million.
  • Expenses for 2024-25 are projected to exceed revenue by just over $4 million.
  • Ending 2024-25 with $3-5 million (1.7-2.8%) unreserved fund balance could help our future financial situation if we end the year on the higher end of this range. However, we are still likely to end 2025-26 with a negative fund balance if we don’t make significant changes.
  • Projected district expenses for the 2025-26 school year increase dramatically, likely to exceed revenues by about $8.5 million (and result in a negative fund balance) if changes are not made.
  • This ~$8.5 million budget deficit is due to:
    • Increasing costs, including the return of labor contract obligations and salary increases
    • Limited revenue growth
    • Our existing structural deficit
  • Even considering the increase in our unreserved fund balance for the last fiscal year, conservative budgeting efforts, and the possibility of increasing enrollment due to expenses continuing to outpace revenues, we are not currently on a path to sustained fiscal recovery.

The Realities:

  • Our district has been operating without the curriculum and resources necessary to provide the high standard of educational services we expect for our students.

  • There have been very limited professional development opportunities, which are critical to enhancing and evolving professional practice.

  • Buildings have been operating with limited supplies, failing equipment that hasn’t been replaced and outdated systems.

  • We must get to a place of financial health where we can resume investments in the elements that are necessary to support our schools.

  • The more we delay investments, the more expensive it will be to bring district materials and systems up to date.

  • A Reduced Educational Program (REP) for 2025-26 will be needed to bring expenses into a sustainable range.

Budget Update Q&A

Why didn’t we budget for this additional money in our unreserved fund, knowing that this has been a pattern in recent years?

We have shared in our budget presentations that the 23-24 unreserved fund balance would likely end above budget. However, a school district’s budget must be conservative to avoid putting a district in jeopardy, especially when we are operating on such a thin margin. We need to have budget capacity, and we don’t want to over-project our enrollment and revenues. With our budget consistently in the danger zone over the past three years, it has been critical that our budgeting work reflect conservative projections.

With the increased enrollment projections from the demographer last week, will that revenue be enough to regain fiscal health?

While learning that more students may enroll in our school district in the coming years is welcome news, the revenues from that enrollment are insufficient to adequately fund school district programs and services. With more students comes more expenses in staff, materials, and more, so the revenue is offset by the costs. With the broken funding model in WA State, the revenue we will receive for additional students will likely be less than it costs the district to serve them. 

Additionally, we are still awaiting more detailed information about updated enrollment projections, and we must budget conservatively to avoid putting the district’s financial health in peril. A lot can change over time, and it is too soon to know how these new projections will actually affect our enrollment, revenues, and expenses.

If we have more unreserved funds, are we on track to financial health now?

No. Expenses continue to outpace revenue, which leads to a continued decline in our unreserved fund balance. We must take steps to address both immediate needs and long-term financial health

Will staffing reductions still need to be made next year?

Yes. As we know, with 87% of our costs associated with salaries and benefits, our choices are limited and we will have to consider reducing staffing costs that are not covered by State funding. 

 

Why is there such a focus on General Fund balance, and unreserved fund balance in particular?

Part of the State accounting process each year is to project our beginning and ending fund balance, much like an individual might estimate their savings account goals. If the district spends less than our revenue in a given year, the remainder is fund balance.

The ending fund balance has two parts to it: reserved fund balance and unreserved fund balance:

  • The reserved fund balance exists for assets we have for a specific purpose. This includes carryover – or unspent funds – from programs with inflexible expenditures. It also includes things such as our inventory of food items that have not yet been made into a meal and served/sold to students.

  • The unreserved fund balance is liquid cash – available to use on any district expenditure and saved for other eventualities, such as lower enrollment than expected or an unexpected expense.

Board Policy 7130 states, in part: The budgeted unreserved fund balance is held to compensate for economic uncertainties and should be targeted at a range between 4.0% and 5.0% of budgeted General Fund expenditures.

Read all Budget FAQs

School Districts Across Washington are Facing Big Budget Challenges

A declining state priority. Increased student needs.
Rising costs. Unfunded requirements.

These core issues are causing countless school districts across Washington to experience a financial crisis. The state of Washington is constitutionally responsible for fully funding the costs of basic education but even after reforms (the McCleary “Solution”), the state’s efforts aren’t keeping up with actual expenses.

Core Issues with School Funding in WA State

Washington Association of School Administrators, Issues at the Core of Washington State’s School Funding Dilemma, accessed October 7, 2024, <https://www.waschoolfunding.org/>.

Spending Reductions for 2024-25

In addition to expenditure reductions over the past two years, we are currently implementing the measures listed below and will continue to explore additional reductions throughout the school year.

  • Procurement and Supplies:

    • Reduce building and departmental budgets by 25% for 2024-25 and 25% for 2025-26

    • Eliminate non-essential memberships and dues

    • Restrict food and beverage purchases

    • Implement approval process for purchases over $1,000

    • Strict monitoring of budget and purchasing 

  • Personnel:

    • Implement strategic hiring freeze 

    • Restrict new stipends, additional time, and overtime

  • Technology and Equipment:

    • Extend replacement cycles for various equipment

    • Reduce technology professional development

  •   Travel, Transportation, and Professional Development:

    • Restrict to mandatory, student-related, or grant-funded activities

These reductions are estimated to save approximately $600,000 in 2024-25, but they will not address the larger deficit we are facing and the fact that our expenses continue to outpace our revenue. Additional reductions for the 2025-26 school year will be needed. In November, we will provide updated financial information.

Public Schools Funding FAQs

The Washington school funding system is complex, and many previous attempts to explain it are lengthy and time-consuming to read. Washington State School Directors’ Association (WSSDA) designed this resource to answer some of the most common questions in a simple, accessible, and easy-to-navigate way. Inside this 32-page booklet, you’ll find answers to 36 frequently asked questions.

This guide clearly explains and helps demystify topics such as how education is funded, the prototypical school funding model, details about levies, and the regionalization and experience factor.

Washington Public Schools Funding Frequently Asked Questions

 

Recent School Board Meeting Budget Reports and Presentations

Budget Survey Reports

The 2023-24 District and Community Budget Survey sought feedback from members of our school district and community about priorities to help guide planning for reductions to balance our budget.

The survey results were presented at the March 7, 2023, School Board meeting, with the following documents:

Shoreline School Budget Survey Executive Summary

Budget Survey Report (presentation slides)

Watch the presentation from the March 7, 2023, School Board meeting