Jacob Dimond / jake@yelmonline.com
During a Yelm Community Schools Board of Directors meeting on Thursday. Sept. 25, several attendees of the event took time after the Office of Superintendent of Public Instruction’s (OSPI) presentation on binding conditions to ask questions or make statements on YCS’ current financial situation.
TJ Kelly, OSPI’s chief financial officer (CFO), fielded questions from audience members during the event immediately after the conclusion of his half-hour presentation about binding conditions.
Ryan Jewell, who is running for the District No. 4 Position on the YCS Board of Directors, asked if he was aware of other districts, outside of the eight districts currently under binding conditions, approaching the same financial situation.
“It would not surprise me if we had two or three more (districts) added before the end of the calendar year,” Kelly responded. “I do not anticipate, like, we would double the amount. So if there are more that likely will be added, yes.”
Additionally, Jewell asked the OSPI CFO if he believes the current financial situation within YCS is a school budget problem or if there’s a greater issue in the state’s budget causing the issue.
“I would say that it’s a little bit of both,” Kelly said. “I would say that part of it is … one of the significant factors of school districts being challenged right said YCS was originally placed on binding conditions on Sept. 3, 2024. During his presentation, he highlighted OSPI’s process in working with districts across the state experiencing financial difficulty, like Yelm.
“School districts are required to report to OSPI their financial plans or the status of the district, multiple times throughout the year,” Kelly said. “The first time would be the budget submission, and the budgets for the upcoming school year are due to our office at OSPI. They go through the ESD first, and then they come to the state. Those are due in August of each year.”
He noted that budget extensions may be required and noted it’s what districts do if they’re outspending what they have budgeted for the current school year. According to Kelly, districts would have to come to OSPI, through ESD, and formally request permission to spend more than what was authorized in the initial budget. Additionally, districts must provide financial statements to OSPI through ESD in the middle of November.
“The financial activities in those reports must report in a positive fund balance for the period reported. If any of those three reports, as submitted by the district, results in a negative fund balance position, the state has to start their oversight process and the district is required to petition the state to start that oversight process because of that negative fund balance,” Kelly said.
The OSPI CFO said the state’s process for financial oversight has three formal stages, including binding conditions, financial oversight and enhanced financial oversight. Yelm is currently experiencing binding conditions along with the Shelton School District, Mabton School District, Tukwilia School District, Mount Baker School District and Bellevue School District.
He noted there are currently no districts in Washington in the financial oversight stage, but confirmed there are two districts — Marysville and Prescott — experiencing enhanced financial oversight with OSPI.
Each of the three steps is locally administered by the local educational service district and OSPI, according to Kelly. He first highlighted binding conditions, which he described as a set of performance goals that YCS must achieve through local decision making. He claims YCS must request binding conditions if any of the three financial reports to OSPI arrived with a negative balance.
Kelly also clarified that a district entering binding conditions doesn’t automatically nullify or impact existing collective bargaining agreements (CBAs).
The next stage, if districts cannot construct a viable financial plan to meet positive fund balance goals established through binding conditions within a two year period, is OSPI convening a financial oversight committee.
“The oversight committee can construct an alternate financial plan for the district to consider to get to that financial goal,” Kelly said. “The financial committee consists of people from OSPI, the local ESD and another ESD and another area of the state. At this stage in the process, what we’re beginning to look at is if the district is unable to give us a plan that meets the parameters of successful financial performance. This is when the state steps in and says ‘OK, here are some options for decision making that will allow you to achieve those financial goals.’ It’s not authoritative, it’s not directive.”
The third step, if necessary, is enhanced financial oversight from OSPI.
“What this requires is the continuance of the formal committee. It requires OSPI to appoint a special administrator and, at this point, OSPI can begin to require approval of certain financial transactions before the district can actually take it,” Kelly said. “For example, for some districts that’ve been on enhanced financial oversight before, what we’ve said is whether they’re budgeted or not, you need to submit all expenditures above $25,000 to the financial oversight for review and approval.
“If the financial oversight committee is unable to construct a plan that can put the district in positive financial positions within two school years, and the district is also unable to construct a plan that can put the district in a positive financial position within two school years, then it is feasible that the OSPI and the financial oversight committee can make a recommendation to superintendent (Chris) Reykdal to essentially dissolve the district,” Kelly continued. “We’ve only had one dissolution of a school district in the state in the last 25 years. It was Vader in the 2006-07 timeframe. That situation wasn’t solely financially related.”
Kelly claimed that there’s nothing indicating that dissolution is an outcome for YCS, but said “it’s possible, but not likely.” If dissolution were to occur, Kelly stated it’s a complex two-to-three year process that “involves a lot of different roles with the ESD and OSPI.”
He highlighted Marysville School District, which has spent 12 to 18 months in financial oversight. He said pending review of the district’s enrollment and its financial statement this November, it’s likely to move from enhanced financial oversight back to binding conditions.
“Just because you’re on enhanced financial oversight, it doesn’t mean that the state is looking to, or likely to, recommend dissolution,” Kelly said. “We are not here to put pressure on the district to go away. We have a lot of work to do in Olympia. We’re here to make sure your district can thrive and become financially successful, and that your community can get back to discussing other things at this board meeting and not having OSPI involved in local decision making.”
Kelly claimed that key factors contributing to financial situations at districts statewide include declining or stagnant enrollment — which he claimed are effects from the COVID-19 pandemic — and inflation exceeding state formulas.
“There’s been a lot of talk about insurance and utility costs for school districts recently, and how over the last three to five years the insurance and utility actual costs of school districts, which are two things that are not in district control, have far exceeded what the state funds through the legislatively approved budget to keep pace with those costs,” Kelly said.
“Another thing, loss of significant revenue — either state, local or federal. There’s a lot of focus on what’s going on back in D.C. right now. We think we’re OK for the federal fiscal year 25. Again, it’s unlikely for your formula money, your Title I, Title II, Title VI money. But there are some other areas where they could actually stop funding, go to Congress for the rescission process, and then you take federal money from schools that would impact this current school year. If that would happen, a lot of districts would be challenged in what their budgets might look like for the rest of the school year — including Yelm.”
Another issue, according to Kelly, is that some districts have a lack of a plan to address imminent financial challenges. He stated that is not the issue in Yelm, but there’s been districts that have experienced double levy failures and believed they could continue to offer the same amount and level of services — before realizing it’s in trouble.
“What does success look like? Success in any of these situations, whether a district is on binding conditions, financial oversight or enhanced financial oversight, we want to come in, we want to help and we want to monitor. We prefer that we don’t go past binding conditions,” Kelly said. “There have been two districts on binding conditions, never progressed to financial oversight or enhanced financial oversight, and have been released from binding conditions within the last two to three years. Since the pandemic, we’ve had two examples where we’ve gone to binding conditions but no further. The key to this is communication, accurate data and accurate communication of that data from the district to ESD and OSPI. We’ve had no communication challenges within that trio, and we’ve gotten timely data from the Yelm School District.”
