Board hears first reading of Mukilteo preliminary 2025-26 budget; federal Title II—IV allocations paused and levy law change reshapes 4-year forecast

Mukilteo School Board members on Tuesday received the district—s quarterly financial report and a first reading of the preliminary 2025-26 budget, including a four-year forecast that relies on a larger local levy capacity created by recent state law changes and flagged a short-term risk from a pause in certain federal program allocations. Key takeaways from the presentation - Revenue and fund balance: staff said the district expects total revenues to rise from just over $320 million to roughly $333—334 million next year, an increase of about $12.8 million. The district—s projected beginning fund balance for the 2025-26 budget presentation is roughly $17.75 million (about 5.5% of budgeted revenues) following anticipated fourth-quarter activity described in the quarterly update. - Federal funds paused: the U.S. Department of Education paused release of allocations for Title II (professional development), Title III (English learner support) and Title IV (student support and enrichment) while the Department reviews those allocations; staff said Title I allocations are being released as normal. The paused allocations together mirror roughly $1.3—$1.4 million in local-year funding the district expected to budget; staff said the funds are appropriated by Congress but the Department of Education has temporarily withheld allocations pending review. The district is monitoring OSPI and federal guidance and noted Washington state joined a lawsuit seeking release of the funds. - State and special-purpose revenue: the district projects a near $8 million increase in state revenue overall, with $6.8 million of that estimated from state special-purpose funds (notably special education changes tied to revised tier multipliers). General apportionment is projected to increase about $949,000, though the presenter said enrollment declines expected next year partially offset per-student increases. - Levy lid adjustment (House Bill 2249): staff said a change to how local levy capacity is calculated (commonly discussed as HB 2249) raised per-pupil levy limits substantially compared with prior law. The district—s modeling shows a 2026 calendar-year maximum for the educational programs levy near $48.9 million and higher allowable maximum collections in later years (projected scenarios showed maximums in the $61 million—$71 million range across subsequent calendar years depending on inflation indexes). The presenter said the district currently assumes it will seek the higher allowable levy in the February 2026 election cycle to bolster long-term reserves and support operations. - Expenditure breakdown: staff said about 86% of the district—s budget pays staff (salaries and benefits). Next-year expenditure increases are largely salary-driven (the presentation assumed labor cost increases); benefits costs are projected to decline by roughly $2 million because the state reduced the statutorily required employer retirement contribution. Materials/supplies and operating capacity includes a planned increase in grant-capacity budgeting from $3 million to $5 million to accommodate new and unanticipated grants without immediate budget readoption. - Capital projects and debt service: capital-projects revenues are primarily property-tax funded; staff said they expect to close out 2020 bond projects during the coming fiscal year and continue districtwide access-control and other capital investments. Debt service collections for bond repayment were projected at roughly $27 million, certified via the regular debt-service levy process. What this means and follow-up Board members asked how the district will respond if the federal Title allocations are ultimately reduced or not released; staff said most of the paused funds would support training, summer programs and English-learner services and that the district would prioritize spending if the money is not available. The district noted the paused allocations are for next year—s funding cycle (federal fiscal year) and that typical federal grant reimbursement and budgeting practices mean some spending would occur only after allocations are finalized. Staff said the levy lid adjustment materially changes later-year revenue modeling: a larger local levy would increase long-term revenue flexibility but also requires a public vote and community support. The presenter reiterated that state law still requires a balanced budget at adoption and staff showed a four-year projection that uses the higher levy capacity to rebuild reserves toward a target larger than the roughly 5% ending balance anticipated for 2025-26. Other funds discussed briefly - Transportation vehicle fund: staff described the district—s depreciation-based reimbursement schedule for yellow school buses and said depreciation receipts are expected in the coming year (staff projected about $2 million in depreciation receipts and a transportation fund starting balance around $2.7 million). Staff said replacement timing depends on the depreciation schedule and that insurance reimbursements (for buses lost to accidents) can affect year-to-year purchases. - Capital projects fund: staff noted continuing closeout costs related to recently completed projects (including the new performing arts center and other facility projects) and ongoing access-control work. Revenue for capital projects is primarily property-tax driven and includes bond proceeds and any state match or development mitigation receipts. No final vote was taken; this was the first reading of the preliminary budget. Staff will return for public notices and the August budget hearing and adoption schedule required under RCW. Context The district emphasized the presentation is a first reading and that budgets will be posted (as required by statute) and brought back for public hearing and adoption in August. Staff said they are monitoring state and federal developments daily, especially the paused federal allocations and OSPI guidance, and will update the board if allocations change before adoption.