Mercer Island board opens first reading of 2025–26 budget; members press for clearer fund‑balance calculations

At a special meeting the Mercer Island School District board held a first reading of Resolution 744, the proposed 2025—26 budget, and debated how the district calculates and reports its general‑fund balance.

Board members and staff said the district added two clarifying notes to the budget document: one explaining that Moody's Investor Services changed its rating methodology in January 2021 to emphasize enrollment, debt and fund balance for U.S. public school districts, and a second footnote explaining that current fund‑balance estimates include built‑in capacity tied to projected revenue per full‑time equivalent (presented in the draft as $38.50 per FTE). Staff said the changes were made at the board's request and that the resolution will return for a second reading next week, followed by the public budget hearing and a vote.

Why it matters: The board's written fund‑balance target appears in district policy OE7, which directs a target of 8%–10% of prior fiscal year expenditures and a 5% minimum floor. Fund balance affects month‑to‑month cash flow, credit ratings and borrowing costs; Moody's and state financial reviews were cited repeatedly in discussion.

Staff told the board the district will not have final, audited fund‑balance figures until it files the F‑196 report in November. A board member pressed staff for actual, reconciled year‑end numbers rather than rolling projections. "What I would like is to know what the number is, not projections, but the actual fund balance when we have that finalized," said Dan (board member).

Board members asked for clarity about the formula used to calculate the fund‑balance percentage'1the numerator (general‑fund balance as of Aug. 31) and the denominator (whether the district uses prior‑year expenditures, projected forward expenditures, or some other basis). Staff said the F‑196 filing will provide the official year‑end actuals and offered to provide an ongoing monthly projection showing estimated year‑end balances compared with previous projections.

Directors Ronzer and Adams offered a new footnote (pulled to page 23 of the draft) clarifying that the general‑fund estimate reflects built‑in capacity for revenue and FTE above the budgeted amount; staff said the language is intended to explain why an estimated reserve may look larger before year‑end reconciliation. Staff also summarized OSPI's financial health framework (fund balance to revenue, expenditures to revenue, days cash on hand, and a four‑year budget outlook) and said Mercer Island's OSPI score has improved in recent years from about 1.9 to roughly 2.6 out of 4, with projections near 3.0 given current assumptions.

Several board members stressed communication and transparency, asking for a plain‑language explanation for the public and a possible FAQ on the district website that describes how fund balance is calculated, why the 8%–10% target exists (staff noted it is roughly two months of operating expenses), and how projections have compared with actuals in recent years.

Discussion vs. action: The board did not adopt the budget at this meeting. The resolution was presented as a first reading; staff said it will return for a second reading next week and then for the formal public hearing and vote.

Next steps: Staff will provide reconciled year‑end figures after the F‑196 filing, a clearer statement of the formula used to calculate the fund‑balance percentage, and an FAQ or communication piece for the public. The resolution will be scheduled for second reading at the board's next meeting.

Ending note: Board members repeatedly emphasized the district's multi‑year plan to restore reserves and asked staff to show estimates side by side with actuals so the public can follow progress toward the 8%–10% target.