The Mercer Island School District board reviewed its 2024–25 financial dashboard and November and December budget status reports and discussed longer‑term fund‑balance goals after recent changes in credit‑rating practice.

District finance staff summarized December finances: expenditures were running ahead of the fiscal‑year proportion at about 33.4% while the year was roughly 23.3% complete; revenues were lower than expenditures in the month. Staff reported a year‑to‑date increase in cash on hand of about $574,000 and said special‑education out‑of‑state placements had dropped from two students to one. The district also presented a projection that, unless additional revenue materializes, there might be a shortfall next year in the range described in the presentation as roughly "2 and a half to 3 [million]" dollars.

Director Sullivan walked the board through the monitoring report for Operational Expectation (OE) 6 (financial planning). He said the district remains "not in compliance" on the OE element related to maintaining budget reserves at a level Moody's and other agencies use for bond‑rating analysis. Sullivan and other board members discussed recent Moody's credit guidance that staff said now looks for higher reserve percentages (discussion in the meeting cited a 15% target referenced by Moody's). Board members disagreed on whether policy language should anchor monitoring to bond‑rating agency criteria or instead to a locally defined, operational metric such as two months of operating payroll (roughly an 8% fund balance target under the district's interpretation).

Board action and votes: the board approved the OE6 monitoring item as posted (motion and mover/second not specified in the transcript) with the record showing the board accepted the monitoring report while noting the fund‑balance deficiency. The board separately reviewed OE8 (asset protection) and approved that item as in compliance. The transcript records the board approving the monitoring materials but does not provide a complete roll‑call vote for the financial item in the public text.

Why it matters: board policy ties superintendent performance monitoring to operational expectations that include financial planning and maintaining reserves. Directors said the district's short‑term reserve position and the state's legislative environment (including possible changes to school funding) make fund‑balance planning a board priority. Some members argued that tying policy to an external vendor's evolving criteria (credit agencies) risks setting an unachievable standard; others said the bond‑rating reality affects borrowing costs and should inform monitoring.

Clarifying budget figures and enrollment: staff said the district's kindergarten and first‑grade cohorts were larger than projected (presentation cited about 220 first graders and an unusually large kindergarten class compared with prior years), which helped revenues tied to enrollment. The district estimated it will reach roughly 4.5% fund balance by year end under the current budget assumptions but acknowledged that the target of 8% (about two months of operating payroll) remains a multi‑year objective.

What's next: directors asked staff to bring clarifying language options for OE6 so the board can decide whether to anchor monitoring to an external rating threshold or to a locally controlled metric. Staff will continue to monitor legislative developments in Olympia that could affect state revenue and levy caps.