The Tumwater School District’s finance presenter warned the board that the district’s general fund cash balance had fallen to approximately $1,380,000 at the end of December and that staff will recommend the board authorize an interfund loan at the Jan. 23 meeting to avoid cash shortfalls in the winter and early spring.

Ben, the district staff member leading the budget presentation, told the board the district spent about $4.5 million more than it took in last fiscal year and that the resulting decline in fund balance — from about $11 million to roughly $6.6 million at year-end — combined with current-year spending trends has left the district on a trajectory that could produce “cash liquidity issues particularly in March.” He said, “We will be recommending to the board an interfund loan on January 23rd.”

The presentation framed the problem in three parts: an immediate cash-flow risk, an operating deficit (spending more than revenues), and a longer-term gap between current reserves and the board’s fund-balance policy. Staff noted the district had used about $8 million in federal ESSER funds that are now depleted and that inflation-driven cost increases — including a current insurance bill that staff said has risen toward $1.8 million from well under $1 million in earlier years — have reduced purchasing power despite nominal revenue increases.

To address the operating shortfall, staff presented three reduction scenarios for the 2025–26 budget: “Option A” (the minimum, intended to eliminate the operating deficit and “stop digging”), “Option B” (deeper reductions to eliminate the deficit and make modest progress toward the district’s reserve policy), and “Option C” (an aggressive package intended to meet the board’s 6% reserve policy more quickly). Staff provided order-of-magnitude estimates: roughly $4.5 million to eliminate the current-year operating deficit (Option A), about $6 million in reductions under Option B, and about $8.5 million under Option C. Staff emphasized these are estimates and that bargaining, legislative action, enrollment changes and other factors will affect final numbers.

Board discussion focused first on the interfund loan and then on which reduction approach to endorse as the staff’s working direction. Several board members expressed concern about cutting too quickly and creating a “yo-yo” of layoffs and re-hires if state revenue or enrollment rebounds; others emphasized the purpose of the board’s reserve policy and urged more aggressive progress toward it. Multiple board members signaled support for Option B or a position between Options B and C so the district would be “making progress” toward the reserve policy while avoiding abrupt, deep cuts.

Staff also reviewed draft guiding principles, drawn from WASA materials and adapted for Tumwater, intended to shape which costs are reduced first and how to prioritize services. The six draft principles discussed included: prioritize reductions or delays in non-employee costs first; evaluate the long-term sustainability of enhanced or optional programs; consider impacts on students, especially those with the highest needs; align staffing and spending closer to the state’s prototypical school model where feasible; use attrition and not replacing vacated positions whenever possible; and preserve reasonable reserves. Board members asked staff to revise language to make clear that “enhanced” programs (not core services such as special education) are the focus of that principle, to link reductions to the district’s strategic plan and to include explicit emphasis on prioritizing students with the greatest needs.

Staff said it will continue non-salary reductions already in place (the district required a 10% reduction in discretionary non-contract MSOC accounts late last year), will limit vacancy fills to legally required positions, and will pursue a broader overhaul of budgeting and spending practices (travel, overtime, facility use, procurement) as part of a multi-year recovery plan. Staff described a new Quarterly Business Analytics Dashboard (QBAD) intended to provide leading indicators (overtime, substitutes, cash-outs, legal spending) so the district does not rely only on lagging, year-end measures.

On timing, staff said the recommended interfund loan helps manage cash flow and would be structured under county guidance; the county sets interest terms and the law requires repayment within a year. Staff expects that even with reductions it will take time for savings to materialize and that the district likely would need loan assistance during part of the 2025–26 year unless deeper reductions are adopted and take immediate effect. Staff will return a refined set of guiding principles and a more detailed savings plan and said the district will present estimated dollar savings and progress metrics as the budget work proceeds.

Next steps: staff will bring the interfund loan request for board approval at the Jan. 23 meeting, continue to develop budget-reduction scenarios and a refined set of guiding principles, and provide periodic updates that show estimated savings and progress toward the board’s reserve policy. The board directed staff to return with clarified language on how restricted funds (for example, New Market Skill Center funds) are treated under the fund-balance policy and with updates that separate restricted balances from the district’s operating reserves.

Issues and limitations: staff repeatedly cautioned that the estimates shared are subject to change with state legislative action, contract negotiations, and enrollment shifts, and that certain programs (particularly those driven by IEPs) can change costs unpredictably. The presentation and board discussion did not record any formal votes; the interfund loan is planned to be proposed for formal action at the Jan. 23 board meeting.