As students and teachers in Kent prepare for school to start Aug. 31, district officials face an estimated $6.9 million budget shortfall.

“For the past two years, Kent School District leaders have been working diligently to reduce operating costs through aggressive spending and hiring controls,” school district spokesman Chris Loftis said in a written statement on Wednesday. “Multiyear trends of increasing costs have led to a steady decrease in the fund balance or cash reserve. As this fiscal year closes, in-depth financial analysis has led to the conclusion that the district will end the year with a negative fund balance in our general operating budget.”

In April, the district announced a hiring and spending freeze through the fiscal year, which ends Aug. 31, to help curb the deficit.

The school board was expected to discuss the budget at a work session on Wednesday evening and is scheduled to vote on a 2017-18 budget at its regular board meeting at 7 p.m. Wednesday, Aug. 23, at the district’s Administration Building, 12033 SE 256th St. The state requires school districts to adopt a budget for the upcoming school year by Aug. 31.

Officials are working with the Puget Sound Education Service District and the Office of Superintendent of Public Instruction (OSPI) to develop a recovery plan, which includes continued reductions of expenditures, increased monitoring of variables in revenues, enhanced accounting procedures and increased frequency of reporting, Loftis said.

“These are certainly challenging times,” Loftis added, “and our current situation is the result of a number of issues that arose over a period of several years. Our recovery (plan) will be a thoughtful and methodical effort, also taking place over a number of years. As the details and timelines of those efforts continue to be developed, the district is committed to providing updates on our fiscal status and ongoing recovery efforts.”

If the district ends the fiscal year with a negative balance, it will be placed under binding conditions by OSPI.

“At that point, OSPI – and possibly the local educational service district – will work with the district on getting them back in financial shape,” OSPI spokesman Nathan Olson said in an email. “That includes technical assistance and goal-setting. For example: Let’s say hypothetically a district was $100 in the red. We might ask them to have a negative balance of $60 by Dec. 1, and by $30 dollars by March 1 and $0 by, say, May 1. OSPI doesn’t offer financial assistance to help the district eliminate the negative balance. We offer guidance only.”

Kent School District officials informally contacted OSPI about the budget issues, Olson said.

“To my knowledge we haven’t yet received anything from the district formally, which is required to place them on binding conditions,” Olson said in an email on Tuesday.

Typically, one or two districts at most are on binding conditions each year, Olson said.

Earlier this year, the school board approved $10 million and $15 million in interfund loans from its capital project fund to its general fund.

State law allows districts to use interfund loans to address short-term cash flow challenges, Loftis said.

“We receive funds from state, local and federal sources. Because local tax collections occur twice a year (April and October), these uneven monthly receipts can sometimes lead to cash flow issues,” Loftis said. “In our particular case, this has been complicated by a declining cash reserve over the past several years. In both February and July of this year, we found it necessary to use the interfund loan mechanism to meet monthly financial obligations. After careful review and following the requirements set forth, the board determined it best to use an interfund loan to address the immediate cash needs.”

According to board documents, the $10 million loan approved on Feb. 15 was to be paid back by July 1, and the $15 million loan authorized on July 13 has to be repaid by April 30, 2018.

District, teachers in contract negotiations

The district is contract negotiations with the Kent Education Association, the union which represents Kent teachers. Last year, the district and KEA agreed to a one-year contract, which ends Aug. 31, instead of a typical multiyear contract. The primary reason for the shorter-than-normal contract was uncertainty in future state funding as the Legislature worked to comply with the state Supreme Court’s McCleary ruling, officials said.

The current budget shortfall complicates this year’s negotiations, KEA president Christie Padilla said.

“We are currently in negotiations regarding teacher compensation,” Padilla said in an email. “I am expecting that the district will reprioritize some of its spending practices, and agree to a contract that will be competitive with our neighboring districts. It is uncertain if we will have a contract by the first day of school, but we are hopeful.”

Padilla said she hopes teachers have a tentative agreement to vote on at KEA general membership meeting on Tuesday, Aug. 29.

“If not, we have several options,” Padilla said. “It will be up to the membership to decide. The big question that everyone is asking is are the teachers going on strike? I am not recommending a strike. However, the teachers could certainly vote to go that route. Other possibilities could be to work without a contract while we continue to negotiate.”

Padilla said she believes teachers and the district are committed to reaching an agreement.

“It’s going to take some creativity, given the district’s budget issues,” she said. “But we should be able to get through this.”