A decimal point in the wrong place; fabricated numbers; potential staff reductions; miscalculations of millions of dollars; $400,000 in the red…
Those are just some of the problems facing the Bainbridge Island School District as it continues to find issues with its budget process and downstream effects.
The BISD held its first public meeting Nov. 6 since it announced the discovery of several budget errors that have locked up district finances for the foreseeable future. Those errors are in addition to problems in the budget years ago that led to changes in the district’s finance department.
“We are finding things on a regular basis, from when we weren’t the people in charge, that we’re having to then talk about,” superintendent Amii Thompson said. “It’s a real balance for us to take accountability for who we are now in these positions.. and to shine a light on some of the things that we have found, because otherwise we aren’t being transparent, and that doesn’t feel right.”
Led by Thompson and financial director Kim Knight, district leaders walked about 35 attendees through its recent budget history and next steps at the meeting.
The overview: errors in the district’s budget were entrenched for about three years, and the full ramifications only surfaced in October after intensive review from Knight and BISD’s regional governmental oversight, the Puget Sound Educational Service District.
Reductions in spending are inevitable to slow the deficit, and two emergency loans from its capital fund will be necessary to get the district through the school year. If BISD cannot reach a positive balance by next fall, the state superintendent’s office must take over, which eventually could put the district’s finances in the hands of outsiders rather than local leadership.
But it’s a long road to financial stability. Further changes, such as staffing levels for 2025-26, new sources of income and long-term plans to update school infrastructure, are still up in the air and will require more community input, district leaders said.
What happened?
On Oct. 23, BISD announced that a coding error uncovered during payroll processing revealed that the district will end the 2024-25 school year with about $28,000. The district continued to review its budget for other mistakes. As of the Nov. 6 meeting, “that number is already in the red,” Thompson said. Officials later said that without any spending adjustments, the district’s projected ending balance this year would be a negative $396,781.
At the meeting, Knight recalled that right after the district’s first payroll of the year was submitted in September, a staff member inquired about how to build a budget report. Knight obliged, using the year’s Human Resources budget that had been assembled with input from the PSESD as an example. But she quickly realized that something was wrong.
“There is one step at the very end of the budget process where you overwrite the previous year’s percentage for retirement…When that was processed, the decimal got moved — so instead of going in as 10 percent, it was going in as 0.1 percent,” Knight said.
That meant about $1.5 million in retirement benefits had been correctly distributed, but had not been tracked on the department’s budget. Knight said that typically budgets are completed in June and reviewed for accuracy for several months. However, because of the amount of work needed to retroactively repair the district’s budget problems from years ago, the HR department’s report wasn’t submitted until August.
“That move of a decimal point didn’t force a $1.5 million mistake. What it did is force us knowing about it. When we could have known about it in August; we didn’t find out until October,” Thompson said.
Knight took responsibility for the error, but noted that the PSESD also missed it. PSESD is “our oversight — they look through everything. They send it back to you if they find errors, and they didn’t flag it either,” Knight said.
How did it break?
The district’s original budget problems arose years ago after longtime financial director Peggy Paige retired in 2022 and was replaced by Kelly Pearson, a career budget analyst who previously worked in the Port Angeles, Peninsula and North Kitsap school districts.
It was discovered that for about seven years the district had been using “plus-minus documents” to track general ledgers, and they were used differently by different people in the last few years. Some users listed out expenditures line by line; others would calculate expenditures and adjust the top line. If the numbers didn’t add up, the documents were sometimes “force balanced” — meaning numbers were fabricated in order to appear stable.
“There are entries in those general ledgers that you look at and think, ‘What on earth?’ I can’t — there’s not even an attachment. There’s not a note. It’s just $53,000 — I don’t know why that would suddenly show up in my revenues from other entities,” Knight said. “Because we have no context, at this point, we have to say that’s not real money. It’s not coming in.”
After discovering the mistake, Knight began to review past reports from Pearson’s era with PSESD multiple times per week. Between 2022 and 2024, the budgets were “very hard to track,” which made year-to-year comparisons difficult, Thompson said.
What began as a fiscal “hair trim” in early 2023 grew into a $4.5 million crisis by November that year, which led to months of discussion with community members and talk of school closures. Fears were quelled in April by new cost-saving projections that showed BISD could retain about $2 million in its fund balance for 2023-24. That was still below what the district would consider financially healthy, but was a better outlook than the initial budget projections.
Looking back, after all general ledger corrections were made, the final fund balance at the end of the 2023-24 fiscal year was actually $3.7 million — about $425,000 less than initial projections, Knight said.
BISD officials found that the current deficit is connected to three miscalculations of about $650,000 each. First, Knight said, about $650,000 charged from the capital projects levy in 2023 was incorrectly marked as “revenue” and never reimbursed. Then, her team realized that the 2022-23 budget was overspent, which pushed about $645,000 into the following year’s budget deficit. Third, an outstanding balance in the retirement system of about $650,000 was never released.
The cost-saving measures BISD initially took — redistributing costs to its capital levies and relying on staff attrition — appeared to save the district about $1.4 million. But with the surprise expenditures, that meant the district had really been stretched by closer to $6 million. “Last year, they used all but $85,000 of our original expenditure budget — so we still spent almost every last dime,” Knight said.
What’s next?
Thompson proposed several immediate actions to curb district spending: a freeze on travel, hiring and materials; limiting overtime for staff; and pausing bond planning and some paid committee work. The District Budget Advisory Committee will help develop a three-year recovery plan in partnership with district administrators.
One Nov. 6 meeting attendee asked about potential staffing reductions: if the district is contractually allowed to cut classified staff, what is the point of waiting until the next school year to act?
“Right now, every single one of those humans is serving a lunch, driving a bus, cleaning a school, supervising a student, supporting a student in special ed, helping to feed a student, helping to toilet a student. These are not things that you can just cut,” Thompson said. “We will reduce — there’s no choice. But to actually make reductions this year, when we have students depending on those adults, it’s not possible. It would actually create student harm and create unsafe conditions.”
Thompson and Knight added that many community members asked about potential financial misconduct. It’s not impossible, but the total of the miscalculations is small enough that investing in a full-scale forensic audit may not be cost effective, they said.
Knight assured attendees that the district will restructure its budget process — “basic buddy system, there should be two sets of eyes on everything.”
BISD will have to take out loans from its capital projects fund, which pays for construction and renovations, in January and June. State mandates require that the district repay itself with interest in 12 months, which means one large loan up front would be more expensive, Knight said. It’s also imperative that capital projects retain enough funding to pay for repairs that may arise.
The district also is looking at ways to increase income. Increasing enrollment, thereby receiving more money from the state, could be a key. Thompson suggested offering full-day preschool at each elementary school, but added that demand for early education is hard to gauge. She also proposed adding online options to the Alternative Learning Experience program for students in grades 7-12.
Another untapped income source is hidden deep in the woods. The district is considering selling almost 49 acres in Grand Forest Park, which was purchased in the 1980s under the assumption that the district may eventually need another high school. BISD has been in discussions since June with multiple community agencies about its sale.
Looming large over all actions is the possibility that BISD will enter “binding conditions,” in which the Office of Superintendent of Public Instruction assumes responsibility for a district’s budget and makes cuts with impunity.
There are three ways the district could be in that position. One, it could resubmit the 2024-25 budget to the regional district and show that BISD will end in the red, at which point it can pass a resolution to opt into binding conditions. Two, it can monitor expenses over the year, and if there is even $1 leftover in August, it can avoid binding conditions; however, if it ends even $1 below zero, OSPI will step in immediately. Third, BISD prepares its budget for 2025-26 later in the year and cannot demonstrate that it ends with a positive balance, at which point it assumes binding conditions.
But before that would happen, OSPI will first try to guide BISD to fiscal solvency.
The plan is to avoid that second OSPI step, Thompson said. OSPI may solve the district’s budget problems, but it wouldn’t be on BISD’s terms. That step could have an adverse effect on enrollment, which the district can’t afford to let decline further.
“We are a district that works very collaboratively. We’re going to have to staff in more creative ways, and we are going to be the ones that get to decide that,” she said. “My goal is that students walk in to school next year and don’t feel like their school day is different. Are the adults going to feel it? Maybe. But if I’m a child, and I need reading support, or I’m going to go to a specialist class, I hope and really believe that we can achieve that without being different for kids.”