The Vashon Island School District Board approved a $27.2 million spending plan for the 2024-2025 school year last month, funding staffing at just slightly below its current levels and replenishing the district’s rainy day fund.

The board’s 4-1 vote, however, comes amid ongoing financial woes: Staff and board members have been grappling with a state audit, uncertainty about the district’s general fund balance, and impending staff turnover in the district’s business office.

Board Member Kaycie Alanis abstained from voting on the budget at the July 25 meeting, saying that she was concerned that too much is still unknown about the district’s finances due to errors discovered in the audit for the 2023-24 school year, and lack of certainty about projected revenues from the state.

She also said the board had just learned on the day of the vote that staff members of Puget Sound Educational School District (PSESD), who had helped prepare the budget, would not be present at the meeting to help present it.

“It feels like there are so many questions that are unknown,” Alanis said.

Superintendent Slade McSheehy has said that the district will continue to work closely with PSESD, a state agency that provides school districts with financial and operational assistance. At the July meeting, McSheehy also announced the hire of Cassie Zizah, currently a senior budget analyst for the Highline School District, as the district’s new director of business and finance.

Zizah will fill the post currently held by Kim Mayer, who announced her resignation in late June, with an effective date of Aug. 31.

In a phone interview following the meeting, McSheehy said that by the end of August, the state auditor’s office is likely to present the district with its final report card from its recent audit of VISD’s 2022-23 finances, which had initially been prepared by Mayer.

As the audit progressed, the school board learned that a $392,000 bond rebate payment to the district had been spent on general expenses last year, rather than transferred to VISD’s debt service account to make payments on the bond’s interest and principal, as has been the district’s longtime practice.

Now, according to McSheehy and PSESD staffers who have advised on the matter, the district must recoup the money to make pending payments on the bond.

Audit

Issues with the annual state audit first surfaced in May, when McSheehy told the board that he had engaged PSESD to take over communication with the state auditor’s office regarding its audit of VISD’s 2022-23 finances and federal grants. At a May 23 board meeting, Mayer said communication with the auditor assigned to the district had become difficult.

“… I was getting frustrated because it was like no matter what I said, [the auditor] either wasn’t understanding that or he wasn’t accepting what I said,” she said.

Mayer also repeatedly said at the meeting that she did not understand some of the accounting practices of her longtime predecessors, Matt Sullivan and Kay Adams, in the district’s business office.

Both McSheehy and Mayer said that PSESD staff members were not only looking at Mayer’s accounting but also that of Sullivan and Adams, in the 2021-2022 school year, to see if misstatements found in VISD’s 2022-2023 audit could be traced back to those years.

“…There’s not a question necessarily that the previous people were doing anything wrong, we just need to understand what was in their heads and how they were accounting,” Mayer said. “I’m not calling them out for anything — I’m saying we just don’t do our entries in the same way, so that’s what [PSESD staffers] are trying to figure out.”

Later, both PSESD and McSheehy confirmed that no issues were found in their examination of Adams’ and Sullivan’s accounting.

The auditor’s final report, expected in late August, will detail whether VISD will receive management recommendations or “findings” from the auditor. In the parlance of state audits, “findings” address and document how a publicly funded entity has made errors or been non-compliant in properly accounting for how its revenues were spent within the guidelines of state and/or federal laws.

Findings can also impact the interest rate the district is charged for bonds.

Bond rebate

At a June 13 school board meeting, Justin Lanting, a senior staff member of PSESD, identified a significant issue his office had found in VISD’s financial books while working on the audit.

In July of 2023, he said, a $392,000 bond rebate payment had been directly deposited into VISD’s general fund — but Mayer had not followed the district’s longtime prior practice of transferring the funds into the district’s debt service account to be able to make payments on the bond.

The $47.7 million bond — obtained as a Qualified School Construction Bond (QSCB), a U.S. debt instrument created as part of the American Recovery and Reinvestment Act of 2009 — was approved by voters in 2011 to build Vashon High School.

Since that time, the district has annually made two interest payments and one principal payment on the QSCB bond — hence the need to transfer rebate payments, received twice annually, to the debt service account.

Not knowing that procedure, Lanting said, Mayer had instead spent the rebate on other pressing expenses, including payroll.

Lanting said he had searched to find out whether a board resolution or district policy prohibited the rebate from being used to pay other expenses, and had not found such a policy, to his relief.

During the meeting, he described Mayer’s spend of the tax rebate in language that cast it as a kind of happy accident that had ameliorated a cash flow crunch and prevented the district from having to borrow from its capital fund to pay its bills.

“[The district has] used that cash, it’s wonderful cash and it works very well — [and the district] spent it on paychecks and everything else,” he said.

However, he also described the consequence: the rebate payment will now need to be recouped for VISD to make payments on the bond due in October. To do so, he said, the district would likely work with its bond underwriter and attorneys to raise the bond’s levy rate — suggesting the impact of the increase could be 10 cents per $1,000 of assessed home value.

A ten-cent increase in that payment could mean an increase of approximately $80 a year on a $800,000 home, depending on property values, McSheehy said in a phone interview.

In an email, Lanting was less specific about the possible impact on taxpayers, saying “It is too early to determine the rate as the assessed evaluation has not been finalized for rate calculation.”

In 2024, all of VISD’s three voter-approved bond and levy measures, including the bond to build the high school, collected $0.88 per $1,000 of assessed home values. Overall, local taxpayers were assessed $2.28 per $1,000 assessed value for these levies and bond measures.

PSESD and VISD

PSESD is one of nine educational service districts created by the legislature in Washington to provide centralized financial and other services for the 35 local districts it serves in the region. PSESD also reviews the Vashon school district’s budget each year before it is submitted to the Office of the Superintendent of Public Instruction.

The agency is now under contract with the district to help oversee and manage VISD’s finances in the coming year — an expense that McSheehy said was justifiable given the size and experience level of VISD’s current financial staff. In taking on her new role as director of business and finances, the district’s new hire, Cassie Zizah, will face a steep learning curve, McSheehy said, as she has previously not worked in a directorial capacity for a district.

Therefore, it makes sense that the district will “continue to have oversight from PSESD,” he said.

Leadership turnover

In an email to the community on June 26, announcing Mayer’s resignation, McSheehy praised her work, calling her “an invaluable member of our district, stepping into the role during a time of significant transition and playing a pivotal role in maintaining the district’s financial stability.”

She had previously served as the fiscal officer of the Enumclaw School District for seven years. Before that, she had worked in VISD’s business office from 2002-2015 — a period during which VISD obtained the federal bond to build the new high school.

Mayer’s rehire at VISD, in early 2023, followed the departures of two key business office staffers. Matt Sullivan, the district’s executive director of business and operations, left the district in the fall of 2022 to assume the same role at Mercer Island School District.

At that time, McSheehy announced that, as a cost savings, Sullivan’s job would be eliminated and that Kay Adams, Sullivan’s second-in-command, would be promoted to a new position as director of business and finance. But two months later, Adams announced that she, too, had been hired by the Mercer Island School District, leading to McSheehy’s hire of Mayer to fill her role.

During the tenures of Sullivan and Adams, the district received eight clean or perfect state audits of its finances — a result announced with pride at school board meetings following the auditors’ final reports.

Last year’s state audit of VISD’s finances, covering finances for the 2021-22 school year and prepared by Mayer based on Sullivan’s and Adams’ accounting for the year, also came back clean in late May 2023, with no findings — earning praise from McSheehy in a community email and board meeting, who thanked not only Mayer but also Sullivan and Adams for the district’s then nine-year streak of clean audits.

But in a July 26 interview, McSheehy said that Adams had not “transitioned information” to Mayer that the district’s QSCB bond rebate payments needed to be transferred to the district’s debt service account.

In a phone interview, Adams said she had, in fact, left a financial tracking spreadsheet at VISD to show the flow of funds that needed to transfer each month — a document that specified the transfer of the QSCB rebate transaction from the general fund to the debt service account.

Moreover, she said she would have been happy to consult if Mayer — after noticing the $392,000 deposit early in her tenure — had called or emailed her to ask about it. She said that had she been in Mayer’s position, she would have looked back at the district’s accounting of the previous year, to investigate what the payment represented.

In her work at both VISD and Mercer Island, she has frequently done this, she said, because “It’s common sense that if you get a large amount of money coming in, you do a lot of research.”

She said that since she departed from the district, she has fielded numerous questions from VISD staff members, including Mayer, about financial matters at VISD, and had always been glad to respond or point VISD staffers to others who would be able to help. But no one had asked for her assistance in this matter, she said.

“They didn’t contact me about it, so there is nothing I could have done,” she said.

2024-25 budget

The 2024-25 budget approved by the school district late last month projects an enrollment of 1399 students, down from last year’s year-end average of 1438 students. It forecasts revenues of approximately $27.5 million, also down from just under $28 million last year. Expenditures for 2024-2025 are set at approximately $27.2 million.

These figures, said McSheehy, show the district’s intention to replenish its general fund balance, which according to the new budget will stand at $661,888 at the beginning of the school year.

According to board policy, the district’s general fund balance — used by the district to pay expenses, including payroll and bills, during stretches of the year when the district does not receive revenue from the state — should not dip below 5% of VISD’s annual budget.

The 2024-2025 budget sets the intention of right-sizing the now depleted fund — planning for district revenues to exceed expenses in the upcoming school year by $408,000. If that goal is met, VISD’s ending general fund balance in August of 2025 would stand at $1,063,888 million — just exceeding the board’s mandated 5% minimum.