What the 2026-27 Budget Tells Us About SoWashCo’s Financial Health

South Washington County Schools has begun a one-year budget-adjustment process targeting approximately $13 million in savings, followed by a broader five-year planning effort.

But what does the district’s current budget tell us about the size and nature of the problem?

Using the framework outlined in our guide to evaluating school-district financial health, the 2026–27 preliminary budget supports several conclusions:

• The General Fund is operating at a deficit.
• Expenses are growing faster than revenue.
• The district’s financial cushion is declining.
• The projected General Fund balance is already below the benchmark established by district policy.
• The budget demonstrates a need for corrective action.
• The budget alone does not demonstrate whether the proposed $13 million adjustment will be sufficient.

That final distinction matters. Identifying a problem and demonstrating that a proposed solution is adequate are two different things.

The General Fund Has an $8 Million Deficit

The General Fund supports most of the district’s regular K–12 operations, including instruction, special education, transportation, facilities, administration, technology, and student support.

For 2026–27, the district projects:

• Revenue: $359.1 million
• Expenditures: $367.1 million
• Deficit: $8.0 million

The district therefore expects to spend approximately $8 million more than it receives.

This is separate from the much larger districtwide fund-balance reduction caused by construction spending. The Building Construction Fund is intentionally spending bond proceeds received in an earlier year. The General Fund deficit reflects an imbalance in the fund responsible for ongoing school operations.

Expenses Are Growing Faster Than Revenue

General Fund revenue is projected to increase by approximately 1.0% from the revised 2025–26 budget.

General Fund expenditures are projected to increase by approximately 2.9%.

That difference is the central financial problem.

Several major expense categories are growing more quickly:

• Salaries increase approximately 4.3%
• Employee benefits increase approximately 8.0%
• Purchased services increase approximately 7.2%

The district is reducing or delaying spending in other areas:

• Supplies decline approximately 17.6%
• Equipment and capital spending declines approximately 26.0%

Those reductions help limit the deficit, but they do not fully offset the growth in compensation and purchased services.

This pattern also raises an important long-term question. Supplies and capital purchases can sometimes be delayed, but they cannot always be reduced indefinitely. Deferred equipment replacement, instructional-material purchases, or facility work may eventually return as future expenses.

Compensation Drives the Operating Budget

The General Fund includes approximately:

• $202.6 million in salaries
• $86.1 million in employee benefits

Together, employee compensation represents approximately $288.7 million, or nearly 79% of General Fund spending.

That does not mean employees are overpaid or that staffing reductions are automatically the correct solution. It means the district provides education primarily through people.

It also means that a large recurring budget adjustment cannot be evaluated honestly without identifying its effect on staffing, compensation, or service delivery. Reductions focused only on supplies, equipment, or miscellaneous costs are unlikely to resolve a large structural deficit by themselves.

Enrollment Is Projected to Decline

The district projects average daily membership falling from approximately 19,219 students in 2025–26 to 18,689 in 2026–27.

That is a decline of approximately 530 students, or about 2.8%.

Enrollment matters because it drives a significant portion of state funding. When fewer students enroll, the district generally receives less formula-generated revenue than it otherwise would.

Expenses do not automatically decline at the same rate.

A school still requires administrators, custodial services, utilities, transportation, specialized employees, and a minimum number of teachers. The district may therefore experience declining per-student revenue before it can adjust buildings, staffing, or programs efficiently.

This makes enrollment more than a forecasting variable. It is a strategic issue.

A sustainable plan should examine:

• Where enrollment is declining
• Where schools remain overcrowded
• How open enrollment affects the district
• Why families choose charter schools or neighboring districts
• Which programs attract and retain students
• Whether facilities match the geographic distribution of enrollment
• How staffing can adjust without unnecessarily weakening educational quality

Reducing services without considering their effect on enrollment could create a cycle in which cuts make the district less attractive, leading to further enrollment and revenue losses.

The General Fund Balance Is Declining

The district projects the total General Fund balance falling from approximately $56.3 million to $48.2 million during 2026–27.

Measured against expenditures, the reported total General Fund balance has followed this trajectory:

• 2024–25 actual: 16.9%
• 2025–26 revised: 15.8%
• 2026–27 projected: 13.1%

District Policy 701.2 establishes a General Fund balance benchmark of 16.6%.

The projected 13.1% total balance is already below that benchmark. Because the reported total includes restricted and nonspendable balances, not all of the $48.2 million is available for general operations.

The combined unassigned, assigned, and committed portion is projected to decline from approximately $45.6 million to $35.9 million in one year.

That is a reduction of nearly $9.7 million, or approximately 21%.

Fund balance provides the district with time to respond, but it does not make the current pattern sustainable. Continuing to use reserves for recurring operating expenses would further reduce the district’s ability to handle enrollment changes, unexpected costs, delayed state payments, or other financial disruptions.

The Budget Demonstrates a Structural Problem

The budget does not identify the entire General Fund deficit as the result of a single temporary event.

Instead, it shows:

• Recurring operating expenses exceeding recurring revenue
• Compensation and service costs growing faster than total revenue
• Declining enrollment
• Reduced supply and capital spending that still does not balance the fund
• A continuing decline in the district’s financial cushion

Those are indicators of a structural imbalance.

The district therefore needs some combination of:

• Recurring expenditure reductions
• Recurring revenue increases
• Service-model changes
• Enrollment stabilization or growth
• Facility and staffing changes
• Productivity improvements

Using fund balance may provide transition time, but it cannot substitute for those changes indefinitely.

Why Is the Adjustment Target $13 Million?

The current budget projects an $8 million General Fund deficit, while the district has announced a one-year adjustment target of approximately $13 million.

Those figures are not necessarily inconsistent.

A $13 million adjustment could be intended to:

• Eliminate the annual deficit
• Begin rebuilding fund balance
• Address further deterioration expected in 2027–28
• Provide protection against forecast uncertainty
• Prepare for additional cost or enrollment pressures

If $13 million represented fully recurring General Fund savings and all other assumptions remained unchanged, it would exceed the current $8 million deficit by approximately $5 million.

But all other assumptions will not remain unchanged. Revenue, enrollment, salaries, benefits, purchased services, and other costs will continue to change.

The current annual budget therefore cannot establish whether $13 million is the correct target.

It shows why the district needs action. It does not show what the financial position will be after that action.

The Timing Matters

The 2026–27 budget covers the fiscal year ending June 30, 2027.

The one-year budget adjustments are expected to take effect primarily during the following school year. They are therefore not reflected in the current General Fund totals.

That means the community needs an updated multi-year projection showing:

1. The financial trajectory without the adjustments
2. The trajectory with the proposed adjustments
3. When each adjustment takes effect
4. Which savings are recurring
5. Which savings are one-time
6. The projected fund balance after implementation
7. Whether the district returns to the 16.6% policy benchmark
8. What deficit, if any, remains for the five-year plan

Without that information, the public can evaluate individual reductions but cannot determine whether the overall package is sufficient.

Avoiding Statutory Operating Debt Is Not the Same as Sustainability

Statutory Operating Debt is a serious legal condition requiring state oversight and a formal recovery plan.

Avoiding SOD is important, but it is not an appropriate measure of financial success.

A district can remain outside SOD while:

• Operating below its own fund-balance benchmark
• Running recurring annual deficits
• Depleting its available reserves
• Deferring necessary spending
• Moving closer to the statutory threshold each year

The goal should not be to remain financially viable until one year before SOD.

The goal should be to restore a sustainable relationship between recurring revenue and recurring expenses while preserving the educational services the community values.

What the Budget Tells Us—and What It Does Not

The 2026–27 budget provides enough information to conclude that:

• The current General Fund trajectory is not sustainable.
• Corrective action is necessary.
• An $8 million annual deficit is reducing an already-below-policy fund balance.
• Enrollment and expense growth require long-term attention, not only a one-year response.

The budget does not provide enough information to conclude that:

• $13 million is the complete long-term solution.
• The proposed adjustments will restore the 16.6% balance benchmark.
• No additional reductions or revenue will be needed.
• The five-year plan can be developed independently of the one-year decisions.
• Each program’s assigned adjustment reflects its actual financial condition or strategic importance.

Those conclusions require an updated forecast and a clear explanation of how the proposed changes alter the district’s future trajectory.

What the District Should Publish Before a Final Vote

Before the School Board approves the adjustment package, the district should provide:

• An updated multi-year forecast
• A reconciliation of the $8 million current deficit and the $13 million adjustment target
• The forecast both before and after the proposed adjustments
• First-year and recurring savings for every proposal
• Projected restricted and unrestricted General Fund balances
• The year in which the 16.6% policy benchmark is restored
• The amount of any remaining structural deficit
• The major enrollment, compensation, inflation, and revenue assumptions
• A description of the educational and operational effects

This information would not eliminate disagreement over priorities. It would allow the community and School Board to evaluate those disagreements using the same financial picture.

Source: South Washington County Schools, 2026–27 Preliminary Budget, approved June 25, 2026.