The Budget Crisis Facing Mercer Island Schools
The Road Ahead: Structural Shortfall Deepens
For the 2025-26 school year, Mercer Island School District (MISD) is again planning to transfer $3.66 million from its Capital Projects Fund into the General Fund. These emergency transfers are now projected to total over $13.06 million at the end of the 2025-2026 school year —money originally intended for building maintenance and long-term infrastructure needs.
Instead of spending over $13 million in capital reserves just to cover short-term operating deficits, Mercer Island School District could have invested in critical, long-overdue improvements to its aging school facilities. That money could have funded HVAC replacements, modern science labs, and upgraded classroom technology—projects that would have served students for decades.
The practice is not sustainable. As debt service rises and core funding from the state remains inadequate, the district faces mounting long-term risk.
Moody's Downgrade: A Warning Sign
In May 2024, Moody's Investors Service downgraded MISD's credit rating from Aa1 to Aa2. The downgrade cited:
Structural budget deficits
Repeated reliance on capital fund transfers
Declining enrollment
Limited revenue flexibility
Aa2 is still considered high quality, but the downward revision signals risk and makes future borrowing—like bonds—more expensive to taxpayers.
What Happens If We Don't Fix This?
Mercer Island School District is on a collision course with financial insolvency as early as the 2026–27 school year. Despite repeated warnings, the district has balanced recent budgets by draining over $13 million from its capital fund—money meant for long-term building and infrastructure needs. In 2025–26 alone, a projected $3.66 million transfer is required just to stay afloat. Without major reforms or a successful levy in February 2026, the district’s reserves will be exhausted, leaving MISD unable to legally adopt a balanced budget or meet core financial obligations. If that happens, the state could intervene, forcing deep cuts to staff, programs, and services that will directly impact students and families. This is no longer a future risk—it’s a looming fiscal cliff.
Capital Fund Transfers (2021-2026)
Mercer Island Deserves Better
Our schools must be financially stable, transparently managed, and focused on long-term success—not short-term patchwork.
It's time for a full community conversation and a plan to realign MISD's budget with reality, before the next levy or bond vote asks taxpayers to pay for past mistakes.
What If Mercer Island Doesn’t Fix It?
If Mercer Island School District does not resolve its structural deficit, the financial consequences will become critical as early as the 2025–26 school year. Current projections show that without long-term fixes, the district will fully deplete its capital fund cushion by the end of fiscal year 2026. At that point, MISD would have no non-operating reserves left to offset deficits.
If the February 2026 levy fails to pass—which would require a simple majority—it would immediately trigger cuts to core programs, staff, extracurriculars, and student services. MISD would also likely need to issue emergency reductions in force (RIFs), larger class sizes, and delay in curriculum or technology upgrades.
Furthermore, with the district's Aa2 credit rating already downgraded, failure to pass a new levy could lead to a further downgrade, driving up interest costs on future bonds. That would shift more taxpayer funds to debt service rather than classroom instruction—harming both educational outcomes and long-term financial health.
Sources and Citations
Mercer Island School District Proposed Budget 2025–26, Page 27. https://www.mercerislandschools.org/Page/14625
Moody’s Investors Service Credit Rating Action, May 2024. Summary published by Mercer Island School District.
2024–25 and 2025–26 Capital Projects Fund Transfers disclosed in MISD board meeting minutes dated May 9, 2024.
Historical year-end financials: F-196 Reports 2019–2024, available via Washington OSPI.
OSPI School District Levy Handbook. https://www.k12.wa.us/sites/default/files/public/safs/INS/2211/2024/2211handbook.pdf
2021–22 Year-End Report
2022–23 F-196 Report
2023–24 F-196 Report
2024–25 Budget Document (pg. 9 & 44)
2025–26 Budget Document (pg. 33 & 41)