POULSBO — The North Kitsap School District’s financial health is similar to that of a person with poor health, according to interim Finance Director Debra Aungst.

The district is ill and has no energy, which means the district can’t attend to all the activities it wants to. Energy, Aungst said, is being diverted to recovering rather than to student learning.

The school district is in the 18th worst financial condition in Washington. There are 295 school districts in Washington.

The district received a score of 2.10 on the Office of Superintendent of Public Instruction Financial Indicators list, according to documents available on the district’s website from OSPI for the 2011-12 school year. A score of 2.10 put the district three steps out of being placed on “financial watch.”

Just below NKSD are Cascade, Battle Ground and Waitsburg, each two steps from financial watch. The San Juan School District is the only district one step from financial watch. Thirteen districts in worse shape than San Juan have been given a financial warning from OSPI.

Factors affecting the district’s financial health include a continuing loss of student enrollment, loss of state and federal revenue, and continuing to spend more money than it takes in.

Other factors from the 2012-13 school year include one-time expenditures, such as building repairs and education programs, that exceeded budget.

School district financial health is based on three areas:
— Fund balance to revenue ratios.
— Expenditure to revenue ratio.
— Days cash on hand.

The NKSD dropped from a financial indicator score of 1.35 during the 2009-10 year, to 0.90 in the 2010-11 and 2011-12 school years. The highest score a district can receive is 4. In order to achieve a score of 4, NKSD would need to deposit $4.9 million into its fund balance.

The district has a 1.2 score in the expenditure to revenue ratio — the district spends slightly more than it takes in. This dropped from 1.60 in the 2009-10 year.

The district has a score of 0.00 for days cash on hand, a change from .15 in 2009-10.

The district’s long-term plan is to spend less than it takes in, Aungst said. The biggest challenge for the district is restoring the fund balance to 5 percent.

The district is in “very significant financial distress,” Aungst said. “This pattern of spending more than [it is] taking in has to stop.”

The district’s fund balance is below 3 percent. The school board allowed the balance to drop in order to save teaching jobs for the 2012-13 year.

A fund balance is the net worth of the district, measured by assets and liabilities. There are five areas that calculate a fund balance: restricted funds, non-spendable, committed, assigned, and unrestricted. A fund balance is made up of not only money, but also inventory and money owed to the district. In general, when assets are greater than liabilities, the fund balance is positive.

The school board is expected to vote Thursday on whether the process of restoring the fund balance to 5 percent should begin. Restoration will be at a slow pace, Aungst said. Aungst expects the district to be able to have a 5 percent fund balance by the 2016-17 school year.