After struggling to control its budget for the past eight months, the South Whidbey School District hit rock bottom as of the start of this month.

The district’s financial troubles — which started with a shortfall of nearly $500,000 in its cash fund balance in August — produced more bad news this week when the school administration informed the board of education that the district was out of ready cash.

“For the month of February, we were actually overdrawn on our account,” said district business manager Ben Thomas at a Monday night board workshop.

Blaming the late arrival of $284,000 in expected grants from the state and late property tax billing by the Island County Assessor’s Office for the district’s financial dive into the red, Thomas and Superintendent Martin Laster tried to assure the board and the public that the district will be back in the black by May. To shore up its cash account, the district has borrowed $115,000 from its vehicle replacement and capital projects funds and will ask the state to advance $250,000 of its apportionment for the year.

The district is also holding payment on some purchase orders, though Thomas did not specify as to which bills were not being paid. He did note that the district did not bounce any checks as its cash balance went negative.

The news did not sit well with members of the school board, most particularly Jim Adsley. He said the district should have had enough money set aside, especially since it has been receiving several hundred thousand dollars annually in new money as a result of Initiative 728, a measure designed to reduce class sizes in Washington. The district received $533,000 in I-728 funds for the current budget year.

“It’s hard to figure out how we got into the financial dilemma with the new money from I-728,” he said Monday night. “We should be able to do a better job of managing things with extra money.”

Board members and members of the public questioned Laster and Thomas as to how they plan to repay the borrowed funds. They said they expect the late state grant funds to be in district coffers this month and are planning on reducing expenses during April and May, two months Thomas characterized as “high revenue.”

But when told that some of the cutbacks would include shutting down computers at night, as well as other devices that draw power, board president Helen Price-Johnson said she did not see how the district can make up for what it has lost. She referred specifically to the district’s plan to have $363,000 in its fund balance by year’s end.

“This just feels a little squishy to me,” she said.

Advice on how to solve the district’s ongoing crisis came from a number of corners, including former school board member Ray Gabelein, Jr. Having asked for the superintendent’s resignation while on the board last year, he targeted the administration with his comments. Gabelein said if staff cuts become necessary, they must be made “across the board.”

“I hope the board has the courage to make those cuts, and I think it’s obvious where it’s needed,” Gabelein said while looking at Superintendent Laster.

For his part, Laster held out hope for the current year’s budget. He said he, Thomas and members of the school board will discuss rebuilding the district’s fund balance by year’s end. At the same time, he urged caution. Responding to a comment from Clinton resident Curt Gordon — who reminded the superintendent that a recent audit of the district’s accounting procedures recommended a 4- to 8-percent fund balance on the district’s $16.2 million budget — Laster said this was possible, if the district sacrifices programs.

“It takes a tremendous amount of money off the table for things people value,” he said.

The plummet in the district’s cash funds comes as the board and administrators begin to plan the 2004-05 budget. A topic that took up as much of the workshop Monday as the cash shortfall, the discussion yielded few hard numbers. At one point, Price Johnson asked for revenue projections for the coming year, but received no answer.

“It’s not here,” she said . “I’m sorry.”

Laster noted that enrollment is expected to be down by the equivalent of 48 students next year. The loss of 200 students over the past four years, he said, represents a $1 million loss to the district. However, he insisted on avoiding a discussion of possible revenue losses, saying he did not want to indicate a possible need for staff and budget cuts before he has hard numbers.

The board will discuss the upcoming year’s budget in detail at its March 22 meeting.