State Auditor Finds Olympic ESD 114 Providing Tech Services Beyond Its Legal Authority

The Washington State Auditor's Office has concluded that Olympic Educational Service District No. 114 is operating outside its statutory authority by providing paid network and technology support to fire districts, ports and a library district. 

The Bremerton-based agency has pushed back, saying the auditor is reading a restriction into state law that is not there.

The accountability audit report, published Monday and covering Sept. 1, 2024 through Aug. 31, 2025, is the latest round in a disagreement the auditor's office says it has been communicating to the district since December 2022.

Olympic ESD 114 is one of nine regional educational service districts in Washington. It serves school districts in Clallam, Jefferson, Kitsap and Mason counties, employs about 200 people and reported roughly $29.8 million in operating expenses in its operating fund for fiscal year 2025, according to the report.

The Finding

The auditor's office wrote that the district provides network and technology support to school districts, a service the report does not question, but also provides those services for a fee to three fire districts, three ports and one library district, generating about $216,000 a year.

State law, chapter 28A.310 RCW, created educational service districts to provide cooperative and informational services to school districts and to assist the Office of the Superintendent of Public Instruction and the State Board of Education. 

Auditors wrote that the authority to provide services is limited to school districts, OSPI and others explicitly allowed in law.

The district has relied on the Interlocal Cooperation Act, chapter 39.34 RCW, to contract with other local governments. Auditors wrote that the act allows cooperation between governments but does not expand what an ESD is permitted to do beyond what its establishing statutes grant.

The report attributes the condition to district staff's belief, based on their reading of state law, that the district can offer services to other kinds of local governments through interlocal agreements.

The auditor's office recommended the district adopt policies and procedures to ensure all current and future services fall within its legal authority.

The District's Response

In a lengthy written response included in the report, the district said it had again consulted with its Assistant Attorney General and maintains that its interpretation of the statute is reasonable.

The district's argument centers on the word "primarily." RCW 28A.310.340 says ESDs are intended primarily to perform certain functions for school districts. 

The district wrote that "primarily" describes a principal function rather than an exclusive limit, and that nothing in the chapter expressly bars an ESD from contracting with other public agencies. It cited a 2003 Washington Supreme Court decision, State v. Delgado, for the principle that courts will not add language to an unambiguous statute that the Legislature chose to leave out.

The district also pointed to RCW 28A.310.350, which lists the basic core services used to build ESD budget requests. That list, the district argued, implies ESDs may perform other, non-core services so long as those services are not funded with state core allocations.

The district said its network and technology infrastructure already exists to serve schools, that extending it to a limited number of other governments does not create a separate enterprise, and that the revenue helps sustain services to school districts. 

It also noted that ESDs statewide participate in a range of intergovernmental programs involving entities beyond school districts, and said there is no clear statutory basis for distinguishing those activities from its technology services.

The district further disputed the relevance of three Attorney General opinions cited in the report, writing that they address collective bargaining, bonding authority and capital project consulting rather than the question of whom an ESD may serve.

"The relevant question is not whether the District's activities are expressly prohibited but whether the District's interpretation of its enabling statute is reasonable," the district wrote, concluding that it is.

The Auditor's Reply

The auditor's office said it considered the response and disagrees. Public agencies, it wrote, can act only within the authority statute gives them, and the absence of a prohibition does not authorize an agency to exceed the scope of its services. 

The office reaffirmed the finding and said it will review the district's corrective action in its next audit.

Prior Year Finding Marked "No Longer Valid" by District

The same issue was reported as Finding 2024-001 in last year's audit, when the non-school contracts generated about $213,000 annually.

In the summary schedule of prior findings, which the audited government prepares, the district checked the box "Finding is considered no longer valid" rather than fully corrected, partially corrected or not corrected. 

The district wrote that it considers the matter one of differing legal interpretation, that its non-school contracts are separately funded and do not rely on core state allocations, and that no enforcement action or formal determination has been issued by OSPI on the matter.

The auditor's office wrote that it disagrees with that status designation.