Washington State Auditor's Office concludes ESD 114 lacks authority for paid services
A state accountability audit has determined that Olympic Educational Service District No. 114 is providing paid technology services beyond its legal mandate. The agency, based in Bremerton, disputes the finding, arguing the state auditor has inserted a restriction into law that lawmakers never wrote.
The report, released Monday, covers the period from Sept. 1, 2024, through Aug. 31, 2025. It represents the latest development in a disagreement the auditor's office says it has raised with the district since December 2022.
Olympic ESD 114 operates as one of nine regional educational service districts in Washington. Serving school districts in Clallam, Jefferson, Kitsap and Mason counties, the organization employs approximately 200 staff members. Its operating fund reported approximately $29.8 million in expenses for fiscal year 2025.
The Finding
Auditors stated the district provides network and technology support to school districts, a service they do not question. However, the agency also provides similar services for a fee to three fire districts, three ports and one library district, generating about $216,000 annually.
State law, chapter 28A.310 RCW, established 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 while the act permits cooperation between governments, it does not expand the scope of services an ESD may provide beyond what its establishing statutes authorize. 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 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.
The district also pointed out that Educational Service Districts across Washington engage in a variety of cooperative programs involving parties other than school districts, arguing that no statutory rule exists to separate those endeavors from the technology services it provides.
In its written response, the district challenged the applicability of three Attorney General opinions cited in the report, noting they pertain to collective bargaining, bonding authority, and capital project consulting rather than the specific issue of which parties an ESD is authorized to assist.
"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 stated it reviewed the district's response but maintains its disagreement. According to the office, public agencies may only operate within the specific powers granted by statute, and the mere absence of a ban does not permit an agency to go beyond the scope of its designated services.
The office upheld the finding and confirmed it will examine the district's corrective action during its next audit.
Prior Year Finding Marked "No Longer Valid" by District
This same matter was identified as Finding 2024-001 in the previous year's audit, a time when contracts with non-school entities generated roughly $213,000 annually.
In the summary schedule of prior findings—a document prepared by the government entity being audited—the district selected the option "Finding is considered no longer valid" rather than fully corrected, partially corrected, or not corrected.
The district explained that it views the matter as a difference in legal interpretation, asserting that its contracts involving non-school entities are funded separately without relying on core state allocations, and that the Office of Superintendent of Public Instruction has not issued any enforcement action or formal determination regarding the issue.
The auditor's office wrote that it disagrees with that status designation.