Newberg School District Issued a Reduction in Force Over a Deficit That Never Existed, Audit Finds

By Rebecca Wallis

NEWBERG, OR – February 9, 2025

***Editors note: Updated to reflect statement from Newberg School District on ending fund balance. Updates in the article to reflect the statement are between astericks and underlined. ***

For over a year, the Newberg School District Board and administration warned of a dire budgetary crisis, claiming the district was operating with a massive budget shortfall that would require staff reductions, program cuts, and deep structural changes. But after months of layoffs and upheaval, the district’s routine yearly audit—conducted at the end of every budget cycle—revealed that the district was never in a ***multi-million dollar*** deficit at all. It ended the year with a ***much smaller deficit than expressed to the community.***

The unraveling of the budget crisis raises significant questions: Why did the board move forward with drastic cuts before verifying the financial data? What led to the rushed decisions that resulted in layoffs and leadership upheaval? And how did a projected ***multi-million dollar*** deficit turn into a ***much smaller deficit than expressed to the community.***

This is a report of how a ***multi-million*** budget shortfall was created, amplified, and ultimately disproven—but not before it had lasting consequences for district employees, administrators, and the community.

May 2023: Early Budget Shortfall Concerns

Concerns about district finances first appeared in May 2023, when the Newberg School Board and Budget Committee began reviewing projections for the upcoming fiscal year.

At a May 2, 2023, budget meeting, Superintendent Stephen Phillips and Finance Director Heather Bixby presented the budget message to the committee. They highlighted concerns about declining student enrollment and the expiration of federal COVID relief funds (ESSER II), which had helped stabilize district funding for the past two years.

By May 16, 2023, the Budget Committee approved the proposed budget, acknowledging that spending reductions were likely needed to keep the district financially solvent.

A week later, on May 23, 2023, the board reviewed a formal budget presentation, which emphasized the need to align resources carefully to balance the budget. However, at this stage, there was no public indication that the district was in crisis—only that adjustments were necessary to account for lower enrollment and reduced funding.

May 2024: The Crisis Takes Shape

A year later, the financial concerns from 2023 escalated into a full-blown crisis.

On May 7, 2024, the district’s budget committee publicly projected a $3.77 million deficit for the 2023-24 school year. The announcement sent shockwaves through the board and community, particularly when it was revealed that previous financial reports had indicated an $8 million beginning fund balance.

By May 21, 2024, the school board formally declared that the district was operating at a $3.7 million deficit after a May 21, 2024 budget meeting document submitted by Claire Hertz, publicly stating that the shortfall had taken them by surprise. Board members also expressed frustration that earlier inquiries about financial stability had been met with assurances from district leadership that retirements and resignations would offset budget concerns.

Then, in a board statement made to the public, the board issued its most alarming claim yet:

“According to a recent independent budget review, the district is short over $10.7 million to balance the 2024-25 school budget.”

The public reaction was swift. Parents, teachers, and community members were outraged, fearing that the district was on the verge of financial collapse. Concerns over potential program cuts, larger class sizes, and deeper staffing reductions led to mounting tensions between the school board and the community.

Summer 2024: Job Cuts, Resignations, and Leadership Turnover

In response to the projected budgetary crisis, the board approved a massive Reduction in Force (RIF), resulting in over 90 layoffs, including licensed educators, classified staff, district office administrators, and financial services personnel. ***The names of the RIFs of over 90 were given in a public records request in August of 2024 by Dr. Radich, even though the statement from the district is claiming under 90 at this time.  These cuts were made under the assumption that the district was several millions of dollars in the red.***

Meanwhile, internal leadership turnover accelerated.

By June 2024, both Superintendent Stephen Phillips and Finance Director Heather Bixby went on Family and Medical Leave Act (FMLA) leave, effectively removing the district’s top financial officials from decision-making during the height of the crisis.

On June 21, 2024, Bixby resigned from her position while still on FMLA leave. Shortly after, the board brought on Interim Finance Director Gayellyn Jacobson to oversee district finances.

Then, on September 24, 2024, the board voted to place Superintendent Phillips on paid administrative leave pending the results of an independent investigation. The decision was made while Phillips was still on FMLA leave, raising questions about the true nature of the investigation. A lawsuit Phillips had filed earlier that same day alleged that the board was wrongfully blaming him for the district’s financial troubles and looking to push him out of his role.

January 14, 2025: The Budget Deficit Falls Apart

Months after the deficit claims had shaped district policy, the routine yearly audit—conducted at the end of every budget cycle—was quietly made public at the January 14, 2025, board meeting.

The audit, conducted by Pauly, Rogers & Co., P.C., reported:

• A net position of $8.8 million, proving financial stability.
• A total governmental fund balance of $21.8 million, contradicting deficit claims.
• ***A General Fund ending balance of – $1,233,379.******Clarification: While the district’s total governmental fund balance was $21.8 million. The General Fund, which is the district’s primary operating budget covering teacher salaries, classroom materials, and daily expenses, ended with a deficit of $1.23 million***
• A clean, unmodified audit opinion, confirming the district’s financial records were accurate.

The board’s statement about a $10.7 million budget shortfall—which fueled public panic and led to widespread layoffs—was completely inaccurate.

Legal Fallout and Upcoming Board Meeting

The fallout from the budget crisis has already led to multiple lawsuits from former administrators.

On October 11, 2024, former Deputy Superintendent Scott Linenberger sued the district for breach of contract, claiming he was wrongfully terminated during the layoffs and denied over $500,000 in owed wages.

Linenberger had been on FMLA leave when he was issued a Reduction in Force (RIF) notice for the 2024-25 school year. Just weeks later, the district sent him a new job description, reassigning him as an “Administrator on Special Assignment,” a position that came with strict limitations, including no personal contact with district staff or board members, restrictions on building access, and daily written reports to the superintendent. He declined the reassignment, and his lawsuit alleges that the district violated his contract and failed to pay out the wages and benefits he was owed.

His lawsuit followed Superintendent Phillips’ multi-million-dollar lawsuit, filed on September 24, 2024, alleging wrongful termination and reputational harm.

With the audit findings now public, the community is just beginning to learn that the claimed ***multi-million dollar*** deficit never actually existed. The revelation raises significant questions about why job cuts and leadership changes were rushed before verifying the financial data—questions the board will now have to answer.

The next school board meeting is scheduled for February 11, 2025, at 6:00 PM. The agenda includes a closed executive session listed under the following language and ORS 192.660(2)(b): to consider the dismissal or disciplining of, or to hear complaints against a public officer, employee, staff member or individual agent who does not request an open hearing. Written notice must be given to the employee at least 24 hours or one business day (whichever is greater) beforehand. Does not include discussion of RIF/staff reductions.  The board will also review the Finance Advisory Committee Report, the Ending Fund Balance for 2023-24, and multiple district projects.

Conclusion: A Manufactured Crisis with Real Consequences

The Newberg School District’s ***multi-million dollar*** budget deficit never actually existed, yet the fallout from the false shortfall has had real and lasting consequences.

• ***Just shy of 90*** district employees ***quite possibly***  lost their jobs due to unnecessary RIF decisions.
• The superintendent and finance director were both driven to take FMLA leave due to the stress of the surprise miscalculated ***multi-million dollar*** deficit—one resigned while still on leave, and the other was placed on administrative leave before ultimately suing the district.
• The district now faces two lawsuits that could cost taxpayers millions.
• The community was misled by district leadership for months, forced to endure unnecessary panic and instability based on false claims of financial ruin.

Photo Credit: Yamhill County News file