It took longer than Casey Petz expected, but Suttons Bay Public Schools (SBPS) officially became an “out-of-formula” school district this past fall. Now Petz, the SBPS superintendent, says the district is evolving to fit the new designation, with most of those changes likely to occur in 2025. The transition will ultimately signal the end of its popular virtual school as it exists today.

Since 1994, school districts in Michigan have been funded via a mechanism called the “foundation allowance.” Through that allowance, every district is allocated a per-pupil funding amount. Most schools are “in-formula” districts, which achieve that funding amount through a mix of local property tax dollars and state funds. In certain districts, however, the local tax base generates enough revenue to exceed the typical state foundation allowance. Such districts are considered “out-of-formula,” and do not receive any state dollars, but keep any excess funding from their local tax bases.

Petz announced in October that SBPS would be moving out-of-formula, but tells The Ticker that the prospect has been on his radar for years. Numerous Leelanau school districts, including Northport, Glen Lake, and Leland, are already out-of-formula.

“Even two years before I took the superintendent position, we had talked about this possibility at the board level,” says Petz, who served on the SBPS school board before he came aboard as superintendent in 2020. “That was the previous superintendent and previous business management office saying, ‘Hey, here's your yearly update on how things are trending.’”

At that point, Petz recalls, property values within the SBPS district were increasing 3-6 percent per year, while school funding from the state was increasing “somewhere in the 2.5-4 percent range.”

“Essentially, how you get out-of-formula is your property values increase a lot faster than the state funding revenue,” Petz explains. “Prior to the pandemic, we had an internal document with a 99-year projection showing that the two lines would never intersect. While property values were increasing faster than our state revenues, it was incremental, and slow enough that our projections never showed the two lines coming together.”

Then COVID-19 hit and “that 99-year projection happened overnight.”

Petz says it was a “confluence of factors” that ultimately moved SBPS into the out-of-formula zone. For one thing, he notes, “property values are now increasing year-over-year anywhere from 8-12 percent in our district, which is much higher than the funding increases from the state that we’ve been seeing.” Couple those increases with “flat student growth” in the district and a drop-off in the popularity of SBPS’s virtual school, and the district was suddenly in new territory.

Petz assures that going out-of-formula will ultimately be “overwhelmingly, more of a good thing.” First though, he says the district will have to navigate “a short-term transition” that will make the coming year a bit unusual.

“This might sound strange, but once you’re out-of-formula, the very first thing you have to do is get yourself as far out-of-formula as you possibly and reasonably can,” Petz says. Districts, he explains, don’t want to be ping-ponging back and forth between two different funding models.

For most districts, Petz says the transition to shore up out-of-formula status takes 2-3 years and can involve anything from closing elementary schools to redrawing boundaries and “surrendering groups or neighborhoods to a neighboring district.” SBPS has an ace in the hole that will make the process significantly easier: its virtual school.

While virtual education came into vogue during the pandemic, SBPS has been offering one since 2009. Not only is it open to any in-district SBPS student, it's also a school of choice option for any student in the Northwest Education Services (North Ed) Intermediate School District or any ISD that neighbors North Ed.

Between the program’s long history and its substantial geographic range, Petz says the SBPS virtual school has has developed a strong reputation across the state. It touts approximately 140 students, only 20 of whom actually live in the SBPS district. In order to steer as far out-of-formula as possible, though, SBPS will be winding down the virtual school program this year.

The district will also switch from its current “unlimited” school of choice model – which allows any North Ed student to enroll in the district at any time – to a new “limited” approach. Under the new model, school of choice enrollment will be capped at a “predetermined number” of students and only opened “for a very short window each year,” Petz explains.

SBPS isn’t doing away with virtual education entirely. While Petz says the district’s priority is now fully about “in-seat” education, the district will still offer virtual courses in cases where scheduling or staff limitations demand it – like if there isn’t a teacher on staff certified to teach a certain subject.

SBPS also won’t be booting all its existing school of choice students. “A current school of choice student enrolled for our in-seat educational programming is grandfathered in, for the 2025-26 school year and beyond,” Petz says. “Any student who is here for in-seat education, they don’t have to leave, or reapply every year. Once you’re accepted, you’re here.” Students and families enrolled just in the SBPS virtual school, though, will need to find alternative schooling paths at the conclusion of this academic year.

Despite the growing pains, Petz says the shift to out-of-formula funding will ultimately have big benefits for locally-based students and their families.

“The goal is to have an efficient model that allows us to heavily invest in our students, well over the per-pupil amount that you get from the state,” Petz says. “You go from spending roughly $10,000 per kid, to the average district that is out-of-formula, which is spending more than $20,000 per kid. So, I’ve been telling parents, ‘This is a great deal.’ Because I can assure every family in the district who sends their kids to SBPS that, once we navigate the transition here, we're going to be able to spend a lot more money per kid. And what parent doesn’t want that?”