Petoskey on track to become an out of formula school district

PETOSKEY — With falling enrollment and rising property taxes, the Public Schools of Petoskey may be on track to become an out of formula school district, the board of education learned during its meeting on June 20.

Director of finance Bill Melching told the board that within the next two to three years, the district will likely make more money from non-homestead property taxes than it makes through per-pupil funding.

Each district in the state is required to levy 18 mills on non-homestead properties, bringing in local revenue streams. When the amount of money levied from the 18 mills exceeds the money that would be brought in by per-pupil funding, districts go out of formula. Because the district is seeing falling enrollment and the area is seeing rising property values, the switch for the district is likely in the coming years.

Melching told the News-Review that there isn't a downside of going out of formula, but the board may end up having to make some hard decisions, primarily regarding school of choice students.

"Once you go out of formula, any new kids that come into your district don't bring any new revenue with them," Melching said. "Most districts are used to getting $9,608 — that's the foundation allowance — for every kid that they get. But when the revenue you're already getting from local taxes is higher than that, you're not going to get any more money for any new kids."

While out of formula districts are still required to take any resident students, the decision to bring in more school of choice students will be up to the board and community.

Melching said that while the district wouldn't be receiving any extra revenue for the school of choice students once it goes out of formula, the district would also end up shrinking faster than it already is without them.

Because he thinks the decision to bring in students may be a tough one, Melching said he wanted to prepare the board and let them know what may be coming down the line in terms of that decision making.

"The size of your district impacts programming for kids. You have less kids, you won't have as many sports teams or as many after school events or as many plays or any of that stuff because there would be less kids," Melching said.

"But do you educate them when they bring no new money with them? It's a tough decision. It will be a hard decision for the district to make when they get to that point," he added. "So I'm just trying to prepare us now to start talking about that so that when we get to that point, it's not just a knee-jerk reaction and that we've thought it through and we've made a conscious decision as to what we're going to do."

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Melching said it's hard to pinpoint exactly when that switch may happen, and it could be up to five years away, though he thinks it's more likely it will be in the next two to three years.

He told the board during Thursday's meeting the money is only coming from the state aid portion of the budget, but not the state categorical funding.

The Public Schools of Petoskey has seen declining enrollment each year since the 2019-2020 school year. The district had a total of 2,433 students this school year, as opposed to 2,821 in 2019-2020.

Petoskey isn't alone in seeing falling enrollment. The state of Michigan has seen decreases in enrollment in nine of the last 10 school years, falling to a total of 1,429,895 students in the state for the 2023-2024 school year, compared to the 1,499,552 students enrolled in the state in 2019-2020, the last year before a large drop off.

Enrollment is determined on the state's Count Day, held on the same day throughout the state. Schools have two count days — the first Wednesday in October and the second Wednesday in February. The October count accounts for 90 percent of state funding and the February count accounts for the remaining 10 percent. The previous year's spring count and current year's fall count are put together to determine how much state funding districts will receive.

— Contact reporter Karly Graham atkgraham@petoskeynews.com. Follow her on Twitter at@KarlyGrahamJRN.