$70M gift to Kalamazoo

Benefactors have offered to give the city of Kalamazoo $70 million to eliminate recurring budget deficits and create a Foundation for Excellence to fund city services and improvements. (Mark Bugnaski/Kalamazoo Gazette)

KALAMAZOO, MI -- Is a reliance on donations the key to Kalamazoo's financial salvation or an open invitation for private interests to dictate spending decisions?

A memorandum of understanding released on Tuesday, Oct. 18 is the first step toward answering the question on many residents' minds. The document outlines shared intentions and expectations between the city of Kalamazoo and local philanthropists William Parfet and William Johnston, and serves as a guide for using a $70.3 million gift to fund future projects.

READ MORE: Click here for the full document

The memorandum is not a binding legal document, but an agreement that sets the foundation for future decisions. Commissioners will have the opportunity to discuss the topic at a work session scheduled for Monday, Oct. 24.

A vote could occur to adopt it that evening or commissioners could choose to amend it, at which point the memorandum would return to the donors and the process would start again.

At three pages long, Commissioner Shannon Sykes said the memorandum is "short on substance." It doesn't have enough detail about how the foundation will operate and when expectations are supposed to be met, she said.

Sykes was also disappointed that the public was given access to the document less than a week before a vote could occur.

Commissioner Matt Milcarek said he feels asked to commit to something without taking into account the unprecedented nature of having one-third of Kalamazoo's budget funded by private donations.

"Take the politics of it aside and look at the actual budgetary analysis of what it means to fund city in this way," he said. "I don't know why we are committing to that kind of model when we don't know what it is."

Others on the commission were less concerned with the timeline, acknowledging the memorandum will be the first of many decisions in a long process.

If the memorandum is approved, City Manager Jim Ritsema said the next step would create operating documents to address the structure and management of the foundation.

Commissioner Erin Knott said the memorandum gave her confidence that the city is moving forward and doing its due diligence along the way.

"I've been waiting on donors' feedback for a few weeks," she said. "I think myself and the stakeholders I've been speaking to are excited about the opportunity as it relates to this generous gift. I was grateful that the donors accepted the document staff created; this green lights us to start (building) the nuts and bolts of the foundation."

Parfet and Johnston agreed to provide $70.3 million to help cover an annual budget shortfall projected at $2.75 million by 2021. For three years, the initial donation would also pay for slashing property taxes by one-third and eliminate the need for a new income tax.

Meanwhile, the city will create a separate non-profit foundation by Aug. 31, 2017, into which the donation and future contributions will be deposited.

The city would also to develop a budget for fiscal years 2017, 2018, and 2019 that incorporates a 12 mill property tax rate and allocate $10 million in each of those years to aspirational projects funded by donations.

Ritsema said there is no legally-binding guarantee that the donors will front the $70.3 million, which makes Sykes nervous.

"We are not only dependent on them to create the foundation but now we are dependent each year moving forward for them to give us funds when they say they will," she said. "Essentially the city (would be) agreeing to move forward with a system that we don't know is sustainable and create a culture where we are trying to please them so the next check comes."

Ritsema acknowledged that the written agreement is just that, but said it is not being entered into lightly. He trusts the donors to make good on their promise.

If the full $70.3 million was not given, the city would still be able to raise taxes.

Mayor Bobby Hopewell and Ritsema approached Johnston and Parfet in a series of private meetings about the creation of a foundation to aid the city without raising taxes. While the donors have stayed silent on their intentions, Ritsema believes it was done out of love for Kalamazoo.

"They've demonstrated time and time again a commitment to this community though philanthropic (endeavors)," he said. "I can't speak entirely to why they are doing this, but it's my sense."

Though a governing structure for the Foundation for Excellence has not been established, some options were discussed during Monday's city commission meeting.

Rob Collier, president and CEO of the Council of Michigan Foundations, was asked to present several recommendations on the organization of the Foundation for Excellence. He suggested having a board comprised of at least seven members, some of which could be donors or city officials.

Commissioner Dave Anderson said he would be open to having donors serve on the foundation board, as long as they did not comprise a majority and had an equal vote to other board members.

"I feel fully confident that we are capable and ethical enough to take advantage of a new way of looking at things and turning it into the best we can be," he said. "It is my belief that (the donors) could do anything they want anywhere on the entire planet but instead choose to live in, participate in and support the community where they happen to live."

Anderson said he understands public skepticism toward the donors, but said the city will still be bound to make decisions in public and use open records.

"Our only other possible alternative is the income tax, lets face it," he said. "I'm not a supporter of that idea. We (can't) say this is too chancy and do nothing."

While the plan has been lauded by some as a revolutionary move in local governance, Sykes is cautious of private interests entering the public sphere, especially considering the spotlight on Kalamazoo.

"When I contemplate the implications of a public/private partnership in a government whose general fund balance is funded by private entities, I am thinking of how it affects other governments," she said. "It can have widespread consequences for people around the country. I know a lot of people are excited, but I don't want to be on cutting edge of funding government through billionaires."

Knott said residents will still have the most powerful tool of democracy: the ability to vote.

"The election process is how voters hold their officials accountable," she said. "If the commission goes in a direction that voters disapprove of, they have the power to vote them out of office."

Ultimately Ritsema said he was pleased with the draft, as it gives the city a solid foundation moving forward.

The public invited to weigh in on the topic during the next week's session, which is scheduled to begin at 6 p.m. at Kalamazoo Valley Community College's Anna Whitten Hall, Room 128, 202 N. Rose St.

It will be streamed live on the city's Facebook page for those who are unable to attend in person.

Commissioners also invited the residents to reach out with their thoughts.