The August meeting opened with a prayer and the Pledge of Allegiance. After routine business (a sewer-replacement contract, among other things), the seven city commissioners turned to the main agenda item — an unusual, if not historic, marriage of government and philanthropy.
More than a year in the making, this proposed union was even grander than the public-private plan that saw foundations put up $366 million in 2014 to help bail out bankrupt Detroit, 150 miles to the east. Already, two gentlemen — white-haired business executives seated toward the rear of the commission chambers — had given $70 million to the city to slash property taxes and shore up a precarious budget. Their gifts would make up about a quarter of the city’s operating budget for three years and provide millions more for capital improvements and special projects.
As if that wasn’t startling enough, the city commissioners were to vote that evening on a plan to create a city-run charitable foundation that would raise another $500 million. The foundation’s goal: to help finance Kalamazoo’s government — and tax reductions — in perpetuity.
Residents at the meeting hailed the idea as a blessing, the two donors as civic patriots. Those urging the commissioners to vote yes included a college professor (“amazing opportunity”), a retired government worker (“a novel and unique idea”), and a former university basketball coach (“I just want to say thank you”).
Today, more than half a year later, Kalamazoo buzzes with hope and philanthropy-funded activity. Installments of the $70 million pledge are paying for crews to fill potholes, trim trees, and fix sidewalks. Officials are eagerly crafting plans to tackle poverty and transform every neighborhood.
Yet even as other cities explore this arrangement as a financing model, Kalamazoo’s relatively few naysayers warn that it’s a Trojan horse. When big philanthropy comes to the aid of government, they say, democracy suffers.
“A system of government that relies on billionaire benevolence is really a horrible and dangerous path to go down,” says Matt Milcarek, one of two commissioners to vote against the plan.
“It might work here. I hope it works here, for our sake. But if you were to apply it to some other community and make it a model for the future, I would be terrified.”
Philanthropic Cash at Work
Built in 1931, Kalamazoo’s city hall is an impressive Art Deco structure with a granite-and-limestone façade reminiscent of New York’s Rockefeller Center. It stands in the city’s center, across the street from a park where residents turn out every holiday season to see Santa and hear a reading of "’Twas the Night Before Christmas.”
Quaint as that seems, Kalamazoo doesn’t lack for cosmopolitan amenities, with brew pubs, three colleges, two regional hospitals, and lots of music venues. There are loft apartments as well as prized, if occasionally battered, Victorians that housed workers for the pharmaceutical giant Upjohn, once the area’s biggest employer. “The quality of life for the dollar is very good,” says Carl Brown, who moved here from Connecticut in 2001 and owns a digital-marketing company.
The philanthropic cash is helping sand down the city’s Rust Belt edges. A few million dollars are papering over city debt. Work crews are remaking neglected parks. Youth programs are getting a boost. Hazardous lead pipes are being replaced.
Targeting Poverty
Bigger things are in the works — “aspirational projects,” as the city calls them. As one of its chief goals, Kalamazoo’s newly created Foundation for Excellence will target poverty. City officials have teamed up with the Local Initiatives Support Corporation, a national nonprofit, to create more affordable housing.
Officials say decisions about how to spend the philanthropy money will flow from a master plan called Imagine Kalamazoo 2025. It’s a sweeping, 153-page document crammed with proposals for small amenities — heated sidewalks downtown to clear snow, for instance — and major changes. The plan also promises to convene each of the city’s 22 neighborhoods to determine its own needs, whether an expanded nature preserve or pedestrian-friendly shopping areas.
Imagine Kalamazoo was developed through what officials say was an extraordinary community-driven process led by Rebekah Kik, then the city planner and now the director of community planning and economic development. In more than 500 small-group meetings, residents were asked, “What is a world-class city to you?” Thousands were polled through surveys, at community fairs and picnics, and in town-hall meetings. Staff, Kik says, repeatedly told residents: “We’re your servants. We’re your government. Tell us what you think.”
Imagine Kalamazoo discussions began long before there was talk of a philanthropic infusion to the city budget, but the plan took its final shape as the prospect of a windfall became real. “It was like Christmas and winning the lottery together,” Kik says.
Such good fortune was unimaginable not long ago. The recession had hit Kalamazoo hard.
Compounding that pain, the state government, suffering its own budget woes, held back an increasing share of tax revenue it once shared with localities.
Starved for cash, Kalamazoo slashed its payroll and cut its budget, which was sliding toward deficits. A citizen panel that was assembled to identify long-term fixes weighed an income tax — the only revenue measure that by itself would stabilize the city’s budget. But some feared the tax would drive residents and businesses to nearby suburbs and deter newcomers.
Entering 2016, a newly elected slate of city commissioners took office and signaled they would put a tax on the ballot. “They were very gung-ho on going forward with the income tax,” says James Ritsema, Kalamazoo’s city manager. “But at the same time, we also knew that there would be strong resistance from the business community. So that led to a discussion: Well, if not an income tax, then what?”
History as a Guide
Kalamazoo’s history pointed to philanthropy as an obvious answer. Wealthy families have long contributed to the city’s civic projects and anchor nonprofits. Of particular note, a group of anonymous donors in 2005 created the Kalamazoo Promise, a fund that pays tuition at Michigan public and private colleges for residents who graduate from Kalamazoo’s public schools.
The Promise, believed to be the first fund of its kind, has spent $105 million to help more than 5,100 students go to college. It has been copied nationwide, in part because of its salutary effects, including enrollment growth in the Kalamazoo schools that reversed a yearslong slide. As the Promise donors intended, their generosity benefited Kalamazoo as much as its students, making the city a more attractive place to live. For-sale ads for homes frequently tout the scholarship.
Such success has imbued Kalamazoo with enormous faith in philanthropy. Residents testifying at the hearing said the proposed city-run foundation simply looked like more of a good thing. Said one Promise graduate: “If the Foundation for Excellence can have any bit of the positive influence that the Promise has had on my life, it will do wonders for the city.”
‘Two Bills’
William Johnston and William Parfet, the two donors whose $70 million gift staved off the city’s budget crisis, are known in Kalamazoo as “the two Bills.” Both men are in their early 70s and give generously to local charities. Residents suspect that they are among the donors behind the Promise.
Johnston is chairman of a holding company for Kalamazoo businesses that include a wealth-management company. He also owns the local minor-league hockey team. His wife is billionaire Ronda Stryker, an heir to wealth from the family’s medical-devices company and a perennial on the Forbes list of the 400 richest Americans.
Parfet, the former head of a drug-testing company, inherited some of the Upjohn Company fortune. In addition to his charitable giving, he’s a big donor in Republican national and local politics.
The two men have said little to the media. Johnston did not respond to interview requests from the Chronicle; Parfet declined to comment. Critics say they are anti-tax advocates who put up their money to head off the income tax, which they believed would hurt the city. Both sit on the board of Southwest Michigan First, an economic-development organization led by business executives and often opposed to taxes.
As city officials tell the story, the donors were motivated by the grass-roots Imagine Kalamazoo plan. Mayor Bobby Hopewell recalls Johnston saying: “How do we make that a reality? Not my vision, not your vision, but the community’s vision. How do we move what the community wants?”
Together, Hopewell, Ritsema, and the two businessmen fashioned a plan where philanthropy would essentially mimic the not-so-popular income tax. The city’s charter requires that the creation of an income tax be paired with some property-tax reduction, so Ritsema says they decided philanthropy-derived revenues would do the same. The remaining money would plug the city’s debt and provide about $10 million a year for the “aspirational” projects, mostly aimed at poverty.
Experts and outsiders second-guess Kalamazoo’s embrace of philanthropy as a revenue stream. Some say the city is abrogating its responsibility to provide basic services. Voters, they contend, won’t agree to taxes in the future if philanthropy foots the bill now.
Others worry the money won’t have its promised impact after it’s pulled apart in the political process. “The city has to be responsive to political demands on it from neighborhoods and various groups within the community,” says Michelle Miller-Adams, a professor at Grand Valley State University who’s studied Kalamazoo philanthropy. “So I think it’s very possible that we’re going to spend that $10 million a year without making a meaningful dent in poverty. But hopefully not.”
Hopewell bristles at such criticism. A Kalamazoo native and the longest-serving mayor in the city’s history, he’s in his 11th year as chief executive, a post he juggles with a full-time job running a small company. Residents say he’s fiercely loyal to the city; when he won election to his sixth term, his was the only name on the ballot.
“I really don’t care what the philanthropic experts of the universe have to say about what we should or should not do, because they don’t sit in this chair and they don’t have a vote,” he says.
“Every day, I wake up thinking about how we make this place better. At the end of the day, for me, this is what do we need to do here in Kalamazoo.”
Foundations and Donors to the Rescue
Rip Rapson has been pushing philanthropy to get its hands dirty in the work of cities for more than a decade. A former deputy mayor of Minneapolis, he leads the Michigan-based Kresge Foundation, which has helped pay for small stuff — ambulances and police cars — and big stuff — a new light-rail line — in a yearslong bid to revitalize Detroit. When Kresge joined the so-called grand bargain to bail out Detroit in 2014, it dipped into its corpus to commit $100 million, more than any other foundation save for Ford.
“It used to be that you could rely on the public sector to come at a problem frontally and knock it down,” he says. Today, however, problems are too complicated and multifaceted for cities to go it alone.
Rapson says his fellow grant makers don’t naturally see their role as activists. “It’s hard to lead a cavalry charge if you think you look funny on a horse,” he often says, quoting Adlai Stevenson.
Permanent Change
Yet foundations and donors are increasingly climbing into the saddle. Cities are seeking out philanthropy’s cash and help, and foundations are putting aside a long-held distrust of municipal governments as chaotic, unreliable partners. The result, Rapson says, is “unprecedented” philanthropic action that takes many forms. (See “Philanthropy and the City.”)
Kalamazoo’s city-managed foundation is arguably the most far-reaching of these efforts. It will not fund a one-time bailout, like the grand bargain. Nor is it focused on a specific project, like the light-rail line that Kresge helped make possible. Rather, it aims to make charitable giving a permanent fixture in the city’s budget.
Historians suggest this may be the first time that philanthropy has directly paid to lower taxes. Benjamin Soskis of the Urban Institute says a long line of American philanthropists have encouraged charitable giving to solve society’s problems through private, not public, means, and thus limit the state’s role — and its need for taxes. But reducing taxes was never an explicit condition or aim of their gifts.
Indeed, there are examples of just the opposite. Andrew Carnegie insisted that communities tax themselves for the upkeep of the libraries he was funding. Julius Rosenwald demanded the same for the schools he built. “They were really nervous that the public would become too dependent on private philanthropy,” Soskis says.
For some, however, lower taxes are the most appealing part of the Kalamazoo arrangement. The city once had the highest property taxes in the region, putting it at a competitive disadvantage. Like the Promise, the new foundation will theoretically make the city more attractive to families and businesses and help it grow.
Michael LaFaive, a fiscal-policy expert at the Mackinac Center for Public Policy in Michigan, says financing tax reduction is an appealing form of philanthropy. It promises an equitable distribution of benefits — equity often absent when grant makers or donors target specific projects or particular neighborhoods, thereby creating winners and losers. The Kalamazoo gift, by contrast, “creates what I think is a fair field and no favorites.”
Naturally, the question of donor influence hangs over a deal in which two individuals are covering a quarter of a city’s operating budget. After contentious debate, the commissioners agreed that the new foundation would accept gifts earmarked for specific work — one of the points of disagreement as the city marched forward with its plan. City leaders say that the foundation’s board — the mayor, city manager, and 13 people selected from the community — will vet each restricted donation to make sure proposed projects fit the rubric of the community-driven Imagine Kalamazoo plan. Donations also will be folded into the city’s annual budget plan, which is put to a city-commission vote.
As unusual as it might be for a public entity led by elected officials to accept restricted gifts, it’s not without precedent. The University of Michigan, Michigan State University, and Wayne State University are led by elected regents, and each takes its fair share of restricted donations.
Critics, however, aren’t mollified. At the final board hearing, a few residents spoke — and occasionally thundered — with anger and suspicion about billionaires taking control of their city.
Milcarek, the city commissioner, is among the most articulate opponents of the plan. He did not run for re-election and now looks on as a worried outsider. A construction manager for a housing nonprofit funded in part through government contracts, he doesn’t believe the city’s system of checks and balances can prevent donor influence. Officials will want to please those who effectively pay their salaries. In a document as vast as Imagine Kalamazoo, they will easily find the rationale to do what donors want. “In government, you can justify almost anything,” he says.
Milcarek acknowledges that he doesn’t trust philanthropy as others here do. “I’m not from Kalamazoo,” he says. “I wasn’t here when the Promise was announced.”
What if $500 million can’t be raised? he asks. What if donors back away and leave a hole in the budget? Or make demands the city can’t meet? Those questions haven’t been answered, he says.
“I’m not in favor of running government based on someone saying, ‘I promise you.’ "
‘Leap of Faith’
It’s not clear how the $500 million for the endowment will be raised in a city of just 75,000 residents. Itemized charitable contributions in greater Kalamazoo total only about $160 million annually.
Johnston and Parfet are leading the fundraising effort, and it’s not yet in full swing, according to city officials. It may take more than the three years planned, Hopewell says, and national foundations might be asked to kick in.
Such details, however, aren’t dampening enthusiasm for the plan. As one booster put it at the August commissioners’ meeting, “There’s a leap of faith in anything in life.”
