August 30, 2016; Detroit Free Press
Like many American cities, Kalamazoo, Michigan, needs money and a path out of urban blight. Two years ago, its leaders saw a hole in their municipal budget that they projected would grow to more than $5 million by 2020, about four percent of their annual budget. A cross-sectional blue ribbon panel was commissioned to “research, study, and explore revenue options that, when considered together, would address the city’s general fund structural budget imbalance.”
Their recommendation for possible new taxes and fees were presented at the end of 2015, and the mayor and city council began to tackle the political challenge of every government in these difficult times, sorting out whose taxes to raise and what services might be reduced to minimize the need for new taxes. As the budget process churned on, two local residents—William D. Johnston, who chairs a private wealth management company, and retired drug company CEO William Parfet—proposed a different solution to the city’s financial stress, one that tests the boundary between public and private enterprise and responsibility.
According to the Detroit Free Press, after a series of discussions with Kalamazoo’s mayor, Bobby Hopewell, Johnston and Parfet proposed the creation of a foundation to support the city and “pledged $70 million over the next three years to help solve a number of vexing municipal finance problems and also pay for lowering the property tax rate.” These funds could erase the city’s projected deficit, eliminating the need for any new taxes or fees, and allow the city to reduce its property tax rate by more than a third, saving home owners $363 per each $100,000 in assessed value. The city would have as much as $10 million in each of the next three years to invest in “aspirational” projects like small business loans to build the city’s economic strength.
Mayor Hopewell described this as “a game-changing opportunity…where we are allowed to give our taxpayers some relief, deal with our deficit challenges, and allow us to aspire for what our city should be.” City Commissioner David Anderson said, “For the first time in almost 11 years, I’m sitting here with an opportunity to dream a dream…an unbelievable, amazing, standing on the edge of history opportunity.” In the face of difficult budget problems, this gift provides, according to Anderson, a way to painlessly end years of budget cutting for “a city that has had increasing poverty, that can’t fix its sidewalks because it doesn’t have the money, that has had to reduce its workforce from more than 900 employees to 600-some.”
But there are risks to moving responsibility for providing public services from the established mechanisms of democratic governance in which public policy is set by elected officials paid from public funds. While raising taxes is hard work, democracy depends on making difficult tradeoffs between competing interests at city hall and not in the boardroom of a private organization. City Commissioner Matt Milcarek saw potential conflicts for city leaders:
Given the dollar amount we’re talking about there’s a legitimate room for pause and deeper thought of what that means that there’s a new type of stakeholder…they’re funding the general fund for basic services, not just additional programming.
And Commissioner Shannon Sykes says her worry is that the elected board os a non-profit will manage the $70 million, and that the people of Kalamazoo will no longer have control of a largely “privatized” budget.
But Mattie Jordan-Woods, executive director of the Northside Association for Community Development, saw the immediate, concrete benefit as more critical than any potential conflict of interest of harm to democracy.
I do not understand saying no, unless they are asking you to do things that’s not right. I think that there are a lot of people who really love the city and that’s what we have here. I love the city too, but I don’t have any money.
The problems of private funding of public responsibilities go beyond potential conflicts between elected officials and donors. Yes, they can clash about the specifics of where and how these dollars are spent, but they can be prevented from having undue influence on public policy in any specific instance. But what if they don’t get what they want and walk away from their commitments, or choose after three years to stop giving? How does government go on as planned? Unlike other sources of public funding, it is the donors’ choice whether or not to continue to support Kalamazoo. If they withhold, repurpose, or are unable to continue their grantmaking, what happens to the services they funded, or the lower tax rates? Decisions that should have been those of elected officials will have been made by private individuals whose wealth gave them their access and power.
This question is not just addressed to Kalamazoo. Detroit was bailed out of bankruptcy with significant funding from major private foundations. Sizable amounts of donated funds have driven a national effort to redesign the nation’s public education system. With the stress on all levels of government to fund needed services, donated funds can ease the burden of political leadership. But the price of relief is high. Over the long term, this unique form of municipal philanthropy may create another way to make democracy a sport only the rich can afford to play.—Martin Levine