Sold! To the Two Billionaires in the Back

September 3, 2017; MiBiz

William Johnston and Bill Parfet are two billionaires with a mission to stabilize the city of Kalamazoo in southwest Michigan. The two will provide $70 million in seed money for the Kalamazoo Foundation for Excellence over the next three years. Their fundraising goal is to raise $500 million as an asset base at the foundation to help fund the operations of the city, but the initial investment will be sufficient to help cut property taxes and forestall an income tax for the time being.

“The donors are concerned with the long-term viability of the City of Kalamazoo and its ability to meet not only the basic needs of its residents but also its inability to invest in efforts to help create a dynamic and growing city,” Parfet and Johnston wrote in a Statement of Donor Intent last month. That statement is worth a closer look, as it links the investment to the development of a 10-year plan for the city called Imagine Kalamazoo 2025 that will involve volunteers and nonprofit organizations, as well as city staff and officials, in setting goals. On the other hand, it also creates some “slack,” or capital, to work with to free up resources at the level of individual pocketbooks. Still, public-private efforts like these, which depend on a big chunk of philanthropic money, can be derailed by any number of variables: a change in administration, shifting donor desires, or—last, but not least—impatient or inadequate community engagement.

“I do think this is unique, innovative and in some ways a test,” said Carrie Pickett-Erway, president and CEO of the Kalamazoo Community Foundation. “Communities need to be reinventing themselves these days in a lot of ways. Figuring out the funding structure to make communities vibrant, that’s a big challenge. I do think the taxing structures that exist today are making it really hard for cities, counties and others to really be the community they want to be. I think we need to be innovative and creative and try something.”

Michelle Miller-Adams from the Kalamazoo-based W.E. Upjohn Institute for Employment Research observed, “Other communities do have philanthropists and they make choices all the time about how they spend their money. Once they find out that this Foundation for Excellence transforms the community [and] reduces poverty, philanthropists in other communities may look and say, ‘Build an arena, or put money into the city budget?’ We’re kind of a laboratory for some extreme generosity approaches to urban governance. It’s pretty interesting to watch.”

Interesting, yes—and maybe a little hair-raising. Although the original money comes with an arm’s-length vow from the funders, the remainder of the $500 million will be raised from as-yet-unknown donors, including corporations, individuals, and private foundations. City Commissioner Matt Milcarek, one of two commissioners to oppose the foundation’s incorporation, has serious concerns about the influence that those subsequent donors might exert over how it’s spent.

“I’m very hopeful it works out for Kalamazoo, but honestly, in the generic sense, it’s really not a direction anyone should be going toward,” says Milcarek. “I think we already have some pretty blurred lines [around] wealthy control over government. If it works in Kalamazoo, it’s going to work because of the benevolence of our particular donors. But to sort of promote a governmental finance system that relies on billionaires being benevolent is really a dangerous model to replicate.”

On this point, Kalamazoo City Attorney Clyde Robinson urges the foundation’s 15-member board—which has yet to be appointed—to address the issue of restricted fund donations, a scary consideration that could eventually draw the city off course. “Rather than tie the hands of the FFE Board with language in the Articles or Bylaws precluding the acceptance of restricted gifts, some of which may be acceptable and consistent with the FFE purposes, this issue is best left to the FFE Board to craft a gift acceptance policy that can be reviewed and modified as circumstances dictate,” Robinson wrote in a memo.

We’d love to hear from readers about this situation.—Ruth McCambridge