Kalamazoo: Why Some are Looking a $70 Million Gift Horse in the Mouth

It’s been two weeks since the City of Kalamazoo, unveiled the potential of a sizable, $70 million gift offered to the City by two named donors — William Parfet and William Johnston.

The gift, if accepted, would be dispersed over the course of the next three years, with the goal of fully funding an endowment by 2020 with $500 million dollars (though it has yet to be determined how or if those dollars could be actualized). The Foundation for Excellence, as it’s being called, is being promoted as a revenue source that would “stabilize the budget, reduce property taxes, provide new funding for aspirational projects, and last for generations.”

The proposed gift was received with overwhelming gratitude at the July 28 City Commission Work Session. The Mayor, Vice Mayor, and Commissioner Anderson were the most vocal supporters, calling the gift, “an unbelievable opportunity.” The Commission unanimously approved a motion to task City Staff with securing more details. City Administration is expected to return in September with information about what a memorandum of understanding would look like between the Foundation for Excellence and the City.

Not everyone is excited about this option, though. Two commissioners, in particular, are calling the way it all is going down “unethical” and “dishonest.” Commissioners Sykes and Milcarek are upset by what they say are a lack of transparency and a lack of integrity involved in arriving at this point and, for the first time, have decided to speak, publicly, about their concerns.

Side-stepping the City Commission:

The path to find new revenue sources began in earnest mid 2015, when the City organized a Blue Ribbon Review Panel. The panel, which consisted of residents, non-profits, businesses, and educational stakeholders in the community, was created to discuss the budget shortfall and come up with potential revenue options and solutions for the future. In December 2015 the panel presented it’s full report, in which it offered a handful of ideas for the Commission’s review.

On February 29, 2016, the City Commission held a work-session to review the Panel’s report. The Commission agreed that the suggestions offered in the report would not be sufficient for shoring up the budget shortfall. They decided to pursue a number of the items on the Panel’s list and also to pursue placing a city income tax before voters on a 2017 ballot.

At that February meeting, according to the meeting minutes, City Administration was supposed to return to the commission a couple of weeks later with a pre-implementation plan for the discussed, new revenue sources.

Instead, Commissioner Milcarek says, over the course of several months, City Administration engaged in small, behind closed-door meetings with representatives from Southwest Michigan First, William Parfet, and William Johnston, to develop the philanthropic option.

Over the course of those months, Milcarek says, commissioners were updated, individually, and he adds, “It became clear, if you weren’t on board with this (the private donor option), you were a problem.”

On June 28, Milcarek sent an email to the City Manager and all of his fellow-commissioners, stating his unease:

“I find myself increasingly more uncomfortable with the speed and depth in which the philanthropic option has moved forward without any official City Commission discussion, direction, or sanction. …. The Commission tasked the administration with moving forward on a variety of options several months ago, yet some of those options (mainly the income tax) appear, from my viewpoint, to be treated as if they are “fallback options” that we might seek down the road if the philanthropic option falls through. … if this perception is accurate, I have to ask why an option that was not sanctioned, endorsed, or even actually discussed by the Commission has moved ahead of the options the Commission tasked the administration to move forward on….”

“Anti-tax Marketing Campaign”

The City is not allowed to take a position on ballot initiatives; however, Milcarek calls the way that the City marketed the philanthropic option as superior to the income tax option (a potential ballot initiative), “ethically wrong,” and says, “They basically created an anti-tax marketing campaign.”

Jeff Chamberlain, Deputy City Manager, says that “what was announced Thursday was a concept and an idea,” and he says that the reason they wanted to make the announcement in the way that they did was, “because it’s just so exciting we wanted to tell the public about it.”

But Milcarek says that by the time the July meeting rolled around, the City had, “already told staff, they had paid Facebook ads up, press releases… This was 95% rolled out before the City Commission ever met to say whether or not we were going to do this.”

The City survey, where residents could weigh in about the Foundation, contained four questions, which included, “What about the Foundation excites you the most?” and “What aspirational project would you most like to see implemented as a result of the Foundation for Excellence?” and, after stating the average tax savings for residents under the plan, asks, “what will you do with your extra $300?” The final question asked for residents’ initial thoughts about the Foundation. The survey closed on August 11.

Milcarek goes on, “They say (this Foundation) won’t silence elected officials, while at the same time we’re silencing officials. There was clearly months of work, yet the City Commission had never met on it. And all that time (City Administration) knew there was controversy and disagreement on it. … When we were finally able to have that discussion, we were already having the money shoved in our face. It clouds everyone’s mind.”

And he wonders, “How is that something built on trust?”

“Enshrining and Institutionalizing” a permission-seeking culture

Commissioner Sykes says she agrees that the way that this plan unfolded was unethical. She says that although the gift was promised with “no strings attached” she doesn’t trust that. She says that the donors already have strings on the commission — “these two individuals are people we ask permission before making decisions.”

Sykes says that Parfet and Johnston are often collectively referred to as, “The Bills,” as in, “Well, The Bills said… well, we asked the Bills… I’d hate to upset him, let me check in with him…” Sykes says its this culture that instills mistrust in the no-strings promise.

“It doesn’t even have to say in the plan that we’re going to check with them before we do things and they’re going to control our decisions… it doesn’t have to say that because that’s already the culture of the commission,” Sykes says.

Milcarek backs this up, saying, “We will be enshrining and institutionalizing that system of approval.” He goes on, “While the City might be legally free from demands from these individuals, influence comes in many forms.”

“What happens,” Milcarek asks, “if those involved with this fund become unhappy with something the City is considering and they make threats to walk away from the foundation, potentially putting operations or fundraising goals in jeopardy? Sure, the City might be under no legal obligation to oblige them, but those non-elected officials might be viewed as “too important” to lose, so the City could find itself in a real precarious situation.”

In addition, Milcarek and Sykes say that early on in discussions about an income tax, Southwest Michigan First threatened to put hundreds of thousands of dollars into campaigns to defeat an income tax because, as a business advocacy group, they were vehemently opposed.

Ron Kitchens, President and CEO of Southwest Michigan First denies this, saying, “we do not, nor have we ever, funded ballot initiatives.”

The Strings

Beyond the more invisible strings of what the commissioners call a “Permission-seeking culture,” is a more concrete (and not-publicly-spoken) string that comes along with accepting the gift: The City Commission would accept the gift as an alternative to an income tax.

Chamberlain says he’s not heard any comments that suggest that the City Commission would not be allowed to pursue an income tax. “At this point,” he says, “the City Commission is looking at options.”

The packet presentation regarding the Foundation, though, does list, as one of the Key Actions of the Foundation: “avoid another tax on our citizens.”

Milcarek is troubled by this potential limitation because of a current bill (HB 5518), pending in the Michigan House, that, if passed, would add a line item stating that Michigan municipalities “shall not impose and collect any excise tax on or measured by income after Jan 1, 2018.” That means the time to even consider an income tax — were it on the table — could be quite narrow.

Milcarek says that the whole presentation was not honest. He says, “There’s 2–4 pages on the income tax and then a whole book on the Foundation.” He says that roughly 60% of the exciting stuff that was presented as the Foundation option could also be things that could happen with an income tax.

And, an important factor that wasn’t discussed or acknowledged, he says, is the specific difference in how each option has the potential to affect property taxes in the future.

Milcarek says that with an income tax option, property taxes would be lowered. And, he says, with the income tax option, there would be a cap on how high the city could increase property taxes in the future — he says that cap would be 14 mills. That’s because the City Charter stipulates that if Kalamazoo were to implement an income tax, the maximum operating millage the City would be allowed to levy would be 14.

With the Foundation proposal, that’s not the case. Milcarek says with the donor option, property taxes will be lowered, too, but with that option there is no cap placed on the city’s ability to increase property taxes in the future. And that means the Commission can, at its discretion, increase property taxes all the way up to 19.21 mills.

“Preserving Basic Tenets of Representative Democracy”

From a philosophical standpoint, the two Commissioners have stated their objection over the concept of solving a general fund budget deficit through privatization. Sykes says she worries about an entity other than the elected body being in control of the city budget.

“Money can cloud people’s eyes and judgment,” Milcarek says, “and I certainly don’t want to get swept away in the wake of a huge donation and lose sight of my obligations to ensure fiscal stability and sustainability for the City while preserving the basic tenants of representative democracy.”

Milcarek notes that this Foundation is a “venture into uncharted waters” and that it is, “more than just a gift, it’s a fundamental restructuring of how to fund government.”

Chamberlain, though, says, “Kalamazoo city officials would still have the final say in how these funds are used,” and says that the City is committed to building a “wall of separation” between the Foundation and the City that would allow elected officials the ability to meet the needs of its residents.

“The city of Kalamazoo manages over $150 million in its budgets every year,” Chamberlain adds, and he says that the city already manages those funds in a very ethical and professional way.

A July 2015 Plante-Moran analysis on income tax shows that of the more than 47,000 people employed within the city limits, 81% of them are non-residents. Commissioner Sykes says, “You’ve got this percentage of people who work here, make a lot of money here, and then take it and leave the city.”

Sykes says “I am for a tax restructuring that creates a more equitable economic system for our city way more than I am this gift.” She says that the Foundation “does nothing to address the structures and the broken tax and revenue structure that we have right now that places really wealthy people at the top in a position to give gifts in very small numbers, when they feel so inclined, and does nothing to help those who are struggling at the bottom of this economic hierarchy.”

“What would happen,” wonders Sykes, “if, rather than giving us this money, to make sure that we don’t pass the income tax, what if instead, they took all this money and put it into working to change the structure to address poverty?”

The proposed Foundation has a Key Action of ending generational poverty. Commissioner Sykes calls that action “offensive,” because, she says, it doesn’t address the structures that created and maintain generational poverty.

“$30 million (the amount allocated over 3 years toward aspirational projects) can certainly purchase a lot of bandaids, but what it can’t do is re-structure the systems that create poverty in the first place,” she says.

Deputy Manager Chamberlain, though, believes initiatives fueled by Foundation monies could change people’s lives. He says, “if we can provide new job training programs, or we can provide new business start-up funds, or if we can provide new programs for neighborhood entrepreneurs — that will give those individuals an opportunity to do something new that could really change the trajectory of their family and their life. And then that will have a ripple effect in the community.”

The Politics

Along with Kalamazoo residents who are struggling with some of the highest poverty rates in the state, Kalamazoo, as a municipality, has been struggling to balance its budget for years.

Commissioner Sykes is troubled by the political connections of the donors, because, she says, the donors put huge money into getting the people elected “who put our municipalities in this position in the first place.”

She’s referring to what the Citizen Research Council of Michigan calls, “the not-so-subtle shift in how the state shares its financial resources with sub-state entities,” which dates back to the early months of Governor Snyder’s administration. During the course of those years, the state has steadily decreased the amount of funds it shares with municipalities.

Sykes says this connection is vitally important. These are the people, she says, “who brought us the Emergency Manager law, who brought us the disaster in Flint, who brought us Detroit Public Schools, who brought us the seizure of public land in Benton Harbor.”

“And now,” she goes on, “in another place you ride in the like the White Knight on your horse, ready to save the day.” She says she wants to know why.

But Chamberlain says, “I don’t know all of their giving habits, but you can look in Kalamazoo and the surrounding areas of which they’ve also given substantial amounts to benefit community programs and nobody has questioned their political views for those programs.”

Milcarek says that talking about political ties in the context of funding a government budget is “absolutely, fundamentally different and inherently very political.”

He adds, “You can’t talk about a government becoming dependent upon large donations from private individuals without it being political, as that would require a fundamentally inaccurate view of how the world works.”

Moral and ethical concerns

Last weekend, news of a lawsuit against Bill Parfet, alleging sexual harassment, sex discrimination, retaliation, and wrongful termination raised even more questions about the obligations the City does or doesn’t hold when they consider accepting a sizable donation from wealthy individuals.

Chamberlain would not comment on the lawsuit, saying that the city of Kalamazoo is not a party to that action.

But, Sykes says, “As a survivor of sexual assault, myself, I am only more saddened and disappointed that this is one of the men that a number of my colleagues lovingly referred to as “The Bills,” and consulted before making important decisions for our city. The drivers of policy in Kalamazoo should be the elected leaders, chosen by Kalamazoo citizens, not men like Mr. Parfet.”

Commissioner Milcarek adds, “Regardless of the outcome of this case, the incident highlights a major concern with making a City institutionally dependent upon large philanthropic gifts from a select few donors. You never fully know what sort of things these individuals are involved in, and frankly, our City should not be in a position where our finances are tied to individual mega stakeholders.”

Milcarek says he takes the job of governance and looking out for the City and its residents very seriously. “I didn’t run for office to just accept gifts on blind faith,” he says, and adds, “I’ve never met any of these donors, and I’m not just going to go off of trust with anything.”