Filling the Gap: How a $500 Million Bid to Help a Small City is Shaping Up

Foundations formed specifically to bolster the work of city governments are relatively new and rare in philanthropy. Most prominently, New York and Los Angeles have mayor’s funds that are public-private efforts formed to mobilize resources from foundations, corporations, and individuals to address citywide challenges. Other efforts are found here and there, often focused on specific areas like parks or education.

But one of the most ambitious partnerships between philanthropy and a city government is in Kalamazoo, Michigan. The city already has a community foundation, but there’s a newcomer in town that’s really shaking things up.

It’s called the Kalamazoo Foundation for Excellence (KFE), and it recently released a 42-page document to explain who’s behind the effort and where the money will be going. This is the next chapter in a story that began last year, when two local philanthropists—William Parfet and William Johnston—pledged $70 million to help this struggling Rust Belt city close its budget deficit, reduce property taxes, and provide funds to improve life in the city.

But it turns out that was just the down payment on what aims to be a much bigger effort. The Kalamazoo Foundation for Excellence is planning to raise $500 million within the next two years to benefit the city—no easy feat by any measure.

While this effort generally enjoys broad support in Kalamazoo, it's also raised some concerns as another example of the questions and challenges that surround philanthropy's growing footprint in public life. On the one hand, it's hard to be anything but grateful to mega-givers like Parfet and Johnston, who in this case have stepped forward to help a battered city that they deeply care about. On the other hand, with such largesse comes influence over areas that are traditionally the province of elected officials. Some residents are wondering about how transparent the foundation will be once it’s fully up and running—and more broadly, what kinds of power this entity will have.

KFE's top goal is to stabilize the city’s budget and to make up for funding shortfalls that have emerged thanks to cuts in state municipal financial assistance. The foundation will also provide funds to make up for lost revenue from cutting local property taxes, which many have seen as a heavy drag on the city's economy.

To raise the money it needs to be successful, KFE officials are asking residents to donate part of what they are now saving in property tax. There’s a bit of strong-arm tactic, here, since commissioners have warned that the city will face higher taxes and/or budget cuts if KFE doesn’t raise the money it needs to on time.

According to the foundation’s website,

The foundation will provide $70.3 million to stabilize the city’s budget, lower its property tax rate, and for $10 million of aspirational community projects per year through 2019. During this period, a community fundraising effort will be launched to create a fully endowed foundation that can sustain this funding in perpetuity.

Unlike Kalamazoo’s community foundation or other private foundations that serve the area, KFE will only benefit the city and carry out the city’s mission. This was the initial intent of the donors. The articles of incorporation state that the foundation will not support any entities other than the city. This seems to leave the local nonprofit community out in the cold.

Yet KFE's mission is surprisingly broad and goes well beyond stabilizing the city's finances. Its other goals include engaging the Kalamazoo community in developing a long-term shared vision for the city, a process now underway through the development of an "Imagine Kalamazoo 2025 Strategic Vision and Master Plan" fostering "collective action to reduce unacceptable poverty—especially among children," and building a "high-performance organizational culture" within the municipal government workforce.

Many questions remain about how KFE will pursue these goals over time, as well as how the foundation will work with donors. There's some confusion, for example, as to whether donors who give money to KFE can earmark funds for causes they care about—although the current language of the document allows for donors to provide instruction on how money will be used, at least in part. It's worth noting that the mayor's funds of New York and Los Angeles now have strong track records of making matches between specific donors and government initiatives in those cities, so there is an expanding body of practice that KFE can draw on, here.

As for issues of accountability and transparency, KFE got off on the right foot by laying out a very detailed blueprint of how it will operate.

The foundation will be overseen by a 13-member board of directors, at least seven of whom are city residents. There will be a conflict of interest policy in place, meetings will be open to the public, and stakeholders who represent issue areas like education and healthcare will make up eight board positions. There’s also a process in place to remove board members when necessary after a vote of at least 75 percent of the board.

There are more interesting details to dig into within the foundation's proposed bylaws. In many ways, this effort is breaking new ground. The big question is whether it can mobilize the private donations that the stakeholders hope for: $500 million by June 30, 2019. By comparison, the Mayor's Fund of Los Angeles—operating in a vastly larger and wealthier city—has yet to raise anything close to that amount.

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