Unprecedented $70M donation to cut Kalamazoo property taxes by a third

KALAMAZOO, MI - The city of Kalamazoo will be getting $70 million from unnamed private sources to fix its budget problem and fund for millions a year on "aspirational" projects, allowing the city to slash property taxes.

The city will create the Foundation for Excellence, funded by area philanthropists, institutions and anyone in the community wishing to donate. A group of people, who city officials said Thursday are remaining anonymous for now, have committed a total of $70.3 million over a three-year period.

Officials expect the foundation will be fully-funded by 2020, so with investment earnings it could provide a guaranteed revenue stream for generations.

The infusion of cash will allow the city to cut its general property tax levy 38 percent, from 19.27 mills to 12 mills starting in January 2017. The reduction will save a homeowner of a house with a $100,000 market value $363 in taxes, from $963 a year to $600.

Kalamazoo City Manager Jim Ritsema said the ultimate goal is to further cut property taxes to 10 mills, which would save that same homeowner another $100 a year.

"That's key on this," Ritsema said. "The perception is the city is already at a high tax rate, and that's hurting development, hurting our housing. This removes that barrier now and makes us competitive with the region."

The reduction in property tax collection means the city will collect $10.9 million less in property taxes starting in 2018, but the foundation will more than cover that reduction, providing the city's general fund with an extra $13.8 million a year, according to projections.

"This is about changing how we do government, how our community moves forward and creating a shared prosperity for everyone," Ritsema said.

With the new funding model, city officials have social goals, too, including investing in youth, creating shared prosperity and ending generational poverty, according to the city manager. They will continue working with the public on Imagine Kalamazoo 2025, the city's strategic visioning and master plan update, and Ritsema said the city will have $10 million in the first three years to invest in "aspirational" projects including place-making, neighborhood improvements, street and infrastructure upgrades and economic development.

Despite the funding coming for private sources, Ritsema said the city will choose how the money is spent, with the Kalamazoo City Commission ultimately directing use of the funds. "We need to make it clear that the city is in control," he said. "This isn't in any way (taking) power from the city."

The plan was laid out at a special Kalamazoo City Commissioners meeting at 6 p.m. Thursday.

Ritsema said the Blue Ribbon Revenue Panel commissioned to examine revenue options for the city in 2015 created the opportunity for city leaders to talk to philanthropists in the community that have had a history of investing in Kalamazoo.

"This is obviously something new as far as municipal finance goes but it's even more than that," Ritsema said of the privately funded foundation. "It's driving new thinking in what is government and how we do it."

Ritsema said the city's goal of greatly reducing generational poverty, which commissioners have made a priority for the last two years, is an especially big goal.

"That's going to be one of the drivers of success here, to eliminate that generational poverty and bringing everyone in the community forward to greatness," the city manager said.

Ritsema said the Kalamazoo Promise dealt with one hurdle of getting more Kalamazoo Public Schools graduates to go on to college, and this could work to eliminate even more hurdles to allowing generations of city residents to advance out of poverty and achieve success.

"In some ways this will help support the Promise by bringing the Promise to the community," he said.

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