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Promises, Promises: Eight Reasons the Davenport Promise Is Upside-Down PDF Print E-mail
News/Features - Feature Stories
Written by Jeff Ignatius   
Wednesday, 26 November 2008 02:45

Now that the Davenport City Council has approved a March 3 referendum on the Davenport Promise proposal, one can be certain that the coalition that has been built over the past year-plus is being mobilized to demonstrate broad community support.

It will not be technically affiliated with any major community player, but it will include a lot of familiar names and faces behind the scenes. It will undoubtedly feature "real," everyday citizens, so voters won't feel like they're getting bullied by the heavy hitters. And the campaign will basically argue that there's no sensible reason to vote against the Promise, that there's no way the program could fail, and that the risk of voting the proposal down is too great.

That style of PR push was the successful approach of backers of River Renaissance in 2001. And the work in 2007 and 2008 of a Promise exploratory committee and a Promise task force has looked less like objective analysis than propaganda.

But don't mistake the marketing for unanimity.

Despite the doomsday scenarios sketched out by supporters - that the Promise is the only way to avoid a catastrophic loss of population in Davenport - and despite the assertion that a vote for the Promise is virtually a no-brainer, there are reasonable and rational objections to the idea as currently presented.

The Davenport Promise would provide funding for college tuition, vocational training, or a returning-veteran homestead grant to people who live in the city for at least ninth through 12th grades. On March 3, Davenport voters will be asked to reallocate 30 percent of the existing 1-percent City of Davenport Local Option Sales Tax to fund the Promise.

It is anticipated that the Promise will attract new residents to Davenport and boost property values, which in the long term would generate revenues for the city that would more than pay for the costs of the program.

But the Local Option Sales Tax reallocation would create a temporary shortfall - expected to last between six and 10 years - in the city's capital-improvement budget. The city administrator has sketched out a fund-shifting and cost-saving scenario in which the City of Davenport could absorb an $8.8-million shortfall without cutting or deferring "any street, sewer, or essential project"; three park projects would be scaled back. That is the rationale behind the claim in the final Promise task-force report that "there is no ‘either/or' choice between streets and sewers or the Davenport Promise."

There are many good reasons to support the Promise, and you can read all about them at CityOfDavenportIowa.com/egov/docs/1210019724729.htm. Supporters of the Promise already have their literature in the form of the final report of the Promise Task Force, which barely acknowledges dissent, burying it on two pages near the end of the document.

Some people will oppose the Promise on principle simply because they don't believe this is an appropriate use of city sales-tax revenues. Those people aren't likely to be convinced to support the Promise.

For people in between the for-ers and the against-ers, here is a collection of objections to and issues with the Promise. It is intended as a balance to the inevitable spin.

 

1) The projections are based on untested assumptions.

One major factor in determining where voters stand on the Promise will be whether they think the estimates and assumptions in an independent analysis are solid or bunk. Supporters of the Promise believe the projections to be reasonable and conservative.

"If the economy gets back on its feet again fairly quickly ... I feel quite confident that the impact will fall in between the low and the high estimates," said researcher George Erickcek. "If you're going to ask my personal confidence level, I'd say it's about 90 percent."

"It's a fairly balanced report," said Davenport City Administrator Craig Malin.

"Given the evidence we have to date, and the independent research effort that was done, it would bear out the fact that there is no particular liability" to taxpayers, said Davenport Promise Task Force Chair Ed Rogalski, the former president of St. Ambrose University. "Certainly, things can go wrong. And if those things don't materialize ... at worst ... there would be a more highly educated community and a better-trained workforce, and I don't think you can put a value on that."

The facts and figures you have seen and will see about the Davenport Promise are based on an analysis of the proposal by the W.E. Upjohn Institute for Employment Research. That study is based in large part on the experience of the Kalamazoo Promise - a privately funded program in Michigan that served as the inspiration for the Davenport proposal.

Erickcek, a senior regional analyst with the Upjohn Institute and the lead author of the Davenport report, conceded that his study makes a lot of assumptions. "It has to," he said. "When we did this project, we basically had a sample of one."

So because of a lack of data, "by almost definition, the report is based on what we believe are realistic assumptions of how people will respond," Erickcek said. "But you're absolutely right in saying that these are only assumptions."

The problems with the Upjohn analysis have less to do with the study itself than the use of that study in the service of Promise promotion. The Upjohn report is clear on the inexact nature of projection: "The fiscal impact estimates of the Promise are strongly impacted by a number of factors. Therefore, a high level of uncertainty clouds the fiscal impact estimates of the Promise."

The report highlights three key areas in which deviations from the projected behavior will alter the outcomes: the "initial population change," "the decline in the rate of new enrollments during the second and subsequent years," and "the response of property values and property tax revenues."

The Promise analysis has a lot of moving parts and many caveats. The report itself should engender skepticism about the unequivocal statements of program supporters.

For example, the Upjohn report says: "The next question to answer is how many households will move to Davenport due to the Promise. A careful literature search uncovered no previous research examining this specific scenario. Furthermore, it is difficult to ascertain from the experience of the Kalamazoo Promise how many households moved to Kalamazoo from outside the region and how many moved into the Kalamazoo Public School District from neighboring districts."

That level of uncertainty is absent from the final draft of the task-force report: "Davenport could gain 9,356 residents, and the Davenport School District could add 1,539 students by 2019 with a Promise program. Without a Promise program, the study projects a loss of 3,933 Davenport citizens and a loss of 600 more Davenport School District students."

The Upjohn analysis includes a range of possible outcomes that suggests the program is not "no risk."

It offers three basic performance scenarios, and it also looks at each of those with one of the three main "moving parts" as variables. The best scenario projects five years of capital-budget deficits totaling $5.3 million. The worst scenario projects deficits for more than 10 years totaling $19.3 million.

Malin claims that the capital-improvement shortfalls are "within the ability for the city to manage without really any discernible impact." But if the short-term deficits top $8.8 million, that might not be true.

To address that issue, the city and the Davenport Community School District board passed a resolution pledging that the combined property taxes for the City of Davenport and the school district won't go up because of the Promise or the capital-budget shortfall. Malin described that as a fallback measure.

But the resolution is simply a statement of intent, and it isn't binding on either the city council or the school board.

Malin said there is a hammer: "These are the elected officials of the community saying they're not going to do something. If they do something after they say they're not going to do something, there's explaining to be done. ... It's their stated word."

 

2) Some projections defy history.

The Upjohn study says that it makes the assumptions that "the annual inflation rate during the period is 2.5 percent" and that "college tuition will increase at a rate that is no faster than inflation."

It also notes: "Historically, this has not been the case."

Because the college-tuition benefit of the Davenport Promise is tied to the tuition rates at Scott Community College (the first two years) and the University of Iowa (years three and four), tuition-rate increases beyond inflation will increase the costs of the program. "That would change the numbers in our calculations," Erickcek said.

So why make an assumption different from recent experience? Because there is pressure to keep tuition increases down, he said.

Beyond that, Erickcek said, "There are so many estimates that you have to make, we're trying to keep some constant. And this is one we kept constant."

The second major historically dubious assumption is that the second-year performance of the Davenport program will be significantly better than in Kalamazoo, where new enrollments dropped by 90 percent. Upjohn estimated a 60-percent drop-off in Davenport, largely because of a planned national marketing program.

"If this proves to be overly optimistic ... ," the report states, "it would have a significant negative fiscal impact to the city."

There's also the projection that Davenport will lose population without the Promise, even though the city's population actually grew by 1.2 percent from 2000 to 2006.

 

3) Times have changed since the research was conducted.

The study assumes that if the Davenport Promise increases the city's population by 1 percent, residential property values would also increase 1 percent. This is optimistic compared to what the analysis referred to as "the only study we were able to uncover regarding the impact of population growth on residential property taxes."

It also seems premised on a real-estate market that's significantly different from the current situation, with home values dropping significantly across the country. "We didn't see what was coming, did we?" Erickcek said.

And he admitted that the performance of the Promise would likely suffer because of the economy. The credit crunch, consumer confidence, and the market for homes are "going to have a negative impact for this coming year, in 2009, for any type of effort like the Promise. ... It's going to make it much more difficult to move. ... Much more difficult than when we did the report."

He added that "the response rate is going to be more sluggish" to the Promise, he said. "The positive impact that we expected will be diminished because of this possible severe economic downturn."

And Erickcek conceded that the property-value assumption of the study won't be correct in the short run. "That [one-to-one] relationship [between property values and population] is really based on holding everything else constant, holding that we're in a typical economic situation," he said. "Clearly right now we're not. Clearly right now we're not in a typical economic situation."

 

4) Taxpayer money is the first in.

While the public campaign to create the Promise has been underway for well over a year, there has been little effort to determine whether private financing could take the place of taxpayer money.

"The task force had neither the directive nor the authority to be raising funds for this program, and they just delivered their recommendations to the council ... ," Malin said. "You need to exercise a little bit of patience, I think. There's more than adequate time between November 19 [the date of the city-council vote] and March 3 to get that private and foundation support secured."

The design of the program has tax revenues only going to benefits - scholarships and grants - which are anticipated to cost $1.9 million in 2009 and are projected to at least double in today's dollars by 2018. Administration and marketing - estimated at $290,000 in the first year - would be covered by private funds.

The task-force report claims that "assembling completely private funding for the Davenport Promise has been deemed impossible by professional fundraisers in the community."

But why not seek private funding for a portion of the benefits?

Rogalski explained: "We brought in [two] experts from the community [Ray German of Braren Mulder German Associates and Susan Skora of the Community Foundation of the Great River Bend] to give us a sense as to what might be possible. They were unanimous in their opinion that there were not immediate sources of private support available. But they thought that maybe with some kind of cultivation there would be support for at least administration of the program."

But that's shooting low. Given the claims of the benefits to the entire community - from population to workforce readiness to property values - shouldn't it be possible to attract private money? And, more importantly, shouldn't backers have sought that private money before coming to taxpayers?

"There may be [private funding for scholarships], but it's going to take a period of time," Rogalski said.

But who would contribute money for scholarships now, considering that the question before voters is whether to fully fund the benefits with sales-tax money?

 

5) The school district, one of the largest beneficiaries, assumes no risk.

The largest direct beneficiary of the Promise is the Davenport Community School District, which gets more than $5,000 from the State of Iowa for each student it educates. It could also benefit from a larger property-tax base.

If the program is successful, the City of Davenport potentially benefits directly only from the property-tax base.

Yet if the program flops, the city and its taxpayers are on the hook. The school district loses nothing.

Malin argued that this situation is appropriate and was unavoidable. "Our fates are intertwined," he said. "There is no funding mechanism permissible in state law for the school district to support this kind of program directly."

But there's nothing to prevent the school district's foundation from contributing or shouldering some of the burden. But it won't do that because it's a city program, and some of the school district's students live outside city limits.

There's a fundamental imbalance in the risk/reward equation.

 

6) The program would do nothing to address the effectiveness of education.

The Davenport Community School District has been hemorrhaging students, with average annual enrollment dropping by more than 2,000 students between 1991 and 2006. That's roughly 10 percent.

Yet there's never any discussion in Davenport Promise documents about the effectiveness of Davenport schools, and the impact that might have on enrollment. Perhaps people leave the school district or open-enroll in a different district for a reason?

Given that it has no financial risk in the proposed program, would it be too much to ask the Davenport Community School District to outline its plans to attract and retain students beyond the bribe of the Davenport Promise?

To put it more bluntly: Is it unreasonable to ask the district to tell voters how it plans to use the Promise windfall to make its schools better?

Without that element, the Davenport Community School District looks as if it's only in it for the money.

 

7) Buying votes.

It's smart politics to tie a Promise vote to increased funding of police and firefighters, but it smacks of pandering. The Promise referendum, if it passes, would also reallocate 10 percent of the Local Option Sales Tax for "public safety." The combined 40 percent of the tax is presently reserved for capital improvements. (The remaining 60 percent is and would be set aside for property-tax relief.)

The rationale is that people who are on the fence about the Promise itself might still vote for it to support police and firefighters.

This is part of a larger strategy that also includes the vocational training, and homestead grants for returning military veterans.

Each of these additions serves two purposes: It expands the potentially supportive constituencies, and it expands the scope of the program to justify the use of the city Local Option Sales Tax.

It's a shame we can't have a straight vote on the Promise concept that isn't weighed down by all these supposed vote magnets. There was an effort at the November 19 city-council meeting to separate the public-safety and Promise components of the referendum, but it failed when Mayor Bill Gluba broke a 5-5 tie.

 

8) There is a false choice between the proposal and the status quo.

It's not "Promise or die." A vote against the referendum is not a vote against progress or education, or even a rejection of the Promise in theory. It's simply a vote against the Promise as currently proposed.

 


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