Building a Better Promise: The Davenport Promise is a Solid Concept, But it Should Address Questions Print
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Wednesday, 10 October 2007 02:21

Reader issue #655 Every child in Davenport gets a big chunk of a college education paid for. The city's police and fire departments get a new stream of revenue. Paying for it all is an existing tax. While property taxes would likely rise modestly for a few years, they'd be back below current levels by 2014.

And the ultimate goal is a growing community with a larger tax base, which in the long run could mean more money for schools and city services with lower property-tax rates.

Who could possibly be against that?

Davenport Alderman Keith Meyer, for one, who at a public presentation led by the Davenport Promise Exploratory Committee last week called the prospect of shifting more than $13 million in local-option-sales-tax away from property-tax relief and capital projects the "most absurd financial proposal" he'd heard come before the city council.

Meyer's perspective is harsh, but it bluntly states the core concern about the Davenport Promise proposal as it has been presented to the public: that citizens would foot the bill almost exclusively, directly through sales taxes and indirectly through property taxes.

Backers of the Davenport Promise claim it will have benefits throughout the Quad Cities, and that it quickly pays for itself through growth.

But their enthusiasm tries to gloss over some of the less-attractive details about the proposal - that it could benefit Davenport at the expense of surrounding communities, that it's more generous than it needs to be, and that a likely beneficiary is assuming none of the risk.

 

"It Isn't Like Kalamazoo"

The program as currently presented would entitle students who live in Davenport to one of three benefits: college tuition, vocational training, or a post-military-service homestead grant. The benefit for college students could be up to $18,000 over four years (with today's tuition rates), while vocational training and the homestead grants have caps of $7,500.

The current proposal envisions paying for the program by shifting Davenport's 1-percent local-option sales tax (which presently generates roughly $13.6 million a year) from its current uses (60 percent for property-tax relief and 40 percent for capital projects) to this post-secondary education (90 percent) and the police and fire departments (10 percent).

The local option sales tax is expected to cover the entire cost of the post-secondary awards. Administration of the program would be handled and funded by a private organization, although that organization and its funding source have not been identified.

The details are subject to change as the concept moves from the idea stage to a form on which citizens can vote; reallocating the local-option sales tax can only happen by referendum. Members of the exploratory committee say they would like to see a referendum early next year, so that members of the class of 2008 can benefit.

The program is modeled after the Kalamazoo Promise, which was started two years ago and has had short-term results bordering on the miraculous. According to the W.E. Upjohn Institute, which has done research on the program, between September 2005 and September 2006, enrollment at Kalamazoo public schools jumped almost 9.7 percent after a decade of declines. Enrollment at Davenport schools has been on a consistent decline for 15 years.

According to the presentation by the Davenport Promise Exploratory Committee, in that same year in Kalamazoo, home sales jumped 6.7 percent in the district compared to a drop of 5.2 percent in the region. Home prices were up 7 percent, compared to a 10-percent decline in the region. The property-tax-revenue growth rate went from 3 percent to 6 percent.

The Davenport idea grew over the past year out of a conversation between Davenport City Administrator Craig Malin and Davenport Community School District Superintendent Julio Almanza, the latter said on Monday. The exploratory committee now includes between 65 and 70 people and is an outgrowth of neither city government nor the school district.

There are critical differences between the Kalamazoo and Davenport plans. For one, the Kalamazoo Promise is paid for entirely by an anonymous donation, meaning that there's no public expenditure. The Michigan program is expected to cost $10 million a year when four graduating classes are participating. Kalamazoo's population is roughly 73,000 (compared to Davenport's 99,000), and its student enrollment is about 70 percent of Davenport's.

The funding method leads to the other differences. The Davenport proposal has been structured with additional benefits - money for the police and fire departments, the homestead grant for people who choose military service rather than post-secondary education. And the Davenport Promise is being pitched broadly as an economic-development tool that uses post-secondary education as a way to broaden the city's tax base. In Kalamazoo, the primary focus is on using post-secondary education to reverse years of declining enrollment at the city's public schools.

The Davenport exploratory committee is also proposing a property-tax cap for low-income senior citizens and disabled homeowners, so that they wouldn't bear the burden of the expected short-term increases in property taxes.

"It isn't like Kalamazoo," Almanza said.

The exploratory committee is being politically savvy in trying to build support for the plan far beyond its educational component.

When asked why the Davenport Community School District or its foundation isn't being actively considered as a funding source for the program, supporters of the plan emphasized that it's intended to help the entire community.

"If this does what it's supposed to do ... the community is the beneficiary ... ," said Susan S. Skora, an exploratory-committee member and president and CEO of the Community Foundation of the Great River Bend. "So yes, the school district is one beneficiary, but I believe the community is the primary beneficiary of the economic-development piece of this."

The nearly exclusive reliance on taxpayer funding is just one nagging detail of the current proposal. Given all the community benefits that Davenport Promise promises, a substantial private-sector-funding component should be relatively easy to put together, and it would be a good-faith gesture to the city council that private companies, organizations, and foundations support the concept. (The city council would need to vote to put a referendum on the ballot to reallocate the local-option sales tax.)

Beyond that, the oft-cited maxim that what's good for Davenport is good for the Quad Cities isn't entirely true here. If Davenport grows because of this program, some of the new students will be drawn from other area school districts. Davenport's gain will be their loss.

The Davenport Promise plan also appears to violate a key tenet of good economic-development policy: that a government should offer the smallest incentive needed to achieve the maximum benefit. Under this proposal, it's obvious that some families will receive assistance they don't need.

 

"In the Hands of the Community"

The exploratory committee and the city have worked out basic projections for the program's scope and short-term economic impact.

Exploratory-committee members expect 950 Davenport students from each class to access the program. (There are presently 1,400 seniors in public and private Davenport schools.) At the outset, all residents of Davenport are eligible, regardless of whether they attend a public or private school, are home-schooled, or are enrolled outside of their home district. Starting in the fifth year of the program, students are not allowed to be open-enrolled outside of their home district.

The program also requires students to perform some sort of community service, although the details on that component remain vague.

Students getting vocational training could receive assistance up to $7,500. People returning from the military could get a homestead grant up to $7,500.

Students entering college would be entitled to a benefit equal to two years' tuition at Scott Community College (presently approximately $2,500 a year) and two years' tuition at the University of Iowa (presently approximately $6,500 a year). "Those are moving targets," Skora said.

The benefit is given on a sliding scale based on a student's residency in the city. For instance, students who live in Davenport from kindergarten through 12th grade get the full benefit, while those who live in the city from sixth through 12th grades receive an 80-percent benefit.

For college-bound students, it's unclear what form the benefit will take. There's some concern, for example, that scholarships might reduce the amount of financial aid a student could receive. "It's not our intent to replace other money the student might be eligible to receive," said Dan Foley, a member of the exploratory committee and the former postmaster of Davenport.

Last week, Malin released a city analysis of the potential impact of the program on property taxes. The analysis assumes that property values in Davenport would grow 5 percent a year with Davenport Promise in place, compared to the current annual growth rate of 3.84 percent. It also assumes that 200 new students would come into the school district in each of the program's first five years. In both of those situations, the projection anticipates Davenport's program only being a quarter as successful as its Kalamazoo forebear.

Basically, property taxes would rise for a few years to account for the shifting of the local-option sales tax, and then fall below current levels by Fiscal Year 2014. The analysis anticipates that new families would move to Davenport, thus broadening the tax base, increasing property values, and driving down the tax rate. "That makes a lot of assumptions," Skora said, but "that's what the current analysis is showing us."

According to the analysis, "At its highest point [in the short term], the combined [city and school-district] tax rate is $1.46 higher, or 4.5 percent. ... For a median home valued at $118,642, that would be $76.22 [in additional property taxes paid annually]. By 2014, the tax rate would be less than it is currently."

If property values grow by 6 percent a year - keep in mind that Kalamazoo's growth rate doubled in one year - the owner of the median home would pay $55.33 more a year in property taxes at the highest point.

Malin noted in a memo that because of the property-tax rollback in Iowa, "non-residential property owners continue to bear the greatest burden of any property-tax increase."

The fundamental question that could be posed to taxpayers, then, is whether the long-term potential of lower property taxes is worth the cost over the next few years.

For all the preparation and positioning that's happened with the exploratory committee so far, its timeline for the next action steps is maddeningly vague. The committee is presently circulating petitions gauging support in a general way for the concept, but it isn't saying when it plans to present those to the city council, or when it would like the city council to take action on a referendum proposal.

"The idea now is to find out where the community lies with this," said Frank Klipsch, an exploratory-committee member and president and CEO of the Scott County Family Y. "Do they support the idea of this? The course of action is to let the elected officials know that there are people that think this is important, they think that it has merit, and that we ought to consider it."

"We believe that the next steps are to get legal advice" on the wording of a ballot question, Foley said. "We need to write a white paper, which takes everything that we've presented and really drills it down and closes any loopholes that we haven't anticipated."

"Before people would have to vote on something, it would have to be clearly solidified as to what it is," Klipsch said.

What's the time frame on the white paper? "We don't have one," Foley said. "This is in the hands of the community, the way I see it."

 

Expediency at What Cost?

One thing that's clear is that the Davenport Promise Exploratory Committee wants to get this program up and running as quickly as possible.

The reason is simple: If Davenport doesn't do it, somebody else might, mitigating any competitive advantage Davenport might gain from it.

"We are aware that conversations around this concept have occurred in Bettendorf, Rock Island, and Moline," Skora said. "This is an idea that is bubbling through lots of different communities. But none of them have made the next step. They look at the costs of it, and they can't figure out how to get that done."

One reason the Davenport Promise is the Davenport Promise rather than the Quad Cities Promise is that it's relatively simple logistically. The way it's structured, it only involves one municipality, and one referendum to fund it.

But simple isn't always best, and Davenport Promise is likely to hurt surrounding school districts. An $18,000 college fund is sweet incentive to move.

Members of the exploratory committee responded three ways to the issue.

First, they said that the community at-large will benefit.

"Davenport is the largest city in the Quad Cities, and it has typically been one that most of the community looks towards, and as goes your leading, largest city, in many cases it's a beacon of how the Quad Cities is doing as a group," Klipsch said.

In Kalamazoo, according to the Upjohn Institute, new students in kindergarten through ninth grade came from 88 Michigan communities, 32 states, and nine foreign countries.

"This [the program's potential reach] is much bigger than the neighboring towns," Foley said.

The second response was that students already move from one school district to another. "Is there going to be some shifting [within the Quad Cities]?" Foley asked. "I think there is, but there's already shifting." That's one reason Davenport enrollment has dropped so steadily since the early 1990s.

The third response is that the Davenport Promise program could be expanded to other communities in the Quad Cities. "It would be very easy to expand this program in terms of what it covers if they would come to the table ... ," Skora said. "But they're going to have to come with money." Decisions about program expansion, she added, would be made by the organization that administers the program.

On the question of Davenport Promise having no means testing, Klipsch said that the money that families might have spent on college will still be spent within the community.

He also noted that one of the benefits of the program would be keeping families in Davenport. "A lot of the families that are capable of sending their kids to college, regretfully a lot of them are leaving," he said.

Put in those terms, the question isn't how much a family needs for a child's education, but how much money would keep them in the area.

Skora added that the program is diminished as in economic-development incentive if it's based on income or assets. "If you can tell an employer that all of their employees that live in Davenport are going to be eligible for this program, it's a much stronger argument than saying, ‘Those of you who don't have enough money ... ,'" she said. "It loses its strength as an economic-development tool when you only focus on a need-based program."

Expediency might hurt the Davenport Exploratory Committee most at the ballot box in terms of funding. It's apparent that committee members found a single source - in this case, an existing tax - preferable to a drawn-out fundraising campaign. As Klipsch said, "Is there a way to get started now with resources that are available?"

But relying on the local-option sales tax means the city foots the bill for a program that will greatly benefit the Davenport Community School District, which gets $5,300 a year from the state for each student that attends its schools.

Klipsch conceded that the exploratory committee should discuss with the school district and its foundation whether they could help offset the municipal commitment. "That's a great question we need to follow up with," he said.

Almanza said the school district had some discussions about helping to finance the program. But, he said, neither the school district nor the foundation will participate unless the benefit is district-wide - including to residents of Blue Grass, Walcott, and Buffalo who live inside the Davenport Community School District but outside the city proper. "I could not support [assisting with financing but] having this go to [only] a segment" of the district, he said. "I've got to do it for all of them."

Klipsch also noted that the exploratory committee should cast its net wider in looking for private funding. "Why limit ourselves just to Davenport Schools Foundation?" he asked.

The city council and voters are more likely to look favorably upon the Davenport Promise proposal if it's not just a program in search of a handout - if it brings a bag of private money to the table.

Skora estimated that an endowment of $300 million could fund the program in perpetuity, but that's not remotely realistic at the start. But each private dollar the exploratory committee brings with it is a dollar that the city doesn't need to replace if voters support reallocation of the local-option sales tax.

Private money likely won't eliminate the $13.6-million hole in the city budget from sales-tax reallocation, but it could shrink it.

Finally, there's the question of track record. Kalamazoo's program has been amazingly successful, but it's still only two years old.

Skora said the exploratory committee is using Kalamazoo because "it's the oldest one there is."

Committee members were hesitant to even explore the possibility of its cautious projections failing to pan out - for instance, if the program didn't increase the aggregate property value of the community, turning those short-term property-tax increases permanent.

"That's the work of the future," Skora said. "We don't think that's going to happen."

But what if it does?

"Our projections are all based on being only one-fourth as successful as Kalamazoo," Foley said. "We're trying to be as conservative as we can, because we recognize the risk."


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