Promise Zones Fall Short of Their Promise

by | Jan 10, 2024 | Opinion

By James M. Hohman

An anonymous donor decided in 2005 to pay for college for everyone who graduated from Kalamazoo Public Schools, and Michigan lawmakers wanted to try to encourage more of that kind of generosity. They created Promise Zone Authorities back in 2008 to tap into local property tax revenue as a way of luring donors to give more for scholarship programs.

There were other hopes from Promise Zones besides replicating the Kalamazoo Promise. “At the heart of our plan to grow our economy and create jobs is a commitment to ensure that every Michigan citizen has access to affordable, first-class educational opportunities beyond high school,” Gov. Jennifer Granholm said upon signing the legislation.

Lawmakers can’t have gotten what they wanted from the authorities in the fifteen years since. The Promise Zones that were established haven’t replicated the generosity of the Kalamazoo Promise. None of them offer to pay for higher education of all graduates. They also haven’t ensured access to first-class higher education. State policymakers ought to review the effectiveness of Promise Zones against other forms of assistance and set clear goals for what they want from taxpayer funding of higher education.

There are thirteen Promise Zone Authorities in the state. They offer scholarships and other assistance to students in their areas attending college. Some offer to pay for attendance at the local community college, others scholarships to wherever the student attends. The assistance is paid for with voluntary contributions as well as local property tax revenue through a “tax capture” policy that lawmakers authorized.

The money that gets “captured” by Promise Zone Authorities is property tax revenue that would otherwise go to schools. There are real costs to diverting this money if it would have been better spent elsewhere.

The costs also grow over time as local property taxes grow, and so would the share going to the Promise Zone Authority. And these costs to taxpayers will continue regardless of whether Promise Zone Authorities are able to fundraise from private donors.

One way to figure that out is by checking whether Promise Zones have met the goal that lawmakers had when they established the zones. So far, Promise Zones have not reached the point where they get people and taxpayers to pay for the college of every graduate. The next question ought to be whether they’re delivering results for donors and taxpayers even if they fell short of replicating the Kalamazoo Promise.

We were able to get financial reports for nine of the promise zone authorities. They report $7.4 million in revenue for the 2021 fiscal year, of which $4.2 million came from taxpayers. In other words, the state’s smallest university, Lake Superior State, offers students more in scholarships than the combined largesse of three-fourths of the Promise Zones. Ferris State University has greater success in raising money for higher education purposes.

Revenue is up from $3.4 million in 2018, with $756,000 coming from property taxes.

The state gets something for this spending. It requires reporting about how many students have received support and whether they’ve earned degrees. Since 2011, excluding the more recent recipients who haven’t had four years to earn college degrees, there have been at least 1,883 recipients (there are exclusions for small groups, so this is a minimum) and 976 degrees earned by recipients. This 52% graduation rate is around the average graduation rate for state universities, which graduate 34% of people in four years and 59% within six years, according to federal data.

In other words, the average promise zone student completes degrees at roughly the same average as a typical college student. Promise Zone scholarships could be an effective use of money to the extent that they might encourage more people who could benefit from college to attend. However, this hypothetical benefit is not the one asked for by lawmakers, who added reporting standards exclusively on degree completion and not on whether students would attend college without the scholarships.

It could also be that Promise Zones are a small program with middling results in turning funding into degrees among myriad other efforts to do the same.

The question for lawmakers is where Promise Zones ought to sit in comparison to the rest of taxpayer support for colleges and universities.

The state blankets state universities and community colleges with general appropriations each year, without much rhyme or reason as to how much each school gets. Lawmakers provide little guidance to the schools about what they want them to accomplish with this spending.

The state also puts $250 million toward a per-resident student scholarship program in the Michigan Achievement Scholarship.

The state pays the community college tuition for everyone over 21 years of age in its Reconnect program.

And schools themselves run their own scholarship programs. Michigan State University, for instance, just pledged that students coming from families who earn less than $65,000 a year won’t have to pay tuition. Universities have many different scholarship programs supported by the school’s donors.

A couple of million taxpayer dollars spent on Promise Zones is a small portion of taxpayer support for higher education in Michigan.

The virtues of the program are in its reporting. Lawmakers do require the authorities to report on how many people get assistance and whether they earn degrees. That’s better than other programs like Michigan Reconnect and Futures for Frontliners, where lawmakers don’t even ask for good data on student success.

The law gives Promise Zones broad authority to figure out what they will do to support students. That is both a positive and a negative for state policy. It is good policy because the authorities are supposed to fundraise, and this lets authorities tailor taxpayer assistance to support donor preferences. It is a negative, though, because it means that lawmakers do not have a clear vision for what needs the state should fill. It has no vision by itself for what it needs to do to help students get degrees. It just devotes some taxpayer resources to that purpose, leaving donors and authorities to figure it out.

The structure of Promise Zones to seek voluntary contributions is a positive. The people providing the contributions can ensure that their money is going to good use. It’s unclear whether the same happens with the taxpayer-funded portion.

The program has vices too. Promise Zones don’t have firm rules on who can be on their boards or how board members can know whether they’re accomplishing the state goals. This can lead to a problem of self-perpetuation where the board feels its job is to keep the institution going regardless of whether it is serving the public interest.

In addition, the tax capture revenue will continue to grow regardless of whether the Promise Zone Authorities use their money effectively. The structure increases taxpayer costs regardless of benefits.

The biggest vice is simply that the program hasn’t performed the function that lawmakers created it to do. Promise Zones did not live up to their promise.

Lawmakers already give blanket and largely unconditional support to higher education institutions, through the state’s general budget spending. There are also a number of programs that devote taxpayer money to universities and community colleges. The state should review the massive amount of support lawmakers give to higher education institutions. They ought to figure out they want to accomplish with taxpayer money.

There are many different people with good ideas about how to fund universities for better outcomes. Residents would get a lot more from their tax revenue through performance-based funding that encourages the schools to produce more graduates with lower costs.

Michigan taxpayers spend a lot and ask little in return. Lawmakers should ask for more. They ought to review state support for higher education, including the small amount of taxpayer support granted to Promise Zone Authorities.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.

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