Kalamazoo Results: Can Pittsburgh Expect Same?

Local Wage Tax Might Be Achilles’ Heel

The Kalamazoo Promise was announced just about two years ago. The program is in its infancy and data regarding its performance is just starting to be compiled. Some say the early data shows mixed results. Others are delighted with indicators they say are far more positive than expected. But good, bad or mediocre, most everyone in Pittsburgh is looking to Kalamazoo as a barometer of what we can expect here. As usual, our expectations are high.

At first glance both cities and their Promise programs look similar enough to anticipate similar results. Unfortunately, it turns out there are a couple of itty-bitty differences between the two that might not bode well for Pittsburgh.

Specifically, Kalamazoo’s Deputy Treasurer, Wayne Nelson, confirmed to the Pist-Gazette that neither Kalamazoo nor any of its surrounding municipalities has a local wage tax. More important than whether a wage tax exists is the fact that there is not a wage tax differential between Kalamazoo and its neighbors. Pittsburgh, on the other hand, has a wage tax of 3% and is surrounded by townships who tax at a rate of only 1%. This 2% difference will immediately diminish the monetary incentive put forth by Pittsburgh’s Promise.

Mr. Nelson went on to say that the sales tax rate is uniform throughout Michigan and (very important) “the Kalamazoo Public School District encompasses an area substantially beyond the boundaries of the City of Kalamazoo, so a significant part of the district lies in a developing suburban area west and southwest of the city.”

Well that’s an eye-opener. Kalamazoo suburbanites do not have to move to city center to take advantage of their Promise because their Promise applies to schools in the suburbs! Additionally, any person or business relocating to Kalamazoo from outside the area to take advantage of The Promise can either move within the city limits or out in the “developing suburban area west and southwest of the city” that Mr. Nelson speaks of.

Mayor Luke “Big Picture” Ravenstahl cites Kalamazoo’s success as he stumps the city in support of tax credits for UPMC. The health care giant presently pays $1.5 million per year to the city and it now wishes to re-direct those monies to The Promise. Ravenstahl is steadfastly unconcerned by the budget hole this diversion will leave because he says new taxes from new people moving to the city because of The Promise will offset the $1.5 million loss in the short run. And in the long run? Well, he believes this may just be the economic catalyst this city needs to turn itself around.

Wow. Could this possibly be? Has Kalamazoo done that well?

Bob Jorth, executive director of the Kalamazoo Promise says, “Kalamazoo has welcomed 400 new families because of the Promise.” Even though his comment does not make it clear, and even though he was probably talking about the gain realized by the entire Promise area, let’s assume Mr. Jorth is speaking of a gain to the city of Kalamazoo alone. Let’s also further assume this gain was realized in just one year, not the two their Promise has been active.

Would 400 new families to Pittsburgh make up the “short term” loss of UPMC’s $1.5 million? Well, a little basic arithmetic tells us we’d need 1000 NEW families earning $50,000 per year paying 3% wage tax to make up for the UPMC loss. In other words, we'd need 1000 new families just to bring us back to where we were before UPMC diverted their monies. Family 1001 would be the start of our economic revitalization.

Can Pittsburgh lure over 1000 new families to Kalamazoo’s 400 when we’re handicapped by higher wage taxes than our surrounding neighbors? Handicapped by a school district which stops at our city limits instead of reaching into a “developing suburban area west and southwest of the city” like Kalamazoo enjoys? Has Luke or anyone in his administration run numbers such as these? Does Luke or anyone in his administration have a game plan or does he just defer these types of decisions to his campaign contributors?

From the onset, the Pittsburgh Promise debate has been framed in terms of adages. Rather than fight the trend, I’ll embrace the format as I conclude my thoughts.

This may not just be a case of looking a gift horse in the mouth. Or not appreciating who butters which side of what bread. It’s not even a matter of deriding a half-full glass for its half-empty portion. It may instead all come down to our ability to not only lead that gift horse to water, but also force him to drink as well. In the meantime, we’re going to have to cook the books so well done that apples and oranges will appear to be one and the same. As for Peter and Paul? Neither will know if they’ve been robbed, neither will know if they’ve been paid. Hopefully a few kids will actually get a college education out of the whole confusing mess. I'm no longer certain, but I think that’s what inspired the $100 million "gift" in the first place.

Promises

Since recent strings were found attached to UMPC’s Pittsburgh Promise gift, I decided to give a closer look to the program itself. No, I’m not looking a “gift horse in the mouth”. But having heard how the Pittsburgh Promise was modeled upon the Kalamazoo Promise, and how the Kalamazoo Promise has virtually turned that ailing city around, I thought it might be interesting to compare and contrast the two. Especially since things in Pittsburgh have a funny way of not being exactly like they first appear to be. And especially, especially since we’ve come to hope that the Pittsburgh Promise will be the magic seed that, when planted, will attract all the suburbanites back to the city, bringing their much-needed tax dollars with them.

My bottom-line conclusion is that if The Promise does not deliver on its promise, it will be because of the program’s complexity. Because with complexity comes a certain level of uncertainty.

Kalamazoo's Promise is so very simple and straight-forward: “If you live here and you send your kids to our public schools, then we GUARANTEE we will pay ALL their college tuition, no matter how much it costs, so long as they maintain a modest GPA.” Period. This GUARANTEED, easy-to-understand, easy-to-acquire, easy-to-calculate-the-financial-benefits scholarship has proved to be an irresistible enticement for folks to relocate to Kalamazoo.

The Pittsburgh Promise, on the other hand, is a scholarship “of last resort” which is not guaranteed at this point and has caps which may or may not provide enough “last monies” to cover tuition costs 100%. In addition, because the amount of Promise monies awarded to a student depends on what the student needs AFTER receiving their Federal Student Aid (FSA) ….. And because they cannot apply for their FSA or know what they’ll be getting from The Promise until its time to go to college……And because the student will have had to have been a Pittsburgh Public School student since Kindergarten in order to have a chance (because of FSA) to receive the maximum $10,000 per year Promised…. How can a suburbanite calculate if a move to the city NOW will be worth the financial payout 13 years from now? If The Promise is still in existence at that time?

Let’s take a look at a hypothetical family where both parents are working and their combined annual income is presently $60,000. Assuming they get cost of living increases or raises of 3% per year, over the course of 13 years (K-12) Mr. & Mrs. Suburbanite will pay $18,741 more in wage taxes to the City of Pittsburgh than they would have paid to the suburban community where they presently live. IF The Promise is still alive in 13 years and IF the gap between FSA and college tuition is large enough at that time, Mr. & Mrs. Suburbanite’s child could receive the maximum total Promise scholarship of $40,000. This is a net benefit to the parents of $21,259. (They got $40,000 but had to pay $18,741 in city wage taxes to get it) Which is not bad, not bad at all. About a dollar-for-dollar match toward their child’s college education.

But is this enough? With all the IF’s involved …. is this enough to entice the suburbanite out of his safe, clean, pot-hole-free neighborhood, where the schools are also safe and clean and test scores are good? I don’t know. In fact, I think maybe not.

By the way, the break-even point for Mr. & Mrs. Suburbanite above is $128,000. Meaning anyone in the suburbs now making a combined income of $128,000 or more a year will pay as much in additional city wage taxes over the course of the next 13 years as they will get back from The Promise for college tuition.

Of course, it’s not just as straight-forward as Mr. & Mrs. Transplanted Suburbanite handing the city extra wage taxes and 13 years later the city hands it back. No, at this time Pittsburgh Promise money actually comes from the pockets of UPMC (and others?). Unless, of course, UPMC (and others?) gets the tax credit they’re angling for. In that case, the “gifted” Promise money would come from UPMC, but the city would then “pay UPMC back” by way of granting them a tax credit in the same amount. A tax credit the city could afford to give because of the extra wage taxes paid by Mr. & Mrs. Transplanted Suburbanite.

So yes, bottom line is if annual income is $128,000, Mr. & Mrs. Transplanted Suburbanite will in essence gift themselves their own tuition grant. But as with most things Pittsburgh, you can't just go directly from point A to point B. No, money around here has to loop around in circles so many times that “at the end of the day” no one can remember where it came from, where it was going and why it started circulating in the first place.

The comparison details between Kalamazoo and Pittsburgh are below. Read and see how successful you think our Promise will be.


Who is eligible?
Kalamazoo: All students who graduate from the city’s public schools, are residing in the district, and have been a city public school student for 4 years or more. Enrollment and residency must be continuous.
Pittsburgh: The above requirements apply plus: 1) Graduates of the Class of 2008 must have a minimum 2.0 GPA. 2) Graduates of the Class of 2009 must have a minimum 2.5 GPA and have 85% attendance in high school. 3) Graduates of the Class of 2010 and later must have a minimum 2.5 GPA and have 90% attendance in high school.

How much scholarship money is given to each student?
Kalamazoo: Tuition benefit is on a sliding scale with a 100% payment for any post-secondary school the student attends if the student has attended city public schools continuously since Kindergarten. The bottom of the sliding scale is a 65% payment if the student has only attended city schools since 9th grade. 10th grade and higher receive no tuition benefit.
Pittsburgh: Starting with the Class of 2008, the maximum Promise monies an eligible graduate can receive is $5,000 for each year of post-secondary school attended. This maximum amount jumps to $10,000 in 2012 if the student passes a graduation exam which the state will implement starting that year. Actual Promise monies paid, however, will be calculated by first considering monies available to the student through FAFSA (Federal Student Aid). An eligible student’s yearly Promise Scholarship will be equal to their yearly tuition needs, less their FAFSA grant monies, up to the maximum $5,000/$10,000 referenced above. The Promise Scholarship will be further decreased on a sliding scale percentage based upon the number of continuous years the student has lived and gone to school in Pittsburgh. 100% of the Promise Scholarship will be paid if the student has continuously lived in Pittsburgh and gone to Pittsburgh Public Schools since Kindergarten. The percentage decreases to 75% for those who have lived/been schooled in Pittsburgh since 9th Grade. Nothing is paid to those students residing/schooled in Pittsburgh since 10th Grade or higher.

What are the grant terms?
Kalamazoo: Kalamazoo will provide up to 4 years of tuition and mandatory fees for post-secondary education. 4 years is defined as receipt of a bachelors degree or 130 credits towards a degree, whichever comes first. Students must be full-time, maintain a 2.0 GPA and take a minimum of 12 credit hours per semester. If GPA drops below 2.0, a student may be reinstated once the GPA is brought back to 2.0. Post-secondary education must be completed within 10 years of high school graduation with exceptions made for military service. Funds are paid directly to the educational institution and not to the student.
Pittsburgh: Will provide up to 4 years of Promise Scholarship monies. Students have up to 5 years to avail themselves of the Promise monies. School enrollment does not have to be continuous, but eligibility expires after 5 years of high school graduation. The 5-year time limit can be deferred for students entering military service, however. Students must maintain a minimum 2.0 GPA while making “adequate progress” toward a bachelor, associate or equivalent two-year degree. Students must submit a FAFSA every school year so that the Promise scholarship can be recalculated each year. Promise monies are paid directly to the educational institution and not to the student.

Which schools are eligible?
Kalamazoo: Any public State of Michigan university or community college.
Pittsburgh: All Pennsylvania state-funded schools, community colleges and most private schools in Allegheny County that offer two or four year degree programs, including many trade schools.

Open Letter To City Council

The Pittsburgh Partial Promise, With Strings Attached

I hate to laugh, but I just can't help it. But before I indulge myself in a bevy of "I told you so's", let me offer you a suggestion: YOU GUYS turn the "Pittsburgh Promise" into the "Pittsburgh Guarantee". UPMC has $10 million a year to spare for the next 10 years with $1.5 million either going to the city or going toward the Promise? Fine. In fact, that is very generous of them. So tell them and that wonderful mayor of ours to re-do the photo-op press conference but this time they need to celebrate the WHOLE truth. This time conduct themselves as honorable men doing a good thing for Pittsburgh instead of shell-game hucksters trying to reap $100 million dollars worth of political capital without having to actually pay that $100 million.

YOU TELL THEM thank you for their "gift" to the Promise of $85 million over 10 years. Because that is what it is. And then at the same time YOU TELL THEM you'd like to firm up their payments in lieu of taxes for a longer period since they appear to have $1.5 million in spare change for the next ten years. Pittsburgh's operating budget would benefit greatly by a 10-yr guarantee instead of having to go begging to them every couple of years. That brings their 10-yr "Guarantee" to $85 million for the Promise and $15 million to the city.

Period. End of story. End of drama.

My laughter? It's due to Luke sticking it to you again. Luke who was one of you and who howled when "the administration" was absent when HE wanted to question them during the Act 47 fracas. Luke who wailed further each time "the administration" shoved last minute legislation in your faces, expecting you guys to just give it the rubber stamp. Now that he's "the administration", he operates in exactly the same way. All the while proclaiming to be "fresh government". Now THAT is funny.

How does it feel having "one of your own" treat you worse than hired help? He is being heralded as the $100 Million Dollar Hero and has set you guys up as fall guys if you don't jeopardize the city's finances to pay for HIS coup. So now it's your fault if the city goes into the red and it's also your fault if the poor kids don't get to go to college. Brilliant. Absolutely brilliant. And very, very funny also.

Tonya, word on the street and the blogs is you are supporting Luke because he's promised to wrest the council presidency from Doug and put the fix in for you. And apparently Luke's repeated disrespectful and shameful treatment of the folks on the Hill, YOUR CONSTITUENTS, is fine by you just as long as you get to be Council Prez. Besides, the woman Luke walked out on, MID-SENTENCE with cameras rolling, is one of your political adversaries. So no harm done, right? But is it okay that he's now scammed you by setting you up to be the fall guy here? Think he won't scam you over and over again if and when you are Prez?

Darlene, you okay with all of this? I don't know if Luke has promised you anything to buy your loyalty. If he has, I'd think twice. Luke has a tendency of picking the pockets of those he owes to pay them what he has promised. He'll pick your pocket for budget monies, political capital, or both. So get ready to give, give often and give a lot.

Doug …… You already know everything I am about to say. Do I really have to say it? You, who have "given" the most for Luke's benefit and not-so-coincidentally have been burned the most by him and the Party. Aside from Peduto, of course. Peduto who doesn't count for anything because he doesn't drink The Party Kool-Aid that's passed around and therefore is not really "one of the gang" anyway.

But Doug, have you forgotten? Luke & Motznik couldn't even wait for O'Connor to actually die before they roamed the halls lobbying for power. Luke ripped the O'Connor mantle right off your shoulders, not even leaving you enough to win your controller bid. He needlessly butted heads with you over invoice review thresholds during the Carlisle debacle. Why? Who knows. Maybe just to let you know who was in charge.

Now he's robbing Peter (city coffers) to pay Paul (his political image/capital), unconcerned with any budget divots he's left behind on the golf course. All the while standing shoulder to shoulder with the unions, grinning ear to ear, calling for an end to Act 47.

And you accommodate this "man", Doug? You continue to play his game on "his team"?

Oops, I've rambled too long. I started out laughing but the laughs are now gone. I should have quit before the point of remembering how pathetic our local government is. How the quest for individual political power trumps everything. How backroom deals and scams are the standard faire of the day. How spin and the relentless pursuit of political capital can even sour an $85 million "gift".

Maybe as you guys recess for Christmas each of you can quietly contemplate your own contribution to our local state of affairs. If you ponder the wisdom of not "looking a gift horse in the mouth", maybe you can also find time to consider just when, if ever, the end does justify the means.