Kalamazoo, PILOTs, and Ohio’s cities

Ohio’s urban policymakers are searching for ways to (a) improve their students’ achievement and college-going rates, (b) boost enrollment in their schools, and (c) increase city population—or at least keep people from fleeing. Making progress toward this trifecta of goals is tough-sledding. We at Fordham have documented the struggles of Ohio’s urban schools in our annual report-card analysis, and have observed the massive declines in school enrollment in the state’s “Big 8” urban areas.

A recent Education Next article looks at one college-scholarship program in Kalamazoo, Michigan, a city the size of Canton and with very similar demographics. Established in 2005, these privately funded scholarships allow Kalamazoo’s high-school graduates to attend a Michigan public college or university. The scholarship is worth between 65 to 100 percent of tuition, and scholarship-bearing students are required to maintain a 2.0 grade point average (GPA) while in college.

This aid not only supports college enrollment, but it also is designed to reverse Kalamazoo’s flagging K-12 enrollment and to give the city’s current grade-school students another reason to succeed in their studies. After all, why bother with “college readiness” if it’s unaffordable?

A research study of the program found promising results after its third year (2008). The city’s district enrollment increased, overall and also across both White and African American student groups. Moreover, they found a significant increase in African American students’ GPA and a significant decrease in the number of days suspended for African American and for all students.

The early results are impressive, and Ohio’s cities should take heed.

Yet to bring to scale a scholarship program like Kalamazoo’s will be a challenge, especially in a large city like Columbus.[1] There is only so much private charity to go around, and college tuition—even public-school tuition—is becoming über expensive. If local philanthropy can’t shoulder the entire weight of a wide-reaching and generous scholarship program, Ohio’s civic leaders could explore Payments in Lieu of Taxes (PILOTs) to help fund it.

PILOTs are voluntary payments made by property-tax-exempt organizations to their home municipality. The arrangements are typically negotiated between the tax-exempt organization and the city government, sometimes in good faith but other times contentiously. According to the Lincoln Institute of Land Policy, no Ohio municipality collects a PILOT, although Cleveland seems to be pressing for one.

A few of Ohio’s municipalities have considerable swaths of tax-exempt property, mainly due to the presence of universities and hospitals.[2] My calculation from the state finance data indicates that the geographic areas of fifteen school districts contain more than 30 percent tax-exempt property. Cleveland’s potential property value is 36 percent tax-exempt; Dayton is 33 percent; Columbus is 31 percent. All of Ohio’s “Big 8” cities have more than 20 percent of their potential property value being tax exempt.[3]

Assuredly, municipal leaders should not strong-arm their nonprofit colleges and hospitals for cash. No one likes a shake-down. Done poorly, ramming through a PILOT on nonprofits could become a public-relations nightmare for a municipality or land them in court. (The Lincoln Institute’s paper provides an excellent summary of the perils of PILOTs.) But there are a few cities that have navigated these choppy waters: In 2009, Boston, for example, obtained $16 million in PILOTs from a range of tax-exempt nonprofits, including million-dollar-plus contributions from Boston University, Harvard University, and Massachusetts General Hospital.

If Ohio’s cities pursue PILOTs, such revenues could be used to fund a Kalamazoo-like scholarship for charter and district high-school graduates planning to attend college or a technical-training program. Scholarships are breathing life into one mid-sized Midwest town, inspiring its students to succeed and encouraging them to remain in the city. If done well, such a scholarship program might just have the same beneficial impact for Ohio’s cities, schools, and students.