Cash crunch prompts change to downtown Kalamazoo operations

The city of Kalamazoo’s downtown economic development strategy has run out of money, 34 years after it began.

A hoped-for turnaround was spoiled by slower-than-expected development, developer incentives that reduced the taxes on which downtown funding is based, and the removal of millions of dollars of taxable properties after they were bought by wealthy non-profits.

With revenues down for the foreseeable future and debt and overhead costs increased, city officials determined there was no short-term rebound in sight.

“We cannot financially continue to ignore this anymore,” said Rebekah Kik, the director of the city’s Community Planning & Economic Development Department. “It’s really not working.”

Residents, visitors, and businesses won’t notice any immediate changes, Kik and other officials involved in downtown operations and development said. The goal is to maintain the momentum that has continued to energize a downtown that is seeing an increasing number of residents and growth in locally-owned businesses.

There’s been growing concern from those businesses that the downtown will lose its feel of supporting local entrepreneurs, in exchange for chasing the type of more corporatized downtown created in larger cities in southwest Michigan, the state, and region.

There’s also a growing recognition that support for local developers and entrepreneurs has remained disproportionately geared toward white business people catering to white patrons – in contrast to the demographic makeup of the city as a whole and counter to the city’s stated goals of reversing that trend in all facets of city life.

The initial step is to address the reality of limited resources and an outdated system of funding the downtown district, so city officials are embarking on a top-to-bottom review.

“There are decisions to be made,” Kik said. “Grey areas to be sorted out.”

Kalamazoo Downtown Partnership – the non-profit organization tasked with carrying out programs, services, and initiatives on behalf of a handful of legacy organizations such as the Downtown Development Authority (DDA), Downtown Economic Growth Authority (DEGA), and Downtown Tomorrow Inc. (DTI) – has been notified that their government-funded contract will be ended in 2022.

The Partnership, formerly Downtown Kalamazoo, Inc., has organized most downtown events and in recent years established the blue-shirted Ambassadors program; spearheaded the repurposing of vehicle cut-throughs into pedestrian spaces with food, drinks, and entertainment; and managed a new program allowing for take-out alcohol drinks to sip around downtown.

Its mission remains the same, and it still takes in donor funds for its activities that aren’t dependent on the contract from the DDA and DEGA. Officials said it will be part of the discussion going forward.

Kik said over the next six months, everything is on the table: what of the current operations stays and goes, how funding and management will be re-structured, and to what end.

“The truth is, if we don’t do that deep reflecting in this after-action review of what just happened, then we would be doing a huge disservice,” Kik said.

‘A perfect storm’

As the economic core of the capital city of the county, downtown Kalamazoo caters to residents, businesses, and visitors in a more dynamic way than other neighborhoods.

But the way it has been funded and managed since 1988 – de facto by a half dozen overlapping quasi-government, private, and nonprofit entities – isn’t sustainable.

The most recent tax regime was created in 2018, using a revised version of something called a “tax increment financing” (TIF) district, where a portion of property tax collected in the district is re-invested in the district.

At that time, it was projected to collect $70 million over 30 years. That projection has been reduced to only $8.9 million, nowhere near enough to cover planned expenses until annual revenue is projected to rebound more than a decade from now.

City Chief Financial Officer Steve Vicenzi said projections were “significantly impacted” by successful appeals of local property tax assessments to state tax authorities, and properties that had been on the tax roll being taken off.

“Over the past 3 years, the district has lost over $6 million of value on properties that were included in the initial 2018 value of the district,” Vicenzi said.

This includes Bronson Healthcare Group purchasing the former Upjohn Company’s massive 50-year-old building on East Lovell Street from MPI Research Inc., which it demolished in 2019; the Kalamazoo Gospel Ministries’ purchase of adjacent vacant properties for expanding its shelter; and, the purchase of former commercial and residential buildings along the Kalamazoo Mall corridor by Radiant Church. 

Vicenzi said that DEGA and DDA are also strapped with debt, some of which was projected to be paid off by increased growth in the tax base. However, growth projections have been decreased from 3 percent to 2 percent as part of the relook at downtown funding expectations. 

The DEGA tax haul was more than $422,338 in 2021, according to the projections provided by the city. That is predicted to drop to little more than $48,000 for the next four years, and not exceed last year’s tax revenues until 2046.

Ultimately, the way that the current and previous TIF districts were structured were not sound: there wasn’t enough volume of new construction projects where property taxes could be assessed and developers opted to instead apply for more generous Brownfield Development Authority tax incentives. The more the city approved incentives, the less property tax was available to be collected, and the Partnership’s plans outpaced the available funding.

“Those pieces all become a perfect storm that all led to a realization that we don’t have any funds,” said Kik. 

‘A different way’

Without funds to pay off debts as well as the organization needed to execute the programs downtown, the Kalamazoo Downtown Partnership contract became the first of likely many cuts to the way downtown has been managed.

“It certainly changes the way that we’ve done it over the past 30 years,” said Derek Nofz, the chairperson of the Partnership’s board.

There’s a six-month window in the contract to determine the path forward. 

“It will functionally keep going for six months and then beyond that, we are all sitting down to work together for what the next steps look like, for what are the services we are going to continue to deliver,” Nofz said.

That’s not to say offerings will change, at least not right away, the downtown economic officials who spoke to NowKalamazoo insist. There’s a commitment to retain programs and jobs for as long as they can afford it, while keeping up with the day-to-day services like seasonal lighting and landscaping, and other safety services like road and sidewalk snowmelt system, parking, lighting for pedestrian walkways, and dredging Arcadia Creek. 

The plan to convert many one-way streets into two-way streets is also considered a key component to improving economic viability and safety downtown.

Kik said her department is now focused on two simultaneous priorities: 

• Coordinating with both downtown boards and the Partnership to determine which of their activities will continue during the six-month sprint to reinvent downtown’s future; which of the activities require funding help; and which of their activities will be handed over to her department.
• Determining what changes have a critical mass of support, and how to refashion downtown planning and execution to meet the aspirations of city leaders.

The starting question that Kik said she and her department are asking themselves and stakeholders now: “What is the problem we are supposed to solve and how do we solve it?”

In many ways, they have a blank slate. Though the city could be tempted to tap wealthy donors who want to fund the status quo until revenues hit the financial inflection point needed to sustain operations again. 

When those two extremes were posed to Kik, she acknowledged it but said there were “a few steps in between” the two before decisions are finalized.

“I think there just needs to be a different way of how people are engaged about downtown,” she said. 

In recent years, there’s been a slowly growing bar, restaurant, and cultural scene, and more people living downtown. This trend has fought hard against the economic downturn caused by the pandemic.

Still, some local businesses have been unhappy and developers have expressed concerns. So the city plans to bring in assistance from economic experts at Southwest Michigan First, the Michigan Economic Development Corp., and the Michigan Municipal League to help identify what has worked in other communities and other envelope-pushing evolutions to how a downtown can redesign itself.

“Just how frustrated are these businesses? How frustrated are the developers? How frustrated are the people who feel they haven’t been listened to or didn’t feel they had a place to go?”

Looming large, as well, is the wide gap that remains between the city using “equity” as a buzzword and it being a guiding principle for the changes that are about to be made – a result of the way downtown policy has been influenced, set, and implemented for decades.*

“It’s always felt like this bougie neighborhood that isn’t accessible to all,” Kik said. “I don’t want that perception to have to continue. And if that means changing the way downtown is run, I am hoping that people who like the status quo and like the way things have been are willing to listen to how it might be different.”

*Editor’s note: This paragraph has been updated for clarity.