How Promise Zones Work
Courtesy of the Office of Michigan Senate Minority Leader Jim Ananich
Promise Zones are a unique approach to raising educational attainment levels and promoting economic development through the creation community-based universal scholarship programs.
- Promise Zones are public-private partnerships led by Promise Zone Authorities, which are comprised of local public officials and private sector leaders.
- Promise Zones are “last dollar” college scholarship programs and work to ensure that students receive every dollar of need-based aid for which they qualify.
- Promise Zones are tax increment financing districts that capture a share of the growth of Michigan’s state property tax. This provides a public revenue stream that combines with private contributions to pay for the scholarships.
Promise Zone Authorities
Each of Michigan’s Promise Zones is governed by an 11-member Promise Zone Authority. To encourage strong private sector involvement in the Promise Zones, no more than three members of the Authority may be public officials. Authority members are originally appointed by the executive of the entity that initiated the Promise Zone, such as a school superintendent or mayor, and are subject to the advice and consent of a school board or city council. Once established, a Promise Zone appoints members to fill any board vacancies that arise. Each Promise Zone Authority is charged with creating a development plan focused on what a community’s promise is and how it will be funded, both initially and over time.
Some of the questions an Authority must decide in its development plan are when a promise program will begin, and whether it will be for a two-year degree (the legal minimum), a four-year degree, or something in between. The Authority will also decide if it will extend the promise to any categories of students not mandated by law. The Authority must set the amount of the scholarship and can decide if it will include an allowance for books.
Who gets the Promise?
Promise Zones are required to provide scholarships to any student who both lives in the Promise Zone and graduates from a high school located in the zone. These would include graduates of public, charter, private and parochial high schools. The Promise Zone Authority may alter the amount of the scholarship based on the number of years a students has lived in and attended school in the Promise Zone. For example, many Promise Zones will not provide scholarships to students who first arrive in a district in their senior year of high school. The Authority may establish a high school grade-point requirement for students to receive their scholarship and a college academic standard to continue to receive it once they are at a post-secondary institution. Most of the Michigan Promise Zones have elected not to establish academic requirements other than high school graduation to determine initial eligibility for scholarships.
Where can the Promise be used?
The Promise Zone Authority may limit the use of the scholarship to those who attend one or more public or private higher education institutions. All students who qualify for the scholarship must have a tuition-free route to, at minimum, an associate’s degree. For many communities, that could mean a two-year degree at the local community college. Promise Zone Authorities may begin by focusing on this required minimum then try to expand the options to include other institutions and bachelor’s level degrees. Promise Zone Authorities may also include non-degree programs and technical schools. Scholarships to private institutions must be limited to an amount not greater than the average tuition at Michigan’s state universities.
How is the Promise paid for?
The Promise Zone Authority must require all students who seek the scholarship to apply for federal student aid by filling out the FAFSA form. The Authority will also determine if the student is eligible for other need-based aid. Once the student’s total need-based scholarship aid (grants, not loans) is determined, the Promise Zone Authority will provide the student with a scholarship to pay the remainder of the student’s bill for tuition and fees, as required. The Promise Zone Authority will raise private donations to fund its scholarships and, beginning in its third year of operation, will qualify for state funds through a tax increment financing mechanism.
For many students, the Authority will combine three sources of funding—a Pell grant or other need-based aid, private contributions, and revenue from the state tax capture mechanism. The end result for students is the opportunity to attend college free of any expenses for tuition and fees—the same basic promise The Kalamazoo Promise makes to students in that community.
How does Tax Increment Financing work?
Tax increment financing is a mechanism that has largely been used to support various economic and community development projects—typically bricks-and-mortar projects that involve some type of construction and infrastructure improvements. Through the Promise Zones legislation, Michigan became the first state to use this mechanism to expand higher education opportunity.
All tax increment financing involves establishing a tax district and a base year. In the case of the Promise Zones, each Zone is the tax district. This means all property subject to the State Education Tax—residential, commercial and industrial property—within the Zone’s borders, is part of the tax base of the tax district. The Promise Zone Authority determines the base year when it decides the date to begin making scholarships available to students. For example, if an Authority begins offering scholarships to students who graduate from high school in the spring of 2011 and who begin college in the fall of 2011, the base year would be 2010, the prior year.
Once the base year is established, half of the growth in the State Education Tax that occurs from that year forward will be captured by the Promise Zone Authority. This means it will be used locally to support that community’s universal scholarship program, rather than going into a state account in Lansing.