How Promise Zones Work
Promise Zones are a unique approach to creating community-based universal scholarship programs to raise educational attainment levels and promote economic development. The zones are public-private partnerships led by Promise Zone Authorities composed of local public officials and private sector leaders.
Promise Zones are “last dollar” college scholarship programs that make sure students receive every dollar of need-based aid they qualify for. While this aid may pay most or even all of a student’s tuition bill, it’s the guarantee of the Promise that gives students of all ages confidence that they can afford to go to college.
Promise community leaders raise private funds, in donations of all sizes, to help pay for their scholarships. Promise Zones are also tax increment financing districts that can use a share of the growth of Michigan’s state property tax to pay for scholarships.
Promise Zone Authorities
Each Michigan Promise Zone is governed by an 11-member Promise Zone Authority. To encourage strong private sector involvement, no more than three members may be public officials. Nine authority members are appointed by the executive of the entity that initiated the Promise Zone, such as a school superintendent or mayor. The leaders of the Michigan Legislature also appoint two members to each authority. The authority is charged with creating a development plan focused on what a community’s Promise will be and how it will be funded.
The Promise Zone Authority must decide 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 the Promise will extend to any categories of students not mandated by law.
Promise Zones are required to provide scholarships to any student who lives in the Promise Zone and graduates from a high school located in the zone. These include graduates of school district, charter, private and parochial high schools. The Promise Zone Authority may prorate the amount of the scholarship based on the number of years a student has lived in and attended school in the Promise Zone. The authority may establish a grade point requirement for students to continue to receive their scholarships once they are in post-secondary education, but there may be no academic requirements other than high school graduation to determine initial eligibility for Promise scholarships.
The Promise Zone Authority may limit the use of the scholarship to 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 at one or more higher education institutions. Authorities may begin by focusing on this required minimum, and then expand options to other institutions and to 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.
All students who seek Promise scholarships must apply for federal student aid by filling out the FAFSA (Free Application for Federal Student Aid) form. This determines if the student is eligible for need-based aid, most often the federal Pell grant. Once the student’s total need-based grants (not loans) are determined, students will receive a Promise scholarship to pay the remainder of their bill for tuition and mandatory fees. Promise Zone Authorities solicit private donations to fund their scholarships and, beginning in their third year of operation, may qualify for state funds through a tax capture mechanism.
These three sources of funding—the student’s Pell grant or other need-based aid, private contributions and revenue from the state tax capture mechanism—will allow communities to keep their promise of educational opportunity. The end result for the student is the ability to attend college free of any expenses for tuition and mandatory fees—the same basic promise the Kalamazoo Promise makes to students in its community.
In most instances, the Authority will use three sources of funding to cover the cost of a student’s tuition and mandatory fees—a Pell grant or other need-based aid, private contributions, and revenue from the state tax increment financing mechanism. The end result for students is the opportunity to attend college free of any expenses for tuition and mandatory fees—the same commitment The Kalamazoo Promise makes to students in that community.
How does tax increment financing work?
Tax increment financing is a mechanism that has been used to support various economic and community development projects—typically bricks and mortar projects that involve construction and infrastructure improvements. Michigan is the first state or government unit to use tax increment financing to expand higher education opportunity.
Once the Promise Zone Authority begins awarding scholarships, it is able to capture half of the growth in the State Education Tax within the zone’s boundaries to help pay for its Promise.
Tax capture mechanisms are automatic under the law. No annual appropriation from the Legislature is required. When tax revenues grow, a set share of that new revenue is captured for a purpose specified by law. However, if tax revenues are stable or decline, tax capture can be delayed or interrupted for one or more years. Michigan’s first operating Promise Zone, the Baldwin Promise, received its first tax capture payment from the state in 2012.