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Leaders fear stalled cleanup cash Local officials worry over state’s new criteria for brownfield fund By JAY MILLER jmiller@crain.com
The Clean Ohio Fund, a state loan and grant program created to help cities clean up environmentally contaminated properties, is stuck in limbo in Columbus. And that is causing anxiety among local officials who hope to tap into the fund but are worried about the rules that
may govern access to its dollars in the future. The program is on hold until the Kasich administration parcels out responsibility for the state’s economic development programs between the new JobsOhio economic development nonprofit and the remains of the former Ohio Department of Development that is evolving into the state Development Services
Agency. Cities use Clean Ohio money to test for and remove hazardous waste at what are called brownfields. Especially in older cities, it’s a critical phase in bring in new businesses to a community. Brownfields are older factories, gas stations, dry cleaners and anywhere chemicals may have washed into the soil. The grants or low-cost
loans made by the Clean Ohio fund help make these properties attractive to a new or expanding business that would pass up a purchase if the company had to bear the cost of cleaning up a property, as required under environmental laws. Gov. John Kasich and his economic development team announced last month that they have begun to lay out the division of duties between JobsOhio and the new development
INSIDE A new tune in battle over admissions taxes Cleveland Mayor Frank Jackson introduces a new plan to tax the city’s music venues, where club owners have been trying to ease the tax burdens they face. PAGE 3 ALSO: Meet Team NEO’s point man for the oil and gas boom. PAGE 3
See CLEANUP Page 7
Indictment pokes holes in story of Zai’s success As businessman rose, some who dealt with him describe unease By JAY MILLER jmiller@crain.com
In 2008, The Cleveland Group of Companies — the company at the lead in A. Eddy Zai’s business domain — was awarded the top spot on the Weatherhead 100, a prestigious list of the region’s fastest-growing companies. The list was based on five years of sales verified by the nominated company’s accounting firm, and to win the top spot, Cleveland Group was able to show 8,026% sales growth from 2003 to 2007. In a December Zai 2008 article in Inside Business that was part of the magazine’s Weatherhead 100 section, Mr. Zai described how fast the company’s growth had become by 2007. “We spent more than $100,000 overnight (on equipment) to become a big player” in the public construction business after winning several key contracts, Mr. Zai said in a story that recounted his rapid rise in local
07
See ZAI Page 18
JANET CENTURY
Mark Dent, the general manager of Turner Construction Co.’s Cleveland office, at the site of Cleveland’s medical mart and convention center downtown. The company has 106 full-time professional employees, up from 45 in 2008.
WHEN NEEDED, TURNER TURNS IT ON Veteran construction company credits mobility in meeting needs of newest big projects
By STAN BULLARD sbullard@crain.com
S
ix work stations on the Hanna Building’s 14th floor sit empty in the dark, as has been the case for a half-year at Turner Construction Co.’s Cleveland office. But it isn’t for a lack of work at the giant construction firm. Instead, the cubicles serve as a swing area where Turner’s field employees land between construction jobs. All Turner’s local field staff is now on job sites in Northeast Ohio that range from the $465 million Medical Mart and Convention Center in downtown Cleveland to a multimillion-dollar job replacing the high school in Westlake. Turner’s empty desks are testimony to the Dallas-based contractor’s ability to carry and shift personnel as local markets and specialized projects ebb and flow. See TURNER Page 17
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COMING NEXT WEEK Where’s that food from? In our Meeting and Event Planner section, we analyze how the locally sourced food craze is impacting caterers. Plus, the Cleveland aquarium is a hot draw for events.
REGULAR FEATURES Best of the Blogs ..19 Classified ..............18 Editorial ..................8 From the Publisher ..8 Going Places ........12
Letters ....................8 List: Largest 2011 NEO philanthropic gifts..16 The Week..............19 What’s New ..........19
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HEALTHY DEMAND FOR HEALTH CARE JOBS Nonagricultural wage and salary employment in the United States should rise 15.2% this decade, to 150.2 million by 2020 from 130.4 million in 2010, according to estimates from the U.S. Bureau of Labor Statistics. The health care and social assistance sector is projected to gain the most jobs, followed by professional and business services. The federal government sector is projected to lose the most jobs. Here are data for the five sectors projected to gain the most jobs and the three that are expected to fare the worst:
Industry
Net job change, 2010-20
Annual growth rate
Health care/social assistance
5.64 million
3.0%
Professional business services
3.81 million
2.1
Construction
1.84 million
2.9
Retail/trade
1.77 million
1.2
State and local government
1.64 million
0.8
-35,700
-0.7
Manufacturing
-73,100
-0.1
Federal government
-372,000
-1.3
Utilities
SOURCE: U.S. BUREAU OF LABOR STATISTICS; WWW.BLS.GOV
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3
Jackson details plan to quell ticket tax fight
INSIGHT
Mayor’s proposal would offer discounts based on size; club owners still wary of harm done By TIMOTHY MAGAW tmagaw@crain.com
KEITH BERR PRODUCTIONS
Team NEO’s Jacob Duritsky
CALLING ON ITS CLOSER Team NEO tasks 30-year-old with playing matchmaker as state seeks to capitalize on sudden shale boom By DAN SHINGLER dshingler@crain.com
U
p by three runs with two outs in the seventh inning, the relief pitcher takes the mound in Game Six. Whoever that pitcher is, he probably knows how Jacob Duritsky feels — a little daunted, a bit anxious and, if he’s as good as the other players say he is, confident that he has the skills to keep the momentum up and achieve victory for his team.
But Mr. Duritsky is playing to win far more than a baseball game, or even a pennant. As the point man for Team NEO’s efforts to recruit to Ohio companies related to the oil and gas industry, he’s working on a significant pillar holding up the state’s economic development hopes. And, with of the talk about shale gas and oil being the lynchpin of Ohio’s rebound, expectations are plenty high. “No pressure, bud,” jokes Ned
See TAX Page 17
THE WEEK IN QUOTES “People will not pay the cleanup costs out of their own pocket. That’s money they don’t have to spend if they go to a greenfield.”
“Roughly 75% of our work is for repeat customers.” — Mark Dent, vice president and general manager of Turner Construction Co.’s Cleveland office. Page One
— Joseph P. Koncelik, an environmental attorney with Frantz Ward LLP and a former director of the Ohio Environmental Protection Agency. Page One
See CLOSER Page 17
ABOUT JACOB DURITSKY Age: 30 College: Bachelor of arts in urban studies and master of science in urban studies from Cleveland State University; currently pursuing Ph.D. in economic development at CSU. Current role: Leading the efforts at Team NEO, a regional business attraction and retention group, to lure to Ohio companies related to the
Cleveland’s music clubs are turning up the volume in their fight to be freed of the city’s admission tax, but a new proposal from Mayor Frank Jackson wouldn’t let griping venues completely off the hook. Early last week, just days before a swarm of concerts took place across the city to rally against the admissions tax, Mayor Jackson’s office quietly shipped a proposal to Cleveland City Council that, if approved, would offer venues with capacities of 500 or fewer people varying breaks on the 8% tax levied on total ticket sales. Three council members, with the backing of local clubs, proposed an ordinance last fall that would have exempted venues holding 700 or fewer concertgoers, that are also up
to date on their back taxes, from paying future admissions taxes. The issue blew up last year as the city started to aggressively hound venues to pay up their back taxes. “If this (new proposal) is accepted, then it’s over with,” Mayor Jackson said in an interview with Crain’s Cleveland Business. “We believe this proposal is in line with what we had been talking about up until that other ordinance was introduced.” Under the mayor’s proposal, 75% of the total ticket sales by venues holding 250 or fewer people would be exempt from the city’s admissions tax, with the remaining balances being taxed at the existing 8%. Similarly, venues holding between 250 and 500 people would receive a 50% exemption. “This is in line with what we had been talking to council about for
state’s growing oil and gas industry. Previously: After joining Team NEO in 2008, helped the group’s research efforts, including a big role in developing Team NEO’s Quarterly Regional Economic Review. Prior to Team NEO: Graduate and research assistant for The Center for Public Management/ Great Lakes Environmental Finance Center
“Once you get them to scan that code, you can take them almost anywhere you want to.” — Michael Schwabe, account manager, thunder::tech, Cleveland. Page 13
“It’s a two-way street. … We’re really a lifelong partner with you.” — Rick Sherlock, director of Cuyahoga Community College’s Alumni & Friends Association. Page 15
Risk management firm hopes prominent hire helps raise profile By MICHELLE PARK mpark@crain.com
A little-known company in Fairlawn now has a well-known chairman to help grow it to recognizable. David P. O’Brien, former president of Oswald Cos. in Cleveland, now is chairman of, and an investor in, Risk International Services Inc., an independent risk management consulting company that, although 25 years old with four offices, is not a familiar name to most. That situation will change, said
Michael D. Davis, president and CEO of the Risk International. “I think what we’re doing is wellreceived by our clients,” Mr. Davis said. “They stay with us. But we also are a secret. “There is a market out there for us, but we’ve just been hindered either by our focus or our lack of experience in growing,” Mr. Davis continued. “We don’t have any sales people. We’ve started here in the last three or four years experimenting with sales classes, but there’s nothing like experience.”
Mr. O’Brien, who has practiced in the risk and insurance field since 1989, left Oswald Sept. 1, 2010, after working there for a decade. He wanted to pursue investments in private insurance businesses. Unlike his final post at Oswald, Mr. O’Brien is not involved in the day-to-day operations of Risk International; Mr. Davis continues to run the company. Instead, Mr. O’Brien, who is not paid as chairman, will offer guidance when he can and is expected to produce for Risk International more brand
him, and for good reason. He’s got a good reputation.” It appears Mr. O’Brien’s presence is paying off: Risk International already has secured a new client since he came aboard Jan. 1, and the company is engaging in more meetings with potential clients, Mr. Davis said. O’Brien
Davis
awareness. “He’s one of the top insurance advice providers in town,” Mr. Davis said. “There aren’t a lot of people (in the business) who haven’t heard of
Their No. 1 fan Risk International started in 1986 as the risk management department of BFGoodrich Aerospace — now Goodrich Corp. — and later was See HIRE Page 4
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FEBRUARY 13 - 19, 2012
2011 outpatient visits boost Metro System continues expansion of urgent care By TIMOTHY MAGAW tmagaw@crain.com
The MetroHealth System continues to muscle up its 16 outpatient locations — a move that last year helped prop up the financial results of the Cuyahoga County-subsidized health system. In 2011, the system’s net patient revenues were about $705 million, or $24 million higher than the previous year’s $681 million. Officials said the increase was due, in part, to a 6.9% hike in outpatient visits. While the system stomached a $2.7 million net loss for the year, a surge in patient volumes, particularly in December, has system officials hopeful their strategies to bring in more paying patients are working. MetroHealth recently finished tweaking its primary care operations at its satellite clinics to bolster its outpatient numbers and now is doing the same for its specialty service lines. Some of those changes, which system officials dubbed the “access cam-
paign,” included freeing up physicians from administrative duties and adjusting scheduling models to accommodate more patients. “The campaign was very well designed and very well executed,” said Dr. William Lewis, chairman of the system’s market development campaign. “It did exactly what it was supposed to do.” Building on those successes, MetroHealth this month started offering urgent care services at its West Park location on West 150th Street in Cleveland. Last year, the system launched similar services at its Broadway Health Center in Cleveland’s Slavic Village. Moreover, MetroHealth plans to offer urgent care services this spring at its health center off Chagrin Boulevard near Interstate 271 in Beachwood. “As we expand our patient population, urgent care becomes important because people get sick whenever they get sick,” Dr. Lewis said. “We’re not able to schedule that.”
The success of MetroHealth’s outpatient operations is loosely tied with the growth of its insurance offering, MetroHealth Select. Enrollment in the program, which in the past had been offered only to Cuyahoga County employees, nearly doubled this year to 4,406 enrollees. The plan had been extended to additional municipalities such as Olmsted Falls and Walton Hills but soon will be offered to Cleveland State University employees, according to Phyllis Marino, the system’s vice president of marketing and communications. “We talked to a lot of groups, and they knew that the county was able to save a lot of money through us,” she said. MetroHealth’s most visible move in its quest to ramp up its outpatient offerings perhaps was its announcement last fall it would build a 57,600square-foot, $23 million health center in Middleburg Heights — the first of at least three similar health centers the system plans to build in Cuyahoga County. Ms. Marino said the health system anticipates announcing the location of a similar project sometime this year. ■
Hire: Chairman sees 10 to 20 new jobs continued from PAGE 3
spun off into its own company. Today, it employs 26 and serves more than 30 clients. The company, which operates other offices in Charlotte, N.C., Singapore and London, posts revenues of $4 million to $8 million annually, depending on the year, Mr. Davis said. Its revenues earned it the No. 3 spot in the Business Insurance 2011
®
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ranking of the 10 largest independent U.S. risk management consultants. (Business Insurance is a sister publication of Crain’s Cleveland Business.) The bulk of the firm’s work is advising and consulting clients on how they should cover property and casualty exposures — fires, floods, lawsuits and credit losses, to name a few. Mr. O’Brien would not disclose how much he’s invested in Risk International, as did Mr. Davis. Neither owns a controlling interest, though their pieces are “substantial,” Mr. Davis said. “I think that specialty niche insurance businesses have great potential in the future,” Mr. O’Brien said. “There are more and more risk issues that CEOs and CFOs are looking for help and advice on, (and) there are not many places they can turn to.” It took some time to enable Mr. O’Brien to invest: Risk International — with the consenting vote of its employees — did away with the employee stock ownership plan that had existed since 2002 so that a group of investors, including Mr. O’Brien and Mr. Davis, could buy
out the ESOP and form a new parent company, Risk International Holdings Inc., Mr. Davis said. “I think that they saw this as an opportunity to raise capital to make other investments and to really take the company forward,” Mr. O’Brien said. “I was flattered to be asked. As I told them, I’ve been their No. 1 fan for a long, long time.”
Spread the word Mr. Davis’ goal is to see in the next three to five years any sampling of CEOs, chief financial officers and general counsels — client or not — know Risk International by name. And while the company’s goal is growth, it doesn’t want to grow out of control. Mr. Davis said he’d like to see the company experience growth that merits hiring between 10 and 20 people over the next year. He also wants Risk International to reach $10 million in revenues in the next several years. New locations are possible, Mr. Davis added, noting Chicago and Pittsburgh are likely places. “It’ll happen,” he said. “It’s just a question of when.” ■
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Area companies leave mark on Vegas Mob site
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MORE CUSTOM REAL ESTATE SOLUTIONS Greg West Negotiated a SALE/LEASE back on two manufacturing facilities.
By AMY ANN STOESSEL astoessel@crain.com
Two Northeast Ohio firms have ties to The Mob — but in a good way. Cleveland architect Westlake Reed Leskosky and content developer Barrie Projects both were involved in the construction and design of the new National Museum of Organized Crime and Law Enforcement in Las Vegas. The $42 million downtown museum opens to the public this Tuesday, Feb. 14 — fittingly the 83rd anniver-
sary of the St. Valentine’s Day Massacre in Chicago, considered one of the most significant days in Mob history. Paul Westlake, managing principal of Westlake Reed Leskosky, which specializes in historic preservation work, said his firm’s Cleveland and Phoenix offices have been working on the project for about five years. “It’s incredible, just to see it come together,� Mr. Westlake said last week from Las Vegas, where he was for the museum’s opening festivities. “I think it’s going to be a very
Credit unions take business lending fight to Washington Limit is too stringent, they tell legislators By MICHELLE PARK mpark@crain.com
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Three Northeast Ohio credit union executives traveled to Capitol Hill last week to encourage their lawmakers to back legislation that would enable credit unions to do more business lending. It’s not the first time local executives and representatives from the Ohio Credit Union League traveled to Washington, D.C., for this purpose. This time, though, small business representatives came, too. The issue at hand: Credit unions’ business lending is limited to 12.25%
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of their assets and has been at that level since 1998. Critics argue that the limit inhibits business lending when businesses need it most and deters credit unions from seriously pursuing business lending activities. “There’s no reason to invest in ‘machinery’ — in our case, software and personnel as well as office space — if I’m only going to be able to make a couple loans and then, boom, reach my cap,â€? Paul Snyder, one of those who went to Washington, D.C., last Wednesday, Feb. 8, said afterward. Mr. Snyder is vice president of marketing for CSE Federal Credit Union in Canton, which is planning a fourth branch but is not expanding its business lending or related staff because of the cap, Mr. Snyder said. Proposed legislation would increase the cap to 27.5% of assets. Only a handful of the more than 100 credit unions in Ohio that lend to businesses are close to or quickly approaching the cap, according to the Ohio Credit Union League. The current proposed legislation has twice as many co-sponsors this go-around than last, credit union executives said. â–
spectacular, very cool experience.â€? Located in the circa-1933 U.S. Post Office and Federal Courthouse, the 41,000-square-foot museum includes about 17,000 square feet of exhibition space on three floors, and will house artifacts detailing Mob history as well as law enforcement’s role in working to eradicate it. The building itself is on the National Register of Historic Places, and its courtroom is famous as the site of hearings held in the 1950s to expose and control organized crime. “The story of the Mob is a story of America,â€? said Kathleen Coakley Barrie of Barrie Projects. “Through the interpretive program of The Mob Museum, visitors will understand where the connections are, how organized crime, Mob activity, and law enforcement ran parallel and then collided at certain points.â€? â–
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Radisphere raises another $10 million Radisphere National Radiology Group Inc. has raised another $10 million. Three investors provided the equity financing, according to a document Radisphere filed on Feb. 6 with the U.S. Securities and Exchange Commission. The company — which is based in Westport, Conn., though its largest office in is Beachwood — aims to raise another $5 million before closing the investment round, the document states. A company official declined to provide additional details. Radisphere, founded in 2001, provides remote and on-site radiology services to community hospitals. The company has raised $50 million in financing over the past three years. It closed a $27.5 million round in November 2010 and a $12.5 million round in August 2009. — Chuck Soder
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University of Akron considering renovations to arena School seeking to upgrade seating, improve sight lines and entryway at 28-year-old JAR By JOEL HAMMOND jmhammond@crain.com
The University of Akron is considering the renovation — or, if that proves financially unworkable, the demolition — of its 28-year-old basketball venue, James A. Rhodes Arena. The university has distributed a “Request for Qualifications” for an
architect/engineer for “improvements at James A. Rhodes” arena. The upgrades would include improved sight lines, seating revisions, the addition of premium seating and improved concessions, ticketing and team facilities. The university’s solicitation noted that solutions to meeting its needs “may include renovation and expansion of the existing arena” or
Cleanup: Potential loan structure is concerning continued from PAGE 1
agency. Mark Kvamme, who heads JobsOhio, said at the time that $43 million of the roughly $100 million JobsOhio hopes to have available for economic development annually will be targeted to brownfield cleanup projects. That announcement buoyed local economic development officials and site selection professionals. However, the state has stopped accepting applications for Clean Ohio money as it migrates the program to JobsOhio and creates new criteria for it. “At this point, how the revitalization program will function is under discussion,” Laura Jones, JobsOhio’s communications director, said last Wednesday, Feb. 8. “We’ve stopped taking (Clean Ohio) applications and it will be reactivated under JobsOhio on July 1.”
Counting the cost Joseph P. Koncelik, an environmental attorney with Frantz Ward LLP of Cleveland and a former director of the Ohio Environmental Protection Agency under Gov. Bob Taft, said he is concerned about the interruption in the application process.
Miceli Dairy Products Inc., used a $3 million Clean Ohio grant to cover much of the cost of a $4 million cleanup that allowed it to expand its factory on Cleveland’s East Side. “If they had to get a $3 million loan and pay that back, that project would have never gone forward,” he said. “They might have left the city for a greenfield (in the country).”
Concern in Cleveland Tracey Nichols, Cleveland’s director of economic development, fears the state under new rules will reject applications that can’t identify a specific new property owner with plans to clean up and redevelop a property. The city often has used Clean Ohio money to clean up properties without committed end users so that the properties would be ready for use when prospective buyers or developers come along. “Most companies aren’t going to say, ‘I love that site and I’ll wait two or three years until you’re done cleaning it up,’” Ms. Nichols said. The city of Cleveland has made particular use of what are called assessment grants. That money, up to $300,000 per project, has been available to pay for the testing required to identify what, if any,
“We’ll lose momentum built up over the last decade. I can’t tell clients if there will be money available for assessments.” – Joseph P. Koncelik, environmental attorney, Frantz Ward LLP “We’ll lose momentum built up over the last decade,” said Mr. Koncelik, who helps client businesses navigate the purchase of brownfield properties. “I can’t tell clients if there will be money available for assessments.” More troubling to economic development professionals, though, is the potential impact of changes that may be forthcoming in the Clean Ohio program. JobsOhio, as described by Gov. Kasich and Mr. Kvamme, would focus on issuing loans rather than grants and would select projects it will finance based on a clear and relatively short-term return on the state’s investment. Mr. Koncelik is worried that the Clean Ohio program under JobsOhio only will offer loans and not grants. “People will not pay the cleanup costs out of their own pocket,” he said. “That’s money they don’t have to spend if they go to a greenfield.” Mr. Koncelik said one of his clients,
contamination exists on a property and to obtain an estimate of what the cleanup will cost. State money for the actual cleanup would come from what is called the Clean Ohio Revitalization Fund, where grants are capped at $3 million. “We do a lot of assessments and we may only have a developer” that is interested but not committed to a site, Ms. Nichols said. “They first want to know, ‘Is it a brownfield or isn’t it a brownfield?’ before they commit any money.” The Clean Ohio program has been “a vitally important tool and the city has taken great advantage of it,” Ms. Nichols said, noting that Cleveland has won $27 million of Clean Ohio money since 2003. “In the city of Cleveland, like most urban areas, every single piece of property that is zoned commercial or industrial has been used at least once,” she said. “So we have no greenfields in a zoned commercial area.” ■
“demolition and construction of a new arena” if renovation and/or expansion was not “practicable.” A University of Akron Department of Purchasing website shows that Kansas City-based Populous is the “Recommended Award Architect” for the project. Populous, formerly HOK Sport, designed Jacobs Field — now Progressive Field — in the early 1990s and has consulted with the Cleveland Indians on a recent effort to re-envision some of the ballpark’s under-used areas, such as its luxury suites. Populous lists nine other Major League Baseball stadiums on its résumé, along with three NBA arenas and five NFL stadiums. Spokeswoman Gina Stingley did not return two calls and an email seeking comment. David Pearson, the university’s associate vice president of capital planning and architectural services, said the school and Populous are conducting a feasibility study that likely will not be finished until June. The company will take recommendations both from the capital planning department and the athletic department on needs and requirements, then make recommendations.
Those recommendations could include demolition of the “JAR,” as it’s affectionately known. “If the feasibility study were to indicate the renovation costs were too excessive, then we’d have to consider demolition and reconstruction,” Mr. Pearson said. Akron’s men’s basketball team once again is atop the Mid-American Conference, at 9-1 in league play and 17-7 overall after last Wednesday night’s action. The team has made five postseason appearances in the last six years, including two trips to the NCAA tournament. The Zips lost in the first round each time. The Zips average 3,352 fans per game, fifth-best in the 12-team league. Last season, they drew 2,821 per game, also fifth in the league. Athletic spokesman Gregg Bach said his department’s wish list includes a more accommodating entrance to the arena, an area currently very cramped, especially for big games such as those against neighbor Kent State University. He also said better seating, especially in the general admission areas where currently there are wooden benches, is on the department’s radar.
“For us, it’s the fan amenities piece,” Mr. Bach said. “But it’s also, what can be done with the space we have?” The 125,538-square-foot JAR, which seats 5,500 for basketball, was completed in 1983 as part of a $20.5 million project. According to the school’s athletics website, the arena was renovated in 2002, with a $1.1 million project that included a new playing surface and video display. Last summer, team lounges and a new weight room were installed. The project would be the latest in a line of athletic facilities improvements by Mid-American Conference schools. Akron in 2009 opened its $61.6 million InfoCision Stadium, and Kent State in 2008 completed a $10 million upgrade at its Dix Stadium. Bowling Green State University last November opened the doors to its $36 million Stroh Center, for basketball, volleyball and other campus events, while the University of Toledo in February 2010 opened a $9 million indoor training facility. Ball State University, in Muncie, Ind., and Northern Illinois University, in De Kalb, Ill., in 2007 completed $13 million and $14 million projects, respectively. ■
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PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com) EDITOR:
Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
So-so so far
I
n his first year as Ohio’s governor, John Kasich was no Ted Strickland. However, he was no Ed FitzGerald, either. Gov. Kasich took a state that by 2010 was stumbling under former Gov. Strickland and set it on its feet. He rightly could proclaim last Tuesday in his State of the State address, “We’re alive again, we’re out of the ditch.” His team devised a plan for addressing an $8 billion budget deficit that stared the state in the face. Part of that plan involved what the governor described as “reforming and reshaping” government. The crowning reform achievement in Gov. Kasich’s first year was standing up to Ohio’s nursing home interests, which long had feasted from the state’s Medicaid trough. His administration put an emphasis instead on reimbursements for home health care, which has saved significant dollars. However, a big reason Gov. Kasich could boast last week that he and the Republican-controlled Legislature were able to eliminate a huge budget gap without a tax increase is because they pushed a lot of the state’s problem down to the local level. Elected officials in Columbus last summer reduced state support to cities and school districts. Local leaders were left to deal with their budget challenges, though the governor promised to help them on the expense side of the ledger. How? By passing a bill that would cap what public employers must pay in the way of pension and benefit costs under collective bargaining agreements with their unionized employees. Here is where Gov. Kasich and Mr. FitzGerald — two reformers — part company. Mr. FitzGerald took a measured approach to pursuing his agenda in Year One as Cuyahoga County’s first solo executive. His team worked hard to create an open and efficient government as it sought to restore the public’s trust amid a federal corruption investigation in Cuyahoga County. Mr. FitzGerald waited until his administration had earned its stripes before he unveiled his master plan two weeks ago to make the county a central provider of services to cities within its borders. In short, Mr. FitzGerald underpromised and overdelivered. Gov. Kasich, by contrast, overpromised and underdelivered. In his first State of the State address last March, Gov. Kasich said, “If you think you’ve seen a lot of change in the first seven weeks, you ain’t seen nothing yet. We’re going to transform this state.” But when it came to the transformational issue of collective bargaining reform, the governor and his cohorts blew it. They passed a bill so odious that Ohioans killed it last fall in a referendum by a 61%to-39% vote. Gov. Kasich uttered not one word about collective bargaining in his 85 minutes on stage last week. Whether the omission signifies that reform is dead or whether he’s simply waiting before readdressing the issue, only time will reveal. In the meantime, he deserves credit for putting the derailed train that was Ohio government back on the tracks. It’s too bad he didn’t heed the warning signals that his engine was going way too fast.
FROM THE PUBLISHER
Shatten’s legacy defies time’s passage
T
work that became the cornerstone of our en years ago today, I lost a good city’s first steps toward recovery in the friend. Worse, we lost one of the early ’80s. His report recommended the few people I’ve encountered in creation of a CEO-only volunteer group my decades here that I could that could help redevelop our city and describe as a visionary. region. That became Cleveland Tomorrow, Richard Shatten died at 46 from an and for many years Richard served as its inoperable brain tumor. He left behind executive director. his beloved wife and two daughters, and I will never forget the first time I met a hole in our collective heart and mind Richard. We were at a Cleveland that never could be filled adeTomorrow news conference in quately. BRIAN the offices of Eaton Corp., whose His was the ultimate story of TUCKER then-CEO, Del de Windt, served brain gain, as Richard came back as the group’s chair. True to home after earning his underform, Richard stayed in the graduate and graduate degrees background. He never sought from Harvard. He landed, quite the limelight, and he was in my logically, at the Cleveland office estimation the ultimate serof consulting giant McKinsey & vant-leader. Co. In a story in Crain’s in 2000, In 2010, Crain’s published its Richard described the Cleve30th anniversary edition, highland to which he returned. lighting several people who reshaped “This was a community that wasn’t our region. Of course, Richard’s profile about renewal,” he told us. “There wasn’t was included. Jay Miller, one of our a strategy. And there wasn’t hope.” veteran reporters, wrote about how busiBut not for long. Richard was part of ness and civic leaders in Syracuse, N.Y., the McKinsey team dedicated to helping still were praising Richard three years Cleveland pull itself up by the bootafter he first traveled there to help them straps. He did much of the consulting
start their own form of business-fueled economic redevelopment. “Brilliant” was the common adjective used to describe Richard by those fortunate enough to know him. I recall our regular lunch and breakfast meetings as bites of food and intermittent sips of coffee punctuated by a rapid-fire stream of observations and ideas. Just as much as his intellect, I enjoyed his wit and that half-smile that always had an ever-soslightly hint of mischievousness about it. He left Cleveland Tomorrow to head the Mandel family trust’s philanthropic efforts and also joined the Center for Regional Economic Issues, a regional think tank, at Case Western Reserve University’s Weatherhead School of Management. Both organizations were made better by his involvement. I believe if he were alive today, Richard would be both encouraged and troubled by what he sees in our city and region. Much as he urged the folks in Syracuse, he might tell our leaders to work together to make our city the capital of the region, and our region the driving force in the next stage of Ohio history. ■
LETTERS
Local taxes already collected effectively ■ This letter is in response to the Feb. 6 letter to the editor, “State hurt by disparate tax collection methods,” by William C. Ferry. The primary source of funding for Ohio municipalities is the local income tax. Cities and villages depend on this tax revenue to provide basic local services. With recent dramatic reductions in the state’s Local Government Fund and the virtual elimination of property tax replacement funds, these local municipal income taxes have become more vital. Municipalities collect these local taxes in an efficient and effective manner. While some still “self collect,” many municipalities participate in regional tax collection agencies. The Regional Income Tax Agency and the Central Collection Agency are two excellent examples of regional
collaboration accomplished through shared services. Between the two agencies, 246 municipalities participate. These agencies have more than 40 years of expertise in collection of municipal income taxes. Municipalities currently receive their tax collections on a monthly or semimonthly basis. The state distributes the School Municipal Income tax and other state-collected taxes on a quarterly basis. This will result in many municipalities issuing short-term debt while waiting to collect income tax. As a result of years of expertise, regional collection agencies currently provide immediate access to records. The state will likely not be equipped to provide municipalities copies of paper returns, W-2s, supporting schedules and
refund requests in a timely fashion. Local communities currently collaborate with the regional collection agencies to provide efficient service in collection, reporting and compliance efforts. This is critical for budgeting, forecasting and revenue sharing with schools or businesses. Local leaders strongly believe that a state-centralized collection process will not provide even near the level of service. Through a variety of tested methods including non-filer subpoena programs, non-payer small claims and civil case work, and IRS data to pursue non-filers and under-reporters, local governments have worked to institute effective compliance efforts. The state’s track record in this regard is average at best. See LETTERS Page 9
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
Student loan struggles could be ‘next debt bomb’
THE BIG ISSUE Do you agree with Gov. John Kasich’s assessment that the state of Ohio is “alive again” and “out of the ditch?”
By LIZ SKINNER Investment News
JOSEPH BILEK
DAVE CLAWSON
PATRICIA DIFRANCO
LAWRENCE BUTLER
Doylestown
Cleveland
Highland Heights
Cleveland
I don’t think that. The market is still depressed. They’re demolishing houses. There are people that are homeless.
Not entirely. I’d say we’re starting to get out of the ditch, but we’re not nearly out yet.
I feel more optimistic, at least about Cleveland. … I feel Cleveland is growing. There’s lots of construction and development.
I would agree to some extent. We’ve got some good sources of monies coming our way now, especially with the casino.
➤➤ Watch more people weigh in by visiting the Multimedia section at www.CrainsCleveland.com.
LETTERS continued from PAGE 8
Unpaid balances perpetually exist with deregulated utility companies and School District Income Tax collections. The state of Ohio has already created the Ohio Business Gateway, which provides businesses the ability to file and pay municipal income taxes by submitting one return and one payment through the gateway. However, most businesses continue to file locally. Less than 4% of business forms directed to the Regional Income Tax Agency and less than 2% of those directed with the Central Collection Agency are filed through the Ohio Business Gateway. Technical problems with the Ohio Business Gateway files have caused delays in the processing of tax returns and delays in the distribution of tax dollars to municipalities. Ohio Business Gateway cannot accept reconciliations of income tax withheld, W-2 bulk withholding uploads, filings from sole proprietorships, consolidated filers, businesses not using apportionment, pass-through entities reporting income on behalf of partners or shareholders, and short-year returns.
Collection, administration, auditing and constituent services on the local level have worked. In addition, efforts to centralize these services put local governments at enormous risk. Each community has established tax rates, credit rates and credit limits based on specific needs to that community. Attempts to standardize tax rates and credit limits would fiscally paralyze many of our communities. Mayor Georgine Welo South Euclid President Cuyahoga County Mayors and Managers Association
‘Elitist’ arts tax ■ Your Jan. 23 issue featured a Page One story on the desire of arts organizations to continue to draw financial support from the “sin tax” on cigarettes. I believe a tax on cigarettes also was used to build a new football stadium on the lakefront (which would be nice, if anything worthwhile happened there). Is there a moral dilemma with arts organizations wanting money from a cigarette tax? Smoking is supposed to be
“ It was just one simple question. ‘ Can you help me?’”
hazardous to health, producing all sorts of evil consequences, and secondhand smoke is harmful even to nonsmokers. I venture members of the arts community would agree, because smoking is forbidden at all their venues. Yet the arts community is apparently banking on thousands of addicted smokers to keep on ruining their health so the arts community can draw funding from smokers’ addiction. Does this strike anyone else as macabre? Hypocritical? Cynical? Elitist? Bizarre? Schizophrenic? A morally corrupt policy? Michael B. Smith Akron
More Americans are seeking help to pay off their share of the nation’s $1 trillion in student loans, setting up a debt crunch reminiscent of the nation’s debilitating mortgage crisis, lawyers say. In a survey of bankruptcy attorneys, about half reported a substantial increase in the past three to four years in potential clients with student loan debt. What’s more, fully 95% of the lawyers said few of these debtors have a chance of seeing their loans discharged by the courts or lenders, the National Association of Consumer Bankruptcy Attorneys said. “This could very well be the next debt bomb for the U.S. economy,” said William Brewer, president of the association. “Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training.” College seniors who graduated in 2010 with student loans owed an average $25,250, a 5% increase from 2009 graduates. Parents of 2010 graduates owed an average of $34,000, the association said, based on an Institute for College Access and Success report. What’s more, the number of parents forced to go into debt to help pay for their kids’ schooling also is increasing. In 2010, about 17% of the parents with students graduating from college that year took out loans. In 1993, only 5.6% did so. Americans owe more on student loans than credit cards, according to government data. President Barack
Obama is proposing a plan to offer incentives to colleges and states to make higher education more affordable, including reforms that would boost campus-based federal aid at schools with policies that aim to keep tuition costs under control. Bankruptcy attorneys report anecdotally that they see more consumers seeking help with their unmanageable student loan burden and finding little relief. Those conditions are disturbingly similar to what they saw before the nation’s foreclosure crisis. Because they are repaying student loans, these debtors won’t be able to “engage in the consumer spending” that the economy needs to grow, said John Rao, vice president of National Association of Consumer Bankruptcy Attorneys and an attorney with the National Consumer Law Center. Student loans “will be a drag on the economy for the foreseeable future,” Mr. Rao said. The student loan default rate rose to nearly 9% for a two-year period that ended in 2010, up from 7% the previous period. Federal student loans provide borrowers a fixed, low-interest rate with low fees and multiple repayment options. However, most bankruptcy courts are “very restrictive” in determining whether a student borrower qualifies for a discharge, and there is no statute of limitations for the government to pursue debtors, Mr. Rao said. Bankruptcy attorneys would like to see student loan debts be eligible for discharge through bankruptcy proceedings, which was the case before congressional changes beginning in 1976. ■
Stick. Without the Sticky. www.uakron.edu/innovation
Kirk Zehnder President and CEO Earnest Machine 95 employees
INTERESTED? CALL TODAY, 440 575-7000 ~OR~ FOR MORE FROM OTHER COMPANIES VISIT W W W . S A L E S C O N C E P T S I N C .C O M
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GOING PLACES JOB CHANGES ARCHITECTURE S. ROSE CO.: Debbie Coakley to director of architecture and design relations.
FINANCE FEDERAL RESERVE BANK OF CLEVELAND: Jason Tarnowski to assistant vice president, supervision and regulation; Carolyn Williams to assistant vice president, law enforcement.
Melissa Beaver to tax associate; Amy S. McDonald to office administration and marketing. KPMG LLP: Susan McBride to principal. TRINITY PENSION CONSULTANTS: Adam Warren to director, finance and operations.
FINANCIAL SERVICE
MCCARTHY, LEBIT, CRYSTAL & LIFFMAN CO. LPA: Jim Schuster to principal; Kaitlyn D. Arthurs to associate.
J. HONSBERGER & CO. CPAs:
NONPROFIT
MARKETING SONNHALTER: Rachel Kerstetter to public relations engineer.
LEADERSHIP LAKE COUNTY: Jessie G. Baginski to executive director. UNIVERSITY SETTLEMENT: Derrick S. Fulton to executive director.
REAL ESTATE
SM
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Call 1-866-791-2688 or visit us at coxbusiness.com and connect with Cox today. *Offer valid until 4/1/12 to new commercial subscribers of Cox Business InternetSM and/or Cox Business VoiceManagerSM serviceable locations. Minimum 2-year service contract required. Offer includes monthly service fees for the first 24 months of Cox Business Internet with download/upload speeds of 6 Mbps/2 Mbps, 1 Cox Business Basic VoiceManager with Cox Service Assurance Plan and Unlimited Long Distance). Discounted Phone line, Cox Service Assurance and Unlimited calling plan may be extended up to 8 lines (excludes usage, long distance, Voice Mail and features). Offer does not include installation, construction, inside wiring, usage, equipment, applicable taxes, surcharges or fees. Telephone modem equipment is required. Modem uses electrical power to operate and has backup battery power provided by Cox if electricity is interrupted. Telephone service, including access to e911 service, will not be available during an extended power outage or if modem is moved or inoperable. Telephone services are provided by Cox Connecticut Telcom, LLC. Cox cannot guarantee uninterrupted or error-free Internet service or the speed of your service. Actual speeds vary. Rates and bandwidth options vary and are subject to change. Discounts are not valid in combination with or in addition to other promotions and cannot be applied to any other Cox account. Services not available in all areas. Other restrictions apply. ©2012 CoxCom, Inc., d/b/a Cox Communications New England. All rights reserved.
Mullin
Smith
TECHNOLOGY AZTEK: Brent Ponstingle and Martin Gray to business development; Tori Woods to content strategist; Nedim Nisic to interactive marketing specialist; Christine Hall to inside sales manager. BCG SYSTEMS INC.: Cliff Wallace to manager, development services; Geoff Whidden to manager, networking services; Josh Branch to supervisor, networking services. MCPC INC.: Shawn O’Leary to account manager.
SERVICE
BOARDS
HUMAN ARC: Robert W. Glaser to senior executive vice president, operations; Jill Spencer to executive vice president, business development and client relations; Stephen J. Mullin to corporate director, marketing and product development; John Smith to director, quality and continuous improvement.
ROCKY RIVER CHAMBER OF COMMERCE: Paul Hvizda (Admiral Products) to chairman; Cliff Obrock, Bill Ferry, Debra Bernard and Ellen Todia to vice chairmen; Mike Trifiletti to treasurer; Rusty Deane to secretary.
KELLY SERVICES INC.: Abby Barritt to partnered staffing coordinator; Anita Kacher to staffing supervisor.
WIZARD OF AHS: Stephanie StiggersSmith to vice president, sales.
WE’RE THERE, BECAUSE EVERY CONNECTION MATTERS.
Spencer
POLYCOM INC.: Joanne Montz to senior enterprise account executive, Ohio.
PRINCETONONE: Mike Rocky to senior manager.
per month!*
Glaser
CBRE INC.: Conor Coakley to associate.
PARTNERSHIP LLC: Scott Frederick to marketing director.
$79
Coakley
MANUFACTURING CHART INDUSTRIES: Brent Philo to vice president of taxation.
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Kerstetter
WESTON HURD LLP: Mary C. Sotera to partner.
FIRSTCREDIT INC.: Mike Tanker to collections manager; Michelle Lingenhoel to client support and commercial insurance billing specialists; Elliott Taylor, Kim Morehead, Francis Lane-Jackson and Chelsea Bernard to patient account managers.
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Sotera
BAKER & HOSTETLER LLP: Michael K. Gall, David E. Kitchen, Patrick T. Lewis and David F. Proano to partners. DREYFUSS WILLIAMS & ASSOCIATES LPA: Benjamin G. Chojnacki to associate.
In business, every connection matters.
Chojnacki
LEGAL
OHIO COMMERCE BANK: Valerie A. Lehman to loan quality specialist.
BCG & CO.: J. Dustin Sheppard to tax manager; Pam Wright to senior manager; Ben Austin to senior associate; Brian Schreffler and Jason Winchell to supervisors; Dustin Bormet to tax para-professional; Katie Mayes to associate.
McBride
AWARDS INSTITUTE OF REAL ESTATE MANAGEMENT, NORTHERN OHIO CHAPTER: Brant Smith (Lake Erie Real Estate Co.) received the 2011 Certified Property Manager of the Year Award.
Send information for Going Places to dhillyer@crain.com.
BRIGHT SPOTS Bright Spots is a periodic feature in Crain’s highlighting positive business developments. Submit information to Scott Suttell at ssuttell@crain.com ■ Investment banking firm Western Reserve Partners of Cleveland has launched a new unit, Western Reserve Valuation Services LLC, which is based in Columbus. The new unit “will focus exclusively on offering valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans, financial reporting and portfolio/fund valuations,” Western Reserve Partners said. The unit will be led by Robert M. Stutz II, managing director. He’s a
graduate of Butler University who has worked at Goelzer Investment Banking in Indianapolis and at GBQ Partners in Columbus. ■ Improv Electronics, the consumer products subsidiary of Kent Displays Inc. of Kent, reported it attracted lots of attention at the International Consumer Electronics Show in Las Vegas last month. The company had five hands-on demonstration stations for Boogie Board e-writers during CES, which ran Jan. 10-13. Boogie Boards are electronic alternatives to paper and pens that use the company’s “Reflex No Power LCDs” as their writing and drawing surface. Dr. Albert Green, CEO of Kent Displays/Improv Electronics, said more than 10,000 media members worldwide “requested or reviewed the Boogie Board e-writer online press kit distributed through the event.”
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INSIDE
14 TAX TIPS: IRS CLARIFIES REPAIR DEDUCTIONS.
SMALL BUSINESS
A QUICK CALL TO ACTION If executed properly, popular QR codes offer companies another messaging tool By CHUCK SODER csoder@crain.com
I
f J. Paige Boyer sees a QR code, there’s a good chance she’ll scan it with her smart phone just to see what will happen. Sometimes, though, what happens isn’t all that great. For instance, a lot of QR codes — more formally known as quick response codes — will send her to a website that looks bad on a small screen. Or she’ll end up on a company’s home page when she wanted something more specific. She’s also seen QR codes that she didn’t scan at all because they were in a bad location — like the time she saw one on the side of a building, down by the sidewalk — or because they were printed on a material that made it hard for her phone to recognize the code. Even so, Ms. Boyer, a social media specialist at Goldstein Group Communications Inc. in Solon, can’t help but love those little squares. When done right, she can scan one and spring into digital action: Buy a product, get a coupon, watch a video, donate money, etc. Any business or organization thinking about using a QR code should think of it as a tool that leads to action, Ms. Boyer said. “Think about what it is that you want your customer to do,” she said. In Northeast Ohio, there are plenty of See ACTION Page 15
■ HITTING THE BOOKS: Pat O’Donnell, who has more than 12 years of experience in higher education, has started a nonprofit in Mentor that works with families and students to improve college success and affordability. Higher Education Consumers Resource LLC, www.highereducation consumersresource.org, offers the following products and services: Free Application for Federal Student Aid preparation; cost of attendance advising; scholarship search and support; test preparation; tutoring; special services for nursing students; career and degree selection assessments; and services for the re-entry college student.
■ NOTHING TO BARK AT: Inn the Doghouse, a 9-year-old pet day care and boarding business on Berea Road in Cleveland, will be moving into a larger facility at 1548 W. 117th St. this spring. General manager Lon Camp said the new space will allow an array of improvements including expanded grooming and boarding services, the addition of upscale pet suites and four cat boarding spaces. “We did outgrow this space,” Mr. Camp said. “Our business keeps growing by double digits every year.”
Scan me for more Crain’s small business coverage! Taking cues from the social media experts interviewed for this story by Crain’s reporter Chuck Soder, the above QR code will take you directly to a mobile-friendly version of Crain’s in-depth small business coverage on www.CrainsCleveland.com. And speaking of that small business coverage, Crain’s distributes a weekly Small Business email, sponsored by COSE, every Thursday morning. To register for that email, and other Crain’s email newsletters — yep, you guessed it! — scan the smaller QR code at right.
An October survey of 1,228 consumers by Boston-based Chadwick Martin Bailey, “CMB Consumer Pulse,” focused on current QR code trends. Below are some survey results showing consumer attitudes. You can download the full report by scanning the QR code at right. Don’t have a QR code reader? Follow our handy instructions at left!
Useful
Mixed 42%
Not useful
41%
How useful did you find the information you received after scanning a QR code?
18%
7% Other
I made a purchase 18%
21%
I shared the information
What did you do with the information you received after you scanned the QR code? (Respondents could choose more than one answer)
I did nothing
Quick response codes are twodimensional images that, among other things, allow companies to more directly target their advertising. Smart phone users are able to scan the codes — on a direct mailer, for instance, or in a newspaper ad — and be taken to a specific page a company wants him or her to see, such as a product or details for an upcoming event. To download a QR code reader, smart phone users simply can access their app store — i.e., iTunes on an iPhone — and search “QR Code Reader.” Multiple options will show up, both free and those requiring purchase.
IN BRIEF
■ LOOKIN’ GOOD: La Look Skincare & Makeup Boutique, owned by Martha Vucsko, has opened in Chagrin Falls’ Step North development on North Main Street. La Look’s services include age-defying and multiderm facials, body treatments and massages, a waxing bar, makeup applications, manicures and pedicures, personal training and airbrush tanning. Additionally, a range of boutique products are sold, including brands such as Vagheggi, Principessa Beauty, The Balm and LaLicious. Boutique hours are 9 a.m. to 6 p.m. Tuesday; 9 a.m. to 8 p.m. Wednesday and Thursday; 9 a.m. to 6 p.m. Friday; and 9 a.m. to 4 p.m. Saturday.
QR CODES BY THE NUMBERS
57%
WHAT IS A QR CODE? HOW DO I GET ONE?
13
■ A HEALTHY MOVE: Direct Recruiters Inc. in Solon has launched a sister company, Direct Consulting Associates. DCA will offer a variety of health care IT consulting and staffing solutions, including electronic medical record and electronic health record staffing, staff augmentation and temporary-to-permanent placements for health care facilities in Northeast Ohio and across the country.
■ GRAND OPENINGS: To submit a new business for listing in an upcoming small business section, send the following by email to Amy Ann Stoessel at astoessel@crain.com: business name; address; city and ZIP; website; brief description of business; business phone number; business fax number; business email address; and date that business opened.
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SMALL BUSINESS
‘Dagwood sandwich’ can make M&A sense Sellers now must expect financing other than cash
B
efore The Great Recession restricted profits and tightened lending, buyers often could pay full value for acquisitions and secure the financing to pay in cash. However, many companies still are recovering, crimping their market sale values. Furthermore, financing is not as available as it was pre-2008. Therefore, in order to attain full values, sellers may have to accept a portion of the sale price in something other than cash. This can make their consideration resemble a “Dagwood sandwich.” (For those who don’t read the comics, Blondie’s husband, Dagwood, is known for his convoluted, multi-layered sandwiches.) What are the ingredients in the Dagwood sandwiches of consideration that sellers are asked to digest? In addition to cash or marketable stock of the acquirer, they often include items such as seller notes, earn-outs, consulting agreements, insurance benefits and some continuing ownership or stock options in the business being sold. The end result may be more appetizing than a more modest, straight-forward cash deal would have been. But the seller must
carefully check the recipe to minimize the chances of getting indigestion. The base ingredient in a consideration sandwich is cash or marketable stock. Cash is clearly the ultimate in liquidity. Almost as good is marketable stock; turning it into cash just requires a call to a stockbroker. Stock can have the additional benefit of postponing taxes if the acquisition is structured as a stockfor-stock transaction. Volumes are written on measuring a stock’s liquidity and securing effective registration rights, both of which are necessary to make stock certificates marketable into cash. What if the buyer cannot make the math work to pay the purchase price using only cash? Then the next logical step is the addition of deferred payments such as seller notes — sort of like when Dagwood runs out of prime roast beef, so he adds a layer of liverwurst. Although the seller notes will be subordinated to the buyer’s bank debt, they may be structured to be relatively safe, meeting senior debt credit standards of a few years ago. If the seller has committed substantial equity, the notes are of
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MARKFILIPPELL
ADVISER
IRS delivers regulations governing deductions for tangible property Temporary rules work most to clarify repairs
relatively short duration and they pay an attractive interest rate, then they might be palatable. Over the course of the 350 M&A transactions my partners and I have handled, we have seen the full range of seller notes. Some have been so delectable that the seller could immediately sell them at par to a financial institution. Others have paid out little or nothing when the purchaser could not manage the business. Sellers should learn from Dagwood, who does not consider all the “non-roast beef” items in his refrigerator to be equal. Other common forms of deferred payment are consulting contracts and continued insurance. How valuable these are depends on the certainty that the buyer is going to make the payments and what the seller will have to do to earn them. Sometimes the seller merely has to cash his quarterly check; in other cases sellers have to devote substantial time, only to learn the buyer is unable to pay. When sellers forecast a material improvement in financial results, some form of contingent payment or earn-out is a logical answer. If the company prospers, the earn-out will succeed; if it runs into problems, it won’t. While some earn-outs work perfectly, fully paying out, others become blueprints for litigation. What if the company almost reaches its earn-out targets? What if management incurs worthwhile development expenses that reduce short-term profits? What if the new owner just isn’t good at running the business? Earn-outs are like an exotic condiment that has the potential to add spice to Dagwood’s sandwich, but might also result in a trip to the emergency room. Sometimes retaining a minority equity position or receiving stock options in the acquiring entity can be the final layer to complete the seller’s consideration sandwich. In these cases, the seller is betting on two things: that the buyer will successfully manage the business and that some route to stock liquidity will result. Good luck! This is like lettuce — filling, but void of taste or caloric content. Many sellers turn up their noses at the thought of consuming the financial cousin to Dagwood’s culinary masterpiece. However, consider that no less a businessman than Andrew Carnegie sold his steel company for — you guessed it — seller notes! If America’s richest man in 1900 would accept noncash ingredients, today’s sellers should keep an open mind toward selectively consuming the same. ■ Mr. Filippell is a managing director at Western Reserve Partners LLC. He is the author of “Mergers & Acquisitions Playbook: Lessons from the Middle-Market Trenches,” published by John Wiley & Sons Inc.
T
he IRS has issued longawaited temporary regulations that provide guidance on the deductibility of amounts paid to acquire, produce or improve tangible property. The scope of these regulations is very broad, addressing issues ranging from the definition of materials and supplies to rules regarding the capitalization of expenses incurred in acquiring property. Significantly, these regulations provide guidance on when repair expenses can be deducted currently. In general, costs are currently deductible as a repair expense if they are incidental in nature and do not materially add to the value of the property or appreciably prolong its useful life. Expenses must be capitalized if they are for permanent improvements that increase the value of the property, restore its value or use, substantially prolong its useful life or adapt it to a new or different use. Many tests have been set forth over the years by courts and the IRS as to whether a repair-type expense was currently deductible. Because these tests generally were very fact specific, the IRS has issued several sets of proposed regulations over the last six years, each of which attempted to provide more specific guidance in this area. The recently issued regulations retain many of the concepts set forth in regulations that were issued in 2008, but they provide additional guidance and many examples. Although the new regulations address many issues relating to the acquisition and maintenance of property, they deal at length with the treatment of repair costs. For example, repairs made to a property at the time of a general plan of renovation or rehabilitation of that property generally had to be capitalized under the prior rules. The new regulations allow for the deduction of indirect costs that do not directly benefit and are not incurred by reason of the improvement, even when the repairs are made at the same time as the renovation. So, for instance, while an engine overhaul would normally have to be capitalized, engine repairs that were not necessary as part of the overhaul but done at the same time could be deducted. The regulations also provide a safe harbor for routine maintenance. Under this safe harbor, costs incurred with respect to routine maintenance on property that is not a building or structural component are generally treated as deductible. Routine maintenance is defined in the regulations as a recurring activity that a taxpayer expects to perform as a result of the use of the property to keep it in its ordinarily efficient operating condition. Examples include inspection, cleaning and testing of equipment
CARLGRASSI
TAX TIPS and replacement of parts with comparable and commercially available and reasonable replacement parts. The taxpayer must anticipate performing the activity more than once during the useful life of the property in order for the activity to be considered maintenance. Factors to consider include the recurring nature of the activity, industry practice, manufacturer’s recommendations and the taxpayer’s experience. In addition to providing specific guidance on deductibility issues, the regulations address other fundamental issues that must be considered when determining whether a particular expense can be deducted. For instance, the application of many of the rules on deductibility depends on what constitutes a unit of property. The larger the unit of property, the more likely it is that expenses incurred in connection with maintaining such property can be deductible, so that work done on the engine of a locomotive is less likely to be deductible as a repair if the unit of property is the engine as opposed to the entire locomotive. The new regulations make it clear that for most tangible personal property, all of the components that are functionally interdependent are considered a single unit of property, even if the taxpayer assigns different useful lives to the components for financial accounting purposes. In the example above, the engine and the locomotive are functionally interdependent, so both would be considered a single unit of property. Notwithstanding this rule, components that are treated as being a different class of property for tax depreciation purposes must be treated as separate unit of property. These regulations are full of examples and will be helpful in providing guidance to taxpayers in an area that has been the subject of IRS disputes for decades. A review of these rules may provide additional tax savings for your business. The regulations are effective for tax years that begin on or after Jan. 1, 2012. A change to conform to these regulations will be considered a change in accounting method, although the IRS will provide procedures allowing businesses to obtain automatic consent to the change. ■ Mr. Grassi is president of McDonald Hopkins LLC.
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CRAIN’S CLEVELAND BUSINESS 15
WWW.CRAINSCLEVELAND.COM
SMALL BUSINESS
GETTINGAHEAD
Your monthly guide to getting to the next level in your career.
Connecting: Colleges offer long-term resource By AMY ANN STOESSEL astoessel@crain.com
C
ollege officials want their graduates to know this: Their institutions have more to offer than just a degree for use in the real world. Alma maters can be a resource for building connections, as well as a place to go for job search help, career advising and networking. “It’s a two-way street,” said Rick Sherlock, director of Cuyahoga Community College’s Alumni & Friends Association. “We’re really a lifelong partner with you.” Mr. Sherlock said his school started researching about a year ago ways to better connect its alumni. There had been no existing network in place to maintain connections between former students and the school. “We’re trying to be as active as a four-year school would be,” he said. Judith Aungst, the assistant director of the Center for Career Services at John Carroll University, stressed that the comfort level and
familiar resources at one’s former school can help a person ease into the job search process or dip their toes into networking with fellow graduates, students and professors. “Everyone knows networking is the most important part of the job search,” Ms. Aungst said. JCU offers its graduates a variety of career services, including what’s known as the Blue Streak Job Club and Carroll Contacts. The job club meets once a month to discuss job search strategies and is limited to 12 alumni participants, while Carroll Contacts uses LinkedIn to connect graduates. Martin Jaffe, a career counselor for the Jewish Family Services Association, said social media sites like LinkedIn also can help a person take advantage of college connections. “It’s made everything electronically so easy to access,” he said. And when you have a college in common, Mr. Jaffe said, “It gives you some measure of background and commonality with someone.” ■
Action: Companies like codes’ versatility continued from PAGE 13
examples of companies and organizations doing it right, according to Ms. Boyer and a few other marketing professionals. Like Ms. Boyer, Melissa Carney — a public relations account supervisor with the Cleveland office of Fahlgren Mortine of Columbus — describes herself as a QR code nerd. One of her favorites is the giant QR code on the storefront of North Coast Wine & Beer at West 117th Street and Madison Avenue in Lakewood. Those who scan it can see the store’s monthly specials, Ms. Carney said. QR codes are a great way to offer coupons or tell customers about deals, so long as the code is removed before they expire, she said. They also can be used to connect customers or other stakeholders with additional information, she said. She described how Fahlgren Mortine helped the vinyl roofing division of the Chemical Fabrics and Film Association of Cleveland place a QR code in a print advertisement that questioned the reliability of roofs made from a competing material, thermoplastic polyolefin, or TPO. The QR code directed readers to research supporting the association’s argument. Thus, the web page became an extension of the print ad, she said. “It mirrors the look of the ad, and it continues the discussion,” she said.
On-the-go getters
FOLLOW THE LEADER: A Q&A DR. MARK DUNLAP Director, heart failure section MetroHealth Heart & Vascular Center
A
ccording to Dr. Mark Dunlap, director of the heart failure section at MetroHealth Heart & Vascular Center, more than 5 million Americans have heart failure. But a research consortium consisting of the Cleveland Clinic, MetroHealth and University Hospitals hopes to do its part to reduce that number. The Cleveland consortium recently was awarded a seven-year, $2.5 million grant from the National Institutes of Health as part of the National Heart Failure Research Network. The Cleveland partnership is one of nine in the country that will be involved in clinical trials to test new approaches for treatments of heart failure. “We’re quite excited to be part of it,” said Dr. Dunlap, principal investigator on the project for MetroHealth, which recently earned top ratings for its heart failure program in 2012 HealthGrades reports. ■ Daily must-read? The Plain Dealer. While I don’t always agree with what they write, it’s still what binds our city together, either in paper or online “print.” ■ Who do you admire and why? Thomas Jefferson. He was a true renaissance man. While he is remembered most for his extraordinary writings, he also was an inventor, scientist, educator, politician and nail maker. I remember touring Monticello and coming across an exhibit depicting his nail-
making enterprise. There was a quote there about his pride in being called “nail maker,” which he likened to the title of nobility for someone in Europe. Imagine that — one of the most influential figures in all of American history, and he was most proud of his nail making. ■ What skill do you wish you had? I would love to be able to sight-read music well enough to sit down at the piano and just play. While I took piano lessons growing up, it’s always a struggle for me to get back to the keyboard, so I don’t do it as much as I would like. ■ Career advice you wish someone would have given you? It’s OK to say “no” to some things. ■ If you weren’t in your current occupation, what would you be doing? Teaching high school mathematics. I enjoy seeing young minds get excited about new concepts. I was a math major in college, and for a while considered combining my interests in math with my excitement about teaching. ■ Favorite nonwork activity? Various musical activities. I play a little guitar, recorder, drums and other percussion, and I directed the Gospel Choir at the Unitarian Church in Shaker Heights for 10 years. For the past 20-plus years I have been singing with the Singers’ Club of Cleveland, a men’s chorus that is now in its 119th year of performance. I love the fact that the group has such a rich history that is linked to the history of Cleveland. We’re serious about our music, but also serious about having a good time together. Come to one of our concerts! (www.singers club.org)
QR codes can be a good way for companies to reach people on the go. For instance, the Downtown Cleveland Alliance helps member organizations create QR codes that they can display in their windows.
Passers-by who scan them are directed to an online profile of the company, said Gina Morris, director of marketing and public relations. The Downtown Cleveland Alliance now is making a bigger bet on QR codes: The group is preparing to put them on print ads, sidewalk kiosks, storefronts and cards that will go on tables at the 40-plus restaurants offering deals during the group’s annual Restaurant Week, which begins Feb. 27. The code will lead people to a website where they can register for a chance to win $1,200 in gift certificates to 12 downtown restaurants. The organization is hoping the QR codes will make it easier for people to register online, which will be more important this year: The group no longer will be having restaurants hand out entry forms. Though the paper entry forms were effective — 12,000 people registered last year — using QR codes and online forms should have its advantages, Ms. Morris said. “It’s a lot greener. It’s more cost effective. It’s really embracing the digital age,” she said. Some companies put QR codes on their business cards as a way to deliver contact information directly into other people’s phones. Staffing firm Alliance Solutions Group LLC puts a different twist on it: The codes on their business cards take you to a video profile of that staff member. President and CEO Aaron Grossman said the codes have been a great conversation piece and have helped people get to know him and his employees. “Last year I had a lot of people call me afterward and say, ‘I just
saw your video from the QR code on the back of your business card. That was really cool,’” he said.
Constructive advice Some companies print the codes on their products as a way of helping customers find instructions on how to use them or troubleshoot problems. GoPro Construction Solutions of Cleveland has plans later this year to put QR code stickers on bracing devices that the company developed to simplify the process of building stairs. The codes — which already are on the company’s promotional materials — lead builders to information about GoPro products as well as an online calculator designed to help them do the job, said Paul Siegel, vice president of sales. Though there are plenty of good ways to use QR codes, the practice of scanning them has yet to catch on broadly in the United States. Only half of U.S. adults who own smart phones ever have scanned a QR code, according to an online survey of 1,228 adults that market research and consulting firm Chad-wick Martin Bailey of Boston conducted in October 2011. Organizations should consider using QR codes only if they have a fairly tech-savvy audience, said Michael Schwabe, an account manager at thunder::tech of Cleveland. Mr. Schwabe is a fan of codes that get consumers to start conversations on social media sites, or those that lead consumers to a game or something fun. “Once you get them to scan that code, you can take them almost anywhere you want to,” he said. ■
STRATEGIC GUIDANCE Reminger means business. Think of us an extension of your management team, providing strategic guidance and counsel to help your organization avoid legal pitfalls and capitalize on promising opportunities. We serve a diverse local, national and international client base, including both privately and publicly held corporations. Our full service representation includes corporate, tax, real estate, financing practice and intellectual property. Stephen E. Walters
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Results. Period. Reminger.com - 216.687.1311 Akron | Cincinnati | Cleveland | Columbus | Sandusky | Toledo | Youngstown | Ft. Mitchell | Lexington | Louisville
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CRAIN’S CLEVELAND BUSINESS
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FEBRUARY 13 - 19, 2012
LARGEST 2011 NE OHIO PHILANTHROPIC GIFTS RANKED BY GIFT AMOUNT(1)
Rank Recipient
Donor
Gift amount
Gift date
Purpose of the gift
Connection to recipient
Development contact Cash or Phone number commitment
1
Case Western Reserve University
Estate of James W. and Angela Bowen Williamson
23,500,000
To support the Mandel School of Applied Social Sciences, the April 29, 2011 College of Arts and Sciences, the School of Medicine and the Case School of Engineering
2
Case Western Reserve University
Anonymous
20,000,000
Oct. 13, 2011 To support programs in the natural sciences
3
University Hospitals Rainbow Babies & Children's Hospital
Char and Chuck Fowler Family
16,000,000
4
Cleveland Clinic
Anonymous
12,457,159
Sept. 1, 2011 Lutheran Hospital
Past chief of staff, Lutheran Hospital
Cash
Armando Chardiet (216) 444-1245
5
Cleveland Clinic
Anonymous
10,000,000
Dec. 27, 2011 Lerner College of Medicine
Trustee
Cash
Armando Chardiet (216) 444-1245
5
Cleveland Clinic Innovations(2)
Cathy and James C. Justice II
10,000,000
a chair in medical innovations, funding patent Nov. 23, 2011 Establish applications, seed money for early stages of development
Generous benefactor
Commitment
Armando Chardiet (216) 444-1245
5
Cleveland State University
Monte and Usha Ahuja
10,000,000
a chair in Global Business, scholarship support for June 30, 2011 Create business and engineering students
Alumnus
Combination
Berinthia R. LeVine (216) 523-7275
8
Cleveland Museum of Art
Fred and Laura Ruth Bidwell
7,500,000
a new gallery in Ohio City, museum expansion and Sept. 15, 2011 Create renovation, endowed chair in contemporary art
Longtime supporters
Combination
August A. Napoli Jr. (216) 707-2154
8
University School
Susan and William Oberndorf
7,500,000
Dec. 2011
Two endowed faculty chairs; one endowed fund for financial aid; academic wing
Alumnus
Cash
Jonathan E. Bridge (216) 831-1984
10
John Carroll University
Frank and Helen Schilling
6,000,000
Dec. 2, 2011
To provide full-tuition scholarships to high-achieving students
Alumnus
Commitment
Doreen Riley (216) 397-1886
11
University Hospitals
Anonymous estate
5,730,621
April 29, 2011 N/A
N/A
N/A
Sherri Bishop (216) 983-2200
12
Case Western Reserve University
A. Malachi Mixon III and Joseph B. Richey II
5,000,000
support the Richey-Mixon Building and to encourage Sept. 5, 2011 To innovation particularly within the Case School of Engineering
Alumnus and benefactor
N/A
Bruce A. Loessin (216) 368-4352
12
Cleveland Clinic
Anonymous
5,000,000
Feb. 10, 2011 Cardiovascular research
Grateful patient
Cash
Armando Chardiet (216) 444-1245
12
Cleveland Orchestra
Alexander and Sarah Cutler
5,000,000
Nov. 12, 2011 To increase student attendance
Benefactor
Combination
Jon Limbacher (216) 231-7520
15
University Hospitals
Frankino and Dodero families
3,500,000
Jan. 25, 2011 For the Frankino-Dodero Family Infusion Therapy Suite
Benefactor
N/A
Sherri Bishop (216) 983-2200
16
Cleveland Clinic
Anonymous
3,042,147
Nov. 16, 2011 Area of greatest need
Grateful patient
Commitment
Armando Chardiet (216) 444-1245
17
Cleveland Clinic Cole Eye Institute
Barbara and A. Malachi Mixon III
3,000,000
research and education; the Barbara and A. June 16, 2011 Ophthamology Malachi Mixon III Institute Chair in Ophthalmology
Grateful patient, trustee
Commitment
Armando Chardiet (216) 444-1245
18
Cleveland Clinic
Anonymous
2,826,872
April 19, 2011 Sydell and Arnold Miller Family Heart & Vascular Institute
Grateful patient, volunteer leader
Cash
Armando Chardiet (216) 444-1245
19
Cleveland Museum of Art
Sally and Sandy Cutler
2,500,000
Aug. 26, 2011 Establish Director's Chair
Longtime supporters, member of the board
20
University Hospitals
Anonymous
2,494,471
Feb. 21, 2011 N/A
N/A
21
Case Western Reserve University
Dorothy Ebersbach
2,000,000
Dec. 9, 2011
21
Case Western Reserve University
Charles H. Phipps
2,000,000
21
Case Western Reserve University
Eric Spangenberg
21
Case Western Reserve University
21
July 8, 2011
To establish the Angie Fowler Adolescent & Young Adult Cancer Institute
N/A
N/A
Bruce A. Loessin (216) 368-4352
Alumnus
N/A
Bruce A. Loessin (216) 368-4352
Benefactor
N/A
Sherri Bishop (216) 983-2200
Commitment
August A. Napoli Jr. (216) 707-2154
N/A
Sherri Bishop (216) 983-2200
Alumna
Commitment
Bruce A. Loessin (216) 368-4352
To support programs in the Department of Electrical June 22, 2011 Engineering and Computer Science at the Case School of Engineering
Alumnus
Commitment
Bruce A. Loessin (216) 368-4352
2,000,000
Oct. 13, 2011 To endow a professorship at the School of Law
Alumnus
N/A
Bruce A. Loessin (216) 368-4352
Mary W. Sheldon, M.D.
2,000,000
Oct. 13, 2011 To endow a professorship at the School of Medicine
Alumnus
N/A
Bruce A. Loessin (216) 368-4352
Cleveland Museum of Art
Anonymous
2,000,000
Sept. 2011
Endowment fund for purchase of ancient western art
N/A
Commitment
August A. Napoli Jr. (216) 707-2154
21
University School
Cornelia and Richard Matson
2,000,000
Jan. 2011
Academic wing
Alumnus
Combination
Jonathan E. Bridge (216) 831-1984
27
University School
James Williamson estate
1,800,000
May 2011
Academic wing
Alumnus
Cash
Jonathan E. Bridge (216) 831-1984
28
University Hospitals
Anonymous estate
1,604,804
Feb. 7, 2011
N/A
N/A
N/A
Sherri Bishop (216) 983-2200
29
University Hospitals
Anonymous estate
1,522,518
March 17, 2011
N/A
N/A
N/A
Sherri Bishop (216) 983-2200
30
The Power of Three: The Allen Theatre Project
Walter and Jean Kalberer
1,500,000
Commitment
Jack Stinedurf (216) 400-7030
30
University School
The Opatrny Family
1,500,000
May 2011
Academic wing
Alumni, parents and trustee
30
University School
Susie and John Turben
1,500,000
Jan. 2011
Endowed fund for financial aid, academic wing endowment
Alumnus, trustee
33
Laurel School
The Juster Family
1,300,000
34
Case Western Reserve University
Char and Chuck Fowler
1,250,000
34
The Power of Three: The Allen Theatre Project
Peter B. Lewis and Toby Devan Lewis
1,250,000
Sept. 14, 2011 Construction, renovation
Donor
34
University Hospitals
Joy and Thomas Murdough Jr.
1,250,000
Jan. 31, 2011 To establish the Master Clinician Award
Board of directors, volunteer
37
Hiram College
James and Marcella Nelson
1,218,273
38
University Hospitals
Anonymous
1,200,000
Aug. 25, 2011 N/A
N/A
39
Cleveland Clinic
Anonymous
1,089,058
Dec. 28, 2011 Liver transplantation research and education
Grateful patient
To establish the Dorothy Ebersbach Academic Center for Flight Nursing
Allen Theatre project with a percentage to Cleveland Play Sept. 14, 2011 The House endowment and Cleveland Play House Annual Fund
Board member
establish and endow the Fairmount Minerals Endowed Chair Alumna, past chair of June 30, 2011 To for Experiential Learning and Community-Based Programming the board of trustees July 2, 2011
March 10, 2011
To support research on malignant melanoma
Endowment and capital
Alumnus, member of the board
Alumnus, board member
Source: Information is from the gift recipients with additional research by Crain's. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Individual lists and The Book of Lists are available to purchase at www.crainscleveland.com. (1) This list includes 2011 donations from individuals, families and estates, it does not include donations from corporations or foundations, donations to religious organizations were not included. (2) Information from The Plain Dealer, Dec. 9, 2011.
Cash
Jonathan E. Bridge (216) 831-1984
Commitment
Jonathan E. Bridge (216) 831-1984
Cash
Deborah Farquhar Jones (216) 455-3027
N/A
Bruce A. Loessin (216) 368-4352
Commitment
Jack Stinedurf (216) 400-7030
N/A
Sherri Bishop (216) 983-2200
Commitment
Betty Farmer (330) 569-5281
N/A
Sherri Bishop (216) 983-2200
Commitment
Armando Chardiet (216) 444-1245
RESEARCHED BY Deborah W. Hil
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17
Turner: Presence in in-demand industries helps contractor continued from PAGE 1
Mark Dent knows these are very good times at Turner Cleveland, which has worked here since 1906 and can point to 51 projects in downtown Cleveland’s immediate vicinity. He is vice president and general manager of the Cleveland office. Mr. Dent was promoted to head Turner Cleveland in 2008, when the recession gripped the region’s construction market and the nation’s as well. Now, Turner is on the other side of the cycle, though its smaller, local general contractor competitors are not so healthy. “My timing was perfect,” quipped Mr. Dent, who has worked here for Turner for 25 years after two years with Turner in New York City fresh from Bowling Green State University’s construction management program. Today, Turner Cleveland has 106 full-time professional employees, up from 45 in 2008. Turner also employs some general tradesmen for miscellaneous duties, a staff of 50 today compared to five in 2008.
Turner last year recorded $250 million in construction revenue here compared to $70 million in 2008. As the big jobs it took on ramped up, Turner’s share of full-time jobs in the building trades in Northeast Ohio shot to 1,100 last year from 372 in 2008.
Fluid resources For a construction executive such as Mr. Dent, the vast shifts in projects present special challenges in terms of staffing up when big jobs — termed “whales” by constructors — are landed. However, Turner does not go wild with newspaper advertising and headhunters when the whales come its way. Instead, it primarily transfers in employees from other jobs in the region or nation to meet its needs. “This way, employees know the Turner way,” Mr. Dent said of the culture of the 5,000-employee contractor, which emphasizes partnerships on jobs. That approach also allows Turner to develop spe-
cialties, such as its public assembly segment. For example, the head of the Medical Mart project for Turner is John Dewine, who came to Cleveland from recent stops in Kansas City for a big-ticket makeover of Arrowhead Stadium and New York City for building the new Yankee Stadium. Mr. DeWine is also no Cleveland newbie. A 30-year Turner veteran, Mr. Dewine served as superintendent for the company in the 1990s on the 59-story Key Tower and what is now Quicken Loans Arena. “He was able to come back here for this job,” Mr. Dent said of Mr. Dewine. “This is how you are able to build a specific expertise that you need. At the same time, we are able to maintain local talent.” During the last few lean years in Cleveland, Turner staffers from here worked on its jobs from Cincinnati and Toledo to out of state.
Big on repeat customers On the marketing side, Turner must find enough work in the area
to maintain a local staff between the surges in business. Its solution is simple: Build relationships and develop expertise in sectors that are in demand, such as in health care and education. “We do many $2,000 jobs, but people don’t realize that,” Mr. Dent said. “They do not get a sign.” For example, last year Turner installed a door for PlayhouseSquare Foundation. It’s part of maintaining a relationship dating to 1988 that has ranged from putting tenants into foundation-owned office buildings to, most recently, converting the Allen Theater to a home for Cleveland Play House and Cleveland State University’s theater department. “We don’t want to build a theater and go away,” Mr. Dent said. “Roughly 75% of our work is for repeat customers.” Turner enjoys an advantage over some competitors in the relationship category because of its deep roots here, dating from building a factory for Murphy Oil Soap more
than a century ago.
Life without a bullpen The stability Turner enjoys in an industry marked by volatility is not lost on its competitors. Tony Panzica, CEO of Panzica Construction Co. in Mayfield Village, calls Turner “a good competitor,” noting that his rival enjoys an advantage in its ability to build and keep bench strength. “When something big pops up or the market takes off, we don’t necessarily have the people to go after it,” Mr. Panzica said. “Come to my office and you won’t find a bullpen for people waiting for their next project.” Mr. Panzica notes that the $10 million construction jobs Turner reaches for in slow times are the mainstay of local general contractors such as his company. That’s why Mr. Panzica can say, “I’m happy when Turner is busy,” as its work on big jobs draws the giant company away from smaller projects. ■
Closer: Progress already shows Tax: Plan acknowledges burden continued from PAGE 3
Hill, a noted economist and dean of the Levin College of Urban Affairs at Cleveland State University. He’s also a former instructor of Mr. Duritsky, who earned his bachelor’s and master’s degrees in urban studies from Dr. Hill’s department before going to work for Team NEO, a Cleveland-based regional economic development entity. Dr. Hill, for one, thinks Mr. Duritsky likely will succeed in his new task — if he applies the same gusto and passion that he did to his studies at Cleveland State, he said. “Every once in a while you get a student who pushes you really hard. Jacob was one of those students,” Dr. Hill said. “He had lots of intellectual curiosity,” Dr. Hill said. “He was driven to understand how the economy works and why it works in particular ways.” Until the end of last year, Mr. Duritsky was the chief researcher for Team NEO, and in that role he worked with area chambers of commerce and other economic development officials to attract new companies to Northeast Ohio. He’s now working with those same contacts and others as Team NEO’s director of business attraction, who is assigned to work with companies related to shale gas and oil.
Divvying up a steak A 30-year-old Bedford native, Mr. Duritsky says he’s always wanted to be involved in urban and economic development. But his current role is unlike most economic development jobs of the past — at least in Northeast Ohio. For one thing, it doesn’t involve so much finding companies and selling them on the benefits of operating in the region. Rather, it involves working with companies that often already want to be in the state and matching their needs with what can be offered by chambers of commerce and local governments in the region. “It’s the difference between all of us fighting over scraps and all of us dividing up a steak,” as one developer put it, anonymously. Mr. Duritsky said he already is seeing signs of success, and that in the next 60 days there should be at least two announcements of new companies coming to the area to establish operations related to oil and gas. He declined to identify the companies or the communities involved, but said each will result in more than 100 new jobs. “We’ve probably had six or seven oil and gas leads just fall in our lap already,” he said. Some of Mr. Duritsky’s efforts are aimed at
helping to expand Ohio’s role in the oil and gas supply chain, which includes manufacturing thousands of products required to extract, process and transport oil and gas products. It’s hoped that the sector can achieve critical mass here and grow the oil and gas service sector here generally, he said, similar to the way that industry grew up around Houston in the last century. Toward that end, Mr. Duritsky said he has received support from local industry giants, such as Timken Co. and Parker Hannifin Corp., which both have sent letters to about 50 of their largest suppliers asking them to work with Mr. Duritsky whenever they can to attract more companies to the area. “We’re trying to find out which companies in Ohio are currently participating, and which ones that aren’t can be connected to the oil and gas supply chain,” Mr. Duritsky said.
Team Shale’s main man In addition, Mr. Duritsky has been talking to a slew of area government officials, manufacturing advocacy groups such as Magnet and WIRE-Net in Cleveland, and other economic development agencies such as the Stark (County) Development Board, said Chris Thompson, director of engagement for the Cleveland-based Fund for Our Economic Future. Mr. Thompson’s organization works with and funds many of the entities with which Mr. Duritsky also is working. “He’s the manager of what I call Team Shale,” said Mr. Thompson, who noted that, so far at least, Mr. Duritsky seems to be striking the right chord with the right players. Mr. Thompson likens the situation to a frontier town in the Old West suddenly becoming a stop on the first transcontinental railroad. Shale gas and oil represents a similar, game-changing opportunity for Ohio, he said. “There’s about to be a train running through my region — what do I do to take advantage of that? Do I put a town next to the tracks? A factory? A pipeline?” Mr. Thompson asks rhetorically. “What do I do to get myself, my town and my business in position to take advantage of the train? Finding that out is Jacob’s job and Team Shale’s job.” Dr. Hill said Mr. Duritsky and his allies must do what economic development officials always have done, which is to sell assets to businesses that can capitalize on them. “Right now, that’s the asset we have and it represents a huge opportunity,” Dr. Hill said. “The winds of fortune have kind of shifted in Ohio’s direction.” ■
continued from PAGE 3
months,” Mayor Jackson said. “We were never against the correct approach to handling this issue.”
The initial reaction While the mayor’s proposal would offer breathing room for many of Cleveland’s struggling music venues, Peabody’s owner Chris Zitterbart isn’t so sure it would offer relief for his club, which he noted is saddled with admissions tax debt, though he couldn’t specify how much. Mr. Zitterbart’s club, which holds 700, falls outside the mayor’s capacity parameters, and ideally, he’d like total exemptions for venues holding up to 1,000 people. “I want Peabody’s to be in Cleveland, but I need a system that allows us to survive,” said Mr. Zitterbart, who learned of the mayor’s proposal last Friday morning, Feb. 10. Peabody’s, which is located near Cleveland State University, and the Beachwood Ballroom & Tavern in Cleveland’s Collinwood neighborhood, have become the poster children of the anti-admissions tax movement due to their lofty delinquent admissions tax bills. “There are those who believe they don’t have to pay anything, and there are those who never did pay anything,” said Mayor Jackson, who is proposing payment plans over several years for delinquent payers. “That is blatantly wrong.” While Beachland would fall within the confines of the mayor’s proposal, the venue still is stuck with a large tax bill hovering near $400,000, according to Cindy Barber, the venue’s co-owner. That includes about $119,000 in back admissions taxes over three years, $40,000 in interest and about $244,000 in penalties. Beachland’s and Peabody’s woes contributed to the formation last year of the Cleveland Music Club Coalition — a still growing faction of local venues fueling the admissions tax fight, which is being steered by Sean Watterson, a co-owner of the Happy Dog in Cleveland’s Gordon Square Arts District. Mr. Watterson, who also learned of the mayor’s proposal Friday morning after being contacted by Crain’s, said he was “encouraged” by the plan but would have to study it further before making any substantive comments about its merits. “This shows there is recognition of the burden the tax places on the smaller clubs,” Mr. Watterson added. Councilman Joe Cimperman, one of the
sponsors of the original legislation, said he hasn’t seen Mayor Jackson’s proposal, though a letter dated Feb. 6 from the mayor’s finance director accompanying the proposal was sent to Mr. Cimperman and other council members.
Still fighting Since the original legislation stalled last fall, the coalition, led by Mr. Watterson, has been fine-tuning its talking points to pitch to the mayor and council. They hope to get out from under the admissions tax by the time the Rock and Roll Hall of Fame induction ceremonies come to Cleveland in April. With the help of the Community Partnership for Arts and Culture, a foundation-backed nonprofit that supports arts groups in Northeast Ohio, the coalition collected various data points from its members to demonstrate how much economic activity the clubs bring to the city. The five venues surveyed by the coalition — the Beachland, Peabody’s, Brothers Lounge, the Happy Dog and Now That’s Class — argue that they collectively pay nearly $200,000 a year in payroll taxes, $300,000 a year in sales taxes and close to $50,000 a year in property taxes. “You’ve got businesses open around those clubs because they’re attracting people on a regular basis,” Mr. Watterson said. “We’re bringing tens of thousands of people in.” The coalition suggests that had all the clubs paid what they owed, they would have contributed less than $100,000 to the city’s coffers through admissions taxes. Cleveland collected just more than $10 million in admission taxes last year, according to data from the city’s finance department. Ticket sales to sporting events, or essentially an “admission charge to any one place” that isn’t for a nonprofit, are subject to the tax, according to current law. While some club owners admit the admissions tax isn’t the only reason their businesses are hurting, they say the city’s hesitance to drop it for small clubs, as was done in Seattle in 2009, shows the city has little interest in supporting the local music scene. “What they’re doing is destroying the roots,” said Henry LoConti Sr., a member of the coalition who founded the Agora in 1966. “Cleveland is the city that doesn’t support music at all, and we have the Rock and Roll of Fame,” he said. “Why? I don’t know.” Mayor Jackson was resolute in saying his proposal addresses the issue. “We believe we have a fair proposal,” the mayor said. ■
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business circles. However, a federal grand jury indictment unsealed last Tuesday, Feb. 7, tells a different story as to what allegedly was going on in Mr. Zai’s world during the entire time frame reviewed by the Weatherhead contest judges. The indictment charges Mr. Zai with submitting fraudulent loan applications and personal financial statements to both St. Paul Croatian Federal Credit Union and Park View Federal Savings Bank to obtain more than $16 million in fraudulent loan funds over a six-year period beginning in February 2004. In particular, the indictment describes an arrangement whereby the credit union’s president, Anthony Raguz, provided to Mr. Zai’s businesses $150,000 a month in fraudulent loan funds between Feb. 1, 2007, and Dec. 31, 2007, “to cover, among other things, operating costs.” The indictment identified 15 businesses owned or controlled by Mr. Zai and said, “Certain of these entities were created primarily to operate as a ‘safe haven’ for credit union proceeds, while others performed little or no legitimate business despite having loan proceeds intented (sic) for Zai’s ‘business’
working with Mr. Zai, though they were unwilling to speak with their names attributed to their comments. “He was an opportunist whose mental gears were always turning,” said one. “There was just something about him,” said another. “He talked a good game.” “We kept him at arm’s length,” said a third person who had dealings with Mr. Zai but then backed off their business relationship. The indictment has sent some of Mr. Zai’s colleagues scrambling to push ahead with the crowning achievement of his decade-long rocket to respectability — the Cleveland International Fund — that Mr. Zai was nurturing to become a major vehicle for attracting foreign investment to Northeast Ohio. The Cleveland International Fund is preparing to continue despite Mr. Zai’s legal issues. Steve Strnisha, a well-respected financial adviser who started working at the fund full time this year as chief financial officer, said the fund can continue to be a good source of capital for Northeast Ohio development projects. However, the futures of two other funds Mr. Zai was working to create — the Columbus International Fund and the Cleveland Bio
ventures.” William Beyer, Mr. Zai’s attorney said last Friday, Feb. 10, he was disappointed the government sought the indictment. “We had been trying to resolve this” in a civil proceeding, Mr. Beyer said. In the indictment, Mr. Zai, his father-in-law, Ted M. Vannelli, and accountant Zrino Jukic are charged with 37 counts that allege bank fraud, bribery and money laundering. Twenty-five charges are related to loans made to Mr. Zai’s companies by the liquidated St. Paul Croatian credit union in Eastlake and 11 counts are related to allegedly false loan documents and personal financial statements used to obtain loans from Park View Federal. One count is for allegedly making false statements to federal agents.
‘He talked a good game’ Until the indictments, the 43year-old Mr. Zai had been building a reputation as a focused and driven man on the move. However, five individuals who had business dealings with Mr. Zai all told Crain’s they had been put off by what one saw as “a smorgasbord of businesses that weren’t connected.” They all also described an uneasiness when
FEBRUARY 13 - 19, 2012
Fund — now are uncertain, Mr. Strnisha said. The Cleveland International Fund was an important source of financing for the Flats East Bank development in downtown Cleveland, contributing $45 million to the $275 million mixed-use project. It also is playing a role in financing an expansion at University Hospitals, the renovation of the former Crowne Plaza hotel in downtown Cleveland as a Westin and the planned construction of a headquarters in Westlake for American Greetings Corp.
A diverse background With the Cleveland International Fund, Mr. Zai had created what is called an EB-5 regional center, which is part of a federal program that provides permanent U.S. residency — in the form of a green card — for foreign nationals who invest at least $500,000 in an investment vehicle such as the fund. As an international program, it was right up Mr. Zai’s alley, because he grew up and lived on three continents and speaks Farsi, Urdu and French, in addition to English. Mr. Zai was born in Iran and, as Crain’s reported in 2003 when he was named a member of its “Forty Under 40” class that year, grew up in London. He moved to Cleveland in 1998 to start a family and to be near the family of his wife, Tina, in Kirtland. He now has three children.
Mr. Zai started as a management consultant and quickly developed a knack for wooing Israeli companies to the United States. At one time, his Cleveland Group was the prime point of contact for small Israeli companies that worked with the Israel Export & International Cooperation Institute. He also moved into real estate development, where he ran into the housing market collapse that started in 2005 in Northeast Ohio. Through various affiliates, Mr. Zai developed three small condominium projects in Lake County; those projects were cited in the federal indictments of Mr. Zai, his fatherin-law Mr. Vannelli and Mr. Jukic, the accountant. The projects included Aria’s Way, a six-townhouse development in Concord Township; Bank’s Landing, a 12-unit development in Painesville; and Lake Breeze, a 16-unit development in Eastlake. Two of the projects became headaches for Park View Federal, which got back land from the developers to satisfy mortgages. Today, Parkview is offering 11 unsold lots at Lake Breeze for sale for a total of $69,000 and a Solon-based investor group is redoing 15 acres at Aria’s Way that it bought from Park View for $250,000 in 2009. ■ Senior reporter Stan Bullard also contributed to this story.
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THEINSIDER
THEWEEK FEBRUARY 6 - 12 The big story: Prominent businessman A. Eddy Zai of Pepper Pike was indicted as part of an ongoing federal investigation into the collapse of St. Paul Croatian Federal Credit Union in Eastlake. He pleaded not guilty to the charges. Mr. Zai has been a key player in financing deals in Northeast Ohio through his Cleveland International Fund. His new Cleveland Bio Fund has been planning to invest in small to midsize medical device companies looking to expand in China. (See related story, Page One.)
That’s settled: State Attorney General Mike DeWine announced that Ohio would receive an estimated $335 million of a $25 billion federal settlement with five of the nation’s largest banks. The settlement, aimed at helping homeowners hit hardest by the nationwide foreclosure crisis, was reached with Ally, Bank of America, Citi, JPMorgan Chase and DeWine Wells Fargo. The attorney general’s office said the settlement was the result of “foreclosure abuses, fraud, and unacceptable mortgage practices.”
Second time a charm?: Timken Co. and United Steelworkers Local 1123 reached a new tentative agreement on a five-year contract to replace their existing labor agreement that expires September 2013. Members of the union last month rejected a previous tentative agreement, an action that Timken said put at risk a planned, $225 million investment in its Faircrest Steel Plant in Canton. Timken said union members will vote on the new agreement, which unanimously is supported by local USW negotiators, within two weeks. Jobs in pocket: Nestlé Prepared Foods Co., a division of Nestlé USA, is moving its Hot Pockets and Lean Pockets frozen sandwich and snacks business units from Englewood, Colo., to its headquarters in Solon. A Nestlé spokeswoman said those units have about 70 people in Colorado, and “about two-thirds” of them will receive offers to move to the Solon operation. Nestlé employs about 1,900 people in Solon.
Powering down:
FirstEnergy Corp., which last month said it was closing six coal-fired power plants in three states, announced that its Monongahela Power Co. subsidiary will retire three more such plants in West Virginia by Sept. 1. As it did with the prior announcement, Akronbased FirstEnergy said the decision to close the plants is based on the U.S. Environmental Protection Agency’s Mercury and Air Toxics Standards and other environmental regulations.
Welcome to our world: Global Cleveland, an economic development initiative focused on connecting newcomers to opportunities and the region, has opened its Welcome Hub in the heart of downtown Cleveland. The hub, which will serve as a first stop for immigrants and other people new to the region, is on Public Square, in the Huntington Bank Building.
This and that: Key Private Bank, the investment, trust and wealth management arm of KeyCorp, established Key National Trust Co. of Delaware to provide trust services for wealthy clients and prospects seeking asset protection, tax savings and flexibility using Delaware’s favorable trust laws. … JumpStart Inc. said a $1 million challenge grant will help the nonprofit bring its model for fostering entrepreneurship to 20 additional cities. The John S. and James L. Knight Foundation is providing the challenge grant in support of the JumpStart America Initiative.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Expect a healthy amount of ads from the Clinic
on the cost of the campaign, saying it was proprietary information. — Timothy Magaw
■ The Cleveland Clinic’s Super Bowl ad showcasing its same-day appointment initiative was just a hint of what’s to come from the health care juggernaut’s latest advertising blitz in Northeast Ohio. Starting today, Feb. 13, the health system will launch the full campaign — dubbed the “Power of Today” — in hopes of demonstrating the Clinic is, as its chief marketing officer Paul Matsen characterized it, “approachable and accessible for everyone.” “The Cleveland Clinic is known for world-class care,” Mr. Matsen said. “We want to let the community know that we are a very accessible health care organization, available to everyone every day.” The advertising campaign will involve seven TV spots showcasing the Clinic’s employees, facilities and patient experience initiatives, Mr. Matsen said. The TV spots are the Clinic’s first in at least five years that have focused on the clinical care offered throughout the health system. Last year, the Clinic touted its “Let’s Move It” campaign aimed at promoting active lifestyles. The ads were produced by VSA Partners, an advertising agency with offices in Chicago, New York and Minneapolis. The ads were placed locally by Cleveland’s Adcom communications. A Clinic spokeswoman would not comment
Follow them into court ■ Some Facebook pages serve as a window into a person’s life or a running update of a restaurant’s menu. This one announces who Dworken & Bernstein Co. LPA might sue next — perhaps on your behalf. A law firm with offices in Cleveland and Painesville, Dworken is using the social media site to let people know about potential class action suits it’s researching, in addition to sharing other firm news. Most recently, the firm posted that its attorneys are investigating alleged misrepresentations made by the manufacturers and suppliers of bamboo flooring. In some cases, information-gathering appears to have become a two-way street: Further down on Dworken’s Facebook “wall,” the company posted about allegedly defective Whirlpool ovens, to which one Facebook user replied that the firm should investigate a type of oven display. Dworken answered, “Will check it out.” Dworken has used various media over the years to reach potential class action clients, and “now that social media is available, we’ve started to use that because it’s the most effective way to reach certain demographic audiences,” said Patrick J. Perotti, partner. Teens and young adults in their 20s are
MILESTONE
BEST OF THE BLOGS
THE COMPANY: United Computer Group Inc., Independence THE OCCASION: Its 25th anniversary
Excerpts from recent blog entries on CrainsCleveland.com.
James A. Kandrac was destined to be a business owner from an early age. When he was 12, Mr. Kandrac began reading The Wall Street Journal with his father and recognized right away that he was fascinated with business and technology. So it made sense in December 1987, when he was 26, that Mr. Kandrac would start his computer security/data backup/disaster recovery firm, United Computer Group. Kandrac The launch came after the young Mr. Kandrac completed undergraduate work at Cleveland State University and an internship at IBM. In 1993, he recruited a childhood friend from Wickliffe, Michael D. Powall, to join United Computer Group as vice president. Mr. Powall’s background in computers and business leasing, combined with a “great attitude and admirable work ethic,” have been instrumental in the company’s growth. The company’s flagship security product is called Vault400. It backs up a client’s data to United Computer Group’s secure data center. The encrypted data is available at all times for immediate, user-initiated recovery, the company says. United Computer says Vault400 also helps clients comply with regulations under laws such as the Health Insurance Portability and Accountability Act, which requires secure data backup. For information, visit www.ucgrp.com. Send information about significant corporate anniversaries to managing editor Scott Suttell at ssuttell@crain.com.
They’re equal in care, but far apart in website design ■ The Cleveland Clinic and the Mayo Clinic are two of the world’s great health care institutions, but it’s no contest when it comes to the effectiveness of their websites. Inc. magazine’s weekly “website smackdown” compared the institutions’ websites and declared the Cleveland Clinic a winner by a good margin. On the Mayo Clinic’s site, “There is virtually nothing on the homepage that is designed to help patients, families of patients, or people looking for assistance from the hospital,” according to the magazine. By contrast, the Cleveland Clinic’s site “keeps the homepage very simple. The main image rotates, showing research, technology, and patient care as the three central messages. Much more importantly, the primary navigation clearly leads you to ‘Locations and Directions,’ ‘Find a Doctor,’ ‘Patient & Visitor’ information, and bold tabs for ‘Contact Us’ and ‘Appointments.’” Inc. finds the Cleveland Clinic site superior in most other areas, too, from general user friendliness to the effectiveness of its search functions.
In this case, we endorse hitting the sauce at work ■ Those of you who like it hot and spicy when it comes to your food will find a kindred spirit in Martin Schulz, director of international equities at PNC Capital Advisors in Cleveland. He was quoted in a Bloomberg story
that demographic, and they also are some of the most frequently cheated by corporations, Mr. Perotti said. They tend to be less business savvy, he said. Mr. Perotti doesn’t see risks to using Facebook this way. “It’s simply a billboard on a computer,” he said, “and a lot of people are driving by and reading that message.” — Michelle Park
Advocates for the city on the rise ■ As living in downtown Cleveland becomes increasingly popular, so, too, it appears, is advocating on behalf of the city center. Downtown Cleveland Alliance, the nonprofit organization charged with promoting downtown and communicating with businesses, residents and governmental bodies, in 2009 began its City Advocate program with 15 members. From 2010 to 2012, applications have tripled, according to the alliance’s director of marketing and public relations, Gina Morris. Those applicants chosen for the program have worked with the city of Cleveland to build a playground for residents with children to use, placed temporary art and other visual displays in empty storefronts, and created multimedia promoting the city, among other endeavors. Ms. Morris said the alliance monitors who applies for the program and how often, and about 90% of the applicants are first-timers. The 2012 group will be announced later this month. — Joel Hammond
about U.K. company Reckitt Benckiser Group plc, maker of Frank’s RedHot Sauce. The sauce recently toppled longtime champ Tabasco, made by McIlhenny of Louisiana, for the title of best-selling hot sauce in America. PNC Capital Advisors manages $35 billion, including Reckitt Benckiser shares. Mr. Schulz is a true believer in Frank’s RedHot Sauce. “I have a bottle here at my desk,” he told Bloomberg. “The hot sauce category has grown faster than other categories, and there’s a lot of competition out there.”
Has anybody seen this mysterious thing called ‘snow?’ ■ It hardly seems like it matters in this non-winter winter, but Forbes.com bestowed upon Cleveland the title of America’s snowiest city. Cleveland “is hit with an average 67.9 inches of snow annually, according to data from the National Oceanic and Atmospheric Administration, which is enough to make it the snowiest major city in the U.S.,” the website reported. Forbes.com noted that our average January-February temperature is 28 degrees. That, combined with the “lake effect” — in which cold winds blowing across warm lakes pick up water vapor and then deposit it onshore after it freezes — leads to our high snow totals. “The lake effect is a constant pounding effect,” said Deke Arndt, chief of NOAA’s Climate Monitoring Branch. “It’s very consistent.” Except, apparently, for this year. (And our apologies if, over the weekend, Mother Nature in a fit of karma dumped a lot of snow on the region.)
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