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Sales of new Steris processor lag Hospitals forced to replace predecessor; competitors seek piece of pie By CHUCK SODER csoder@crain.com
If Steris Corp. is to hit its sales goal for the machine it developed to replace its flagship System 1 medical equipment cleaning processor, it will need to sell a whole bunch of
Garfield Hts. project may get another shot of life Bridgeview Crossing first stalled 2 years ago By STAN BULLARD sbullard@crain.com
A California-based developer of outlet shopping centers has assumed a behind-the-scenes role that could lead to the eventual revival of construction on the languishing Bridgeview Crossing shopping center in Garfield Heights. Through an entity called Garfield Hope Acquisition LLC, Steven L. Craig, CEO of Craig Realty Group in Newport Beach, Calif., recently bought the defaulted, $29 million construction loan on the Bridgeview Crossing project from Huntington Bank, according to Cuyahoga County land records. Three developers are interested in buying the Bridgeview Crossing mortgage, Mr. Craig said. Two are from Northeast Ohio and the third is from Chicago. Mr. Craig declined to identify them. He also wouldn’t specify how much he paid for the defaulted mortgage or what price he has put on it. Unpaid contractors walked off the Bridgeview Crossing job two years ago. Workers left the skeleton-like steel of an unfinished building exposed to the elements as the 90-acre site of the proposed, 800,000-square-foot shopping center went quiet after construction claims and lawsuits
them over the next six weeks. Mentor-based Steris sold about 50 System 1E processors in December, when the medical equipment provider started shipping the new machines. Since then, however, it has not sold large numbers of the System 1E, which is designed to
clean endoscopes and other heatsensitive medical equipment, Steris CEO Walter Rosebrough said during a conference call with securities analysts last Tuesday, Feb. 8. Steris expects to sell 1,000 machines by March 31, the end of its fiscal 2011, Mr. Rosebrough said.
The company is trying to ramp up sales of the processors quickly because the U.S. Food and Drug Administration is forcing hospitals nationwide to find replacements for the original System 1 machine by the end of August. The FDA in December 2009 revoked its approval for the original
INSIDE Tax man is on the prowl The state soon will intensify its effort to find the estimated 380,000 businesses behind on the so-called use tax, which is owed on purchases where sales tax isn’t applied. Read Michelle Park’s story on Page 3.
See STERIS Page 17
A NEW CHAPTER Municipalities slowly accept that drastic action might be in the offing By MICHELLE PARK mpark@crain.com
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here are those who think the unthinkable is on the verge of happening. Some observers in local legal and political circles speculate there will be municipal bankruptcies in the near to intermediate future as governments seek relief from the pressure of decreased revenues and increased costs. If a municipal bankruptcy happens, it would be the first Chapter 9 reorganization ever filed in Ohio, at least as far as the auditor of state’s office is aware. Mike Caputo, who chairs the government affairs See BANKRUPTCY Page 7
JESSE KRAMER/ILLUSTRATION BY STEVE BENNETT
John Licastro, the mayor of Bratenahl and president of the Cuyahoga County Mayors and City Managers Association, said municipal Chapter 9 reorganizations are possible.
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CRAIN’S CLEVELAND BUSINESS
CRAIN’S FAMILY BUSINESS SECTION Crain’s Cleveland Business for the second year will recognize some of the region’s best-run, financially stable family businesses. On April 4, we’ll profile three companies each in three categories: second-, third- and fourth-generation or greater businesses. We’re looking for companies regarded as good employers and that have earned the respect of their peers. Factors such as growth and a company’s involvement in its community
also will be considered. The deadline is Feb. 21. You may nominate family businesses by sending an e-mail nomination to editor Mark Dodosh that should include the company’s name, how many generations it has been in business and an explanation of no more than a single page as to why it should be recognized. E-mails to mdodosh@crain.com should say “Family Business” in the subject line.
COMING NEXT WEEK Each year, the NorTech Innovation Awards honor the area’s latest technological breakthroughs that have
demonstrated the ability to positively impact the market. We highlight the finalists for this year’s awards.
WWW.CRAINSCLEVELAND.COM
FEBRUARY 14 - 20, 2011
MOVING ON UP Here’s some evidence the economic recovery is starting to take hold: Compensation costs for workers in the private sector rose 2.1% for the 12-month period that ended Dec. 31, 2010, considerably higher than the 1.2% increase recorded for the 12-month period that ended in December 2009. Benefits costs are rising at a faster pace than wages and salaries. Here’s how the numbers break down: 12-month percentage change
Category
Dec. March June 2009 2010 2010
Sept. 2010
Dec. 2010
Total compensation
1.2%
1.6%
1.9%
2.0%
2.1%
Wages/salaries
1.3
1.5
1.6
1.6
1.8
Benefits
0.9
2.0
2.4
2.4
2.9
SOURCE: U.S. BUREAU OF LABOR STATISTICS
REGULAR FEATURES Best of the Blogs ......19 Classified .................18
Editorial .........................8 Going Places ................10 List: Employee benefit services firms ............17
700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editors: Joel Hammond (jmhammond@crain.com) Sports Kathy Carr (kcarr@crain.com) Marketing and food Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Manufacturing Tim Magaw (tmagaw@crain.com) Health care & education Michelle Park (mpark@crain.com) Finance Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Marketing/Events Coordinator: Jessica Snyder (jdsnyder@crain.com) Advertising sales director: Mike Malley (mmalley@crain.com) Account executives: Adam Mandell (amandell@crain.com) Dirk Kruger (dkruger@crain.com) Nicole Mastrangelo (nmastrangelo@crain.com) Dawn Donegan (ddonegan@crain.com) Business development manager & classified advertising: Genny Donley (gdonley@crain.com) Office coordinator: Toni Coleman (tcoleman@crain.com) Production manager: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com) Circulation manager: Erin Miller (emiller@crain.com) Customer service manager: Brenda Johnson-Brantley (bjohnson-brantley@ crain.com) 1-877-824-9373
It’s time for your business to accomplish big things again.
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Now’s the time to reinvest in your business’ future. The last few years haven’t been easy. It’s been work just to maintain the business you’ve built. It’s time to get back to growing it. Whether that means buying new equipment, improving your working capital, or reinforcing your overall finances, Fifth Third Business Bankers can help you take action to get your business moving forward with confidence. Stop in your local Fifth Third Banking Center, call 1-866-534-7249, or visit 53.com, and let’s get your business moving.
G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $1.50. Allow 4 weeks for change of address. Send all subscription correspondence to Circulation Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373 or FAX (313) 446-6777. Reprints: Call 1-800-290-5460 Ext. 136 Audit Bureau of Circulation
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INSIGHT
State will push for use tax collections Program to educate, incentivize businesses to pay charges on online, out-of-state purchases By MICHELLE PARK mpark@crain.com
Businesses that haven’t stayed up on the “use tax” they might owe probably should spend the first half of this year figuring it out.
That’s the advice of local accountants and tax attorneys as well as the Ohio Department of Taxation, which is set to commence in July or August a push to find businesses that owe the tax, which is owed on purchases where sales tax isn’t
charged. In today’s marketplace in which many businesses make purchases online, via catalog and from out-ofstate vendors, there’s an increased likelihood many are not paying the sales tax owed, said John Trippier, an audit division administrator for the Ohio Department of Taxation. It’s estimated there are 380,000 businesses in the state that aren’t registered to remit the use tax, and
though that doesn’t necessarily mean they owe any back tax, they are the entities the state will target. There are probably more businesses unregistered than registered, state officials say.
Pay now, or really pay later There’s incentive to beat the state to the punch: If businesses remit what they owe through voluntary disclosure before they’re contacted
by the state through its newly unveiled Use Tax Education Program, their use tax liability would be limited to three years. If they remit after the state contacts them, the number of years for which they’re liable increases to four. In both cases, businesses would not be assessed the 15% penalty typically applicable. However, if companies don’t remit See TAX Page 9
THE WEEK IN QUOTES “In prior years, the kind of default position has been, ‘Local government will just have to find a way to do more with less.’ I think now some of the discussion … suggests that there may no longer be an ability to do more with less.” — Mike Caputo, chair of the government affairs practice, McDonald Hopkins LLC. Page One
MARC GOLUB PHOTOS
“For us, it’s about market share. Market share, market share, market share.”
Eddie, a student at the Monarch Center for Autism in Shaker Heights, is able to learn more visually through VizZle, a software product created by Shaker Heights-based Monarch Teaching Technologies.
SHOW AND TELL
— Yuval Brisker, CEO, Toa Technologies Inc. Page 4
“You won’t get a lot of sleep. … There will be things around the house that won’t get done, so your spouse has to be supportive.” — Bob Chalfant, a serial entrepreneur who teaches entrepreneurship at the University of Akron. Page 12
“You expect us to have (Wi-Fi), and I’m not sure that was true five years ago. I think you’re more surprised than not, A) if you have to pay for it, B) if they don’t have it. This is where technology has moved to.” — Rob Bennett, co-owner, Café Ah-Roma. Page 16
Schools nationwide sign up for area IT outfit’s teaching technology for autism students By CHUCK SODER csoder@crain.com
A
year from now, Monarch Teaching Technologies Inc. could be turning a profit for a nonprofit, according to CEO Terry Murphy. The company, which makes software that teachers use to create multimedia lessons for students with autism, has been pulling in big customers lately.
Over the holidays, the main public school districts in Los Angeles and Philadelphia bought Monarch’s flagship software, VizZle, for dozens of their special education teachers. Those are just two of more than 70 districts that have struck paid contracts with Monarch, which is based in Shaker Heights. More than 200 others, including the Cleveland Metropolitan School See LESSON Page 6
Mary Pat Martin, left, and Marcie Timen, far right, teach students through multimedia lessons created with the VizZle software. More than 70 school districts have contracts with the software’s developer, Monarch Teaching Technologies.
Ohio Medicaid reductions could make hospitals sick Providers to shoulder burden if cuts occur By TIMOTHY MAGAW tmagaw@crain.com
Gov. John Kasich and state lawmakers have Medicaid on the chopping block as they try to dig the state
out of an expected $8 billion budget hole, but health care leaders in Northeast Ohio say cuts to the program could force them to evaluate their own operations and stomach millions more in uncompensated care. Medicaid makes up about 30% of all state spending, and lawmakers and Gov. Kasich have said the cost of the program is spiraling upward
at an unsustainable rate. Recent estimates say the health program for poor and disabled Ohioans could cost taxpayers an additional $1.6 billion over the next fiscal year, which begins July 1, and could bring to about $4.9 billion the program’s total annual cost to the state. Still, lawmakers are limited in what they can do to scale back the
program, according to Bill Ryan, president and CEO of the Center for Health Affairs, a group representing area hospitals. Options include rolling back eligibility requirements, which could put federal Medicaid dollars at risk. Also, lawmakers could reduce the benefits offered or cut the payment rates to hospitals and physicians. See MEDICAID Page 18
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Tech firm’s future route is clear Toa aims to take on big boys with mobile scheduling software By CHUCK SODER csoder@crain.com
Yuval Brisker makes no bones about what Toa Technologies Inc. will be focusing on over the next three years. Right now, no company has established itself as a clear leader in the business of producing software for managing mobile work forces. So, there’s no reason why Toa Tech-
nologies can’t be the first to do so, said Mr. Brisker, CEO of the Beachwood firm. “For us, it’s about market share,� Mr. Brisker said. “Market share, market share, market share.� Not that Toa Technologies hasn’t been focused on Brisker expansion. The company, which makes software that businesses use to schedule and route mobile workers and to give customers a sense of when those workers might arrive, saw sales climb 75% in 2010, Mr. Brisker said. Plus, sales increases over the past three years were large enough to land the company atop the 2010 Weatherhead 100, a list of Northeast Ohio’s fastest-growing companies based on revenue. Mr. Brisker declined to reveal the company’s revenue, but a report by business research firm Gartner Inc. put Toa Technologies’ sales at $12 million in 2009. However, the biggest opportunities for Toa Technologies lie ahead. Large corporations such as SAP and Oracle sell mobile work force management software, but they don’t dominate the business, according to Gartner’s 2010 Magic Quadrant report on field service management software firms. Most of Toa Technologies’ competitors are small companies. The Beachwood firm in the future could acquire other companies, but for now it is focused on what Mr. Brisker says is the largest part of the market: companies that don’t use mobile work force management software. “We see an opportunity to consolidate that industry around Toa,� he said.
Big in Ukraine As Toa Technologies’ sales have grown, its staff has expanded to 220 today, up from 120 in mid 2008. Twenty-five of those employees work in Beachwood, where its administrative, marketing and customer support teams are based. The company plans to expand the employee count in Beachwood to 50 by the end of 2011 — one reason
Toa Technologies moved last December to its new headquarters inside the Developers Diversified Realty Corp. building on Richmond Road. Toa has a fiveyear lease for 11,000 square feet on the building’s fourth floor, giving it four times the space it previously had at One Chagrin Highlands on Auburn Drive, also in Beachwood. The company employs 110 software developers at its office in Ukraine, and the rest of its staff is scattered throughout North America, Europe and South America, where Toa Technologies just hired three people. Expansion into Asia will come soon, Mr. Brisker said.
Gartner’s view Gartner’s 2010 Magic Quadrant report, released last June, stated that Toa Technologies is limited by its geographic reach. It also said the company’s ETAdirect software suite has a “narrow functional and industryvertical footprint.â€? Most of the company’s clients are in the cable and telecommunications industries. Even so, the Magic Quadrant chart placed Toa Technologies among the top six companies in its business sector. Publicly traded ClickSoftware Technologies Ltd. of Israel ranked highest, but even that company didn’t score high enough to be named a “leaderâ€? by Gartner. Gartner lauded the ability of Toa Technologies’ software to run over the Internet, which more clients want. Gartner also praised the company’s focus on scheduling and appointment management. ETAdirect lets companies tell their customers, to the hour, when a worker will arrive at their home or business. That’s a huge improvement over the four-hour window companies often give customers when sending a field worker, which is the problem Mr. Brisker and Irad Carmi set out to solve when they founded Toa Technologies in 2003. Toa Technologies’ ability to deliver that service over the web helps the company stand out, Mr. Brisker said. “Nobody else does it the way we do it,â€? he said. â–
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Volume 32, Number 7 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of May and fifth week of May, the fourth week of June and first week of July, the third week of December and fourth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright Š 2011 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $1.50. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136
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Team NEO upbeat on Lesson: Developers eye more schools employment growth continued from PAGE 3
By JAY MILLER jmiller@crain.com
It’s not by a long shot an irreversible trend, but the latest batch of regional economic indicators suggests a significant uptick in Northeast Ohio’s economy. The latest quarterly economic report, released today, Feb. 14, by Team NEO, shows employment in the 16-county region of Northeast Ohio has grown for the second consecutive quarter. It marks the first back-to-back quarters of job growth since 2007. The growth rate of employment tracked by the regional business attraction nonprofit was a modest 1.58% from the end of 2009 to the end of 2010, reflecting an increase in the number of jobs to 1.93 million from 1.9 million. The industry sectors seeing the most significant employment increases are manufacturing and services, according to the analysis drawn from data coming from the state of Ohio’s Labor Market Information agency. Manufacturing employment, according to the Team NEO report, grew 5%, adding 10,000 jobs from the end of 2009 to the end of 2010. Service sector employment rose by 3%, or 6,000 jobs. “It’s just a gradual improvement,”
said Tom Waltermire, CEO of Team NEO. He said the rise in manufacturing headcount “continues to be somewhat encouraging” given that “everyone in the sector is trying to avoid that.” Team NEO’s report joins observers who see modest but significant improvement in the Midwest manufacturing environment. Jack Kleinhenz, who runs a Cleveland Heights economics consultancy, agrees with Team NEO’s view. “I’m encouraged,” he said. “Broadly speaking, the (regional) economy is growing and improving. We’re getting some traction and recovery.” Mr. Kleinhenz said he believes manufacturing output, not consumer spending, housing construction or small business growth, is leading the economy out of the recession. Robin Dubin, a professor of economics and associate dean of the Weatherhead School of Business at Case Western Reserve University, said data she tracks have her thinking optimistically about the regional economy. Professor Rubin also sees an indication in the Team NEO data that the regional economy, which has lagged the national economy for decades because of its reliance on old-line manufacturers, now more closely mirrors the direction the national economy is taking. ■
District and the New York City Department of Education, are testing the software, which lets teachers build lessons with the help of photos, drawings, videos and voice recordings. Other users then can access those lessons via the web. That momentum could translate into profits in as little as a year. The company’s majority owner, however, is Wingspan Care Group. It’s a nonprofit in Shaker Heights that provides administrative services to the Bellefaire Jewish Children’s Bureau, which in turn runs Monarch Center for Autism, also in Shaker. Any money Wingspan earns would go to support the center, which is both a school and a hub for autism-related services, said Mr. Murphy, who did not release revenue figures for the company. “The plan is, (profit from Monarch Teaching) will go back to fund operations and scholarships” for Monarch Center for Autism, he said.
An idea takes wing Wingspan identified the need for a more efficient way to teach students with autism more than six years ago. Before long, the Monarch Center for Autism was working with Children’s Hospital Boston/ Harvard Medical School to develop VizZle, released in 2009. Mr. Murphy, brought on board about five years ago, has helped start a few information technology companies. He was co-founder of
Orion Consulting Inc. of Cleveland, which was sold to IMRglobal Corp. in 1999 for $60 million in stock, and NextMed Systems Inc. of Independence, which raised $7 million from outside investors before merging with a Cincinnati company owned by one of the investors. Both companies served the health care market. That list of accomplishments, however, didn’t give Wingspan all the relevant details about Mr. Murphy. “What they didn’t know was I had a brother with autism,” he said. People with the condition have a hard time learning by listening to someone talk, Mr. Murphy said. They do better, however, with pictures. Hence, the walls of many special education classrooms are covered with images that represent different words. Teachers put them together to convey all sorts of concepts. VizZle allows teachers to rely less on all those pictures by giving them access to images, audio clips, video clips and ready-made lessons other teachers already have created. Now, instead of trying to follow a teacher describing Isaac Newton’s first law of motion, students can see it in action, Mr. Murphy said, pulling up a video of a kid who falls off a skateboard and keeps moving. “That’s great stuff — that’s inertia, kids,” Mr. Murphy said with a laugh.
‘Every teacher … loves it’ Monarch Teaching Technologies has raised a total of $3 million in
venture capital from investors including Glengary LLC of Cleveland and RMS Management Inc. of Cleveland, which provides financial services for the families that founded real estate giant Forest City Enterprises Inc. The company today employs 16, up from 10 six months ago, and continues to expand, Mr. Murphy said. Mr. Murphy’s goal is to have VizZle in 1,000 school districts two years from now. The company so far has had little trouble keeping existing customers — all the school districts that have used the product for more than a year have renewed their licenses — or finding new ones, he said. “Every time we go in front of a school, there is interest in buying,” Mr. Murphy said. Katie Deneke, who teaches special needs students at the elementary and high school levels for Brunswick City Schools, praised VizZle’s ability to engage students as well as the amount of flexibility it gives teachers. “You can really make a lesson very specific for a particular group of students,” Ms. Deneke said. Many other teachers like it, too, said Jennifer Heim, a state consultant who provides assistance to special education teachers and parents of children with disabilities in Lorain, Erie and Huron counties. “Every teacher I have heard from loves it and wouldn’t want to give it up,” Ms. Heim said. ■
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Bankruptcy: Debt costs, fewer services would limit attraction continued from PAGE 1
practice for Cleveland law firm McDonald Hopkins LLC, said he would be more surprised if a government didn’t file for bankruptcy in the next couple years than if one did. He said bankruptcy is a word now in the dialogue of public officials that wasn’t there a few years ago. “Municipalities are gearing for significant reductions in funding at the state level,” said Mr. Caputo, who lobbies in Columbus for businesses and nonprofit organizations and serves on a local school board. “In prior years, the kind of default position has been, ‘Local government will just have to find a way to do more with less.’ I think now some of the discussion … suggests that there may no longer be an ability to do more with less.” Mr. Caputo’s assertion that a Chapter 9 is likely isn’t universally held. Larry Oscar, who co-chairs the creditors’ rights, reorganization and bankruptcy practice at Hahn Loeser & Parks LLP in Cleveland, said he isn’t anticipating municipal bankruptcies because Chapter 9 reorganization is “not a terribly effective tool.” Liquidation of the debtor is not an option for creditors under Chapter 9. Thus, there’s even more incentive for creditors to prefer a revised financial plan from a government over bankruptcy, Mr. Oscar said. Still, there are certain kinds of debt obligations — bonds in particular — that are hard to restructure outside of bankruptcy proceedings because they are owned by many people, said Christopher Meyer, a partner at Squire, Sanders & Dempsey. The perception among attorneys and accountants who work in bankruptcy, Mr. Meyer said, is that Chapter 9 filings will arise. “I think some (municipalities) will not be able to sustain (themselves) without Draconian change in what they do … and perhaps without seeking to use a bankruptcy tool to fix the problem,” Mr. Meyer said.
Domino effect Municipal bankruptcy is rare and would have a cascading impact on governments, particularly those near the entities that file. It undoubtedly would cause municipal borrowing to become more costly because it would shake the longstanding perception that such debt is low risk. In turn, higher debt costs might deter or limit the undertaking of capital projects — for example, new roads and building. It also could mean the stripping away of services people have come to expect from their governments and would cast a pall over a municipality, if not an entire region, potentially making an area less attractive to vendors and to current and potential employers and residents. Some local lawyers say they expect increased demand for legal counsel from public bodies that want information about the choices available to them for grappling with their tight finances. In anticipation of Chapter 9 filings, the staff of the law firm Schottenstein Zox & Dunn is getting up to speed on municipal bankruptcy, said Colette Gibbons, partner-in-charge of the Cleveland office. “It was really unthinkable up until now,” Ms. Gibbons said of
Chapter 9. William A. Currin, a member and past chairman of the Northeast Ohio Mayors and City Managers Association, sees the talk of bankruptcy — and the reasons it’s happening — as more reason for Northeast Ohio government entities to regionalize in order to share the costs of infrastructure and dispatch centers, among other expenses. Kevin O’Brien, director of the Center for Public Management, a research center of the Maxine Goodman Levin College of Urban Affairs at Cleveland State University, shares Mr. Currin’s view. He cautioned that local governments may not have seen the worst of their troubles, as property reappraisals in Cuyahoga County are due in 2012 and a lot of yet-unrecognized property tax losses may be realized then.
Harrisburg ponders a filing The conversation about governments going bankrupt isn’t restricted to Northeast Ohio. “Today in Ohio, a lot of cities are having trouble that never had trouble before,” Mr. O’Brien said. “That is not unique to Ohio, and that’s not unique to the Midwest.” The financial struggles of some municipalities have been reported widely. Vallejo, Calif., filed Chapter 9 in May 2008 after negotiations with unions failed. The city is seeking modifications to its collective bargaining agreements and adjustments to its municipal debt obligations, according to case filings. And Pennsylvania’s capital city, Harrisburg, is in the state’s program for distressed municipalities. Its struggles are blamed on the debt of the city’s waste-to-energy facility, and Harrisburg City Council has hired a law firm to advise it on the possibility of filing for bankruptcy. It’s been reported, too, that policymakers in Washington, D.C., are exploring the possibility of allowing states to declare bankruptcy. (While local municipalities can file Chapter 9, states cannot.) A report released in late January by the Center on Budget and Policy Priorities, a nonpartisan research and policy institute in Washington, D.C., said it’s a mistaken impression that extreme and drastic measures such as bankruptcy are needed to avoid imminent fiscal meltdown. The report notes that while recession-induced deficits are causing severe problems, they are a cyclical problem that will ease as the economy recovers. Longer-term issues related to pension obligations and bond indebtedness, the report said, can be addressed over the next several decades.
States of emergency rise In Ohio, a municipal entity needs the state tax commissioner’s approval to file to reorganize its debts under Chapter 9. Some say Ohio’s fiscal emergency program staves off municipal bankruptcy. The program appoints a commission to develop a plan to remedy a municipality’s deficit situation, and the commission oversees the financial activity of the government until the emergency is terminated. The number of municipalities in Ohio entering fiscal emergency each year has been on the rise since 2007 and was the highest it has been in at least a decade in 2010, when six
“I would much rather exaggerate this (possibility of Chapter 9 bankruptcy) than hide it or not discuss it. I’d err on the side of, ‘Let’s make sure everybody’s aware of it.’” – Gary Norton Jr., mayor, East Cleveland were added. A total of 24 remain in fiscal emergency; they include Garfield Heights, the only Cuyahoga County municipality on the list, which was added in October 2008. McDonald Hopkins’ Mr. Caputo said he believes Chapter 9 filings are less likely in Northeast Ohio because the region’s economy is diverse. Rural municipal governments may be devastated by the revenues lost when one company closes; Cleveland is better insulated in that respect, he said. While John Licastro, mayor of Bratenahl and president of the Cuyahoga County Mayors and City Managers Association, said the municipal leaders he knows aren’t talking Chapter 9, he believes it’s a possibility. Mayor Licastro and others noted that in the coming two-year budget, which begins July 1, state officials may decrease the local government fund and may
eliminate the estate tax, 80% of which local municipalities receive. “Who knows how deep the cuts will be, and how long before the economy turns around?” Mayor Licastro said. “Most communities have had two years of dropped revenue. Will we have a third? Will we have a fourth? Most communities have already cut to the bone.”
Tough choices await Defaults on municipal obligations will come before any Chapter 9 filings, predicted Mike de Windt, senior managing director and CEO of private equity firm Gates Group Capital Partners in Mayfield Heights. “Choices are going to have to be made about who gets paid and who doesn’t,” Mr. de Windt said. Mr. de Windt said he’s confident there’s room for the private sector to become part of the solution, citing the way municipalities could
leverage income-producing assets to generate capital to meet critical needs. One example: A city leases its parking assets, such as lots, meters and garages, to a financial firm to monetize the asset. Discussions of municipal bankruptcy are the result of a lack of political will to make hard choices, asserts Raymond Headen, a lawyer with Bricker & Eckler LLP in Cleveland. “Municipal bankruptcy is potentially too costly to let occur by any one jurisdiction,” Mr. Headen said. If bondholders aren’t paid on time what they’re owed by a single entity, it would result in higher interest rates for all, he said. “Sane minds will not allow that,” Mr. Headen said. Gary Norton Jr., mayor of East Cleveland, a city that was on the state’s fiscal emergency list for 17 years until 2006, said he also believes Chapter 9 filings aren’t all that likely. But he’s not sorry they’re a topic of conversation. “I would much rather exaggerate this (possibility) than hide it or not discuss it,” Mayor Norton said. “I’d err on the side of, ‘Let’s make sure everybody’s aware of it.’” ■
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
FEBRUARY 14 - 20, 2011
PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com) EDITOR:
Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
Not so fast
B
arack Obama portrayed himself as the “change” candidate when he ran for president. But if there ever was a politician who seems intent on changing many aspects of how government works, it’s John Kasich, our governor of one month. Gov. Kasich’s zeal for his mission is admirable. However, like the proverbial bull in the china shop, Gov. Kasich risks leaving a fair amount of destruction in his path should he insist on pressing ahead with two of his more controversial ideas for change. We’re thinking here of his desire to kill Ohio’s estate tax and his expressed preference for gutting key elements of the state’s collective bargaining law. We understand why he’s pushing for the former, and even agree in concept with doing away with a tax that effectively taxes the earnings of people twice — once while they’re alive and once when they’re dead. However, the budget bind many local governments find themselves in due to an economy that continues to limit their tax receipts makes now a bad time to enact this change. Gov. Kasich may be willing to do without the money the estate tax produces for the state of Ohio. However, 80% of the estate tax revenue goes to the city or town where the deceased person resided. Few communities count on those dollars in putting together their operating budgets, because the amounts fluctuate from year to year. However, many use estate tax revenue to help finance capital expenditures, and they’d be hard-pressed to find substitutes for that money if it suddenly disappeared. It would be best if the governor and Legislature set aside repeal of the estate tax until local governments can regain their financial footing. We can’t say we’re on board with dismantling Ohio’s collective bargaining rules, in large part because the changes may not produce the effect the governor desires. Gov. Kasich not only wants to eliminate binding arbitration from the contract negotiation process with public employees, but also wants the right to fire public employees who go out on strike. He expresses a common frustration among government officials that neutral arbitrators as a group favor the side of labor when settling contract impasses. Yet, a recent survey by The Columbus Dispatch did not bear out that view. It found that in the 20 public employee labor disputes since 2008 in which wages were an issue, arbitrators favored the union’s final offer 10 times and the employer’s offer 10 times. And as Crain’s government reporter Jay Miller wrote in a story two weeks ago, public employees in Ohio went on strike far more frequently when they didn’t have the right to strike than they have since they gained that right in 1984. The reason is simple, said Charles Wilson, associate professor of law at Ohio State. “There is no way to enforce a no-strike clause,” Mr. Wilson said. “It’s hard to find good science and math teachers.” He could have included good policemen and firefighters, too. Rather than distract the Legislature with this issue, Gov. Kasich should focus on balancing Ohio’s budget. That job will be more than enough to keep him and his colleagues in Columbus busy.
FROM THE PUBLISHER
Focus on Ohio’s economy — period would be the nation’s strictest limitation. o we have a state budget deficit Now, before you fire up your heated looming like thunderclouds over e-mail or write your letter to the editor Lake Erie. Some predict it could (not that I discourage that — in fact, we be as large as $10 billion. Everylove hearing from readers regardless of thing — almost — inside our borders the issue), understand that I raise this that normally receives funds from the issue in spite of where any of us stands state is likely to get less money, if any on America’s perennial hot-button issue. money at all. It’s not that I don’t underSo your community’s local stand why abortion is such a arts festival better forget about BRIAN divisive, emotional issue. It’s that $10,000 upon which it TUCKER just that this package of five bills depends. Same for the money — taken together as a so-called used to repair potholes in your “heartbeat bill” — seems intended streets. Plan on aiming your car to do nothing than to force the more accurately this spring. Oh, abortion issue to the Supreme and that college education we Court at a time in American all know is a must for your history when the justices are child? It’s going to cost you more conservative, as a body, more. than when the court first ruled Yes, the Buckeye State faces a abortion legal in the Roe v. Wade case. host of challenges, from the ongoing I’m sorry if I offend anyone — on transformation of its economy to the either side of this issue — but I want our graying of its population. Problems everylawmakers in Columbus, including our where we look. newly elected governor, spending every But never fear, Ohioans! Your duly waking moment thinking about retraining elected, Republican-led General Assemour work force, attracting talented bly is on the case — concocting a newcomers and reversing our economic proposed early term abortion ban that
S
decline. I am not exaggerating one iota. I don’t want lawmakers lunching with lobbyists. I don’t want them holding stupid, useless hearings so they can spout off and get their name in the newspaper. I don’t want them writing laws that put yet more costly burdens on the communities that can’t afford newly mandated programs or regulations. It’s the economy, stupid. Political lore has it that then-political strategist (and former Clevelander) George Stephanopoulos penned those words on a makeshift sign in the “war room” of Bill Clinton’s first presidential campaign. Seems to have worked pretty good for them, no matter your political persuasion. John Kasich — who once had presidential aspirations, and maybe still has them — must know he has one chance at winning a second term as governor, and that’s to resurrect Ohio’s economy. I hope he can convince the General Assembly to help him at this most critical time. We’ll be watching. ■
THE BIG ISSUE Will you gamble at the planned Cleveland Horseshoe Casino?
DIANA TRUMP
THERESA BRATTON
JIM GRIGG
BRIAN MCDONALD
Cleveland
Cleveland
Cleveland
Cleveland Heights
Not for gambling. I’d go if it were a good place for drinks.
I probably will go, but not because I like to gamble — my boyfriend does.
I never gamble, so I probably won’t go, but hopefully it will create a lot of new jobs.
I don’t know whether I’ll go or not. I’m sort of ambivalent toward casinos in general.
➤➤ Watch more of these responses by visiting the Multimedia section at www.CrainsCleveland.com.
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
Leery economist sees silver lining Ohio’s jobless claims ebb, Zeller’s data show By DAN SHINGLER dshingler@crain.com
You know the economy must be getting better when even Cleveland economist George Zeller says so. Not that Mr. Zeller is Zeller such a pessimist, but he has been tracking Ohio’s job losses for as long as nearly anyone in the state. Each week he reminds readers who receive his employment-tracking e-mail that, based on the number of new unemployment claims, Ohio has been losing jobs. Until Feb. 3, that is, when Mr.
Zeller surprised at least some members of his audience with a rosier take on things. “This week’s data on new unemployment claims in Ohio are the best set of figures that the state has seen since mid-January 2008,” he said in his report. “The new claims indicate that job destruction stopped in Ohio last week, and that job growth has resumed in the state. This is a major finding in this week’s data.” Mr. Zeller was referring to data showing that, for the week ended Jan. 22, Ohio saw only 17,020 new claims for unemployment. That’s down 13.7% from the 19,713 claims filed in the like week of 2010, he
said. More importantly, claims now are coming in slower than in 1999 and 2000, the last two years that Mr. Zeller says Ohio actually added jobs. There is a dour side to his recent data, however. Some of Ohio’s most populous metropolitan areas, particularly Cleveland and Columbus, still are experiencing job losses. But those losses have been slowing, to the extent that they now are overshadowed by growth in other parts of the state, Mr. Zeller said, with Toledo, Canton and the Youngstown-Warren area all showing healthy job gains. “In some of the big cities, the numbers are still negative, but statewide, we’ve turned the corner,” he said. ■
Tax: Education program helps businesses continued from PAGE 3
It adds up For some companies, what’s found to be owed is not chump change: During the past two years, Mary Jo Dolson of SS&G Financial Services Inc. has handled an estimated 10 use tax audits for clients, and multiple Northeast Ohio middlemarket companies owed upwards of $250,000 in back taxes, not including
Salt for Ice Control
Ripe tax harvest awaits Ohio’s use tax program was unveiled in mid-January. Asked about the timing, Mr. Trippier cited the increased number of online purchases. He also noted that a national initiative to streamline the process for vendors to collect and remit appropriate sales tax hasn’t been all that effective. Pennsylvania and Washington also have undertaken formal efforts to collect unpaid use tax, he said. Local accountants attributed the state’s crackdown to its budgetary shortfall. “This is a tax that’s out there that they haven’t harvested,” Ms. Tapia said. ■
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even after the state has contacted them, an audit likely would follow, and businesses could owe taxes, interest and penalties for up to a decade, though the state generally audits for the last seven years. The use tax was enacted in Ohio in 1936 to prevent people from buying outside the state in order to avoid paying sales tax, Mr. Trippier said. It’s common for businesses to relegate the use tax to a to-do list, said Jennifer Tapia, a senior manager for the Cleveland accounting firm Cohen & Co., who has expertise in state and local taxes. “Some of them could be unpleasantly surprised by how much they actually owe in use tax,” Ms. Tapia said. “There’s no way to hide any longer in Ohio. If you want to avoid penalties (and) the extra years, you need to be proactive about this.” There’s no official estimate for how much use tax the state may collect, Mr. Trippier said, but the state’s audit history shows that 96% of audits identify additional use tax that should have been paid, even by those businesses that are registered to remit it. The use tax rate is the same as the sales tax rate where the purchaser is located. Individuals can owe it, too, though the state’s current focus is not on them.
interest and penalties, she said. “I’ve had a couple clients say the state is wasting its time, and the state invariably finds something,” said Ms. Dolson, director of state and local taxes for the regional accounting firm. “I’m not sure how many taxpayers are aware of it.” The state Department of Taxation is spending the first half of the year “blitzing the market with education” at places such as Rotary Club meetings and association meetings, Mr. Trippier said. In July or August, the state will analyze its computerized systems to identify businesses that are registered for a tax but aren’t registered for use tax. Those businesses will be contacted and will be given the opportunity to enter into an agreement through the Use Tax Education Program to clear up unpaid use tax liability. Businesses that are found more frequently to owe use tax include contracting businesses, service providers and manufacturers, said Gary Gudmundson, spokesman for the Department of Taxation. While manufacturers are eligible for a use tax exemption, some misuse it. The exemption is only applicable to materials used in actual manufacturing, not for purchases such as computers, SS&G’s Ms. Dolson said. Attorneys with Buckingham, Doolittle & Burroughs LLP in Akron say they’ve received calls already from a couple clients who want to initiate the voluntary disclosure process. “The irony of this is it really doesn’t affect the large companies in the state,” said Steve Dimengo, a Buckingham Doolittle partner and tax attorney. “They’re already dealing with it. It’s going to affect more of the midsize and smaller companies.”
What’s Your 2011 Financial Plan?
Weatherhead Showcase March 5, 2011 10:00am – 12:30pm Registration starts at 9:30am Peter B. Lewis Building Case Western Reserve University To register, visit weatherhead.case.edu/showcase Receive an application fee waiver when attending this open house.
9
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
GOING PLACES
INSURANCE
JOB CHANGES
FINANCIAL SERVICE
BRITTON-GALLAGHER: Sharon Francz to assistant vice president.
ARCHITECTURE
CEDAR BROOK FINANCIAL PARTNERS LLC: Ryan Olds to partner.
TDA: Adam B. Parris to project designer.
CIUNI & PANICHI INC.: Matthew School, Lauren Lee and Jessica Ita to staff accountants.
DISTRIBUTION HEIDELBERG DISTRIBUTING CO.: Brooke Miller Hice to vice president, general counsel; Pat O’Sullivan to executive vice president, sales; Sean Hice to vice president, sales; Ken Aquila to general sales manager, Cleveland market; Chris Jackman to field sales manager, Cleveland market.
EDUCATION CLEVELAND STATE UNIVERSITY: Yolanda Burt to director of career services; Sailen Barik to director, Center for Gene Regulation in Health and Disease; Nathan Engstrom to coordinator, campus sustainability.
ENGINEERING HULL & ASSOCIATES INC.: David Wazny to senior project manager.
FINANCE NORTHERN TRUST: Jeffrey M. Grosenbaugh to vice president, senior private banking relationship manager.
GREAT LAKES FINANCIAL GROUP: Carlos Molina to principal, southeast regional manager; Erin Witte to executive closing director; Valerie Garrity to servicing manager; Vicky Berger to senior underwriter.
FEBRUARY 14 - 20, 2011
ON THE WEB
Story from www.CrainsCleveland.com.
MEDICAL MUTUAL OF OHIO: Eric Shugart to senior vice president, actuarial services. WESTFIELD GROUP: Steve Tien to group IT leader; Stuart Rosenberg to group administration leader.
LEGAL HAHN LOESER & PARKS LLP: Eric B. Levasseur to partner; Shannon V. McCue to of counsel.
Olds
Vasu
Perkins
YOUNGSTOWN BUSINESS INCUBATOR: Barbara Ewing to chief operating officer.
REAL ESTATE
MERRILL LYNCH: Susan S. Vasu to financial adviser.
MAZANEC, RASKIN & RYDER CO. LPA: Frank H. Scialdone to partner.
SCHLABIG & ASSOCIATES LTD.: Jennifer Schumacher to senior associate.
ALLEGRO REALTY ADVISORS: Julia C. Iselin to associate, transaction advisory services.
MARKETING
TRANSACTION REALTY: Peter Wairegi to sales associate.
SEQUOIA FINANCIAL GROUP LLC: Trevor Chuna and Kristan Pietro to financial planners.
HOME TEAM MARKETING: Danny Chalhoub to group director, schools; Maura McGrath to senior graphic designer.
HEALTH CARE
MEDIA
UNIVERSITY HOSPITALS: Donnie J. Perkins to vice president, diversity and inclusion.
SMART BUSINESS NETWORK INC.: Lee Koury to president, chief operating officer and Dustin S. Klein to publisher, Magazines & Events Division; Michael Marzec to president, COO, Content Marketing Division.
VILLAGE AT MARYMOUNT: Kathryn Doberstyn to manager, memory care unit and staff educator; Andrea Fries to social services coordinator. VISITING NURSE ASSOCIATION OF OHIO: Cynthia Struk to chief operating officer.
NONPROFIT CLEVELAND ENGINEERING SOCIETY: Ken Alfred to executive director.
TECHNOLOGY CRU SOLUTIONS: Andrew N. Offenberger to sales representative.
BOARDS KENDAL AT OBERLIN: John Picken to chair. YOUTH OPPORTUNITIES UNLIMITED: Neville Arjani (Findley Davies Inc.) to chairman; Maureen Mohlenkamp to vice chair and secretary; Beth Rosenberg to vice chair; Eric Lewis to treasurer.
AWARDS BETA GAMMA SIGMA CLEVELAND AREA ALUMNI CHAPTER: Brian D. Kenney (Hahn Loeser) received the 2011 Annual Honoree Award.
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KSU alumnus gives $500K A Kent State University alumnus has donated $500,000 to his alma mater to offer financial support to students who embark on career-boosting yet unpaid internships. Walter Van Benthuysen, a 1961 Kent State graduate and an Illinois businessman who has spent his career in several marketing and management roles in the food industry, characterized the gift as “seed money� for students and other donors. The awards will range from $2,000 to $4,000, depending on how many work hours the internship requires. More than 60% of the internships offered through Kent State’s College of Business Administration are unpaid. “It’s seed money for young people in that it gives them the chance to do something they otherwise wouldn’t be able to do,� Mr. Van Benthuysen said in a statement. Upon Mr. Van Benthuysen’s retirement, he became an executive adviser to Wind Point Partners, a private equity firm in Chicago, and also serves on the board of Heartside Food Solutions, a provider of snack foods. — Timothy Magaw
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12 CRAIN’S CLEVELAND BUSINESS
FEBRUARY 14 - 20, 2011
SMALL BUSINESS
INSIDE
16 COMPANIES FIND WI-FI LURES CUSTOMERS.
IDEAS SPARK DOUBLE DUTY Part-time entrepreneurs find little spare time, but also ability to perfect plans, determine whether they have full-time potential By JENNIFER KEIRN clbfreelancer@crain.com
D
avid Rzepka never intended to become an entrepreneur. A tinkerer by nature and a leisure-time beekeeper, he started experimenting with bee products in his small basement lab, giving the soaps and lip balms he made to friends and family. While working full time in his family’s construction company, TransCon Builders, Mr. Rzepka gradually grew his hobby into a business, Beecology, which sells organic
bee-based skin and hair care products, online and in 15 regional retail locations. “Making 10 bars of soap in your basement is a lot different than selling 10,000 bars of soap,” Mr. Rzepka said. “You have to not only love the hobby but love the business side too.” Whether it’s a hobby they love, a great product idea or just a desire for independence, many entrepreneurs pursue a business part time while holding on to the security of a full-time salary. “It gives you the ability to test your idea,” See TIME Page 14
Real estate options for young companies now more plentiful Shared, flexible offices grow in popularity By STAN BULLARD sbullard@crain.com
W
orking in pajamas may be among the pluses of a home-based business. Barking dogs while meeting prospective clients at home as a plumber toils in the bathroom may be some of the negatives. However, the realty industry increasingly is offering flexible options for startups and small businesses that need meeting space or lower cost offices, especially through the expanding shared-office industry.
Best known providers are the Regus international network of shared offices or the Westlake-based PS Executive Centers. Numerous smaller setups in the region also offer startups and small businesses the option of renting outfitted desk space for as few as one person, or, in emergencies, up to 20. Originally the attraction of flexible office arrangements was to allow small businesses to lease smaller amounts of office space with more flexible lease terms — sometimes even month-to-month tenancy is available without a lease — than landlords generally provided and
eschew buying furniture and phones. As the flexible office-space industry has grown, its menu of offerings also has increased, for example: ■ Virtual offices that allow clients to use the service provider’s address for their mail and passthrough phone calls are common, sometimes costing $50 monthly. ■ Conference and training rooms also are available, sometimes as part of the basic rent, though some providers charge extra for larger meeting rooms. Vision 21, which opened last month at 1495 Warren Road in Lakewood, even provides homebased businesses an option, for a fee, of using it as a site for Google
business maps to promote themselves. Launched by business consultant David Clements and business coach Diane Helbig, Vision 21 even offers on-site small business education and help recruiting youths for part-time jobs. For Luxembourg-based Regus, a key offering is the ability to use offices and conference rooms at any of its 1,100 locations, said Jeff Doughman, its U.S. central region vice president. In the meantime, member requests in 2006 got the Council of Smaller Enterprises, a small business advocacy and training group, to provide “COSE Business Space,” according to Megan Kim, its director of education and programs.
Members may use tables in a work room at no cost or, depending on the location, a private office or cubicle, Ms. Kim said. Some locations offer free meeting space while others carry a small charge at four sites COSE and various partners run throughout the region. At the City Club and Superior office buildings owned by Columbus-based E.V. Bishoff Co., several flexible arrangements are available. A new one dubbed “Business Suites” at the City Club Building, 850 Euclid Ave., lets tenants claim lower rates by taking out their own trash. The same building offers “Creative Lofts,” which includes a community studio available to See OFFICES Page 15
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14 CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
FEBRUARY 14 - 20, 2011
SMALL BUSINESS
Time: Funding often hard to come by Long-unemployed can continued from PAGE 12
said Bill Russell, a serial entrepreneur who has started businesses part time twice and is working on a third. “When I went full time, I had the knowledge of the business. I wasn’t afraid. I knew it was right.”
Warning: Rough road ahead Be forewarned about your future as a full-time employee and part-time entrepreneur. “You won’t get a lot of sleep,” said Bob Chalfant, a serial entrepreneur who teaches entrepreneurship at the University of Akron. “There will be things around the house that won’t get done, so your spouse has to be supportive.” Mr. Chalfant’s businesses have included Metalwood Bats LLC and his current part-time venture, property management and investment firm NEO Management. Good time management is essential, he said, and you’ll need to find your own funding “because no investors are going to support you part time.” Mr. Russell started a computer dealership part time in the early 1980s while working full time with his employer’s support. “It made me a better employee because I learned business skills from my part-time business,” he said. He took that business full time and ran it for 14 years before returning to corporate life. In 2007, Mr. Russell began building a new business part time — fitness training studio CrossFit Cleveland — with his wife and another couple.
“There was no pressure … to make money we needed to live on,” Mr. Russell said. “When you can operate from the position of not being so desperate to make the sale, people want to deal with you more.” Just because you’re starting a business in your spare time doesn’t mean you can overlook the legal and tax requirements that any entrepreneur must consider. “People who start part-time businesses want to see how it goes, so they tend not to take the full precautionary measures,” said attorney Louis Licata of Licata & Toerek in Independence. That means getting professional input on the legal, tax and insurance approaches that best fit your business. “Anything you’re saving (by not doing this) you’ll lose by making one mistake,” Mr. Licata said.
Do what you love Don’t pursue part-time entrepreneurship just because you hate your job, warned Mr. Chalfant, or because you just need extra money. “You have to love it,” Mr. Chalfant said. “Not just be interested in it, but love it. If it’s drudgery, it’s going to fail.” Find a business that taps into your passions but can be scaled from part time to full time, said Mr. Chalfant, like weekend catering, application development or dog training. Michael Banks is an orthopedic surgeon who enjoyed running and had many patients who were avid
runners. He had an idea for a simple product— a pouch to attach a Nike Plus sensor to nonNike shoe styles for tracking miles. “My motivation came from a creative standpoint,” Dr. Banks said. “I wanted to build something and see if others wanted it.” In 2006, he founded Grantwood Technology in Middleburg Heights in his spare time to market the Shoe Pouch, and has since expanded his product line and grown to seven full-time staff. “If you’re serious about doing two things … you can’t do it by yourself,” said Dr. Banks, who has no intention of leaving his medical profession. “You have to have trust in other people to keep it moving.”
Making the leap When’s the right time to take your part-time venture full time? “It’s a gut (feeling),” said Mr. Russell, who went full time with CrossFit last year. Mr. Chalfant’s measure is having cash flow you can live on and plans in place for future growth. Mr. Rzepka still hasn’t made that leap. He works about 15 hours a week at TransCon, while putting in 60 at Beecology. He’s expecting to reach a half-million in sales this year, and he is feeling gradually more confident in Beecology’s future. “(Starting part time), I could make mistakes along the way and not get into too much trouble,” he said. “(If I had started full time), I would have made more costly mistakes.” ■
One firm. Managing Partner Stephen E. Walters
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216.687.1311 Reminger.com
Results. Period.
have transition issues Without management, effects related to previous long-term layoff may hinder employee performance
Y
ou’re hired. Those are welcomed words for the unemployed in a tough economy. And for employers, a large pool of available talent to choose from can be a boon in terms of human capital resources. But hiring and managing those who have been unemployed for an extended period can come with challenges. In a best-case scenario, the new hire fresh off unemployment will come back into the work force thankful for the opportunity to work again. This employee’s energy and desire to succeed may make them a star performer. VALERIENOSEK They show up on time, are on-task and engaged when at work, bring their unique talents to the workplace and are willing to learn. But even under the best circumstances, returning to work after a lengthy time off requires a period of transition. The returning employee may be dealing with self-esteem and confidence issues or other repercussions from being out of work, such as financial, legal or relationship difficulties. “Often the employer or manager forgets these employees have been unemployed for a long time,” said Janet Schiavoni, director of the Cleveland-based employee assistance program, Ease@Work. “Managers need to be mindful — more aware — of how these individuals are adjusting to their work environment.” Being out of work can have a significant impact psychologically and physically on the individual. “Many people are wrapped up in their career — their job — and when they suffer loss of a job, that perception of loss can impact them to their core,” said Swan KhannaSalehi, Ease@Work clinical manager. Returning employees still may be dealing with issues that surfaced during their phase of unemployment. Stress, anxiety and depression all are common in those who have had months, or even years, of unemployment. Some may develop eating disorders, insomnia or begin abusing alcohol or other drugs. A person’s view of their abilities and self-confidence may wane. Psychological and physical well-being are impacted directly by how well an individual manages stress in his or her life. If one has good coping skills and outlets for stress management, then negative impacts will be lessened. Unfortunately, even those with excellent stress management skills can find unemployment a difficult personal challenge. “Stressors keep building and
ADVISER
HELPING HANDS Employers and managers can assist those returning to the work force by: ■ Providing a comprehensive orientation program; ■ Offering training and refresher courses as applicable to the position; ■ Working collaboratively with the employee to set goals; ■ Establishing meetings or check-ins to answer questions and address concerns; ■ Monitoring work to provide support and resources as needed; and ■ Ensuring lines of communication are open and expectations are clear. And remember, help is available for employees who are struggling with returning to work. “Most companies have employee assistance programs that can address behavioral and job performance situations that may come up,” said Swan Khanna-Salehi, a clinical manager at Ease@Work.
building on multiple levels — everything from feeling isolated and out of their peer group to the financial ramifications and changes in personal relationships,” Ms. Khanna-Salehi said. “As these stressors continue, the individual tries to keep up, but eventually over time, they are affected physically and emotionally.” In addition to the pervasive psychological and physical manifestations, the new hire may be dealing with secondary issues as a result of little or no income. They may have creditors seeking payment of debt, legal issues, such as liens or lawsuits, exacerbated relationship problems or the individual may have difficulty adjusting to changes in a caregiving role for children or elderly relatives. Of course, not every employee returning to the work force will face the various challenges discussed. Many will seamlessly transition through to becoming productive employees again. Or, the employee may only be dealing with minor issues they are able to resolve quickly — such as changes in child care needs now that the employee, as a caregiver, is back to work. “However, the employer or manager should not make assumptions that the transition back into the work force will go smoothly,” Ms. Khanna-Salehi said. “Recruitment and retention are so pivotal to organizational success. If you see a problem, address it. Early intervention is key. Be prepared with clear strategies to improve performance and help the employee succeed.” ■ Ms. Nosek is the employee assistance program coordinator for Ease@ Work, a Cleveland-based employee assistance program.
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CRAIN’S CLEVELAND BUSINESS 15
SMALL BUSINESS
New law allows for exclusion of some stock sale gains
M
ost of the press relating to the 2010 year-end tax legislation has been with respect to the extension of lower income tax rates and the estate tax relief. Although it has received less attention, another of the taxpayer-friendly provisions that was extended for one additional year deserves attention. Specifically, the new law provides that noncorporate taxpayers can exclude 100% of the gain realized on the sale of qualified small business stock, or QSB stock, acquired after Sept. 27, 2010, and before Jan. 1, 2012, and held for more than five years. LLCs or partnerships that own QSB stock can pass the exclusion through to individual members or partners. If a partnership disposes of QSB stock, the gain from the disposition is allocated among all the partners in accordance with its partnership agreement (and relevant tax rules). To the extent gain is allocated to partners who held an interest in the partnership from the time it acquired the QSB stock to the time of the sale, these partners are eligible for the tax exclusion on their proportionate share of the partnership’s gain, assuming the partnership held the stock for five years. Funds that invest in C corporations can therefore take advantage of this provision to the extent the fund has noncorporate owners. For stock to qualify as QSB stock, it must meet several requirements: First, it must be stock acquired as an original issuance from the corporation. While warrants and options do not qualify as QSB stock, if this type of instrument is exercised to acquire QSB stock, the exercise will be a qualifying acquisition, or original issuance. The QSB stock must be acquired for money, property (other than corporate stock) or services provided to the issuing corporation. Second, the corporation issuing the stock must be a qualified small business. In general, a qualified small business is a C corp with aggregate gross assets of less than $50 million at any time before (or immediately after, taking into account any monies invested by the stockholder) the issuance of the stock. The fact that the corporation’s assets increase and become worth more than this limit after the
Offices continued from PAGE 12
photographers. “It’s for writers, photographers or business people who want a creative setting,” said David Bishoff, president of Bishoff Co. The same firm provides a more formal setting at Superior Office Suites in the Superior Building, 815 Superior Ave., which provides a receptionist, a kitchen, conference room and lowcost phone and Internet service. Generally, shared-offices work best for less than five people, but costs become prohibitive for more than that, said Dennis Burnside, managing partner of the Cleveland office of Mohr Associates realty brokerage. And he should know: He started two offices in Regus’ downtown Cleveland office. ■
issuance is not relevant. To qualify as a qualified small business, the corporation must also meet an active business requirement, meaning the corporation uses at least 80% of its assets, measured by value, in the active conduct of one or more qualified trades or businesses. A qualified trade or business generally does not include service business, and specifically excludes banking and investment business. Startup businesses can qualify as active trades or businesses even if they have not generated gross income. The exclusion may provide a significant opportunity for corporations
CARLGRASSI
TAX TIPS considering some type of stock plan to provide an incentive to their key employees. QSB stock includes stock issued as compensation for services provided to the corporation.
The five-year holding period requirement could provide a built-in incentive for employees to stay with the company for that period of time. The ability to sell the stock in the future and pay no taxes would certainly be seen as an added benefit by the recipient employee. There are a number of rules that must be reviewed in order to determine eligibility. For example, there are limitations on the amount of stock and real estate that a corporation may hold and still be considered engaged in the active conduct of a qualified trade or business. Also, there is a limitation on the amount
of the gain that can be excluded. This amount is the greater of: 10 times the taxpayer’s basis (excluding post-issuance basis increases) in that corporation’s QSB stock disposed of by the taxpayer in the tax year; or $10 million. Because C corps are often not the most tax-efficient business entity, the possibility of selling stock in five years with no tax consequences may not be enough to decide to form a new business as a C corp. For existing C corps, the ability to attract outside investors, and the ability to structure tax-favorable employee stock incentive plans, will be greatly enhanced for the next year. ■ Mr. Grassi is a member and president of McDonald Hopkins LLC.
Choice. Affordability. Wellness. That's the real value of Anthem. With Anthem Blue Cross and Blue Shield, you can offer your employees more than just health coverage. You can offer them a health benefits package that provides real value…for you and for them. range of affordable health, dental, vision, life and disability plans. AWellness care resources and tools your employees can use to live healthier. Potential cost savings through the strength of our network. Real value for your employees and the benefits they need. Value for your company by helping to manage costs and create healthier employees. Find out more about Anthem’s complete solutions for your company today at anthem.com/connects2.
Life and Disability products underwritten by Anthem Life Insurance Company. Anthem Blue Cross and Blue Shield is the trade name of: In Colorado and Nevada: Rocky Mountain Hospital and Medical Service, Inc. In Connecticut: Anthem Health Plans, Inc. In Indiana: Anthem Insurance Companies, Inc. In Kentucky: Anthem Health Plans of Kentucky, Inc. In Maine: Anthem Health Plans of Maine, Inc. In Missouri (excluding 30 counties in the Kansas City area): RightCHOICE® Managed Care, Inc. (RIT), Healthy Alliance® Life Insurance Company (HALIC), and HMO Missouri, Inc. RIT and certain affiliates administer non-HMO benefits underwritten by HALIC and HMO benefits underwritten by HMO Missouri, Inc. RIT and certain affiliates only provide administrative services for self-funded plans and do not underwrite benefits. In New Hampshire: Anthem Health Plans of New Hampshire, Inc. In Ohio: Community Insurance Company. In Virginia: Anthem Health Plans of Virginia, Inc. trades as Anthem Blue Cross and Blue Shield in Virginia, and its service area is all of Virginia except for the City of Fairfax, the Town of Vienna, and the area east of State Route 123. In Wisconsin: Blue Cross Blue Shield of Wisconsin (“BCBSWi”), which underwrites or administers the PPO and indemnity policies; Compcare Health Services Insurance Corporation (“Compcare”), which underwrites or administers the HMO policies; and Compcare and BCBSWi collectively, which underwrite or administer the POS policies. Independent licensees of the Blue Cross and Blue Shield Association. ® ANTHEM is a registered trademark of Anthem Insurance Companies, Inc. The Blue Cross and Blue Shield names and symbols are registered marks of the Blue Cross and Blue Shield Association. OH_CrainsCleveBiz_021411
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SMALL BUSINESS
Demand makes Wi-Fi a must-have
GRANDOPENINGS ALL AMERICAN INDUSTRIAL SERVICES LLC 8171 Tyler Blvd. Mentor 44060 All American Industrial Services LLC is a woman-owned business specializing in overhead crane and rail (installations, repair, modifications and inspections), custom metal fabrication, structural steel, welding, industrial maintenance and repairs, machinery installations, rigging and trucking. Phone 440-255-7525 Fax 440-255-7273 renee@allamericanind.com
WELLINGTON FINANCIAL SOLUTIONS 4295 Fall Lake Drive Avon 44011 www.WellingtonFinancial Solutions.com Wellington Financial Solutions is a financial company serving the lending needs of small to midsize businesses through asset-based financial programs. Wellington works with direct lending sources to find a lending program and funding source that best matches the client’s needs and situa-
tion. The firm also can arrange for new or used equipment leasing or purchasing, working capital needs, commercial property acquisition, accounts receivable and inventory lines of credit. Phone 440-454-4870 Fax 440-809-8973 info@WellingtonFinancialSolutions .com
HYPERLOCALDEALS 1005 Englewood Road Cleveland Heights 44121 www.hyperlocaldeals.com HyperLocalDeals is a group-buying site with a social and community focus that offers consumers discounts from local, independent merchants in Cleveland and surrounding neighborhoods. HyperLocalDeals works with its merchants to offer a percentage of each deal, between 5% and 10%, to the merchant’s favorite local charity. HyperLocalDeals was developed by the husband-and-wife team of Les Proctor and Kim Novak Proctor. 216-973-9228 info@hyperlocaldeals.com To submit a new business, contact Amy Ann Stoessel at 216-771-5155.
Access another factor in attracting customers By MICHELLE PARK mpark@crain.com
C
ustomers expect wireless Internet access in a coffee shop as much as they count on a restroom, Rob Bennett says, and they expect it no less of his locally owned trio of shops than they do of the corporate Starbucks and Caribou Coffee. So like many other small business owners, Mr. Bennett is toeing the line of consumer demand and offering free wireless access, or Wi-Fi, at all three Café Ah-Roma locations he co-owns. Demand for Wi-Fi continues to build as people use more tools — smart phones, e-readers, tablets — to access the Internet remotely. (People logging online via smart phones can avoid broadband charges when they use free wireless Internet instead.) The growth is clear in the usage on the nationwide Wi-Fi network of
Welcome home.
AT&T, which operates 23,000 Wi-Fi hotspots nationwide. Users made 106.9 million connections on the network in the third quarter of 2010, exceeding all 85.5 million connections made during the entire year in 2009. Though they don’t necessarily track the number of people who use the free Wi-Fi they provide, local restaurant owners have other indicators — the number of people, for example, who notice and notify them when their access is down. “You expect us to have it, and I’m not sure that was true five years ago,” said Mr. Bennett, whose Café Ah-Roma operates in Berea, Cleveland and North Ridgeville. “I think you’re more surprised than not, A) if you have to pay for it, B) if they don’t have it. This is where technology has moved to.” The National Restaurant Association doesn’t track how many restaurants offer Wi-Fi, but spokeswoman Maureen Keith said research has shown a lot of consumers want it. “I think technology in restaurants is becoming increasingly important,” she said, noting that newer, emerging technologies include self-service ordering and pay-atthe-table systems. “I think consumers are always looking for whatever makes their life easy.” Jeffrey Shibley is confident the restaurant chain he leads was on the forefront of the wireless wave. All eight locations of Yours Truly
Restaurant now offer free wireless Internet access, with the first being outfitted about a decade ago, said Mr. Shibley, vice president. Business owners agree Wi-Fi is relatively inexpensive. Most who provide the service estimated the expense at no more than $40 a month per location. The payoff, business owners said, is in the traffic it attracts — the business people who choose Yours Truly for breakfast and lunch meetings, the attorneys who come from the nearby Berea City Hall to file documents electronically from Café Ah-Roma. It’s certainly an added attraction during slow business times, noted Shana Trepal, who opened Treehuggers Café with Wi-Fi two years ago in Berea. It’s nearly 3 p.m. on a Wednesday, she noted over the telephone, and two people are on their laptops inside her full-service restaurant. At the Winking Lizard Tavern, wireless Internet access has proven attractive to beer salesmen who travel and patrons who want to keep a close eye on fantasy football teams on game days, said John Lane, one of three Winking Lizard partners. The local restaurant chain began offering Wi-Fi in all 14 locations a year and a half ago. “I foresee offering it for the foreseeable future — until the next newest greatest thing comes out,” he said. ■
We are excited to welcome Doug Bennett back to Cleveland and to Medical Mutual.
NEW NAME SAME TEAM
Doug left the area a few years ago to lead a significant human services consortium in Washington, D.C., with the hopes of returning to Cleveland someday. That day has come, and we are pleased he has selected Medical Mutual to come home to. As our new Director of Community Outreach, you will be seeing a lot
Herbruck Alder is proud to join the Gallagher Benefit Services, Inc. team. Thinking ahead to bring national employee benefit resources to Northeast Ohio.
of him very soon.
Formerly
w w w. h e r b r u c k a l d e r. c o m 2 1 6 - 6 2 3 - 2 6 0 0 © 2011 Medical Mutual of Ohio
Visit MedMutual.com.
1100 SUPERIOR AVENUE EAST, SUITE 1700 CLEVELAND, OHIO 44114-2521
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17
LARGEST EMPLOYEE BENEFIT SERVICES FIRMS RANKED BY NUMBER OF AREA PROFESSIONALS(1) Professional employees
Name of firm Address Rank Phone/Web site
2010
2009
Total Clients in employees NE Ohio in NE Ohio (%)
Firm compensation
Services
1
Towers Watson 1001 Lakeside Ave., Suite 1900, Cleveland 44114 (216) 937-4000/www.towerswatson.com
114
NA
163
NA
NA
Retirement, health and group benefits, technology and Mike Turk administration solutions, and international managing consultant
2
Mercer 200 Public Square, Suite 900, Cleveland 44114 (216) 830-8000/www.mercer.com
102
106
111
NA
By project, commissions, fixed fees, hourly rates
Retirement and risk management, health and welfare benefits, investment consulting and management, work force communication and change
3
Oswald Cos. 1360 E. Ninth St., Cleveland 44114 (216) 367-8787/www.oswaldcompanies.com
86
75
220
80
Fees, commissions
Employee benefits strategic consulting, group benefits Robert J. Klonk brokerage, integrated health and wellness president, management, retirement plan consulting chief sales officer
4
Selman & Co. 6110 Parkland Blvd., Cleveland 44124 (440) 646-9336/www.selmanco.com
70
65
75
5
Commissions and fees
Marketing and administration of life and health insurance programs for banks, credit unions, associations and insurance company partners
David L. Selman president, CEO
5
The J.P. Farley Corp. 29055 Clemens Road, Westlake 44145 (440) 250-4300/www.jpfarley.com
56
48
56
65
Fixed fees
Health plan administration services
James P. Farley president, CEO
6
Alpha Group Agency Inc. 4200 Rockside Road, Independence 44131 (216) 520-3300/www.thealphaga.com
53
51
59
90
NA
Health, consumer-driven plans, ERC, COSE, NOACC, dental, disability, life, 401(k), voluntary benefits, COBRA administration, HR services, wellness
Jim Schade, John J. Wain, Adrienne E. Vichill, principals/benefits advisors
7
Gallagher Benefit Services Inc. 1100 Superior Ave. Suite 1700, Cleveland 44114 (216) 623-2600/www.gallagherbenefits.com
44
NA
48
NA
Fees and commissions
Brokerage and consulting in: health and welfare, retirement, wellness, human resources, health care analytics, benefits compliance
Mark Alder area president
8
Aon Hewitt 5005 Rockside Road, Suite 1000, Independence 44131 (216) 573-9700/www.aonhewitt.com
43
45
46
60
NA
Provides human capital, retirement, investment management, health care, compensation and talent management solutions
Robert Becker market leader
8
The Fedeli Group 5005 Rockside Road, fifth floor, Independence 44131 (216) 328-8080/www.thefedeligroup.com
43
40
130
80
By project, commissions, fixed fees, hourly rates
Employee benefit plan design, including compliance, wellness, self funding, and data analytics; voluntary and executive benefits; group purchasing programs
Umberto Paul Fedeli president, CEO
10
CBiz Benefits & Insurance Services Inc. 6050 Oak Tree Blvd. South, Suite 500, Cleveland 44131 (216) 447-9000/www.cbiz.com
37
36
184
100
NA
Group health benefits consulting and administration, Chris Ward retirement plan solutions, payroll, COBRA, flex, property and casualty, life insurance and HR consulting producer
11
Findley Davies Inc. 1300 E. Ninth St., Suite 850, Cleveland 44114 (216) 875-1900/www.findleydavies.com
32
30
35
32
Fee-for-service based on hourly rates
Health and group benefits, retirement consulting, actuarial services, defined contribution plan recordkeeping, defined benefit plan administration
Rob Rogers principal, chairman
12
CPI-HR 6830 Cochran Road, Solon 44139 (440) 542-7800 /http://cpihr.com
26
22
29
90
Benefits brokerage and consulting fees
Employee benefits brokerage, consulting, benefits administration and payroll services
Jim Hopkins CEO
13
Dorman Farrell 3555 Reserve Commons Drive, Medina 44256 (330) 725-0501/www.dormanfarrell.com
23
23
25
97
NA
Customized solutions for employee benefits, financial services, executive benefits and retirement plans
Mark Dorman president
Source: Information is supplied by the companies unless footnoted. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. (1) Includes professionals, located in Northeast Ohio, who design, administer or sell employee benefit programs, and consultants.
Bridgeview: Project tangled in mess of liens, lawsuits continued from PAGE 1
ensnared the project. Mr. Craig, an internationally known shopping center developer, said in a phone interview last Thursday, Feb. 10, that he bought the mortgage as an investment with plans of reselling it. He said he has bought distressed notes as a personal sideline for years with hopes of reselling them at a profit, although “sometimes you lose.” “It’s a good place to park some money,” Mr. Craig said of the Bridgeview Crossing note, which is secured by the site on the northwest corner of the Interstate 480 interchange at Transportation Boulevard. “As a worst-case scenario, I thought I’d be sitting on it quite awhile,” he said, but he’s encouraged by the number of calls he has received in the month he has owned the mortgage. Mr. Craig said he bought the loan because it is secured by a “great piece of property.” “Great visibility,” Mr. Craig said. “It also has residential and office applications.” Mr. Craig said he did not want to pursue a project at Bridgeview Crossing through his own real estate development firm because it has multiple outlet center projects under way. He said he believes local developers do better with some projects than others. Garfield Heights Mayor Vic Collova views the note sale as a necessary step to restarting the project. He said he will not look for a bulldozer on the site until 2012 because the
final note buyer will need to work through litigation, obtain ownership of the land and bring in tenants. “We’re going to light that corner up,” Mayor Collova said. “A Wendy’s beats what’s there now. We’ve progressed there, but have to worry about Murphy’s Law and what can go wrong now.”
Legal entanglements remain Securing the mortgage, even at a discount, is only a first step to reviving the project. It also will require working through multiple liens and lawsuits filed against the original developer, Bridgeview Crossing LLC, a partnership formed by Brecksville developers David Snider and Sam Cannata. David Snider noted in an interview that he and Mr. Cannata still own the land at Bridgeview Crossing. However, he declined comment on the note sale and pending litigation. Panzica Construction Co. in Mayfield Heights is suing Bridgeview Crossing LLC in Cuyahoga County Court of Common Pleas for more than $9 million that the general contractor says it’s owed for work on the project. Tony Panzica, CEO of Panzica, declined comment. Randy Goodman, managing broker of Goodman Real Estate Group of Lyndhurst, which focuses on retail real estate, said Bridgeview Crossing remains a viable retail site. “It’s rare to see a site at an interchange in the center of the market become available,” Mr. Goodman said. “It’s mostly the dirt that’s important.” ■
Richard J. Knapp worldwide partner
RESEARCHED BY Deborah W. Hillyer
Steris: Competitors stepping in continued from PAGE 1
device because Steris had made several changes to the machine that the agency did not approve. Steris is selling fewer System 1E processors than expected partly because some customers are waiting for the FDA to give Steris approval to sell another product designed to show that equipment cleaned in the System 1E is free of biological organisms, Mr. Rosebrough said. The company has been working to let customers know that the FDA does not require them to use a biological indicator to determine if a piece of equipment has been properly cleaned. The System 1E itself tests whether the machine has failed to kill any organisms, and the FDA in November approved a chemical indicator for the System 1E. Still, some customers want the added security of using the two indicators in addition to the machine’s built-in safeguards. Mr. Rosebrough described the combination as “the door lock,” “the deadbolt” and “the chain on the door.”
The waiting game Because of lagging sales of the System 1E and the chemicals it uses, Steris expects revenue in fiscal 2011 to grow by just 2% from fiscal 2010 levels. That estimate is down from the company’s previous forecast of 5% revenue growth for the year, according to Steris’ thirdquarter earnings release issued last Tuesday. However, Steris still expects earnings will remain in the range of $2.15 to $2.30 per share. System 1E sales should ramp up
soon, Mr. Rosebrough said. For one, he said he expects the FDA to approve the biological indicator, though Steris spokesman Stephen Norton said in a Feb. 9 e-mail that there is no telling when the agency will make its decision. Mr. Rosebrough also noted that Steris has taken 2,000 orders for System 1E machines. Several hundred of those customers have said they plan to buy the processors regardless of whether the FDA approves the biological indicator, and only 10 to 20 have said they won’t buy it without FDA approval, Mr. Rosebrough said. The rest of the 2,000, however, have not made a firm commitment. Many of those orders should turn into shipments soon as individual customers settle on delivery and installation dates, he said.
Competition emerges In the meantime, competitors of Steris are trying to convince hospitals to replace the original System 1 with their products. The most prominent is Advanced Sterilization Products of Irvine, Calif. The company doubled production of its Sterrad-brand sterilizers in the months after the FDA revoked its approval for the System 1 and it has yet to slow down, said Karen Borg, vice president of worldwide marketing for the company, which is owned by Johnson & Johnson. Ms. Borg said 8,000 Sterrad units are in use today, up from 6,000 in December 2009. That number should increase as hospitals replace their System 1 machines over the
next several months, she said. “There are a number of customers still in the process of making a decision,” Ms. Borg said. Steris should be concerned about Advanced Sterilization Products, said Robert Goldman, senior vice president and senior research analyst with CL King & Associates. Mr. Goldman, who also follows Johnson & Johnson, said the health care giant during its last few quarterly conference calls with securities analysts has mentioned Advanced Sterilization Products when listing off segments that are doing well. The Irvine-based company already may have built the momentum it needs to establish itself as the new market leader, Mr. Goldman said. “Once you lose a leadership position to Johnson & Johnson, it’s gone forever,” Mr. Goldman said. Steris still has a lot of “residual goodwill” in the health care industry, Mr. Goldman said. Still, he doubts the company will be able to sell 1,000 System 1E processors by March 31, especially if the FDA doesn’t quickly approve the biological indicator. Dan Owczarski takes a more favorable view of Steris’ prospects. The senior equity analyst with Avondale Partners LLC in Nashville said none of the hospitals he has talked to say they need the biological indicator. Plus, competitors won’t easily tear down the relationships Steris has built with hospitals. “They really, really like Steris,” Mr. Owczarski said. “It’s going to be very, very difficult to replace Steris from accounts.” ■
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Medicaid: Rising costs strain providers continued from PAGE 3
Fewer people on the Medicaid rolls won’t slow people from going to hospitals, Mr. Ryan said. Rather, he said, it will force hospitals to stomach even more debt from uncompensated care. “All it will do is create an additional burden, additional loads in emergency rooms and keep that cycle rolling,” said Mr. Ryan, who was deputy director and chief operating officer of the state’s Medicaid program from 1993 to 1996.
Saving the safety nets Health care providers aren’t offering any doomsday scenarios of what might happen if Ohio scales back the Medicaid program because the state is only in the early stages of its budgeting process. However, observers note that dramatic rate cuts could force layoffs or stifle construction projects. “If you whack them on their
major payer, that’s really a body blow,” said J.B. Silvers, a professor of health systems management at Case Western Reserve University’s Weatherhead School of Management. “They’ve got real problems.” The MetroHealth System is among the largest Medicaid providers in the state, said John Corlett, group vice president for government relations and community affairs. Mr. Corlett said slashing Medicaid reimbursement rates is a delicate task because if the cuts are too drastic, they could lead to potential lawsuits from health care providers. In California, for instance, physicians, hospitals, pharmacists and other health professionals sued the state for dramatically gutting reimbursement rates for that state’s Medicaid program. “They’ve got to find a balance there about what is reasonable and what might go too far,” Mr. Corlett said.
REAL ESTATE
St. Vincent Charity Medical Center’s Medicaid patients make up 19.4% of its patient base. Any state cuts to Medicaid would have an impact on the medical center because more of those patients would shift to self-pay, according to Matthew Rish, the hospital’s vice president of finance. And it’s likely many of those patients wouldn’t make good on those payments, leaving St. Vincent with more uncompensated costs. “We currently care for a very large number of uninsured patients and our ability to care for more is limited,” Mr. Rish said in an e-mail. “We are not sure the extent of any cuts proposed, but we are keeping a close eye on the discussion at the state level.” University Hospitals’ Medicaid rolls have grown over the last three years as people lost their jobs or employers dropped health coverage, said Heidi Gartland, UH’s vice president for government relations.
FEBRUARY 14 - 20, 2011
At present, about 22% of the center’s patient base is covered by Medicaid. In 2009 — the most recent numbers available — University Hospitals dealt with an $80 million shortfall between what Medicaid paid for services and the cost of rendering those services. “It’s a large payer, and it’s a payer that pays poorly,” Ms. Gartland said of Medicaid. “It pays well below what it costs a hospital or a physician to provide the care.”
Cost-cutting conundrum Though lawmakers and the governor are tasked with addressing some of the short-term cost issues of the Medicaid program, they also hope to achieve savings by embracing models focusing on preventive care. Gov. Kasich recently launched the Office of Health Transformation; its head is Greg Moody, a health care management consultant and former assistant to Gov. Bob Taft. The hope is to achieve some savings in the cash-strapped program by emphasizing primary care and preventive services. However,
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Mr. Ryan of the Center for Health Affairs said most of the participants in the Medicaid program have longterm disabilities, so those initiatives might not yield large savings. Also complicating matters is the rising cost of care, which has led many primary care physicians to stop serving Medicaid patients. “There’s an acute concern over additional costs that impact physicians,” said Orlando Alvarez Jr., CEO of Independent Physician Solutions, a for-profit subsidiary of the Sisters of Charity Health System that create ties with local independent physicians by giving them tools to better run their practices while allowing them to stay independent. “I think there’s a general kind of fear around additional cuts that impact the physicians’ practice environment.” Eric Poklar, a spokesman for the Office of Health Transformation, said the Kasich administration is working at an expedited rate to put together proposals for how to deal with the budget challenge posed by Medicaid for the governor’s March 15 budget address. ■
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THEINSIDER
THEWEEK FEBRUARY 7 - 13 The big story: Western Ohio should see 152 new wind turbines go up this year, thanks to an agreement between Akronbased FirstEnergy Solutions and Iberdrola Renewables, a Spanish multinational company that is the world’s largest wind energy company. FirstEnergy spokesman Mark Durbin said the turbines will begin to take shape this spring, when they are shipped from their manufacturer, Gamesa Corp. of Pennsylvania. FirstEnergy agreed to buy one-third of the wind farm’s output, or about 100 megawatts of a total potential output of 204MW. It will use that power to provide electricity to consumers who have opted to pay more for wind-generated power, as well as to meet state mandates that it generate more power from renewable sources. Class act: Cleveland Scholarship Programs unveiled its new name — College Now Greater Cleveland — as well as a partnership with the Cleveland Clinic and PNC Bank. The new name, the nonprofit’s leaders say, is a better reflection of what the organization does and who it represents. And with new leadership in place, the group hopes it can attract more fundraising dollars from corporations, foundations and individuals to expand services. College Now assists more than 20,000 students in 76 schools in Cuyahoga and Lorain counties each school year through programs aimed at increasing college attainment in the region. It also offers college advising assistance, financial aid help and ACT registration.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
ArcelorMittal’s loss is Cliffs’ gain ■ Terry Fedor, I still want to have lunch. The local head of ArcelorMittal’s Cleveland steel mill is leaving the steelmaker and moving up the supply chain. He’ll be working at Cliffs Natural Resources Inc., the Cleveland-based producer of iron ore and metallurgical coal. Word of Mr. Fedor’s departure came when ArcelorMittal spokeswoman Mary Beth Holdford sent an e-mail to cancel a lunch appointment this reporter had with Mr. Fedor. “Terry’s last day at ArcelorMittal Cleveland is February 13,” Ms. Holdford wrote. “Eric Hauge has been named Interim Vice President & General Manager, ArcelorMittal Cleveland, effective Monday, February 14.” No word yet on what Mr. Fedor will be doing for Cliffs, which has been reorganizing and adding to its management of late to support its increasingly global and growing business. On Feb. 8, it announced several organizational changes and said it was searching for a North American coal operations executive, along with a global transportation and logistics executive. A Cliffs spokesperson was not available for comment last Friday, Feb. 11. — Dan Shingler
On topic: The Cleveland Clinic and JumpStart Inc. have committed to invest $500,000 in a Cleveland company developing a topical treatment for wounds. The company, SironRX, is a spinoff of Juventas Therapeutics Inc., which in 2007 licensed from the Clinic intellectual property for an engineered version of a molecule the body produces to repair damaged tissue. Spreading out: University Hospitals opened a satellite office in Akron that will offer kidney transplant consultations and education. Hospital officials say the office — located at the intersection of Interstate 77 and White Pond Drive — fills a void for such services since Summa Health System shuttered a similar program in 2008. University Hospitals also plans to establish transplant evaluation clinics for patients with liver, heart and lung failure. Networking:
Lorain County Community College announced it will join nine other community colleges across the country to pilot an online initiative that will allow the colleges to explore new ways to support entrepreneurs and small business owners. The Virtual Incubation Network will allow the community colleges to develop methods to expand through a virtual network such services as counseling for business owners and entrepreneurs.
An M&A group for the younger crowd
■ One of Northeast Ohio’s own has returned to the region as the new chair of medicine at the MetroHealth System, and one of his top
■ This type of group — one targeted to young professionals who work in mergers and acquisitions — didn’t exist when Jim Marra started private equity work in his mid-20s. ACG (Association for Corporate Growth) Cleveland recently announced the formation of Young ACG, which offers mentoring, networking opportunities and discounts on ACG events to professionals age 35 and younger.
WHAT’S NEW
BEST OF THE BLOGS
Akron native takes key post at MetroHealth
Teamwork needed: Joe Roman, president and CEO of the Greater Cleveland Partnership, told state legislators in Columbus that Gov. John Kasich’s planned JobsOhio economic development nonprofit will be most effective if it teams up with existing regional economic development efforts when it calls on business attraction and expansion prospects. After his testimony last Wednesday, Mr. Roman said he supports the JobsOhio concept but he wants to make certain it meshes well with existing regional and statewide economic development efforts, such as those undertaken in Northeast Ohio by GCP and Team NEO.
priorities is to expand the clinical research program at the county-subsidized health system. Dr. Michael Wolfe, an Akron native, most recently was chief of gastroenterology at Boston University Medical Center. He also was a professor at Boston University School of Medicine and served on the staff at Harvard Medical School. Dr. Wolfe said there are two research areas upon which he thinks MetroHealth can build, but he hedged in identifying them for fear of tipping off competitors in town. Dr. Wolfe, who holds one of the patents involved with the production of the popular heartburn medication Pepcid Complete, said boosting the health system’s research programs will make MetroHealth a “triple threat.” He said the health system already excels at caring for patients and educating aspiring doctors. — Timothy Magaw
Excerpts from recent blog entries on CrainsCleveland.com.
Among giants of advertising, Progressive’s Flo is tallest
COMPANY: OurPet’s Co., Fairport Harbor PRODUCT: Clipnosis Gentle Calming Clip If your cat needs to chill out, OurPet’s thinks it has a product that will make your life easier. The pet supplies company bills Clipnosis as a “safe, painless, drug-free product that helps to calm cats under stressful situations.” OurPet’s says the Clipnosis is based on the “scruff response” — the characteristic in which baby animals, including kittens, become limp when their mothers pick them up by the neck in their jaws to move them. The Clipnosis “causes a similar calming behavior when clips are applied to a cat’s scruff,” according to OurPet’s. The company says the Clipnosis allows users to have both hands free for things such as exams, minor procedures like vaccinations and grooming tasks like nail clipping. OurPet’s says the product was “enthusiastically received” last month by veterinarians, technicians and clinic administrators at the North American Veterinary Conference. Under independent testing, OurPet’s says it “confirmed that 80% of 93 million cats in the United States can benefit from the Clipnosis Clip.” The Clipnosis is available at present for professional use and can be bought by cat owners through their veterinarians. For information, visit www.Clipnosis.com.
■ It’s not a Super Bowl victory for the Browns, but a Northeast Ohio icon just secured a title. Coinciding with the onslaught of advertising that is the Super Bowl, Entertainment Weekly magazine’s Pop Watch blog wrapped up the Big Shill bracket game, a contest to identify advertising’s greatest character. (The full bracket is at http://tinyurl.com/4fdz3xj.) All the giants were included — Mr. Whipple, Tony the Tiger, Colonel Sanders, the “Where’s the Beef” lady — but Pop Watch readers narrowed the competition to two: the Pillsbury Doughboy and Progressive Corp.’s Flo. The winner, as you must realize, is Flo, who stomped the Doughboy with 73% of the vote. Probably shouldn’t be a big surprise. Progressive spokeswoman Leah Knapp notes that Flo, who is played by actress Stephanie Courtney, has nearly 2.5 million fans on Facebook.
With their UH donation, the Seidmans are in elite company ■ Lee Seidman, the founder of The Motorcars Group, and his wife, Jane Seidman, made it onto the annual Slate 60 list of the year’s largest U.S. philanthropic contributions for their gift of $42 million to Univer-
Junior professionals involved in M&A work commonly are internally focused, so the new group will provide an avenue for them to branch out beyond the deals they do, said Mr. Marra, the liaison between ACG Cleveland and Young ACG. He also sees it as a way to encourage young people to stay in Cleveland. “I think back to being 25 or 26 years old, not knowing much about private equity, not knowing much about the career path — it would have been great to know somebody else in my industry to give me another perspective,” said Mr. Marra, now 49 and director of business development for Blue Point Capital Partners, a private equity firm with an office in Cleveland. Kevin Bader, a 26-year-old financial planner who led the formation of Young ACG, sees the new offshoot providing value to those who join it. “When people reach a certain level, they’re expected to go out and get business and talk to people,” Mr. Bader said. “This is really helping those junior members of those firms develop themselves.” Young ACG is open to private equity professionals, investment bankers, accountants, lawyers and others who work in M&A. The group’s official kickoff event is scheduled for March 10. To sign up, e-mail admin@acgcleveland .org, or for more information, e-mail Mr. Bader with Skylight Financial Group in Cleveland at kbader@finsvcs.com. — Michelle Park
sity Hospitals. The list runs annually on Slate.com and is compiled by the Chronicle of Philanthropy. The Seidmans’ contribution was the 25thlargest gift of 2010, according to the Slate 60. The web site noted that total giving in 2010 “came to $3.36 billion — a princely sum, but nevertheless less than in years past, even the bust years of the recession.” Donors on the 60 granted $4.2 billion in 2009, $15.8 billion in 2008, and $7.8 billion in 2007. The drop in 2010 “is mostly because there were no outlying, big blockbuster gifts or bequests, such as 2008’s bequests of $5.2 billion by Leona Helmsley and $4.5 billion by James LeVoy Sorenson,” according to Slate. com.
The numbers don’t lie: Local manufacturing is heating up ■ An analysis of new data from the U.S. Bureau of Labor Statistics gives Cleveland some reason to be optimistic about the nature of the economic recovery now under way. Business First of Buffalo crunched the numbers in 100 markets and found Cleveland posted the nation’s second-best gain in manufacturing jobs from December 2009 to December 2010. San Jose, Calif., was the nation’s best performer, adding 5,400 manufacturing jobs. Rounding out the top five were Cleveland (up 4,900 manufacturing jobs in 2010), Cincinnati (up 4,800), Minneapolis-St. Paul (up 4,500), and Chicago and Detroit (up 3,900 each). You can find all the data at http://tinyurl.com/4bnfmef.
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