Crain's Detroit Business, Sept. 15, 2014 by Crain's Detroit Business

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www.crainsdetroit.com Vol. 30, No. 37

SEPTEMBER 15 – 21, 2014

$2 a copy; $59 a year

Gilbert, Buffett: Live streaming

ore than 150 successful “Detroit expatriates” – business executives, entrepreneurs, philanthropists, entertainers and sports figures with ties to Detroit – will participate in the inaugural Detroit Homecoming this week.

The three-day gathering will challenge attendees to re-engage with their home town and find ways to support the city as it emerges from bankruptcy. Although the event itself is invitation-only, parts of it will be live-streamed on two media websites: wxyz.com and crainsdetroit/homecomingvideo. One highlight will be at 12:45 p.m. Thursday, with a conversation between Quicken Loans Inc. founder Dan Gilbert and investor and philanthropist Warren Buffett on “Why I’m Bullish on Detroit.”

Wednesday, Sept. 17 7 p.m., welcome from Gov.

Regional water authority outlook runs hot and cold Debt load, pension funding to test new agency’s power BY CHAD HALCOM CRAIN’S DETROIT BUSINESS

How much money can a regional Great Lakes Water Authority raise to finance water and sewer systems improvements in metro Detroit, considering it will be saddled with billions of legacy bond debt and must immediately borrow about $300 million more? The new authority proposal, as unveiled last week by regional leaders, will have much going for it — such as likely operating revenue of well over $800 million, more than 4 million regional cus-

tomers and an ability to issue bonds through the Michigan Finance Authority. On the downside, Question awaiting however, the authornew authority: How much will city ity will assume virtupay? Page 26 ally all of the $5.2 billion in bond debt the Detroit Water and Sewerage Department now owes, doesn’t know yet how much Detroit can contribute toward payments on that debt, and must issue new bonds within 90 days to shore up the city’s pension plan. A 4 percent rate

TAPPING DETROIT

increase cap for the next 10 years also could limit its ability to cover bond obligations for a while, experts said. The DWSD currently spends about $410 million of its approximately $930 million annual budget on debt service. That could grow another $20 million to $25 million per year, officials said, for the payment on new bonds it must issue within its first 90 days to prefund a contribution to the city’s General Retirement System pension plan through 2023, under the terms of a memorandum of underSee Water, Page 26

Rick Snyder, introduced by Roger Penske

Friday, Sept. 19

8:30-9 a.m. Friday: Mary Barra, CEO, General Motors Co., on GM’s commitment to revitalization 9-10 a.m.: Diversity in Detroit’s Rebound, a roundtable featuring Ron Parker, Executive Leadership Council; Gwen Butler, Capri Capital Partners LLC; Greg Jackson, Prestige Automotive Group; Roy Roberts, formerly of GM and emergency manager of Detroit Public Schools; Frank Venegas, Ideal Group. Moderator: Chuck Stokes, WXYZ-TV. Crain’s Detroit Business produced and managed The Detroit Homecoming with its nonprofit partner, the Downtown Detroit Partnership. WXYZ-TV is a media partner. A host committee of local dignitaries joined work groups of more than 40 people to help create the content for the event. More than 40 corporate and foundation sponsors supported the initiative. Co-directors of the event are Crain’s Publisher Mary Kramer and former Fortune magazine publisher Jim Hayes. For more on Hayes, see Page 7. Hayes

Co-founders buy back stake, launch new product line BY DUSTIN WALSH

VISALIS VITAL SIGNS

CRAIN’S DETROIT BUSINESS

Revenue soared from 2010 to 2012, only to plummet just as dramatically.

housands of weight-loss supplement enthusiasts, marketers and merchants trekked to the George R. Brown Convention Center in Houston over the weekend for Vitality 2014. The throng gathered for the launch of new nutrition products by Troy-based ViSalus Inc. Part weight-loss product line, part energy drink and supplement maker, and part lifestyle brand, ViSalus is trying to get its financials back in shape. The Vitality conference is the first since the multilevel marketing firm’s co-founders re-acquired a majority share of ViSalus earlier this month. ViSalus’ three co-founders, along with “certain shareholders,” agreed to acquire 70.9 percent of ViSalus, raising their stake to 90 percent. The deal was set up as a stock exchange with previous parent company, Greenwich, Conn.-based Blyth Inc.

$34

$351.2

Buffett

ViSalus shapes plan to bulk up sales

$623.5

Gilbert

or Mike Duggan, “Situations and Solutions” 10:30-11 a.m.: Chris Ilitch, Ilitch Holdings Inc., on his family’s plans for the entertainment district 12:15-12:45 p.m.: Dan Gilbert on his plans for Detroit, moderated by Bankole Thompson, editor, Michigan Chronicle 12:45-1:45 p.m.: Gilbert and Buffett

$230.5

Thursday, Sept. 18 8:40-9:30 a.m. Detroit May-

$57.4 $53.6

2010 *2011 2012 2013 Q1 ’14 Q2 ’14 *Changed fourth-quarter reporting closure to Dec. 31 instead of Jan. 31, causing onemonth's worth of higher totals in 2012.

See ViSalis, Page 25

Health Care

Page 3 Storm-shaken utilities forced to put it all on the line

Children’s Hospital tower factors patients into design

Taking the pulse of health insurance price hikes, Page 11

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CRAIN’S DETROIT BUSINESS

MICHIGAN BRIEFS Study: More rapids in Grand Rapids could have $19.1M ripple effect A study released last week by the group Grand Rapids Whitewater estimates that the net annual economic impact for the proposed Grand Rapids Whitewater project along the Grand River would run between $15.9 million and $19.1 million, MiBiz reported. The project, estimated to cost about $30 million, aims to remove all or part of five dams and re-create rapids, making the river more hospitable for kayaking, fishing, rafting and other recreation — and resulting in more tourism spending. The study projected taxable property values around the riverfront to increase by $117.7 million. The project is expected to generate an additional $285 million in development and 1,520 jobs, the study said.

A town prepares for warm climate without saying so With climate change still a political minefield, some community leaders have found a way to prepare for the potentially severe consequences without triggering partisanship. Leaders in Grand Haven, a town of 10,600 in West Michigan, will meet this fall with design consultants to explore such possibilities as “cooling stations” for low-income people during future heat waves or development restrictions to prevent storm erosion along Lake Michigan. City Manager Pat McGinnis isn’t calling it a climate change initiative. “ ‘I wouldn’t use those words,’ ” McGinnis said he told consultants. “Those are a potential flash point.” Grand Haven Mayor Geri McCaleb is among those who consider warming merely part of nature’s historical cycle. Yet she’s on board with ideas for

information about the new owner. Colliers would manage the mall.

Grape growers fear bad harvest Report: Lormax Stern sold Centerpointe Mall in GR for $68M will make for less variety in wines Centerpointe Mall in Grand Rapids was sold in June for $68 million, MLive.com reported. Bloomfield Hills-based Lormax Stern Development Co., which purchased the 525,000square-foot shopping center in 2000, put the mall up for sale in December. City records indicate New York City-based CenterPoint Owner LLC now owns the mall. Earl Clements, a Colliers International West Michigan principal, would not give more

Think you could use a stiff drink? Consider the plight of grape growers in Southwest Michigan, who say virtually no European grapes — used to make Merlot and other reds — have survived to harvest, MLive.com reported. Mark Longstroth, small-fruit educator for Michigan State University Extension, said heavy snow and subzero temperatures in January killed most of the European vines.

dealing with storms. “History will bear out who has the right answers” about climate change, she said. Joe Vandermeulin, whose organization runs the Grand Haven program and others, is accustomed to walking the language tightrope. “The term ‘global warming’ seems to be thoroughly misunderstood, so we don’t use it much,” he said, although a primary goal is helping communities prepare for ... global warming. During a climate conference this summer that drew about 175 community leaders, government officials and scientists, mostly from the Great Lakes area, organizers even distributed a pamphlet with tips for discussing the subject — or sidestepping it. For example, avoid hyperbolic “climageddon” warnings about impending catastrophe, it advises. — Associated Press

And how does this affect consumers? Dean Bender, owner of Kalamazoo’s Lawton Ridge Winery, said it isn’t so much that prices will rise or supply will be low. It’s that the variety of wines will be lacking.

MICH-CELLANEOUS All but six Michigan universities think that U.S. News & World Report doesn’t know the first thing about grading the best colleges in the U.S. Which is to say the six Michigan universities to crack the top 200 of the magazine’s list for 2015 are the University of Michigan at No. 29, Michigan State University in a tie for

No. 85, Michigan Technological University at No. 116, Andrews University in Southwest Michigan at No. 168, Western Michigan University at No. 173 and Central Michigan University at No. 194. The Port Huron City Council approved a proposal by the Port Huron Museum to sell four more of its paintings by Canadian artists for $4,000

as part of an effort to fund improvements, the local Times Herald reported. In 2013, the council approved selling 11 paintings for $23,000. The Genesee County Land Bank was awarded $2.6 million from the federal government to demolish vacant houses and remove blight in Flint’s Civic Park neighborhood, The Associated Press reported. The website Business Insider says the Grand Rapids suburb of East Grand Rapids is the most educated town in Michigan, MLive.com notes. The city of 11,000 has the highest percentage of adults over 25 with at least a bachelor’s degree — 77.5 percent. Left unexplained: How a town could muster up enough creativity to append a compass direction to the name of the closest big city; say, “Yes, we’ll call ourselves East Grand Rapids”; then be called the smartest city in Michigan. Find business news from around the state at crainsdetroit .com/crainsmichiganbusiness. Sign up for the Crain’s Michigan Morning e-newsletter at crainsdetroit.com/emailsignup.

CORRECTIONS A story in the Sept. 1 issue on the number of advisers hired by banks for their growing wealth management operations misstated the totals for FirstMerit Bank. The bank has added six financial advisers for a total of 42. A Sept. 8 Business Diary item misspelled the name of startup Core Cycl.

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CRAIN’S DETROIT BUSINESS

September 15, 2014

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TALES FROM

Utilities forced to put it all on the line

Inside

THE DARK SIDE Dec. 21-22, 2013: 210,000 lost power in metro Detroit, 600,000 in Michigan April 18: 40,000 in metro Detroit June 30: 140,000 in metro Detroit Sept. 5: 375,000 in metro Detroit, 462,000 in Michigan Sept. 10: 38,000 in metro Detroit

Rochester Hills-based Harlan Electrical Construction workers deliver a power pole Tuesday in Hazel Park to replace one that snapped in the Sept. 5 storm.

Renaissance Fest to add ye new to ye olde, Page 4

BILL SHEA

BY JAY GREENE CRAIN’S DETROIT BUSINESS

DTE Energy Co. and Consumers Energy Co. have put more financial and manpower resources into improving electric power reliability the past two years, but the number and severity of winter and summer storms continue to challenge utility company distribution line maintenance programs as power outages increase in frequency and impact more customers. Since the extreme ice storm last December disrupted power for more than 625,000 cus-

More storms, larger outages challenge DTE, Consumers tomers of DTE and Consumers, several other storms this year have caused widespread power outages — mostly from fallen trees and limbs — that have taken days to repair and knocked out power for more than 2 million people.

Through July 31 this year, plus the storms of Sept. 5 and Sept. 10, DTE said some 1.8 million customers have lost power in Southeast Michigan, compared with 2.4 million customer outages in all of 2013 and 2.3 million in 2012. There were 2.8 million customer outages in 2011 with 22 storms, DTE said. Detroit-based DTE, which has 2.1 million customers in Southeast Michigan, now spends $750 million annually on improving electric reliability, restoration and operations. That is up more than $100 million from 2012, said Trevor Lauer, See Utilities, Page 23

Company index These companies have significant mention in this week’s Crain’s Detroit Business: Atwater Brewery . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Black Lotus Brewing . . . . . . . . . . . . . . . . . . . . . . . 17 Blue Cross Blue Shield of Michigan . . . . . . 11, 13, 14 Comprehensive Benefits . . . . . . . . . . . . . . . . . . . . 12 Consumers Energy . . . . . . . . . . . . . . . . . . . . . . . . . 3 Core Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Crain Communications . . . . . . . . . . . . . . . . . . . . . . 7 Detroit Medical Center . . . . . . . . . . . . . . . . . . . . . 15 Detroit Water and Sewerage Department . . . . . . . . . 1 DMC Children’s Hospital of Michigan . . . . . . . . . . . 3 Dragonmead Microbrewery . . . . . . . . . . . . . . . . . . 17 DTE Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Falling Down Beer . . . . . . . . . . . . . . . . . . . . . . . . 17 Ford Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Experts: Meridian plan to lease provides options

General Motors . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Great Lakes Water Authority . . . . . . . . . . . . . . . . . . 1 Griffin Claw Brewing . . . . . . . . . . . . . . . . . . . . . . . 17 Health Alliance Plan . . . . . . . . . . . . . . . . . 11, 13, 14 HealthPlus of Michigan . . . . . . . . . . . . . . . . . . . . 13 iSelect Custom Benefits Store . . . . . . . . . . . . . 11, 14 Jolly Pumpkin Artisan Ales . . . . . . . . . . . . . . . . . . 17 Jones Lang LaSalle . . . . . . . . . . . . . . . . . . . . . . . . . 3 Kuhnhenn Brewing . . . . . . . . . . . . . . . . . . . . . . . . 17 Marwil Associates . . . . . . . . . . . . . . . . . . 12, 13, 14 Meridian Health Plan . . . . . . . . . . . . . . . . . . . . . . . 3 Michigan Association of Health Plans . . . . . . . . . . 12

BY KIRK PINHO

Michigan Chamber of Commerce . . . . . . . . . . . . . 14

CRAIN’S DETROIT BUSINESS

Michigan Renaissance Festival . . . . . . . . . . . . . . . . 4 COURTESY OF THE DETROIT MEDICAL CENTER

When plans for a new $111 million Meridian Health Plan building were made public last September, the news was met with anticipation: Detroit was on track for its first new skyscraper downtown since 2006. But sometimes business sensibilities change real estate plans. Plans for the 320,000-square-foot headquarters building have been scrapped, and Meridian will instead lease an as-of-yet undetermined amount of space downtown, President Jon Cotton said in an interview with Crain’s on Friday. Meridian’s leasing of space instead of putting its mark on the Detroit skyline with a new 16-story building makes more sense to accommodate employee growth and provide the Detroit-based comWeiner pany with flexibility, real estate experts said. “They can grow and contract,” said A.J. Weiner, executive vice president in the Detroit office of Jones Lang LaSalle. “When you’re the key tenant in a ground-up build, those flexibilities go out the window or are substantially impaired when you’re on the hook for a major financial obligation like that.” he said. Matt Farrell, executive principal of Birmingham-based Core Partners Associates LLC, said a new building could have become a burden to See Meridian, Page 22

THIS WEEK @ WWW.CRAINSDETROIT.COM

“When a child comes in for outpatient surgery, it takes about five hours to get through the system,” said Larry Gold, president of DMC Children’s Hospital. The design of the new patient tower “takes 30 percent of the time out of that process,” he said.

New International Trade Crossing . . . . . . . . . . . . . . 6 Ovshinsky Innovation . . . . . . . . . . . . . . . . . . . . . . 22 PricewaterhouseCoopers . . . . . . . . . . . . . . . . . . . 14 Priority Health . . . . . . . . . . . . . . . . . . . . . 11, 13, 14 Real Estate One . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Children’s Hospital’s new tower to focus more on critical care Larger neonatal unit, ICU planned BY JAY GREENE CRAIN’S DETROIT BUSINESS

The new DMC Children’s Hospital of Michigan patient tower — planned to begin construction in March and open at the end of 2016, with the entire project completed by 2017 — is expected to be more of a critical care facility than originally planned. As the largest of the 15 specified capital projects required to be built when DMC was sold in 2011 to Vanguard Health Systems, the decision to build the cumulative $170 million tower project into more of a pediatric critical care wing was made for two primary reasons, said DMC CEO Joe Mullany:

There was a dire need to increase the number of neonatal and pediatric intensive care beds to treat a growing number of children who required such care, and that pediatric care is one of DMC’s three regional specialty service lines that fit into its larger ambulatory care network strategy. Mullany Last year, DMC was sold again, to Dallas-based Tenet Healthcare Corp., one of the largest investor-owned chains in the country. The six-story, 185,000-square-foot children’s tower features expanded neonatal and pediatric intensive care unit space, a new emergency department, new imaging equipment, larger operating rooms and advanced surgical See Children’s, Page 24 Passing thoughts about the Lions Sports business reporter Bill Shea talks the X’s and O’s and uh-ohs every week during the season at crainsdetroit.com/sheastadium LON HORWEDEL

Re/Max of Southeastern Michigan . . . . . . . . . . . . 16 St. John Providence Health System . . . . . . . . . . . . 15 University of Michigan . . . . . . . . . . . . . . . . . . . . . 25 ViSalus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Wayne State University . . . . . . . . . . . . . . . . . . . . . 21 Witch’s Hat Brewing . . . . . . . . . . . . . . . . . . . . . . . 17

Department index BUSINESS DIARY . . . . . . . . . . . . . . . . 20 CALENDAR . . . . . . . . . . . . . . . . . . . . 19 CLASSIFIED ADS . . . . . . . . . . . . . . . . 21 KEITH CRAIN . . . . . . . . . . . . . . . . . . . . 9 MARY KRAMER . . . . . . . . . . . . . . . . . . X OPINION . . . . . . . . . . . . . . . . . . . . . . . 8 OTHER VOICES . . . . . . . . . . . . . . . . . . 8 PEOPLE . . . . . . . . . . . . . . . . . . . . . . 19 RUMBLINGS . . . . . . . . . . . . . . . . . . . 27 WEEK ON THE WEB . . . . . . . . . . . . . . 27

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CRAINâ&#x20AC;&#x2122;S DETROIT BUSINESS

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The Michigan Renaissance Festival in October will trade its roasted turkey legs and flagons of ale in favor of zombies. The Elizabethan-era festival near the Mt. Holly Ski Resort in northern Oakland County will wrap up its 35th season with a three-day weekend from Sept. 26-27 before reopening Oct. 10 for its first Halloween schedule. The â&#x20AC;&#x153;Halloween in Hollygroveâ&#x20AC;? is a 5K zombie run and a spooky food event, and organizers expect it to be a popular and profitable addition. The main attraction will be the â&#x20AC;&#x153;Horton Lake Outbreak,â&#x20AC;? a zombie-themed 5K team obstaclecourse run in which three five-person teams race in heats to get a vial of antidote to the lake. Itâ&#x20AC;&#x2122;s scheduled from 10 a.m. to 4 p.m. Fridays through Sundays from Oct. 10-26. Tickets are $60 for individuals and $200 for a five-person team by Sept. 28, $75 and $250 after that. The 5K can accommodate 180 people a day over nine days. â&#x20AC;&#x153;We have such a beautiful site and space, thereâ&#x20AC;&#x2122;s no reason not to have events and fill it up. Itâ&#x20AC;&#x2122;s pretty dormant most of the year,â&#x20AC;? said Kim Heidger, the renaissance festivalâ&#x20AC;&#x2122;s marketing coordinator. â&#x20AC;&#x153;Halloween is such a big thing in Michigan. Everyone always is looking for events.â&#x20AC;? Festival officials began toying with the idea of a Halloween event a few years ago, and began organizing it in 2013 to launch this fall. â&#x20AC;&#x153;Runs are big. Trying to figure out the idea was the harder part. We wanted it to be something different. Itâ&#x20AC;&#x2122;s more like a real-life video game,â&#x20AC;? Heidger said. Heidge said a few runners have already signed up, and commercials for the event will air this week beginning on Comcast and local TV stations. The festival also is offering for the first time a â&#x20AC;&#x153;Phantom of the Operaâ&#x20AC;?-themed six-course meal for $45 each weekend. The Halloween events will boost an already lucrative business. The festival is averaging 40,000 to 50,000 each weekend this year. Last year, it hit an all-time attendance high of 258,000. More than 1,000 season passes were sold this year, Heidger said. Ticket revenue for the year is about $5.5 million, and each visitor spends another estimated $50 on food and beverages. Thatâ&#x20AC;&#x2122;s at least another $13 million for the festival and its vendors. More is spent on crafts, artwork and other goods. Aside from tickets, revenue also is generated through ticketed food and beverage events, such as the â&#x20AC;&#x153;Pig-N-Swigâ&#x20AC;? bacon and beer sampling that is $25 per person. The grounds also are available for weddings, with the elite package priced at $8,000 for 100 guests that includes food, beverages and entertainment. The festivalâ&#x20AC;&#x2122;s expenses can be more than $1 million but vary, Hei-

PHOTOS BILL SHEA/CDB

Itâ&#x20AC;&#x2122;s tradition for visitors and workers alike to dress in costume at the Michigan Renaissance Festival (top). The Throne of Swords (left) was added this year for patrons to take photos.

dger said, and depend on capital improvements or repairs. This year, organizers rebuilt a stage and added a â&#x20AC;&#x153;Throne of Swordsâ&#x20AC;? for patrons to take photos. Future expansion is likely to include a new food area and pub, Heidger said. Rhonni DuBose is a renaissance festival business consultant, and editor of ren fair industry bestpractices site Festivalprose.com. Sheâ&#x20AC;&#x2122;s also a vendor at several fairs during the year. She lives in Texas. The trend of adding Halloween events, or other themed uses of festival grounds, emerged over the past decade. â&#x20AC;&#x153;Some (fairs) have been doing it for a number of years,â&#x20AC;? she said. â&#x20AC;&#x153;The idea of a property unused for a number of months doesnâ&#x20AC;&#x2122;t make sense.â&#x20AC;? Some Renaissance festivals also do Christmas and Fourth of July events, she said. Overall, the larger, established festivals have withstood economic uncertainty, such as the recent recession, because they are a cheaper alternative to destinations such as Disney World, DuBose said. The Michigan Renaissance Festival began in 1979, and the centerpiece is a 17-acre early 16th century village called Hollygrove â&#x20AC;&#x201D; a portmanteau of Holly and Groveland townships. The entire area, including parking, is more than 300 acres. The walled Hollygrove includes shops, taverns, games and 17 themed stages, along with a live jousting arena, populated by costumed entertainers and vendors.

Visitors often stray from the Elizabethan England garb, and itâ&#x20AC;&#x2122;s not uncommon to see people dressed as pirates, Vikings, samurai warriors, elves, hobbits, Roman centurions, Scottish Highlanders, superheroes, and characters such as Dr. Who, Shrek, Harry Potter and Dread Pirate Roberts from â&#x20AC;&#x153;The Princess Brideâ&#x20AC;? film. The festival is owned by Shakopee, Minn.-based Mid America Festivals Corp., which owns similar events in Minnesota, Kansas City, St. Louis and Tampa. It launched the Minnesota Renaissance Festival 44 years ago. While Mid America Festivals owns the land, many of the booths are owned by crafters, and they sell or lease the spaces to each other. Costs can range from $2,000 to $30,000 depending on the frontage and amenities, such as kitchens. Crafters and performers pay the festival fees to participate. Richard Heinzelman of Paw Paw has been selling his handcrafted goods at the Michigan Renaissance Festival for 32 years. First, it was artistic items made from wire. For the past 15 years, heâ&#x20AC;&#x2122;s made wooden wares such as mugs, wine racks and pipes. The mugs, made with a combination of 18 different woods, are mostly priced in $62 to $95. Heinzelman said he sells a few dozen each festival weekend, and he said itâ&#x20AC;&#x2122;s enough to live on. Like many festival vendors and performers, he travels to renaissance festivals across the country, hitting weekend events in New York, Georgia and the Carolinas. Michigan has smaller ren fairs in Vassar and Ishpeming. The renaissance festival circuit â&#x20AC;&#x201D; there are more than 100 in the U.S., of varying size â&#x20AC;&#x201D; is dictated by the seasons. The erratic nature of Michiganâ&#x20AC;&#x2122;s weather limits the Holly festival to the seven weekends, Heidger said. About 4 million people annually attend such festivals, said Jonathan Kantrowitz, publisher of Stratford, Conn.-based monthly Renaissance Magazine, dedicated to the Renaissance and Shakespeare festival industry. Bill Shea: (313) 446-1626, bshea@crain.com. Twitter: @bill_shea19

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Bridge prep work continues amid effort to win federal funds BY CHRIS GAUTZ CAPITOL CORRESPONDENT

While officials await word from Washington that it will pay for its toll plaza for the New International Trade Crossing, the prep work continues for the new bridge across the Detroit River on both sides of the border. “They are still pretty much keeping on schedule, but they are having to work around the fact they don’t have the federal funds yet,” said Tom Shields, New International Trade Crossing coalition spokesman and president of Lans-

ing-based Marketing Resource Group. “In order for this thing to really launch, they need the commitment of the dollars for the toll plaza.” That amounts to about $264 milShields lion, but there have been no guarantees the federal government will come through with the funding. The Canadian government is paying for everything else related to the $2 billion project.

As the lobbying for that funding continues by state officials and members of the congressional delegation, the Michigan and Canadian governments are doing everything else they can to keep the project moving for targeted completion by 2020. The state is close to finalizing its first land acquisition, which will represent about 30 percent of the parcels needed to locate the bridge landing and toll plaza. Last week, the Detroit City Council rejected the state’s offer of $1.4 million for 301 parcels in the Delray neighborhood where the new

bridge will land, but Detroit Emergency Manager Kevyn Orr plans to approve it anyway, which he has the authority to do under state law. But the council can prepare an alternative plan for the state’s emergency loan board to consider this week, similar to what it did when the state was considering the leasing of Belle Isle. The board rejected the council’s Belle Isle plan and went with Orr’s plan to lease the park to the state. Part of the council’s counterproposal is expected to include its idea for a community benefits package for the residents of Delray, some-

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thing Rep. Rashida Tlaib, D-Detroit, who represents the area, has always sought. She said the package should include funding to help rehabilitate some of the most dilapidated of the 2,000 homes that will remain in the area surrounding the new bridge. Once the bridge is in place and the increased truck traffic commences, Tlaib said, those homes are never going to be able to increase their property values without assistance. While the bridge project references having a community benefit component, she said it is not defined. She said she does not want the vendor to just plant some trees and then be able to check off a box that it provided “community benefits.” “We really want something sustainable,” she said. “We don’t people to cross that border and see poverty and decay and blight. We want people to come across and see Tlaib Pure Michigan, Pure Detroit, see a really thriving border community.” Another wrinkle in the land acquisition appears to have had little effect. At last week’s council meeting, Ambassador Bridge Co. President Dan Stamper presented a plan to outbid the state and purchase the parcels for $1.5 million, with another $1 million to begin rebuilding homes in the neighborhood. That offer was met with skepticism from council members and was not accepted. Ambassador Bridge owner Matty Moroun has always opposed the new bridge, and has spent millions doing so. His company has also purchased some of the parcels that the state will need to acquire before moving forward with construction. Those properties will take longer to acquire, Shields said, as the state is expected to have to use eminent domain to obtain them. Because the Legislature did not allow the state to spend money to purchase property, the state is doing the negotiating for the land purchases, then after the six-member International Authority approves the purchase, the WindsorDetroit Bridge Authority will pay for the land. The International Authority, which consists of three members each from Michigan and Canada, was created in 2012 as part of a border-crossing agreement the two governments signed that year. The bridge authority, also created in 2012, is a not-for-profit crown corporation which reports to the Canadian Parliament through the Minister of Transport. The Canadian government has acquired about 80 percent of the properties it needs, and land acquisition is expected to be completed in the next year and a half, with the possibility of a four-year construction period beginning sometime in 2016. Chris Gautz: (517) 403-4403, cgautz@crain.com. Twitter: @chrisgautz

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September 15, 2014

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Ex-Fortune publisher’s passion for city sparks Homecoming BY DANIEL DUGGAN CRAIN’S DETROIT BUSINESS

When Jim Hayes found his way to Detroit as a resident for the first time, it was July 1967, a period better known for the riots that seemed to define the metro area’s psyche for decades. But for the 28-year-old, it was the start of a 10-year stint on the sales team for Sports Illustrated. He fell in love with the city, its character, and the industrial spirit it represents. After leaving in 1977, he held a range of jobs, including publisher of Fortune magazine and CEO of Junior Achievement. But Detroit never left his thoughts. The comparison of Detroit in the 1960s to today motivated Hayes, now 76, to do something. That “something” is the Detroit Homecoming. Early last year, Hayes spent time in DeJim Hayes troit asking civic leaders how he can volunteer or contribute to Detroit’s recovery. Over the course of the meetings, the idea of a summit for America’s successful Detroit natives emerged. Hayes does credit the idea to Laura Trudeau, managing director for community development at the Troy-based Kresge Foundation. After bringing that idea to Keith Crain, chairman of Crain Communications Inc., it took on steam. And by August 2013, Hayes found himself co-director of the Detroit Homecoming with Crain’s Publisher Mary Kramer. Hayes sees the idea of rebuilding Detroit the way many people do: As a microcosm of the larger problems in the United States today. “This country has so many problems, and people can’t seem to fix them,” he said. “To get Detroit’s problems to a manageable position — that’s something that can be an inspiration to so many other places in the country.” The facts are still stark, though, as he compares his memories from Detroit of 1967 to Detroit of 2014. The Fisher Building, where he had an office in his younger days, was part of an energetic neighborhood along Grand Boulevard with crowded sidewalks and a vibrant energy. “Now, it’s like so many of those bastions of American might that just look tired and weary,” Hayes said. It’s not a quick fix or an easy fix, he said. But positive things can happen by bringing people together; that is something Hayes has

learned throughout his career. As publisher of Fortune from 1986 to 1994, he created the stillsuccessful Fortune CEO Summit to bring the nation’s CEOs together. It was the start of many gatherings Hayes spearheaded, with the help of his seemingly bottomless Rolodex of contacts. After leaving Fortune, he started a nonprofit called the New Ameri-

can Revolution, dedicated to holding large-scale concerts and events to bring attention to education. That position led him to become CEO of Junior Achievement, a six-year stint that ended with his retirement in 2001. After several corporate board positions, he found his way again to Detroit. The draw was a combination of fond memories of the

city, but also this area is home to one of his daughters — and two grandchildren. He has a home in Bloomfield Hills, where he splits his time with a home in New York. Hayes continues to be impressed with the energy of Detroit and the passion that people have for it. The brighter side of Detroit that he sees is the notion of a common goal

— the idea that different races, classes and political parties can all agree on fixing the city. “I continue to be inspired by the energy of the people here,” he said. “The opportunity for bipartisanship, and working together, here is like no place else.” Daniel Duggan: (313) 446-0414, dduggan@crain.com. Twitter: @danielbduggan

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CRAIN’S DETROIT BUSINESS

OPINION

New water authority should bring change T

he agreement to create the Great Lakes Water Authority last week moves Detroit one step closer to emerging from bankruptcy and the region possibly a step or two closer to addressing the aging water and sewage system’s infrastructure needs. But before the latter is known, Chad Halcom reports on Page 1, the authority will need to gain a better understanding of the Detroit Water and Sewerage Department’s postbankruptcy financial position and learn what kind of interest rates will need to be paid on bond sales. The department’s existing debt load is substantial and the new authority will also be responsible for making up the pension fund shortfall of DWSD’s retired employees. But the hope is that a regional authority can also help shepherd management and efficiency improvements. Those won’t offset the obligations, but perhaps they could open up a little breathing room. Cobo Center has fared well under a regional authority; there’s no reason water and sewage operations can’t do the same.

Takeaways from tax bill issue On Friday, Gov. Rick Snyder signed a bill to ensure Michigan isn’t forced to pay $1.1 billion in refunds to 134 businesses for tax years 2008-10. The potential liability was caused when the Legislature failed to eliminate an alternate method of tax computation for out-of-state companies under a multistate tax compact when it created the now-defunct Michigan Business Tax in a frenzy in 2007. IBM noticed, took its case to court and won a ruling in its favor earlier this year from the Michigan Supreme Court. The new bill solves the problem, but we can’t help but have a couple of takeaways: We don’t miss the legislative chaos that existed during the administration of Gov. Jennifer Granholm. We can’t help but think that the elimination of term limits — or at least a noticeable lengthening of them — could lead to a more knowledgeable Legislature less prone to these kinds of mistakes.

OTHER VOICES Next step for water deal: Invest I watched with great insystems, there has also terest the news conference been a pattern of deferred that announced the formamaintenance, as local, tion of the Great Lakes Wastate and federal governter Authority and regionalments have continually ization of Detroit’s water cut budgets for such system. By now, anyone things. with an interest in the DeAccording to the city of troit Water and Sewerage Detroit: “The majority of Department has spoken the city’s water mains are about the deal, mostly with between 70 and 90 years favorable reviews. What Saulius Mikalonis old and failing at a rapid interests me most about the cre- rate. Detroiters have suffered ation of a regional water system is through more than 5,000 water whether it will be able to address main breaks in just the last three the serious problem of our crum- years. Rebuilding 1 percent (30 bling infrastructure. miles) of its system each year at a Over the past decade, numerous cost of about $25 million would commentators have discussed the have put the city on par with the slow decay of our infrastructure national average. However, DWSD (which includes roads, airports, has spent no more than $3.4 milpower grid, water and sewer, lion in each of the last three years among other items), which was to rebuild its mains.” never intended to operate as long In 2013, the American Society of as it has. In addition to the failure Civil Engineers prepared a report to replace many of the outdated titled Report Card for America’s In-

frastructure. Citing the lack of funding for modernizing our infrastructure and deferred maintenance, the ASCE gave our infrastructure a “D” grade and reached the following conclusion: “Our infrastructure is the foundation of our economy and our quality of life, and repairing and modernizing it has exponential benefits, including: increasing our gross domestic product, growing household income, protecting jobs and maintaining a strong U.S. position in international markets. Unless we address the backlog of projects and deferred maintenance throughout the country, the cost to each American family will reach $3,100 per year in personal disposable income.” As the focus of this entry is water infrastructure, the ASCE estimated there were 240,000 water main breaks in the United States See Voices, Page 9

KEITH CRAIN: The journey is just about over, almost If anyone thought that the process of bankruptcy would be easy and quick, they were in for a rude awakening. It’s going to go down to the wire; there’s been a lot of activity in the past couple of weeks with creditors, but the city needs everybody to agree. The big news was the new water authority agreement, with suburbs and the city to share costs and operating oversight. That’s important. It’s a groundbreaking agreement, one that most folks didn’t think was going to happen.

There are still plenty of hoops to jump through before we can all breathe a sigh of relief and raise our glasses to congratulate ourselves for a job well done. We will owe our emergency manager, Kevin Orr, a great debt. Maybe some day we’ll name a fountain for him or commission a statue. He made it happen under impossible circumstances.

But the biggest credit goes to Gov. Rick Snyder for not kicking Detroit’s problems down the road. He picked Orr, and his team has been working with him and with Mayor Mike Duggan to help expedite the bankruptcy process. If any of the many players had decided to try and derail this effort, it would have made this difficult task almost impossible.

But as I have said before, when the city emerges from bankruptcy, the work has only begun. Without some economic development within the city, it could very well be for naught. If the city wants to offer even the basic services to its residents, we have to get companies and jobs back in Detroit. Unemployment is still too high, and tax revenues are still too low. It’s a great opportunity for investors to get in at the bottom floor. There is plenty of land, and I have no doubt that there are plen-

ty of tax advantages, like what the Ilitches have been offered for their new stadium complex. Think of the opportunities for a new assembly plant or other manufacturing. The journey is nearing the end of its first chapter. There are plenty of people who thought that this might not ever happen. But given the good will and intelligence of those working on this bankruptcy, it will be accomplished. Then the next chapter begins. It could be even more exciting, in spite of all the challenges.

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MARY KRAMER: Palin tried to block important talk on life A few years back, Sarah Palin caused an uproar by alleging that Obamacare had a provision for “death panels” that would basically decide whether people lived or died. Palin’s “death panel” allegation went viral, effectively killing the idea of reimbursing doctors for “advanced care planning” conversations. The actual idea was not so macabre; Medicare would reimburse doctors for voluntary end-oflife consultations with patients in which they could discuss pros and cons of specific treatments, including the cost benefits in terms of reductions in quality of life. Private insurers have begun to compensate doctors for doing what was originally proposed, and an American Medical Association panel has proposed that Medicare do the same.

VOICES CONTINUED

I was privileged to witness how powerful those conversations can be in July when my 94-year-old mother began a testing process to determine why her left leg was swollen. An initial test discovered a large abdominal mass, which led her to the remarkable Dr. Nalini Janakiraman at Henry Ford Hospital. Before the biopsy, “Dr. Jana” talked to my mom compassionately but directly about how she felt about her current quality of life

and offered several scenarios and treatment options, depending on the results. She made no recommendations, but gave my mom a chance to ask questions and think about what she really wanted. To my great surprise, my mom — the most positive person I knew — assigned a failing grade to her current quality of life: Macular degeneration had robbed her of her sight, she told the doctor. A severe tremor made it impossible for her to write

(not that she could actually read anything she had written, she used to joke) and she was aware she had memory loss. She was not interested in any treatment to prolong her life. But, if tests showed the mass could be reduced by radiation to make her more comfortable, she would like that. About a month after that diagnosis, she was gone. The aggressive lymphoma had spread everywhere, tests had shown. She wanted no treatment, not even radiation. She just wanted time with family and friends. She got her wish. We spend a lot of money extending life. And sometimes, I learned

from people treating my mom in recent years, the impetus comes not from patients but from children of patients who urge their parents to do everything they can to stay alive, regardless of the effect of treatment on their quality of life. Or even how many months those treatments add. I guess we never stop learning from our parents. Mary Kramer is publisher of Crain's Detroit Business. Catch her take on business news at 6:10 a.m. Mondays on the Paul W. Smith show on WJR AM 760 and in her blog at www.crainsdetroit.com/kramer. E-mail her at mkramer@crain.com.

TOP FIVE SIGNS YOUR EMPLOYEES MIGHT HAVE INFERIOR DENTAL COVERAGE:

■ From Page 8

annually and the cost of replacing all the water pipes (some more than 100 years old) would be more than $1 trillion. With respect to wastewater and stormwater, capital investments were estimated at $298 billion over the next 20 years. How does this translate to Michigan? Michigan’s drinking water needs require $11.8 billion over the next 20 years. Wastewater investments will require $3.7 billion over the next 20 years. Add to that our crumbling roads and bridges, and there are significant needs that remain underfunded. Looking at all of America’s infrastructure needs, the ASCE estimated there is an annual investment gap of more than $200 billion annually. The task ahead seems daunting, if not prohibitively expensive. The political will to invest what is necessary also seems lacking. But, one bright spot appears to be the regional cooperation exemplified by the deal cut by the city of Detroit and the counties of Macomb, Wayne and Oakland. The $50 million annual lease payment to Detroit is earmarked for infrastructure development, including repairing and rebuilding Detroit’s local system, increasing capacity for stormwater events and providing a share of costs to the GLWA’s overall infrastructure improvements. The American economic engine that fueled our prosperity existed in large part because of our advanced infrastructure. As that infrastructure aged, we have neglected to maintain and improve it. Other countries have invested heavily in their infrastructures and are competing with us on our level. While they continue to invest, we fail to invest and divert assets to other priorities. We can hope that Detroit and the surrounding counties can break out of this bad habit, and the regional cooperation exhibited by the Detroit mayor and executives of Macomb, Wayne and Oakland counties will serve as an example of how to do that. Saulius Mikalonis is an attorney at the Bloomfield Hills office of Plunkett Cooney, practicing environmental law for over 25 years.

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Boundless Globalization A CFO’s guide to realizing international ambitions By James Ritchie s firms throughout the U.S. undertake growth initiatives such as introducing new products, entering new markets, and acquiring other companies, they’re looking to their CFOs for much more than financial leadership. They’re depending on them to oversee a wide range of new areas Matthew Elliott Market Executive and play a key role in setting corporate Greater Detroit Area Bank of America direction and identity. Merrill Lynch “The CFO has evolved from this accounting function — the most senior accountant in a company — to being this strategic leader who, by the way, is also involved in finance,” says Matthew Elliott, Bank of America Merrill Lynch market executive for the Greater Detroit Area. One area in particular associated with an aggressive growth enterprise is globalization. More than half of U.S.headquartered, mid-size companies are now conducting business outside the country’s borders, and many smaller firms are finding opportunities overseas, too. In a Bank of America Merrill Lynch survey, a large majority — 76 percent — of CFOs predicting above-average sales growth for 2014 expected to see increases from international sales. But global strategies bring new challenges. And in fastgrowing organizations, it’s typically up to the CFO to find a way to overcome them. Key issues include foreign exchange, repatriation of revenue and unfamiliar laws and customs. “It falls on the CFO to set up relationships with facilitators and find the right intermediaries to do business there,” says Elliott. HIGH-STAKES TERRITORY It’s not hard to see why globalization has taken hold: The growth possibilities in developing markets can be hard to match elsewhere. For example, China’s economy is likely to expand by 7.6 percent in 2014, according to BofA Merrill Lynch Global Research. That’s compared with projected growth of three percent for the U.S. economy. International acquisitions can be a quick way to ramp up a company’s presence and sales in new markets. In toughto-crack regions, they may be the only viable way in. In this high-stakes game, CFOs must see the firm through funding the expansion, operating profitably, complying with local laws and, ultimately, accessing the money it makes. It’s easy to overlook a tax issue or other matter that can sink a company’s plans. To smooth a firm’s entry into global markets, an experienced global bank can connect the CFO with experts and other managers who have been where they are. For a given country or region, a banker can work with the CFO to create a suitable treasury management structure. “It’s a strength of ours,” says Elliott. “We have people on the ground in the countries where they want to do business, and we’re doing business there ourselves.” Factors to consider include the company’s objectives and need for liquidity as well as local regulations and tax implications. “Our CashPro® Online treasury management system is a tool that can help rapidly expanding companies manage their cash and information flows,” Elliott says. The bank also helps firms understand issues such as currency, fraud and regulatory risk. LESSONS FROM THE TRENCHES Language and culture differences can also be major stumbling blocks. For example, handling business cards the wrong way can signal a lack of respect in China and Japan. It’s crucial in both countries to give and receive cards with both hands and to review cards carefully before putting them away — preferably in a nice case or portfolio, not your pocket.

The finer points can take a lifetime to master. Few CFOs have the time to understand every nuance of a new business environment, especially when their growth strategy might involve multiple countries. Bank of America Merrill Lynch relies on their experience with clients from nearly every industry, that have been through the growing pains of international expansion, to aid other clients. Their from-the-trenches advice can complement that of lawyers, accountants and consultants. Firms can also measure their performance against vast amounts of benchmarking data through a Bank of America Merrill Lynch tool called PeerProfiler.®

“Bankers don’t just provide access to capital or products or services,” Elliott says. “We provide access to people — peer-to-peer insight and experience.” Ultimately, the CFO’s role in globalization is the same as in other areas: Support the organization’s strategy while managing risk. “People in hyper-growth mode are quickly wearing many different hats,” Elliott says. “I call globalization a team sport. You not only need support and data, but to hear about different experiences.” For more on how your Detroit business can expand internationally and adapt to the demands of rapid growth, contact matthew.b.elliott@baml.com

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PATIENTLY WAITING Thousands of nurses still haven’t seen millions from hospital settlement, Page 15

People The new Beaumont Health has named the following to its executive team: Brian Connolly, president of network development and future initiatives; former CEO of Oakwood Healthcare Paul LaCasse, D.O., chairman of clinical leadership council; former Botsford Health Care CEO Margaret Casey, chief development officer; former president of Beaumont Foundation J. Paul Conway, chief human resources officer; former senior vice president of HR at Oakwood John Keuten, CFO; Casey former executive vice president and CFO at Oakwood Subra Sripada, chief transformation officer; former chief administrative and information officer at Beaumont Health System Lisa Diehl Vandecaveye, chief corporate responsibility officer; former chief legal officer at Botsford Gordon Walker, chief legal officer; former chief legal officer at Beaumont David Wood, M.D., chief medical officer; Vandecaveye was Beaumont’s chief medical officer. Edward Chadwick, CFO of Wake Forest Baptist Medical Center in WinstonSalem, N.C, has been appointed executive vice president and CFO of Henry Ford Health Chadwick System, Detroit. He will replace James Connelly, who was appointed as CEO of Health Alliance Plan, Henry Ford’s HMO. Chadwick served as CFO and in financial positions at Trinity Health, Livonia, for 21 years. Thomas Reeths, D.O., director of medical education and family medicine residency at Bay Regional Medical Center, Bay City, has been appointed president of The Michigan Association of Osteopathic Family Physicians. Reeths has served on its board since 2007. Alisha Crescenti, director of finance at Oakland Regional Hospital in Southfied since 2011, has been promoted to CFO of the hospital and its parent company, Michigan Surgery Specialists PC. This is a newly created position. Crescenti Jason Schairer, M.D., a gastroenterologist in the Henry Ford Inflammatory Bowel Disease Center, Novi, was awarded with the 2014-2015 Bridges to Excellence in Inflammatory Bowel Disease Care award by the American Gastroenterological Association. Schairer is one of two Michigan physicians to receive the award.

Taking the pulse on prices How much will small biz pay for premiums? A good question, with many answers BY JAY GREENE CRAIN’S DETROIT BUSINESS

mall businesses with 51 to 100 employees may find that their health care costs increase, on average, less than 10 percent for plans they purchase in 2015. But that’s only if they’re already providing Obamacare-compliant coverage for employees. If they’re moving to Obamacare for the first time, increases could be much higher, and individual circumstances could drive them higher yet. That’s because Obamacare-compliant policies must offer a minimum of 10 essential benefits — including outpatient and preventive care, mental health care, maternity care, lab services, prescription drugs and hospitalization coverage. For employers with 50 or fewer employees, benefit costs could be higher because the Obamacare-required “member rating” means that families with several children will pay higher rates. Some insurance executives say that premium rates for 2015 for companies with 51-100 employees have moderated and that there are many plan options to choose from. On the other hand, agents who serve businesses of 50 or fewer employees say that while some employers have found plans with lower premiums — mostly because they increased deductibles or reduced benefits — most small employers are paying higher

ISTOCK PHOTO

PLAN OPTIONS

PROPOSED RATE INCREASES

Self-funded health plans: Another option for small businesses? Page 13 Experts expect private insurance exchanges to attract more small businesses, Page 14 Once delayed, SHOP insurance exchange to go online in November, Page 14

The following are the filed, but not yet approved, rates for increases of small group health plans (50 or fewer employees) that comply with the Affordable Care Act’s 10 essential benefits. These average rates, based on current clients, are lower than rates small employers could be quoted if they switch this year from a noncompliant ACA plan to a compliant plan.

Insurer Alliance Health and Life Insurance Co. Blue Care Network Blue Cross Blue Shield of Michigan Consumers Mutual Insurance Grand Valley Health Plan Health Alliance Plan McLaren Health Plan Physicians Health Plan Priority Health Priority Health Insurance Co. Total Health Care USA UnitedHealthcare Life Insurance Co. Total

Rate Affected change individuals -0.1% 6.8% 2.7% -8.5% 0% -1.5% 8.2% 0% 4.6% 0.3% 32.9% 0%

589 60,044 96,387 6,570 66 581 11,241 24 12,710 3,117 6,700 0 198,029

Plans offered 22 102 78 16 19 40 3 26 70 23 14 5 418

rates and finding fewer choices unless they purchase more expensive Accountable Care Act-compliant plans or go the private exchange or self-funded route. Source: Michigan Department of Insurance and Financial Services For example, small employers that lows insurers to extend the policies decided to stick with Blue Cross Blue through 2016. Blue Cross did not. Shield of Michigan face double-digit pre“Most employers stayed in their old mium increases starting as early as plans last year and were given a year of Dec. 1 renewals, while employers retransitional relief by HAP, Priority and signing with Health Alliance Plan or PriBlue Cross,” said Denise Christy, forority Health were quoted rate increases mer head of the Michigan market for of less than 10 percent, several insurHumana and now president of iSelect ance experts said. Custom Benefit Store in Royal Oak. The reason is that HAP and Priority “HAP and Priority are giving transiHealth decided to allow employers to extional relief again this year to employtend their current noncompliant Obaers. Blue Cross had to increase premimacare policies another year through ums as they moved to Obamacare rates.” 2015. In March, President Barack Obama issued an executive order that alSee Prices, Page 12

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Prices: How much will small biz pay for premiums? It depends ■ From Page 11

Mike Embry, president of Southfield-based Comprehensive Benefits Inc., said rates for the majority of his Blue Cross customers appear to be higher for 2015 than last year. Rates in 2015 for other major payEmbry ers in Southeast Michigan appear to be similar to this year. “I have 105 (Blue Cross) small groups that are renewing in November and December, and 71 of those are facing rate increases of 3 percent to 131 percent,” Embry said. “The groups that are seeing decreases typically are seeing the decreases due to being forced to raise deductibles or change other items that actually reduce the level of benefits. Options and flexibility have definitely been reduced due to (Obamacare) mandates.”

Less increase in increases Rick Murdock, executive director of the Michigan Association of Health Plans, said his analysis of overall premium rate increases in 2015 for Obamacare-compliant individual and small-business plans

found that increases appear to have moderated from last year as competition for new subscribers takes hold. Murdock also said that plan options for small businesses overall have increased, especially if you count health insurers’ expansion of self-funded plans to companies with 25 or more employees and the private health insurance exchanges. For example, 12 health insurers are offering 418 plans for smallbusiness groups effective Jan. 1, according to the Michigan Department of Financial and Insurance Services. (See table, Page 11.) Six insurers plan average rate increases that range from 0.3 percent for Priority Health to 32.9 percent for Total Health Care USA. Six other insurers are either offering no increases or cutting rates. Those with more than 500 covered lives that are cutting rates include Consumers Mutual Insurance of Michigan, Health Alliance Plan and Alliance Health and Life Insurance Co. John Dunn, vice president of middle and small group business with Blue Cross Blue Shield of Michigan, said Blue Cross’ rate increases “are reasonable, considering everything.” For Obamacare-compliant policies, Blue Cross increased rates an

average of 2.7 percent for 78 plans and 96,387 subscribers, while Blue Care Network’s prices went up by 6.8 percent for 102 plans and 60,044 individuals, according to the state Department of Financial and Insurance Services. Scott Norman, vice president of sales and client services with Priority Health, said Priority’s rate increases for small business in 2015 are “competitively priced, yet sustainable. We tried not to do large fluctuations in the market to be competitive.” Of Priority’s average 4.6 percent rate increase for 12,710 customers, Norman said health maintenance organization products are up an average of 6 percent and preferred provider plans 3 percent. However, Norman said taxes and fees from the Affordable Care Act will add additional 2 percent to 4 percent on top of average health plan rates. Embry said HAP and Priority Health rate increases for his clients are in the 6 percent to 8 percent range, but some small employers are paying increases of up to 20 percent this year for non-Blue Cross plans.

More price competition Bruce Marwil, president of

Farmington Hills-based Marwil Associates, also said rates are higher this year for his clients because of the Affordable Care Act. Still, Marwil said he has seen more competitive pricing this year in the individual and small group market. Overall, iSelect’s Christy said she thinks competition is working within the plans that are ACAcompliant. “They are eyeballing each other’s rates and trying to stay in the ballpark” to retain and attract new customers, she said. “Employers are looking at going to defined contribution (private exchanges) or whether to migrate to an ACA plan or looking at going to the self-funded option.” Looking toward 2016, Embry said that premium rates for all insurers should become more competitive and that small businesses could be in a better position to find more affordable benefit packages. For example, Embry said that in 2016, small businesses will be able to purchase plans on the smallbusiness federal health insurance exchange — the Small Business Health Options Program, or SHOP — and allow employees to choose plans from among several insurers. This year, the SHOP online exchange allows companies to pur-

chase plans from only one insurer. (See Page 14.) Marwil said that for next year and 2016, “the jury is still out on whether (healthcare.gov) lowers pricing in the small-business (SHOP) market.”

‘Member level’ bias Embry said one major help for small businesses would be if Congress repeals Obamacare’s controversial feature that requires insurers to calculate premium costs for small employers based on “member level” ratings. Under member-level ratings, employers are charged based on separate costs for each family member using criteria such as age, geographic location, tobacco use and plan benefits. Embry said he recently renewed a policy with a 44 percent increase for a 30-employee company with Blue Care Network. “It was almost entirely driven by the member-level rating,” Embry said. “The member-level rating will create discrimination within groups as older members and those with larger families will be forced to pay more.” Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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Self-funded health plans: A new frontier for small businesses? BY JAY GREENE CRAINâ&#x20AC;&#x2122;S DETROIT BUSINESS

Small businesses have another option this year to potentially lower their spending on health insurance and increase control over their decision-making: self-funded employee group health plans. Once solely a mechanism for larger employers to fund their health insurance costs out of operations, insurers in Southeast Michigan â&#x20AC;&#x201D; including Blue Cross Blue Shield of Michigan, Priority Health and Health Alliance Plan â&#x20AC;&#x201D; now are offering self-funded plans to small businesses with as few as 25 employees. Executives say the response so far has been slow and represents less than 1 percent of small-group policies. But the insurers predict substantial growth over the next several years, especially in businesses with younger and healthier employees. A 2011 Rand Health study found that the percentage of self-funding among companies with 100 or fewer employees could increase from 4 percent to 33 percent. Aaron MacDonald, Blue Cross sales manager, said those doubledigit numbers are probably high for Michigan. â&#x20AC;&#x153;That is a big move to self-funding,â&#x20AC;? he said at a recent Blue Cross seminar on self-funding health benefit plans. â&#x20AC;&#x153;We expect those numbers to be lower in Michigan.â&#x20AC;? For small businesses, Blue Cross offers self-funded plans for companies with as few as 25 employees. â&#x20AC;&#x153;Self-funding is not a cure-all, but it is one solution for small businesses that are interested in taking on more control,â&#x20AC;? MacDonald said. Other reasons companies are exploring self-funded health benefit options: äĄ˛ To avoid taxes and fees mandated by the Affordable Care Act that could add 1 percent to 3 percent to premium costs. For example, the comparative effectiveness fee adds $2 per member per month, and reinsurance fees add $5.25 per member per month. äĄ˛ To avoid a member-level rating in which employees and their dependents are charged based on their ages. Before Obamacare, companies could offer single, twoperson and family rates. äĄ˛ To avoid complying with 10 essential benefits mandated by Obamacare. Self-funded plan designs can be flexible and less comprehensive. Self-funded health plans have been increasing for all sizes of employer groups since 1999, according to the Kaiser Family Foundation. Companies with 5,000 or more employees, however, have moved to self-funded plans the most, rising from about 62 percent of companies to about 95 percent. Smaller companies with three to 199 workers also increased self-funded plans to about 18 percent from

about 16 percent of companies. At Blue Cross, 0.1 percent of companies with five to 49 employees now self-fund, a figure that is based on only seven months of offering the plans, MacDonald said. Among companies with 50-99 employees, 12.3 percent self-fund, with 33.9 percent of companies with 100-299 employees and 68.3 percent of companies with 300-999 doing likewise, MacDonald said. The remaining offer employees fully insured plans, he said. This year, Priority Health also began offering a self-funded plan for companies with at least 25 employees, said Scott Norman, Priorityâ&#x20AC;&#x2122;s vice president of sales and client services. â&#x20AC;&#x153;We have seen a little uptake, not a lot,â&#x20AC;? Norman said. â&#x20AC;&#x153;We primarily offered it for retention because some of our current groups asked for it. There is an education process that needs to be done before companies are comfortable.â&#x20AC;? Steve Selinsky, HAPâ&#x20AC;&#x2122;s director of new business and consumer solutions, said the number of small businesses taking on self-funding risks has been increasing steadily in the past year. â&#x20AC;&#x153;We expect it to continue. There is positive feedback from purchasers,â&#x20AC;? Selinsky said. To help fully insured companies shift to the self-funded approach, Priority Health also offers small businesses a partially self-funded plan called â&#x20AC;&#x153;level funding.â&#x20AC;? Level funding works like fully insured plans, with employers paying monthly premiums for set benefits, Norman said. â&#x20AC;&#x153;The costs are leveled out over the year, and there is a refund or payment at the end of the year,â&#x20AC;? Norman said. â&#x20AC;&#x153;This offers them a start to learn about self-funding so they are comfortable with risks.â&#x20AC;? HAP also offers a similar plan to Priorityâ&#x20AC;&#x2122;s, called â&#x20AC;&#x153;shared funding,â&#x20AC;? for employers with 35 or more employees, Selinsky said. With shared funding, an established monthly funding level can be budgeted much like a premium. This approach makes it possible for smaller companies to take advantage of the economics of selffunding, just as many larger companies have done for years. Self-funding benefits can include medical, prescription drugs, dental, vision and workersâ&#x20AC;&#x2122; compensation, Selinsky said. Bruce Marwil, president of Farmington Hills-based Marwil Associates, said he has advised several companies with 35 or more covered lives that are considering self-funded or partially self-funded plans. â&#x20AC;&#x153;It is a discussion about risk, what their appetite is and what their long-term game plan is for employee benefits,â&#x20AC;? Marwil said. â&#x20AC;&#x153;A lot depends on the financial situation of the employer group. If cash flow is good and the workforce is younger and healthier, self-funding becomes a viable option.â&#x20AC;? For example, Marwil said, a 200employee company was facing a 12

percent rate increase for 2014 and came to him for another option. â&#x20AC;&#x153;The worstcase self-funded option was 4 percent less than the renewal, so they took Marwil it,â&#x20AC;? Marwil said. â&#x20AC;&#x153;Six months into it, it is still too early to tellâ&#x20AC;? whether the company saved money in its first year. While some insurers are offering self-funded plans to employers of all sizes, Flint-based HealthPlus of Michigan prefers to offer selffunding options to employers with more than 100 workers. HealthPlus views self-funding â&#x20AC;&#x153;as more of a strategy and less of a product,â&#x20AC;? Kathy Bilitzke, manager of public relations, said in a statement. â&#x20AC;&#x153;Our guideline for businesses considering self-funding is size, and we like to start with at least 100 employees,â&#x20AC;? she said. â&#x20AC;&#x153;That said, if our discussion with a smaller employer reveals that selffunding is viable, then we may suggest it. We take a group-by-group approach to developing each customerâ&#x20AC;&#x2122;s best way forward.â&#x20AC;? Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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Chicago: October 14 - 15, 2014 Join top decision-makers from various healthcare organizations who will share their insights, experiences and the strategies that have helped them overcome the everyday challenges presented in balancing a unique combination of assets such as pension plans, operating pools, endowments and insurance. Sessions include these timely panel discussions:

â&#x20AC;˘ The Liquidity Challenge â&#x20AC;&#x201C; Maintaining Operating Funds in a Low Interest-Rate Environment â&#x20AC;˘ Building a Stronger Healthcare Organization â&#x20AC;˘ Managing Hospital Endowments & Foundations â&#x20AC;˘ Captive Insurers: A Risk Management Solution â&#x20AC;˘ Outsourcing Your Investment Portfolios PLUS our KEYNOTE PRESENTATIONS include:

Hospitals and Healthcare â&#x20AC;&#x201C; The State of the Industry featuring:

Professor Paul B. Ginsburg Norman Topping Chair in Medicine and Public Policy | Sol Price School of Public Policy Schaeffer Center for Health Policy and Economics | University of Southern California

The Future of Accountable Care Organizations featuring:

Michael Chernew Leonard D. Schaeffer Professor of Health Care Policy | Harvard Medical School

Complimentary registration* at www.pionline.com/HH2014 Questions? For more details please contact Elayne Glick at (212) 210-0247 or pi-registration@pionline.com *Registration is only open to healthcare and hospital pension fund and endowment executives and a limited number of investment consultants. All registration requests are subject to veriďŹ cation. P&I reserves the right to refuse any registrations not meeting our qualiďŹ cations. The agenda for the Hospital and Healthcare Investing Summit is not created, written or produced by the editors of Pensions & Investments, and does not represent the views or opinions of the publication or its parent company, Crain Communications, Inc.

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Health Care

Private insurance exchanges expected to attract more small biz BY JAY GREENE CRAIN’S DETROIT BUSINESS

Small-business interest in private health insurance exchanges is expected to produce more sales this fall as employers seek lower costs and convenient solutions to the design of their benefit plans, several insurance experts say. Executives with Blue Cross Blue Shield of Michigan’s GlidePath — the state’s first private exchange, formed in 2011 — and Royal Oakbased iSelect Custom Benefits Store say sales have progressed as expected, although the slow rollout of Obamacare last fall has caused some companies to delay overhauling their health benefit plans. ISelect CEO Denise Christy said more than 100 companies have expressed interest this fall in iSelect’s multi-insurance line on private exchanges. “We expect to double the number of groups by January 1” from about the 35 customers iSelect has today, Christy said. “We are seeing a lot of interest in people that nev-

er offered insurance before,” she said. The model works by employers setting a budget for health care costs, then allocating each employee an Christy amount to spend on benefits in the exchange. The employee’s contribution would be deducted from his or her pay. So far, nearly 100 small-business customers in Michigan have signed up through private exchanges with iSelect and GlidePath, executives said. Major health carriers such as Aetna, Cigna and United Healthcare as well as consulting and brokerage companies also offer private exchanges. They include Mercer with its MercerMarketplace, the New York City-based Willis Group with its Willis Advantage and Aon Hewitt’s Aon Active Health Exchange. Private exchanges are seen as

an alternative to the Patient Protection and Affordable Care Act’s public health exchange and traditional defined-benefit insurance coverage through employers. This month, the Michigan Chamber of Commerce rolled out its multihealth insurer private exchange for small businesses with at least two employees, said Jason Russell, the chamber’s senior director of insurance services. Larger employers and individuals also can use the chamber’s exchange. For small businesses, Russell said, groups with two to nine workers can choose a single carrier and single plan option. Employers with 10-40 workers can choose a single carrier with multiple plans for their workforce. Insurers signed up include Health Alliance Plan, Priority Health and Physicians Health Plan, with HealthPlus of Michigan and Consumers Mutual Insurance of Michigan to be added in October, Russell said. Minneapolis-based Cielostar is the chamber’s technology platform partner. “Cost containment and conve-

nience (are two top reasons) why agents tell us their clients are interested in a private marketplace,” said Russell, adding that online administration can help small employers simplify their benefits. Scott Norman, vice president of sales and client services at Priority Health, said the nonprofit insurer’s experience with private exchanges and its partnership with iSelect has been good. Sales “have been a little slow,” Norman said. “It takes a little time for employers to move toward it. We do eventually expect a big market for it.” Steve Selinsky, director of new business and consumer solutions at HAP, said there has been some hesitation from Selinsky some companies to move into private exchanges because they have extended their current policies. “This fall, many are going to

make choices. We could see increased interest in private exchange products,” Selinsky said. “The defined-contribution approach is a cost containment strategy if they know they only have ‘X’ amount to spend for benefits.” Bruce Marwil, president of Farmington Hills-based Marwil Associates, said many small businesses with 10 or fewer covered lives and up to 200 lives are exploring private exchanges and definedcontribution approaches to funding health benefits. “The concept is sound. The problem is the rates are not competitive yet with other options,” he said. “I have looked at several private exchanges, and if the prices are more expensive than renewal rates, why do it?” But Marwil expects some companies facing high rates if they renew their current coverage to look into private exchanges and the defined-contribution approach. Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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Individuals have fared pretty well so far in accessing and purchasing health insurance on the federally managed healthcare.gov exchange in Michigan. But businesses with 100 or fewer workers are still struggling to take advantage of the system under the Affordable Care Act. The online Small Business Health Options Program exchange, or SHOP, already has been delayed once — from Jan. 1, when it was originally scheduled, until Nov. 15, when open enrollment starts this year for Michigan and the other 32 states relying on the federal exchange. When fully operational, the online SHOP exchange should create competition in Michigan that is similar to the individual marketplace and act to lower price increases, said Dante Diamente, a health care consultant and principal at PricewaterhouseCoopers LLC in Detroit. “If the products are not there to appeal to the individual employee making a health care decision, the employee will make it known by not selecting the plan,” Diamente said. During the past year, groups of small businesses with 100 or fewer employees still could use SHOP through paper applications. But few small businesses went that route. “We are getting very small takeup with the SHOP — less than 20 groups,” said John Dunn, vice president of the middle and small group business at Blue Cross Blue Shield of Michigan.

One reason was that up to 80 percent of small-business health insurance customers were allowed to renew their old plans for 2014, Dunn said. Scott Norman, vice president of sales and client services at Priority Health, said he doesn’t think there will be much interest on the SHOP exchange because the financial incentives and Norman choices are not large enough to move business. The main reason is that a key provision of SHOP — employee choice of multiple health plans — is being delayed in Michigan until open enrollment starts in November 2015 for the 2016 calendar year. The delay was allowed by the Obama administration and ordered by the Michigan Department of Financial and Insurance Services over fears that prices in the smallbusiness health insurance market would go up even higher. Sixteen other states opted for the delay in employee choice. “Because of the delay in employee choice, the SHOP exchange will not have a lot of enrollment, unless you are looking for a small-employer (25 employees or under) tax incentive,” Norman said. Still, Norman said, Priority offers about 15 plans on the SHOP exchange, including health maintenance organization and point-of-service plans. — Jay Greene

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Health Care

22,000 metro Detroit nurses still waiting for $48M settlement in lost wages case BY CHAD HALCOM CRAIN’S DETROIT BUSINESS

More than 22,000 nurses in metro Detroit have yet to receive a dime of the $48 million put up by seven local hospital systems to settle a lawsuit alleging wage collusion — about one year after the last hospital settlement and at least five years since the first. About 11,000 nurses to date have submitted claims for a share of the funds collected in a 2006 class-action lawsuit before Chief U.S. District Judge Gerald Rosen, alleging that eight Detroit-area acute care hospitals conspired to keep pay artificially low for their direct care nurses. All but one of those hospitals, Detroit Medical Center, have settled the lawsuit for a combined $48 million. That’s really a net settlement of about $31.5 million after deducting various attorney fees, incentive awards, costs to send formal settlement notices and other expenses. Most recently, Rosen last October approved a settlement proposed in August 2013 for Royal Oak-based Beaumont Health System, Detroit-based Henry Ford Health System, the former Mt. Clemens General Hospital (now part of McLaren Health Corp.) and Livonia-based CHE Trinity Health to settle for just less than $27 million. Other hospital settlements in the case date back to 2009. All the settling hospitals have since paid their share into an interest-bearing savings account, while the litigation continues against DMC as the sole defendant, said Raymond Farrow, partner at Seattle-based Keller Rohrback LLP and cocounsel representing the nurses. That hospital in March brought

CON Roundup The following are selected filings for a certificate of need submitted to the state Aug. 14-Sept. 10: Letters of intent Henry Ford Continuing Care Center, Roseville: Acquire a 169-bed nursing home by Rhema Roseville Operating LLC. Henry Ford Continuing Care Center-Belmont, Harper Woods: Acquire a 151-bed nursing home by Rhema Belmont Operating LLC. Decisions University of Michigan Health System, Ann Arbor: Replace 16 child/adolescent psychiatric beds and move them into renovated new space on level 8E of C.S. Mott Children’s Hospital and make a covered capital expenditure; $10.9 million. Approved. Providence Hospital and Medical Centers, Southfield: Expand cardiac catheterization services by adding a laboratory in space to be renovated on the first floor; $5.8 million. Approved. — Natalie Broda

its second request to the 6th U.S. Circuit Court of Appeals in Cincinnati to vacate Rosen’s order certifying a class action. No date is set for the court to rule on that request or for DMC’s case to go to trial. But attorneys for the nurses recently asked Rosen for an order to distribute the settlement funds already received rather than wait for DMC’s portion of the case to conclude. No date is set for Rosen to rule on that request. “There’s usually a little disadvantage in repeated settlement distributions. It can cost tens of thousands to review claims and prepare and distribute the appropriate payments each time, so you’d rather not have to incur that cost two or three times,” Farrow said. “But in this case, the money has been sitting for so long because some of these hospitals settled years ago. And with current interest rates on these kinds of accounts, it’s to no advantage to let it sit around even longer.” Attorneys Rodger Young and Sara MacWilliams of Farmington Hills-based Young & Associates PC could not be immediately reached for comment about the distribution request. Young has said previously “we happen to be … right on

the law” affecting the lawsuit, and DMC has no plans to settle. The case is unlikely to proceed to trial in Rosen’s court before the 6th Circuit decides whether to hear DMC’s appeal. The appellate judges already asked Rosen in January to revisit certifying the class in light of another recent court ruling, but Rosen did so and affirmed his prior decision. If the appeals court vacates his ruling again, it’s unclear whether that affects the amount of settlement money to be distributed. St. John Providence Health System signed a previous deal in which $10 million of its $13.6 million piece of the settlement was contingent on the nurses winning the certification issue. But Farrow said he believes a reversal doesn’t affect the total settlement funds available. “Our view is that the qualification for St. John’s (full settlement) has already been met because the judge has already made a ruling certifying the class,” he said. “It’s not contingent on whether the Court of Appeals upholds that certification.” Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

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Fresh with new leaders, office, Re/Max of SE Mich. looks to expand BY KIRK PINHO CRAIN’S DETROIT BUSINESS

It’s been seven years since Re/Max of Southeastern Michigan packed its bags and moved its regional nerve center to Atlanta in a cost-savings measure. Now, with new local leadership, a new regional office in Troy and plans to open 20 new franchises in

the next three years, Re/Max is trying to expand its reach into the now-rebounding residential real estate market. Just within the past 30 days, three new franchisees have signed five-year agreements to open in New Hudson, Lyon Township and Troy. “This is a reflection of the economy here locally, the attitude,

morale and confidence in the market and the strength in the market here,” said Magnus Sublett, the new chairman, CEO and majority partner who purchased majority ownership from Howard McPherson in April for an undisclosed price. In July, the last month for which data was available, median home sale prices rose 18.2 percent, ac-

cording to Farmington Hills-based Realcomp II Ltd. In Wayne, Oakland, Macomb and Livingston counties, median prices increased from $129,000 in July 2013 to $152,000 last July. Aside from Sublett, other new leadership includes Joe Sabatini, the regional manager who is also a Macomb County commissioner. He replaces Jeanette Schneider,

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who accepted a job as senior vice president for broker and agent development with Re/Max Regional Services in Atlanta. In addition, Re/Max hired Pam Bellante as communications manager and Doug Seley as franchise development manager. Sublett said the company plans to hire three to six more employees for its regional office in Sublett the areas of administration, compliance and accounting. Sabatini will oversee the day-to-day operations of the new 1,500square-foot regional office at Sabatini the Columbia Center office building on West Big Beaver Road in Troy. The office opened earlier this month. “You can’t be in the community unless you’re actually Elsea in it,” Sabatini said. “You have to live it, feel it, touch it.” Sublett said Columbia Center was selected for the office because it is centrally located for franchise owners and brokers to meet with the leadership team and participate in training initiatives. Dan Elsea, president of brokerage services for Southfieldbased competitor Real Estate One, doesn’t believe the market can support 20 new Re/Max franchises in the next three years. “We just had two years in a row of record units sold for Southeastern Michigan. That can’t go on forever,” he said. According to Realcomp, there were 54,723 houses sold in 2012 in Wayne, Oakland, Macomb and Livingston counties, and 55,076 sold last year. As of the end of August, there were 33,477 sold. “We expect 2015 and 2016 to be down; it just won’t be as crazy as it was in 2012 and 2013,” Elsea said. The average Re/Max broker in Southeast Michigan last year made $115,000 and sold 27 homes, Sublett said. Last year, Re/Max of Southeastern Michigan sold 20,577 homes with a total sales price of $2.6 billion, according to Sabatini. Through August, the company has sold 12,327 homes with a total sales price of $1.75 billion. Re/Max of Southeastern Michigan, a division of Re/Max Holdings Inc. (NYSE: RMAX), has more than 750 brokers and 45 independent offices in metro Detroit. Kirk Pinho: (313) 446-0412, kpinho@crain.com. Twitter: @kirkpinhoCDB

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From Oktoberfest to Screamin’ Pumpkin: A guide to fall beer BY SEAN GENEREAUX

Black Lotus Brewing Co., Clawson

SPECIAL TO CRAIN’S DETROIT BUSINESS

䡲 Detroit Hip Hops (American Pale Ale) Available: Now; taproom only Details: A pale ale for the IPA lover, with a high ABV and an aromatic bitterness. 9 percent ABV; 88 IBUs Ratings: 81 (BA); 43 (RB)

The official start of autumn is still more than a week out, but metro Detroit breweries are experimenting with fall flavors and rolling out seasonal brews. Here’s a guide to fall beer, including details on when the beer will be available, along with more serious connoisseur information like International Bittering Units, percent Alcohol by Volume and ratings (from BeerAdvocate.com and RateBeer.com). For an extended version of this guide that includes breweries all over Michigan, see crainsdetroit.com.

Atwater Brewery, Detroit 䡲 Bloktober (Oktoberfest/Marzen) Available: This fall; tap and bottle Details: Rich taste, amber color. 6.4 percent ABV; 30 IBUs Ratings: 78 (BeerAdvocate.com); 38 (RateBeer.com) 䡲 Vanilla Java Porter Available: Now; tap and bottle Details: Tastes of a vanilla coffee, cold and dark. 5.5 percent ABV; 30 IBUs Ratings: 77 (BA); 35 (RB) 䡲 Cherry Stout Available: This fall; tap and bottle Details: Strong cherry flavor with a malty finish. 6 percent ABV; 20 IBUs Ratings: 71 (BA); 30 (RB)

Dragonmead Microbrewery, Warren 䡲

Dragon Daze Hemp Ale (American Brown Ale) Available: Rotating; taproom only Details: Chocolate malt, Cascade hops with a roasted hemp seed flavor. 4.3 percent ABV Ratings: 33 (RB) 䡲 Oktoberfest Marzen Available: Now; tap and bottle Details: Rich, full-bodied, malty. 6 percent ABV Ratings: N/A 䡲 Lil’s Grumpkin Pumpkin Ale Available: Last week in October; taproom only Details: Tastes like pumpkin pie. 4.9 percent ABV Ratings: 50 (RB)

Falling Down Beer Co., Warren 䡲 Ninja Chicken (American Pale Ale) Available: Now; taproom only. Details: Different, funky, yet refined. It’s what you’d expect a pale

ale to taste like, but with a twist. 6.3 percent ABV Ratings: N/A 䡲 Nice Beaver (English Brown) Available: Now; taproom only Details: Smooth amber flavor that’s not overpowering, just cool enough. 4.5 percent ABV Ratings: N/A

Griffin Claw Brewing Co., Birmingham 䡲 Screamin’ Pumpkin Ale

Available: Now; tap and can Details: Tastes like pumpkin pie with cinnamon and molasses. 5 percent ABV; 25 IBUs Ratings: 88 (BA); 63 (RB) 䡲 Norm’s Pumpkin Spiced IPA Available: Now; taproom only Details: A nice, slightly bitter IPA with a warm mix of pumpkin and cinnamon. 7.2 percent ABV; 65 IBUs Ratings: N/A

Jolly Pumpkin Artisan Ales LLC, Dexter 䡲 Luciernaga “The Firefly” (Belgian Ale) Available: Now; tap and bottle Details: Mellow golden flavor. 6.5 percent ABV Ratings: 90 (BA); 99 (RB) 䡲 Fuego del Otono “Autumn Fire” (Belgian Ale) Available: Released in October; tap

and bottle Details: Amber, caramel and chestnut spices. 6.1 percent ABV Ratings: 91 (BA); 98 (RB) 䡲 La Parcela No. 1 Pumpkin Ale (Spice/ Herb/Vegetable) Available: Released in October; tap and bottle Details: Strong squash flavor to COURTESY GRIFFIN match the CLAW BREWING CO. pumpkin and In keeping with underthe season, Griffin cocoa Claw’s Screamin’ tones. 5.9 percent ABV Pumpkin Ale comes in glow-inRatings: 87 the-dark cans. (BA); 97 (RB)

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CALENDAR WEDNESDAY SEPT. 17 Munro & Associates Inc. Benchmark Innovation Center Tour. 1-3 p.m. Engineering Society of Detroit. Participants will tour a facility of consulting engineering firm Munro & Associates Inc. Body panels and components from the automotive, aerospace, heating, ventilation and air-conditioning, home appliance and other industries will be on display. With Sandy Munro, design prophet and CEO. Munro & Associates, Troy. $25 ESD members; nonmembers can join for $60 (a 40 percent discount) and attend the tour for free. Contact: (248) 353-0735, ext. 222; website: esd.org.

Changes in the Media. 5:30-8 p.m. The Association for Women in Communications Detroit Chapter. With Carol Cain, Detroit Free Press business and politics columnist and host of “Michigan Matters” on WWJ-TV62; Debbie Kenyon, senior vice president/marketing manager of CBS Detroit Radio; and Christy Strawser, digital director, CBS Local. CBS Studios, Southfield. $25 WIC members, $35 nonmembers, $15 full-time students; $5 more on day of event. Contact: (866) 385-1784; email: info@womcomdetroit.org; website: womcomdetroit.org.

FRIDAY SEPT. 19 Professional Development Seminar: Building Brand Value. 7:30-10 a.m. Marketing & Sales Executives of Detroit. With Tim Smith, president and CEO, Skidmore Studio, on creating and building strong value for a company’s brand. Smith will talk about how Skidmore moved back to the city to rebrand itself. Skidmore Smith Studio, Detroit. $35 MSED members, $45 nonmembers. Cancellations accepted through Sept. 15. Contact: (248) 643-6590. website: msedetroit.org.

UPCOMING EVENTS 2014 MICHauto Summit. 8 a.m.-5:30 p.m. Sept. 23. Detroit Regional Chamber. A look at the new era of Michigan innovation and the blueprint for the rest of the global automotive industry.

Discussion will focus on the outlook on design, engineering, manufacturing and all things automotive. Cobo Center, Detroit. $125 DRC members, $200 nonmembers. Contact: Marianne Alabastro, (313) 596-0479; email: malabast@detroitchamber.com; website: detroitchamber.com.

subject to package inspection, and cameras or recording devices are prohibited. General Dynamics Land Systems, Sterling Heights. $25 ESD members; nonmembers can join ESD for $60 (a 40 percent discount) and attend the tour for free. Registration deadline: Sept. 19. Contact: (248) 353-0735; website: esd.org.

Toast + Talk Session 3: Strategies to Maximize Your Firm’s Worth, 7:3010 a.m. Sept. 23. Plante Moran PLLC,

Western Wayne Business Leadership Banquet. 5-8 p.m. Sept. 25. Conference

Automation Alley. Third in a fourpart series on topics related to the technology industry, focused on helping growing companies develop the framework and tools necessary to continue to compete. With panelists from

Detroit Venture Partners, Hitachi Business Finance, Silicon Valley Bank. Plante Moran, Detroit. Free. Contact: Dan Artman, (248) 223-3469; email: dan.artman@plantemoran.com; website: plantemoran.com.

Quality for Emerging Technologies. 7:30 a.m.-7 p.m. Sept. 24, 7:30 a.m.-3:45 p.m. Sept. 25. Automotive Industry Action Group. Learn how companies are assuring quality, reliability and customer satisfaction in electronics and software products; directed at automotive suppliers and customers. Suburban Collection Showplace, Novi. $775 AIAG members, $975 nonmembers. Contact: Shannon Osburn, (248) 213-4642; email: sosburn@ aiag.org; website: aiag.org. Detroit Economic Club Presents: Hans Engel. 11:30 a.m.-1:30 p.m. Sept. 24. Detroit Economic Club. With Hans Engel, chairman and CEO, BASF Corp. Engel leads all activities in North America, including BASF Corp. in the U.S., BASF Canada, BASF Mexicana and the Global Catalysts Division, in addition to his responsibilities as a member of the BASF board. Detroit Athletic Club, Detroit. $45 DEC members, $55 guests of members, $75 others. Contact: (313) 963-8547; email: info@econclub.org; website: econclub.org.

General Dynamics Land Systems Maneuver Collaboration Center Tour. 2-4 p.m. Sept. 24. Engineering Society of Detroit. View the General Dynamics Land Systems Maneuver Collaboration Center Technology Thrust Areas, a life-cycle laboratory. Join the center’s online community at gdls.com/mc2 before the tour and submit solutions. Visitors must present a passport or state-issued photo ID for verification upon arrival for the tour, and foreign national visitors will require a security vehicle escort from the gate to the facility. Visitors are

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of Western Wayne. Join chief elected officials and business leaders from 18 western Wayne County communities for an evening of networking and insights into the region. With Crain’s Detroit Business Publisher Mary Kramer as emcee and keynote speaker David Sowerby, portfolio manager, Loomis, Sayles & Co. LP, Bloomfield Hills, addressing economic and business trends for western Wayne County and metro Detroit. The program is slated to feature chief Sowerby elected officials from Belleville, Canton Township, Dearborn, Dearborn Heights, Garden City, Huron Township, Inkster, Livonia, Northville, Northville Township, Plymouth, Plymouth Township, Redford Township, Romulus, Sumpter Township, Van Buren Township, Wayne and Westland. Ford Motor Co. Conference & Event Center, Dearborn. $100 individual, $1,500 corporate sponsorship table of eight. Contact: Dan West, (734) 427-2122; email: dwest@livonia.org; website: c-w-w.org.

Developing Great Leaders That Bring Dynamic Impact to the Organization. 7:30-9 a.m. Sept. 26. The Business Round Table. With John Lankford, CEO, Premier Executive Forums, master certified business adviser. Birmingham Country Club, Birmingham. $25 in advance, $30 at door. Contact: Christa Moxon, (269) 685-7829; email: christa.moxon@thebusiness rt.org; website: thebusinessrt.org.

14th Annual Great Lakes Women’s Business Conference. 9 a.m.-7:30 p.m. Sept. 29, 8 a.m.-5 p.m. Sept. 30. The Center for Empowerment and Economic Development. Meet with supplier diversity and rocurement representatives from corporate and public institutions and public entities; learn how certification status as a women’s business enterprise or minority business enterprise firm can benefit a business. With keynote speaker Andrew Yang, founder and CEO, Venture for America. $200 CEED members. $225 corporate, government, others. Contact: (734) 677-1400; website: miceed.org.

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If you want to ensure listing online and be considered for print publication in Crain’s Detroit Business, please use the online calendar listings section of www.crainsdetroit.com. Here’s how to submit your events: From the Crain’s home page, click “Detroit Events” in the red bar near the top of the page. Then, click “Submit Your Entries” from the drop-down menu that will appear and you’ll be taken to our online submission form. Fill out the form as instructed, and then click the “Submit event” button at the bottom of the page. That’s all there is to it. More Calendar items can be found on the Web at www.crainsdetroit.com.

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CRAIN’S DETROIT BUSINESS

BUSINESS DIARY

PEOPLE

ACQUISITIONS & MERGERS

CONTRACTS

Crestmark Bank, Troy, announced it

General Motors Co., Detroit, and General Motors Financial Co. Inc.,

has acquired the equipment leasing and asset management business of TIP Capital, Bloomfield Hills, effective late this month, pending government approval. The resulting entity will be a subsidiary of Crestmark Bank, named Crestmark Equipment Finance Inc. The division will continue to operate under the TIP Capital name and from current locations. Websites: crestmark.com, tipcapital.com. H.W. Kaufman Financial Group Inc., Farmington Hills, announced it is acquiring Oval International Ltd., London, a marine and energy specialty brokerage firm. Oval International will join with the Chesterfield Group Ltd., London, a Kaufman company and Lloyd’s of London specialty broker, in forming a platform to continue expanding the Kaufman group’s London presence. Oval International will return to its original name, Lochain Patrick Insurance Brokers Ltd. Website: kaufmanfinancialgroup.com. Train Travel Holdings Inc., Wixom, announced it has signed an agreement with TBG Holdings Inc., Fort Lauderdale, Fla., a financial consulting firm, to acquire Railmark Holdings Inc., Wixom, a provider of rail operations, rail logistics, rail car repair services, track construction, other.Train Travel Holdings will change its name to Railmark Holdings Inc. Websites: tbgholdings.us, railmark.com. RW Productions LLC, Dearborn, a video production company, has been acquired by Premier Creative Group, Waterford Township, a turnkey event support company. Websites: premier creativegroup.com, rwpmi.com.

Fort Worth, Texas, announced they have entered into an agreement that as GM Financial grows, GM is committed to providing funding to GMF if its earning assets leverage ratio rises above pre-determined thresholds. The agreement also provides that GM will ensure that GMF will continue to be designated as a subsidiary borrower on up to $4 billion of GM’s corporate revolving line of credit. Websites: gm.com, gmfinancial.com.

EXPANSIONS

CONSULTING Joanne Start to managing director, metro Detroit ofBPI group, fice, Troy, from senior consultant and exexecutive coach.

EDUCATION Jill Rafferty to director of advancement,

Academy of the Sacred Heart, Bloom-

Start

field Hills, from senior director of partner relationships, American Cancer Society, Southfield.

Domino’s Pizza Inc., Ann Arbor, has

GOVERNMENT

opened a franchise in Oslo, Norway. Website: dominos.com. BorgWarner Inc., Auburn Hills, has opened its new production facility in Taicang, China. The 161,500-squarefoot facility will produce advanced turbocharging technologies for several automakers. Website: borgwarner.com.

Michael Connors to program managerbusiness attraction,

Department of Planning and Economic Development, Macomb County, Mount Clemens, from director of community and economic development, city of Roseville.

DIARY GUIDELINES Email news releases for Business Diary to cdbdepartments@ crain.com or mail to Departments, Crain’s Detroit Business, 1155 Gratiot Ave., Detroit, MI 48207-2997. Use any Business Diary item as a model for your release, and look for the appropriate category. Without complete information, your item will not run. Photos are welcome, but we cannot guarantee they will be used.

IN THE SPOTLIGHT Girl Scouts of Southeastern Michigan has named Denise Minoletti as CFO. Minoletti, who was the Detroit-based nonprofit’s director of accounting, began her career with the Girl Scouts as an accountant with the former Girl Scouts of Metro Detroit in 2003. She took the director position in 2009 after the merger of Girl Scout councils into GSSEM. Minoletti, 50, replaces Bonnie Reyes, who retired as CFO but remains a consultant with the Girl Scouts. Minoletti earned a bachelor’s degree in accounting and an MBA from Walsh College. Other staff changes at the Girl Scouts branch: Minoletti 䡲 Ruth Zamierowski to director of recruitment, from volunteer services specialist. 䡲 Matt Matthews to director of troop support, from volunteer relations specialist. 䡲 Renee Allen to director of community programs and camp, from manager of series and events. 䡲 Barb Sosin to director of council partnerships and programs, from director of Girl Scout leadership experience. 䡲 Amanda Kremer to director of product sales, from manager, engagement and sales, Mosaic Youth Theatre of Detroit, Detroit. Julie Byczynski to campaign director, Detroit Symphony Orchestra,

Connors

NONPROFITS Devita Davison to co-director, FoodLab, Detroit, from community kitchen coordinator, Detroit Kitchen Connect, Eastern Market Corp., Detroit. Anika-Kafi Grose to coordinator, Detroit Kitchen Connect, Eastern Market Corp., Detroit, from owner/baker, Detroit Sweets, Detroit. Lisa Grace to deputy director, Grandmont Rosedale Development Corp., Detroit, from development director, EcoWorks, Detroit.

Detroit, from associate director of major gifts, sponsorship and special events, National Arts Byczynski Centre Foundation, Ottawa, Ontario. Nicole Gize to director of campaigns, Children’s Hospital of

Michigan Foundation, Detroit, from senior account executive, Citadel Systems Inc., Harper Woods.

REAL ESTATE Ken Mason to entity ber,

Mason

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Privacy concerns over vehicle telematics heat up BY VINCE BOND JR. CRAIN NEWS SERVICE

Information gathered by vehicle telematics systems such as General Motors Co.’s OnStar, Ford Motor Co.’s Sync, BMW ConnectedDrive and others is garnering increased attention from lawyers who see the data as a puzzle piece in building court cases. It’s a sign that privacy concerns raised about telematics data won’t go away soon. At the least, the industry’s quest to be closer to consumers through telematics has created new responsibilities involving data management. Those responsibilities include complying with court orders to turn over telematics data, which automakers say they have done. The privacy terms for ConnectedDrive’s BMW Assist component say it may “collect and retain an electronic or other record” of a person’s location or direction of travel at a given time — providing another potential legal tool for lawyers to go along with cellphone records, vehicle black boxes and even airbag modules. That may irk consumers who worry about an all-seeing eye keeping tabs on their travels. Of course, limited vehicle data can’t stand alone, experts say. It must be backed by other evidence. But lawyers say they’re interested. “It certainly is an intriguing new thing,” said Don Slavik, a product liability lawyer who has worked on litigation involving Toyota and unintended acceleration. “It introduces some questions of

privacy issues that people aren’t aware of. I wasn’t aware of some of this stuff until recently.” Slavik said he hasn’t used vehicle telematics data yet, but he may turn to such data in future cases. “We’ve just learned about the large volume of data going through systems,” he said. “Not just one or 10 or 20 pieces of data, but thousands of pieces of data that are reported.”

Complying with courts Automakers make it clear in their privacy agreements that telematics data will be released to the courts and law enforcement if necessary. Ford said in an emailed statement to Automotive News that it receives court orders “on behalf of law enforcement or individuals involved in litigation” to provide data from “various vehicle modules.” The data, which sometimes include location, can be retrieved only with “direct physical access” to the vehicle, Ford revealed. For those concerned that they’re constantly being monitored, Ford said Sync doesn’t track customers or transmit data continuously from a vehicle. The company also said no information is wirelessly transmitted from the vehicle without customer consent. Ford said the company receives location data only when customers use services such as turn-by-turn directions or look up points of interest. “Location data is only shared with our partners when necessary

MARKET PLACE

to fulfill the services requested by the customer,” Ford said. “As you would expect, our partners are legally bound by contract to protect this information. Ford does not share such data with any other companies, and Ford does not sell this data.”

OnStar’s ‘legal obligation’ OnStar said it “complies with its legal obligation to court orders or subpoenas.” In an emailed statement, OnStar said it doesn’t “share data with law enforcement absent a court order unless it is necessary to protect the safety of its customers or others.” OnStar does provide data to police in cases of stolen cars and can cut off a car’s power. Data gathered from vehicle telematics face roadblocks in the courtroom. In such cases, the chain of custody is crucial, said Bryant Walker Smith, who teaches law and engineering at the University of South Carolina. Smith said the chain of custody establishes whether there has been an opportunity for parties to manipulate data. Questions raised may include: 䡲 Who retrieved the system from the vehicle? Then what was done with it? 䡲 Who downloaded the data? What was done with the data after the download? Then, Smith said, there is the aspect of reliability. Toyota has said in the past that its event data recorders, for example, can’t always be trusted.

Smith said vehicle data won’t always have the answer. It isn’t possible to “press play” and see exactly how a person’s entire journey played out, he explained. And, Smith said, increased interest in data generated by in-car systems may lead to more privacy protections. “If you look at Supreme Court cases on the criminal side, there is this growing realization from the justices that there is a cloud of information that is very personal to people that is no longer just in their heads, no longer just in their houses,” Smith said. With numerous telematics offerings available across the industry, standards will be needed to regulate what information is collectible and the format it’s gathered in, said Thilo Koslowski, an analyst at technology research firm Gartner Inc. If the courts are going to use vehicle data from various manufacturers, Koslowski said, “there have to be some defined guidelines” eventually. In-vehicle data may have limited value as evidence simply because telematics systems are not designed to serve the legal system, one expert said. Ultimately, the purpose of collecting vehicle telematics data is to offer safety services and other benefits to motorists, not build legal cases, said David LaBahn, CEO of the Association of Prosecuting Attorneys in Washington, D.C. If the systems were built with the courtroom in mind, LaBahn said, they would track details such as who is driving the car and infor-

mation about surrounding traffic. In reality, the tidbits of seat-belt use information or location data can corroborate only portions of an argument. LaBahn said the data still must be combined with other evidence. But, LaBahn said, some jurors will wonder about vehicle telematics, which could put pressure on lawyers to use the data. “We call it the ‘CSI’ effect with jurors,” LaBahn said.

Privacy considerations Let’s say the federal government is conducting a crime investigation and it requests vehicle telematics data for thousands of people from an automaker. Can the government do that? The traditional answer is yes, said Jonathan Weinberg, a law professor at Wayne State University. Consumers, he said, voluntarily give up their information to companies and can’t complain about use of the data under this scenario. But, Weinberg said, there is pushback to that line of thinking because so much information is filtered through third-party technology companies, whether it comes from a mobile device or a vehicle. He said the legal system is just beginning to grapple with privacy concerns related to vehicles. “Are there circumstances where we don’t want to make it available to the government, where we don’t want to make it available to the court? There are very real privacy considerations.” From Automotive News

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Ovshinsky’s dream shines on in solar firm BY TOM HENDERSON

Meridian: Flexibility

CRAIN’S DETROIT BUSINESS

■ From Page 3

Ovshinsky Innovation lives again. That’s the name of the company the late Stanford Ovshinsky founded in 2007 after he was forced into retirement by the board of the company he had founded in 1960, Auburn Hills-based Energy Conversion Devices Inc. ECD had given up on him, but he hadn’t yet given up on his dream of making cost-effective, flexible solar cells. He sank $7 million of his own money into Bloomfield Hills-based Ovshinsky Innovation LLC and a subsidiary, Troy-based Ovshinsky Solar LLC, in search of finding his holy grail of cheaper, more efficient solar cells. When Ovshinsky died at age 89 in October 2012, both companies died with him. They and he outlived ECD, though, which had gone bankrupt earlier that year. Though Ovshinsky and his companies may have died, the dream of affordable solar didn’t die with them. “Our dream is the same as Stan’s — to make solar technology viable,” said Guy Wicker, the CEO of Pontiac-based Ovshinsky Technologies LLC, which was incorporated in January and is doing business as Ovshinsky Innovation. Wicker was a former employee of Ovshinsky’s, as was his cofounder, Boil Pashmakov.Wicker has a doctorate in electrical engineering from Wayne State University. He worked for ECD from 1985-1990, then with Rochester Hills-based Ovonyx Inc., a joint venture between ECD and Intel Corp., from 1990-2008, specializing in phase-change memory. That technology was later licensed to Nokia and is the brains behind most of the cellphones in the third world. Pashmakov, who has a Ph.D. in physics from the Bulgarian Academy of Sciences, is chief technology officer. He holds 23 patents in solar-related research and has more than 20 years of experience in the industry, including stints at ECD and some of its competitors, including Tempe, Ariz.-based First Solar Inc. Their company is getting assistance from Detroit-based NextEnergy, which will help it seek federal research grants from the U.S. Department of Energy, and from Rochester Hills-based OU Inc., the tech incubator at Oakland University. Amy Butler, executive director of the incubator, said her team is providing business services, helping devise a strategy for funding and help with technology development. “It is a good fit with OU Inc.’s expertise in clean energy,” she said. “NextEnergy also works with us in assisting them, so it’s a good example of the depth of resources available to support clean-energy companies in Southeast Michigan, and how we connect those resources to assist in the growth of ideas and companies.” The company bought $2 million of Ovshinsky’s lab equipment at an auction following his death and was given the rights by his family to the eight patents that had been granted to Ovshinsky Innovation

TOM HENDERSON

“Our dream is the same as Stan’s — to make solar technology viable,” says Guy Wicker, CEO of Ovshinsky Technologies LLC in Pontiac.

“They need help on the business development and strategy side, but this holds a lot of promise.” Dan Radomski, NextEnergy

and to the eight patents that are pending. Ovshinsky spent his career trying to make flexible solar materials cost-effective. His cells were lighter and easier to use than traditional, rigid crystalline solar cells, but never could compete on price because of high manufacturing costs, especially when cheap solar cells made in China began conquering world markets just before the recession. Wicker said the new company won’t try to revive Ovshinsky’s dreams of making materials out of amorphous silicon, in contrast to the rigid structure of traditional crystalline silicon solar cells. “Amorphous technology is too costly to ever compete with China,” he said. Instead, the company hopes to market solar cells made from depositing a thin layer of cadmium telluride on thin, flexible stainless steel. “This is new technology that Stan was working on at the time of his death, finding a way to make cadmium telluride solar cells at a much reduced cost,” said Dan Radomski, vice president of industry and venture development at NextEnergy.

First Solar (Nasdaq: FSLR) is the world’s largest maker of solar cells using cadmium telluride. It had $544 million of revenue in the second quarter that ended June 30. “This has been the leading thinfilm technology for years,” said Ken Johnson, vice president of communications for the Solar Energies Industry Association, a Washington, D.C.-based trade association. First Solar’s process involves depositing that crystalline compound on a thick layer of glass, which increases the weight and cost. Ovshinsky Innovation doesn’t envision having the resources to compete directly with First Solar, but it could become a supplier or license its technology to the Arizona company. “They need help on the business development and strategy side, but this holds a lot of promise,” said Radomski. “We’ve introduced them to the DOE’s solar team, and we’ll be helping them get money from the DOE for R&D.” Last spring, Wicker and Pashmakov went through the six-week I-Corps Energy and Transportation program put on by NextEnergy and the University of Michigan Center for Entrepreneurship, designed to teach scientists and researchers

how to translate early-stage technology into a revenue-producing product. “They’re in the early stages. It’s going to take a lot of time, but we hope to help them along the path of commercialization and take a product to market,” Radomski said. Wicker said that cadmium telluride, a stable crystalline compound, is much easier to work with than amorphous silicon. The latter requires the presence of a vacuum before the thin film that converts sunlight to electricity can be deposited on a substrate. Cadmium telluride can be deposited on a substrate without the need of a vacuum, “which makes it orders of magnitude cheaper to make,” said Wicker. Wicker said that while the company will focus on cadmium telluride in the short term, other applications for the technologies covered by their patents include depositing silica films as barrier coatings on medical devices, making ultracapacitor films for storing energy, and making carbon films for diamond synthesis. Meanwhile, the company is setting up a sideline operation at a waste-processing site in Taylor, using plasma streams generated by some of the equipment bought at auction to decompose various metals. “It’s a revenue stream,” said Wicker. Tom Henderson: (313) 446-0337, thenderson@crain.com. Twitter: @tomhenderson2

Meridian. “Leasing can create significant flexibility for growth or contraction over time because once you build, you need to hope that it’s the right size, period,” he said. “It’s likely more advantageous to be a tenant than it would be to cover the cost and carry of a new build.” Meridian had planned to occupy 300,000 square feet of the newly constructed building. Cotton said there are many quality buildings downtown that Meridian is looking at to build out and occupy next year. The vacancy rate in the 13.4 million-square-foot downtown office market was 23 percent in the second quarter, according to data from the Southfield office of Newmark Grubb Knight Frank. That leaves about 3.1 million square feet available to accommodate Meridian. “We could spend our capital, which can be tight, and put it into real estate, or spend it on expanding (insurance operations) into new states,” Cotton said. “There is too much good office space out there right now.” Meridian revised its plans due to changing economic factors and the cost of building new versus leasing. The average asking rent is $19.23 per square foot — $23.03 per square foot for Class A office space, $19.77 for Class B and $15.08 for Class C, according to Newmark Grubb. It’s not yet known how much space Meridian will lease. Cotton said that over the next two weeks, the company will work with its architects, Southfield-based Neumann/Smith Architecture, to determine how much it needs to accommodate growth and employee needs going forward. Cotton said Meridian’s fiveyear plan is to increase its workforce from 913 employees now in Detroit to more than 2,500 as tit expands into more states. Meridian currently has space in two downtown locations: One Kennedy Square (the last new office building built downtown) and the Dan Gilbert-owned building at 1001 Woodward Ave. Cotton said Meridian has about 120,000 square feet in those two buildings. Weiner said in the long run, Meridian leasing space instead of building new is better for downtown vacancy rates. “In a recovering market, which is what we are in, the idea that the (Meridian space) requirement is absorbed in the CBD portfolio, further benefiting the vacancy rate, is probably a good thing on the whole, even as much as a new building dotting the skyline,” he said. That, in turn, improves things like building appraisals in the surrounding area, Farrell said. “Generally speaking, the neighbors benefit.” Kirk Pinho: (313) 446-0412, kpinho@crain.com. Twitter: @kirkpinhoCDB Jay Greene contributed to this story.

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Utilities: Ready for the storms – just not storms like these ■ From Page 3

DTE’s vice president of distribution operations. “We had 420,000 customers impacted (by lost power) since last Friday (Sept. 5 storm), and 98 percent were restored (in four days),” Lauer said. “If this were 10 years ago, it would have taken us 10 to 14 days.” Lauer said DTE prepares much better for storms and potential power outages. “We knew a storm was coming (Sept. 5) and started planning (several days before) with calling in additional field crews and staging materials,” he said. “We were ready for maybe a storm that affected 100,000 to 125,000. We didn’t expect 75 mph winds” that ended up the eighth-worst storm in DTE’s 111-year history in terms of numbers of customers affected. Jackson-based Consumers Energy spent more than $100 million in 2013 and nearly $110 million this year to improve electric reliability for its 1.8 million customers in Michigan, said Dan Bishop, Consumers director of media relations. As a result, Bishop said, there were 100,000 fewer customer interruptions in 2013, excluding major storms. Typical reliability projects include rebuilding electric lines, poles and substations and investing into new distribution technology. “We had 87,000 customers lose power due to high winds on Friday night (Sept. 5), and by noon Monday (Sept. 8), everyone was back on,” Bishop said. “The big Wednesday storm (Sept. 10) produced very few outages.”

Providing figures The Michigan Public Service Commission does not plan to hold hearings on the recent power outages, but Judy Palnau, commission spokesman, said a report is due

Oct. 1 on electric reliability improvements promised by DTE and Consumers. The report was ordered by the commission in January in response to the ice storm last December. Spokesmen for DTE and Consumers said the companies plan to fully comply with the commission’s order. Improvements include accelerating investments on projects that will minimize outage frequency and duration. Earlier this year, a commission report said that DTE has spent more the past two years on vegetation management, including tree trimming, than originally approved in rate case filings. DTE’s total spending in 2012 and 2013 was $111 million, 11 percent more than the $100 million approved. The commission said DTE’s maintenance program was effective. “This year (and in 2015) we plan to spend $60 million, more than last year (the $57 million spent in 2013),” Lauer said. “We are trying to remove more trees in our right of way.” Consumers, on the other hand, spent 22 percent less than it was approved the last two years by the commission, $71.2 million in 2012 and 2013 compared with $87.2 million approved during that period. The MPSC said in a recent report that both DTE and Consumers “should spend at least the dollars approved for vegetation management programs through the rate case process” and eliminate large fluctuations from year to year. Brian Wheeler, Consumers senior public information director, said Consumers has spent, on average over the past five years, the amount the commission approved for it on vegetation management. “The company’s vegetation management budget is in addition to the electric reliability invest-

RECENT POWER OUTAGES DTE customer power outages 2014: 1.8 million from Jan. 1-July 31, plus storms of Sept. 5 and Sept. 9 2013: 2.4 million 2012: 2.3 million 2011: 2.8 million DTE average outage duration, based on System Average Interruption Duration Index 2014: 277 minutes between Jan. 1-July 31 2013: 583 minutes (two catastrophic storms in November and December) 2012: 472 minutes 2011: 606 minutes (22 storms) Consumers Energy Co. customer power outages 2014: NA 2013: 2.7 million 2012: 2.5 million 2011: 3 million Consumers Energy Co. average outage duration 2014: NA 2013: 1,108 minutes (two catastrophic storms) 2012: 508 minutes 2011: 668 minutes Source: Michigan Public Service Commission, DTE Energy

ments we are making,” said Wheeler. Consumers plans to increase its spending this year and in 2015 on vegetation management to between $45 million to $49 million, he said.

Reining in rates Ken Sikkema, senior policy fellow at Lansing-based Public Sector Consultants, said DTE and Consumers are investing “an enormous amount of money in improving and maintaining their distribution system, especially compared with a decade ago.” Sikkema, a former Republican state legislator who was Senate majority leader from 2002 to 2006, said the utility companies have to balance the amount of money they spend on tree trimming and line improvements with customer rate increases. “They have to be concerned about rates. They can’t make electricity unaffordable,” said Sikkema, adding, “If they buried all the lines, it would solve the problem, but it would be too costly. Electric bills would be four times higher.” But Sikkema said there is a larger problem: what to do about the growing numbers of dead ash trees. Over the past 13 years, thousands of ash trees have been killed by the Emerald ash borer. At least 30 million ash trees in Southeast Michigan have been affected by the foreign beetle, and the disease is moving into northern Michigan, threatening up to 700 million ash trees. Lauer said DTE has removed more than 7,000 dead ash trees inside and outside of utility right of ways. “It is the single biggest vegetation management issue we face in Southeast Michigan,” Lauer said. “We have dead ash trees all over. Customers are reluctant to let us come on property to cut dead ones down.”

Lauer said DTE is amenable to working with the Public Service Commission on a solution to work with various local governments and property owners to fund projects to remove dead ash trees. Looking ahead, Sikkema said there should be a discussion in the state Legislature and Public Service Commission about whether more investment needs to be made to pre-

pare for greater numbers of storms. “We ought to look at the frequency of storms as the new norm,” he said. “A decade ago, you might have had one or two big storms in Southeast Michigan or the state. Last year, we probably had four or five.” Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene6

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OPEN HOUSE DATES 9/26, 10/17, and 11/7! Call for Details! U.S. General Services Administration Rich Balsano / 312-353-0302 / realestatesales.gov

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2014 UPCOMING

PARTNER EVENTS Coming Up from the Troy Chamber of Commerce Troy’s Night on the Town (TNT) Experience some of Troy’s finest restaurants, all in one evening–Morton’s The Steakhouse, Ruth’s Chris Steak House and The Melting Pot. Restaurants will provide a sampling of hors d’oeuvres and a cash bar. Attendees will be assigned a starting restaurant, then be on their own to experience them all. Clear Rate Communications will host a special VIP Reception. Presented by the Boulevard Health Center, Cherrywood Nursing & Living Center September 18 • 5:30-8 p.m. Registration: (248) 641-8151, theteam@troychamber.com or troychamber.com/events In The Public Eye From Feared to Welcomed: How Public Relations Can Help Expand Your Business Topics will include the power of branding, telling your story through the media, social media as a PR tool and a media panel comprised of industry leaders from Crain’s Detroit Business, WWJ News Radio 950, WJBK Fox 2 and MLive. Sponsored by Delphi Foundation and Oakland University October 23 • 8 a.m.-Noon Altair, 1820 East Big Beaver Rd., Troy Members: $45; Non-Members: $75 Registration: (248) 641-8151, theteam@troychamber.com or troychamber.com/events Coming Up from the Southfield Chamber Mardi Gras Sales for Salespeople and Entrepreneurs Taking the originality of Mardi Gras and applying it to sales, Michelle Bracali will share how to better stand out in a crowded marketplace, differentiate from the competition and build a stronger personal brand. September 25 • 5:30-7:30 p.m. Chamber Office, 24300 Southfield Rd., Suite 101, Southfield Members: Free • Non-Members: $10 Registration: southfieldchamber.com 10th Annual Taste of SouthÀeld The Annual Taste of Southfield celebrates what’s right about business and commerce in Southfield. The event includes a reception with a strolling buffet and live entertainment. Join us to promote our area businesses and restaurants while building a strong business/ community relationship. October 7 • 5-8 p.m. • Southfield Town Center Atrium, 2000 Town Center, Southfield Registration: southfieldchamber.com WBEC-Great Lakes 14th Annual Women’s Business Conference The Center for Empowerment and Economic Development (CEED) represents more than 1,000 women business owners certified through their Women’s Business Enterprise Council-Great Lakes program (WBEC-Great Lakes). Those businesses generate more than $11.6 Billion in revenue annually. Join them at the largest women’s business conference in Michigan! The conference includes keynote speaker Andrew Yang, speaker, entrepreneur, author of “Smart People Should Build Things” and founder, Venture for America; sessions such as a workshop by Judy Bradt, CEO of Summit Insight, where attendees will learn tools to identify and target federal contract opportunities that they can use right away; the opportunity to develop relationships with supplier diversity and purchasing representatives from corporations, public institutions and government entities; Women’s Business Showcase highlighting certified woman-owned businesses and months of sales prospecting in one afternoon at Meet the Buyers, an opportunity to meet with 70+ supplier diversity and procurement representatives September 29-30 Suburban Collection Showplace, 46100 Grand River Ave., Novi Registration: miceed.org or (734) 677-1400

For more local events, visit Crain’s Executive Calendar at crainsdetroit.com/executivecalendar

September 15, 2014

Children’s: Critical care in tower ■ From Page 3

equipment, and a patient-centered and lean architectural design. “We are using a brand-new design technique — lean — and we asked the architects and designers to work with families and patients to help us design and transform the hospital to improve patient care, to make it more convenient and Gold to drive out waste,” said Larry Gold, president of DMC Children’s Hospital. “When a child comes in for outpatient surgery, it takes about five hours to get through the system,” said Gold. “This (new design) takes out 30 percent of the time out of that process.” The $140 million tower will feature 87 new private rooms, including 39 neonatal intensive care beds and 48 pediatric intensive care unit beds. Another $30 million is being spent to enhance Children’s Hospital’s main entrance, lobby, departments and patient units that include converting most of the semi-private rooms into nearly 135 private rooms. But DMC took design to a new level when it leased out the Detroit City Sports Arena at 3401 E. Lafayette St. over the summer to build a cardboard mock-up of each of the six tower floors, said Ronald Henry, DMC’s chief facility engineering and construction officer. “We brought groups of patients, families and employees through to find areas of improvement, and designers worked on modifications,” Henry said. “We have increased efficiencies, maximized patient interactions and reduced travel distances for staff and patients.”

Regional strategy DMC’s pediatric critical care tower is part of a larger strategy that also includes offering such specialty services as cardiology and rehabilitation in the suburbs to patients who require more intensive care at DMC’s downtown hospitals, Mullany said. “We will get some additional (pediatric) business” downtown in Detroit, said Mullany, but “the tower is a separate project because we are at capacity for neonatal and (pediatric intensive care patients). We have to turn away patients sometimes. It is a better footprint for patients we currently serve.” Over the next three years, Mullany said, DMC expects to build four to five additional specialty outpatient clinics to support its cardiology, rehabilitation and pediatric service lines. “We need to have services available where it is convenient to patients who do not always require inpatient services,” Mullany said. “We have opened multiple facilities (in the past several years).” DMC operates more than 87 outpatient clinics and physician offices in Southeast Michigan. This week, DMC will break ground on a $42 million, three-story pediatric outpatient specialty

COURTESY OF THE DETROIT MEDICAL CENTER

A rendering of the emergency department of the Children’s Hospital patient tower. The six-story tower also features expanded neonatal and pediatric intensive care unit space and lean architectural design.

center in Troy across from the Marriott Hotel at 350 W. Big Beaver Road. The 63,000-square-foot DMC Children’s Hospital of Michigan Specialty Center, which will open next year, will include an emergency department, operating rooms, clinics and a variety of outpatient services, including cardiology, endocrinology, gastroenterology, nephrology, neurology, oncology and surgery. Children’s Hospital operates other outpatient facilities in metro Detroit, including centers in Birmingham, Clinton Township, Dearborn, Novi, West Bloomfield and Southfield. Funding for the projects will be counted toward DMC’s original commitment to spend $850 million on various capital projects by 2017, Mullany said. At the end of 2013, DMC had spent approximately $425 million of the required $850 million in the 15 specified capital spending projects and other facility upgrades, according to Legacy DMC, the nonprofit entity that oversees compliance with the purchase agreement. Joe Spallina, a principal with Ann Arbor-based Arvina Group, said most of the nation’s 220 children’s hospitals — including the University of Michigan’s C.S. Moss Children’s Hospital in Ann Arbor and Spectrum Health’s Helen DeVos Children’s Hospital in Grand Rapids — are developing regional strategies using outpatient centers and physician offices to drive volume to main hospitals. “The expansion and updating of Children’s Hospital at DMC is long overdue,” Spallina said. “Children’s hospitals, like adult hospitals, are now a regional business, and they need to be if they are to be sustainable.” Spallina said technologies are driving more care into outpatient settings, leaving main hospitals to treat more complicated diseases and conditions. “To run your operation efficiently, you need a hub-and-spoke model to have a critical mass of patients,” Spallina said. “You also need to have subspecialty (physi-

cian) depth to take care of rare and unique diseases of children.” Most health systems in Southeast Michigan that offer a variety of inpatient and outpatient pediatric services, including Beaumont Health, St. Joseph Mercy Health System and St. John Providence Health System, are also expanding under various regional strategies. For example, 120-bed Beaumont Children’s Hospital announced plans to expand children’s health care in Oakland, Macomb and northern Wayne counties by recruiting a number of pediatric subspecialists. The children’s hospital, which is part of Beaumont Hospital in Royal Oak, also includes 21 private and neonatal beds at Beaumont Hospital in Troy. Beaumont recently merged with Botsford Health Care in Farmington Hills and Oakwood Healthcare in Dearborn to form eight-hospital Beaumont Health. One factor driving expansion is reimbursement and expense pressure facing all hospitals, Spallina said. “They are facing challenges on the reimbursement side and on the expense side with rising labor costs and increasing needs for expensive technology,” he said. Gold said Children’s Hospital has been experiencing marketshare growth and patient volume increases. He declined to provide numbers. “If past trends hold up, we will see continued market share and volume growth,” Gold said. “I am taking care of kids in ER that are much sicker. Minimally invasive surgeries will grow.” Providing architectural design work for the project is Boston-based Shepley Bullfinch. Mechanical and electrical engineering services are by Troy-based Peter Basso and Associates, and Joan Wellman and Associates of Seattle is providing lean process improvement consulting services. Construction management services are provided by Oak Parkbased Barton Marlow Co. and Detroit-based Brinker Group. Jay Greene: (313) 446-0325, jgreene@crain.com. Twitter: @jaybgreene

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ViSalis: Co-founders buy back stake, launch line ■ From Page 1

Shedding weight In 2008, Blyth began a multi-stage takeover of the multilevel marketing firm. Blyth, which has several multilevel marketing subsidiaries such as home décor firm PartyLite, paid more than $105.7 million to ViSalus’ owners and provided convertible stock of $143.2 million for a 80.9 percent share of the company. By August 2012, Blyth planned to launch an initial public offering for ViSalus, but lack of investor interest caused the company to withdraw the $175 million IPO a month later. The company moved into its Troy headquarters in 2012, which employed about 330 in Michigan at that time. Blyth investors filed a class action lawsuit in U.S. District Court in Connecticut that year against the company, ViSalus co-founder and Chief Marketing Officer Nick Sarnicola alleging the defendants overstated the viability of the company. The case was dismissed in March. But the fallout continued as ViSalus’ line of products such as meal replacement shakes and energy drinks lost in popularity and sales declined. ViSalus operates as a multilevel marketing firm, whose sales force is compensated by selling its products but also by the sales of new people they recruit. The company’s high mark in financial performance was in 2012; through the promotion of its Body by Vi Challenge, which sets weight-loss and fitness goals over a 90-day period along with the use of ViSalus products, revenue rose to $623.5 million in 2012 from $34 million in 2010. It also grew its independent distributors, or promoters, that make up its sales force to approximately 76,000 from 8,000 during the same period. But like many weight-loss products and programs, interest waned. ViSalus’ promoters dropped out

EARNINGS ViSalis operating profit or loss, in

A SLIDE IN SELLERS The number of

’10

’11 ’12

’13

Q1 Q2 ’14 ’14 Note: 2010 results reported with other segments.

dropping to 35,000 in 2013 and down to 31,000 in August this year. The loss of promoters, and product consumers, caused sales and income to plunge — ViSalus had an operating loss of $1.1 million in 2013. Losses continued to roll into 2014, with an operating loss of $3.7 million on revenue of $57.4 million in the first quarter of this year. ViSalus reported a net loss of $1.33 million in revenue of $53.6 million in the second quarter. Blyth noted the decline in its independent distributors, or promoters, significantly hurt sales. Puneet Manchanda, chair of the marketing department at the University of Michigan’s Ross School of Business, said ViSalus may be the victim of capitalizing on, but not changing with, trends. “To be successful, you first and foremost need a good set of products that are not fads,” Manchanda said. “If you’re trying to play this game of evolving with consumer tastes, you need to pick out the next big thing before the consumer does.” Blyth recognized and included in financial reports the possibility of ViSalus’ product line getting stale with consumers. “If consumer demand for these products decreases significantly, or ViSalus ceases offering weightmanagement products without offering a suitable replacement, then our business, financial condition and results of operations would be harmed,” Blyth said in its annual financial release to the U.S. Securities and Exchange Commission in March. “In addition, if our businesses miscalculate consumer tastes and are no longer able to offer products that appeal to their customers, their brand images may suffer and sales and earnings would decline.” Paul Skowronek, senior vice president of public affairs for the Washington, D.C.-based trade association Direct Selling Association, which lobbies on behalf of the industry, said the bell curve of growth and decline isn’t exclusive to multilevel networking firms. “Those types of trends and impacts on product lines, it’s not industry specific. Companies should always pay attention to consumer trends, regardless if they are multilevel marketing companies or not,” he said. “Fads don’t last forever and every time you see a company grow at a tremendous rate then drop off, it poses questions about what’s next, but there have been a lot of successful companies that have stood the test of time…” Manchanda said Ada-based Amway Corp., the largest multilevel

31,800

76,000

59,000

-$1.1 -$3.7 -$1.3

8,000

$2.6

35,000

independent ViSalis sellers, called “promoters,” has fallen by more than half in the past year and a half.

millions:

$69.2

The deal, which closed on Sept. 2, eliminates Blyth’s obligation to pay the co-founders $143.2 million for stock they acquired in the 2008 transaction that sold ViSalus to Blyth. Blyth’s stake is now reduced to 10 percent. Said CEO Ryan Blair said in a Sept. 8 press release: “We have never been more pumped for Vitality than we are this year, especially after recently going ‘all-in’ by leading ViSalus’ management buyout to position the company for long-term growth.” But questions Blair remain whether the company can bulk up its dwindling ranks of customers and employees. The number of independent sellers, called “promoters,” decreased from 76,000 to 31,800 in the past 18 months. And it’s unclear how the company plans to tourniquet its onceplump coffers. ViSalus’ revenue collapsed to $351.2 million in 2013 from a high of $623.5 million in 2012. ViSalus representatives, including Blair, declined to be interviewed for this article.

2010 2011 2012 2013 Q1 ’14 Q2 ’14

networking company in the world, has remained successful for 55 years because it sells “evergreen” products, such as soaps, makeup and vitamins. “(Amway’s) products are staples,” Manchanda said. “Everyone needs basic, quality household goods.” Amway declined to comment for this story. Los Angeles-based ViSalus competitor Herbalife Ltd. isn’t suffering from fad fatigue with its brand of fitness supplements. It turned its best financial performance in 2013, generating income of $527.5 million on revenue of $4.8 billion. Herbalife, which also produces products like weight loss shakes, declined to comment for this article. The loss of promoters could have occurred through the exit of its leading promoters, which could have trickled down the line to that person’s recruits — a negative side effect to the multilevel marketing structure. Blyth recognized this risk in filings with the SEC, as 74 percent of revenue funnels through cofounder Sarnicola. Manchanda said it’s common for multilevel networking firms to have top-ranking promoters with a disproportionate part of the sales. But that doesn’t negate the risk. “He probably has a lot of charisma and achieved a lot by converting people down the chain,” Manchanda said. “But if he shows poor judgment or leaves the company, that’s a serious liability.” ViSalus tries to thwart a mass exodus of its top-tiered promoters by having all promoters sign a oneyear non-compete contract. And in May, its board of directors adopted a new incentive plan to offer stock rights and other performancebased compensation to retain those key promoters. It’s unclear whether ViSalus will maintain the policy under its rekindled cofounder ownership structure.

Image ViSalus, like other multilevel marketers, also continues to face criticism over its business model, alleging it’s a pyramid scheme. In July, Southfield-based law firm Sommers Schwartz PC and two other firms filed a class action lawsuit on behalf of former ViSalus promoters in the U.S. District Court for the Eastern District Court of Michigan in Detroit. The complaint alleges ViSalus recruited more than 100,000 promoters who paid as much as $999 to join ViSalus’ sales team as part of an illegal pyramid scheme. Af-

ter sales plummeted, ViSalus’ owners pulled $80 million from the company, the complaint alleges. The plaintiffs seek $240 million in damages. ViSalus has until Oct. 27 to offer a rebuttal. The U.S. Federal Trade Commission targeted multilevel networking firms when it proposed the Business Opportunity Rule last year. The rule calls for companies that sell “business opportunities” to provide potential buyers with a one-page disclosure statement, which is filed with the FTC, covering earnings and references. However, strong lobbying by the industry — the Direct Selling Association sent 17,000 letters to Congress on the matter, according to CNBC — caused the FTC to omit multilevel marketers from the rule. Multilevel marketing remains big business, generating $32.7 billion in U.S. sales in 2013, up from $31.6 billion in 2012.

A Phoenix story? ViSalus staved off economic ruin once before. ViSalus was created when a company called The Free Network LLC registered the ViSalus name in Michigan in 2005 with Sarnicola and other co-founder Blake Mallen at the helm. Sarnicola and Mallen were top sales representatives with The Free Network. Blair performed a leverage buyout of ViSalus in 2005 — the same year he filed Chapter 7 personal bankruptcy in California where he reported $125,000 in debt and $500 in assets, according to a 2012 report by the Southern Investigative Reporting Foundation. Blair retained Sarnicola and Mallen as head of sales and marketing, respectively. The trio targeted the San Francisco Bay region and sales grew 200 percent, according to the SIRF. Even Blyth CEO Robert Goergen Sr. invested $1.5 million into the startup. But by 2008, ViSalus was nearly bankrupt with millions in debt, which has been reported as between $6 million and $8 million. Then Blyth stepped in and acquired an initial 43.6 percent equity stake for $14 million — which eventually increased to an 80.9 percent stake. After this month’s deal, Blyth continues to support ViSalus with a promise of up to $6 million in investments and access to revolving credit. It’s also expanding into international markets. ViSalus launched in the U.K., Germany and Austria last year. The company said in April it expects to invest $13 million in international operations by the end of the year. Manchanda said immigrants in the U.S. helped make multilevel marketing successful and expects emerging markets to replace any dropoff in U.S. sales. “In the Western world, this model will decline, but will grow elsewhere,” he said. “A lot of growth was fueled by immigrants, but this is a lot of work and there are no guarantees. What better promise for emerging markets?” Dustin Walsh: (313) 446-6042, dwalsh@crain.com. Twitter: @dustinpwalsh

www.crainsdetroit.com EDITOR-IN-CHIEF Keith E. Crain GROUP PUBLISHER Mary Kramer, (313) 446-0399 or mkramer@crain.com ASSOCIATE PUBLISHER Marla Wise, (313) 4466032 or mwise@crain.com EXECUTIVE EDITOR Cindy Goodaker, (313) 4460460 or cgoodaker@crain.com MANAGING EDITOR Jennette Smith, (313) 4461622 or jhsmith@crain.com DIRECTOR, DIGITAL STRATEGY Nancy Hanus, (313) 446-1621 or nhanus@crain.com MANAGING EDITOR/CUSTOM AND SPECIAL PROJECTS Daniel Duggan, (313) 446-0414 or dduggan@crain.com SENIOR EDITOR/DESIGN Bob Allen, (313) 4460344 or ballen@crain.com SENIOR EDITOR Gary Piatek, (313) 446-0357 or gpiatek@crain.com WEB EDITOR Kristin Bull, (313) 446-1608 or kbull@crain.com RESEARCH AND DATA EDITOR Sonya Hill, (313) 446-0402 or shill@crain.com WEB PRODUCER Norman Witte III, (313) 4466059, nwitte@crain.com EDITORIAL SUPPORT (313) 446-0419; YahNica Crawford, (313) 446-0329 NEWSROOM (313) 446-0329, FAX (313) 4461687 TIP LINE (313) 446-6766

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CRAIN’S DETROIT BUSINESS

Water: Outlook runs hot and cold for new regional organization ■ From Page 1

standing signed by the regional leaders last week. “The debt service in the budget, that part of it still has to be divvied up (among the authority members), because Detroit doesn’t get to just walk on that debt. But in theory, once you disaggregate the structure of it, then the debt obligation (to ratepayers) shouldn’t be much different,” said Robert Daddow, deputy executive of Oakland County and one of its representatives in the authority negoDaddow tiations over the past year. “But the breakout of Detroit as a retail and wholesale customer is one piece that’s still going to take a lot of work.” The contribution to prefund the city pensions, last valued at around $428 million in the city’s latest plan of adjustment to exit federal bankruptcy, was a key reason that Macomb County and the Macomb Interceptor Drain Drainage District opposed Detroit’s adjustment plan earlier this year. Macomb County Public Works Commissioner Anthony Marrocco said late last week he would withdraw its objection to the plan before U.S. Bankruptcy Judge Steven Rhodes, however, after getting further details about it. Oakland and Wayne county officials already had agreed to withdraw their objections to the city’s plan as a part of the authority agreement. “There wasn’t enough communication from the city before. We thought they were asking us to cover the liability not just for people who were retired from DWSD, but people employed in other places, or departments of the city. We wanted an accounting for that,” Marrocco said. “But we’re going to withdraw (the objection) now. One thing I’m still unhappy about is that (major decisions) aren’t unanimous for the board. They’re unanimous for the Cobo (regional authority). And I think when it comes to big dollars, your vote should count more.” A report from Milliman Inc. indicates the present value of the pension prefunding commitment is around $292 million, Daddow said, though that figure may change. A new six-member authority board must appoint a new general manager or executive director for the authority. The department’s current regional Board of Water Commissioners is expected to give way to a board of mayoral appointees only to oversee the smaller, post-authority city department after the transition. About 500 out of more than 1,400 current department employees will remain with the city department, if the proposal is confirmed, while about 900 more will become authority employees. The authority will honor all the DWSD labor contracts in effect when it is created. In addition to the lease, Detroit will also collect an annual $26.2 million per year, sometimes called the “rate of return payment,” from the authority, for use of city assets.

Water authority’s question: How much does Detroit pay? BY CHAD HALCOM CRAIN’S DETROIT BUSINESS

Regional leaders have a lot to say about how much a regional authority must pay Detroit to manage its water and sewer assets for 40 years. But it remains to be seen how much Detroit will pay into the authority in return. Detroit Mayor Mike Duggan, Detroit Emergency Manager Kevyn Orr, Wayne County Executive Robert Ficano, Oakland County Executive L. Brooks Patterson and Macomb County Executive Mark Hackel signed a memorandum of understanding Sept. 9 to recommend approval of a regional authority to lease the DWSD’s assets for 40 years, at $50 million per year. But the new Great Lakes Water Authority captures all of the suburban “wholesale” budget of the DWSD, or about $560 million of the current city department’s $930 million-plus total revenue, according to its 2014-15 budget. This means the lion’s share of the watersewer bill that suburban customers pay to their own local governments today will be passed along to the new authority instead of the city. A smaller share of suburban watersewer bills that cover their local governments’ costs is unaffected by the change. But the $50 million lease itself is earmarked for the city to spend on capital improvements. Doug Scott, managing director in the U.S. public finance group for Fitch Ratings Ltd., said it’s too early to tell how eager bondholders will be to lend to the new authority until more details emerge about its structure. The current DWSD debt load will be a concern because it can’t be reduced, he said, as will the 4 percent rate increase cap in its first 10 years. “The limit on their revenuegenerating ability would be a factor. It could be a credit negative, depending on the situation — it’s certainly not a credit positive,” Scott said. “But I can’t say it’s a definite negative in this situation, since we have other factors to look at, like how affordable rates are right now. That could be an offset.” The state membership in the authority board could also be a significant win for suburban negotiators, who had pushed for it since last year as a way for the state to boost its bond rating and save millions on bond interest payments. The memorandum of understanding calls for the state to allow the Finance Authority to issue bonds on the authority’s behalf, as it did in recent weeks for the DWSD by refinancing about $1.6 billion of bonds. “There are no real negative surprises yet in the (authority deal). It seems to me that the numbers add up, but there are good questions still to ask,” said David Tawil, cofounder and portfolio manager of New York City-based Maglan Capital, a hedge fund that invests in distressed assets including some risky government bonds. “The city’s new bonds could be backed by both the revenue from the annual lease payment and water-sewer customer payments inside Detroit. The customer part of it supposedly had an issue of people not paying (within the city), and they’ve said they’re going to

Detroit itself is expected to be a new wholesale customer of the authority — meaning, just like suburbanites, city businesses and residents will see one portion of their payment stay with their own city while the other passes through to the authority to maintain the regional system. Regional leaders said details such as the rate of the city’s wholesale payment and the share it will continue to pay on its $5.2 billion of legacy DWSD bond debt that the authority inherits have yet to be determined. Detroit and at least one of the county boards must approve the deal by Oct. 10. The authority will lease and operate 400 miles of water lines and 360 miles of sewer pipe inside and outside the city, as well as five filtration plants and the Jefferson Avenue Sewage Treatment Plant. Detroit retains control of about 3,400 miles of water mains and 3,000 miles of sewer lines within the city, and can use all or part of the lease payment to support $500 million to $800 million in new bonds to improve the regional system. The deal also caps rate increases at 4 percent per year, for 10 years. Detroit will have two board representatives, each of the three counties will have one and one will be an appointee of Gov. Rick Snyder. The

do a lot better about collecting.” A report to the current DWSD board’s finance committee on Sept. 5 indicates 28,000 customers, including more than 27,000 city residential users, were on an installment plan to pay up on accounts totaling $15.4 million that are more than 60 days delinquent. That’s about 11,000 more customers than were on payment plans before a July 21 moratorium on water service shutoffs for the DWSD, said John Roach, a spokesman for Duggan. That includes about 1,100 customers who were able to get water service restored after a shutoff had already occurred, by going on the installment plans. The report also indicates about 151,000 accounts are still more than 60 days past due, with combined balances of more than $137 million. That’s not much lower

state can also appoint a representative for any county that does not back the authority deal. All major decisions, including rate increases, require a five-vote supermajority to pass, meaning Detroit can essentially veto any such decision but so can two or more suburban leaders. In addition to the lease payment, the authority also must deposit $4.2 million this fiscal year and 0.5 percent of operating revenue each year afterward into an independent Water Residential Assistance Program to help customers across the system who cannot afford water service. The authority must also pay a share of the annual required contribution toward a frozen defined benefit General Retirement System pension plan, any year that the plan comes up underfunded while the authority is leasing the system. The authority will also make a modest contribution to the new hybrid defined benefit plan created during the bankruptcy to manage future retiree benefits. Oakland County Deputy Executive Robert Daddow estimates the new plan contribution will be about $3.2 million per year for the authority. Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

than the $141.1 million balance in February, when the board received a previous report on plans to begin escalating delinquent account enforcement. Regional leaders are in discussions about how to share those payments from city residents, since the city hasn’t had the same meters and other infrastructure in place to operate as a whole customer to an outside authority, the way the suburban communities operate today. Assistant Macomb County Executive Roy Melissa Roy said the 6,400 miles of Detroit-controlled water and sewer pipes under the agreement will be much like the network of pipes

in each suburb that are under local municipal control, after a demarcation or separation point in the network of current DWSD infrastructure. Detroit is also expected to become a wholesale customer, so that some portion of its $330 million retail revenue would become a monthly wholesale payment. “So the lease payment to Detroit is paid as a whole, from the authority,” she said. “But there are some cost savings we’ve identified, as a result of the work group, can be of some significant benefit compared to that.” Daddow said the bankruptcy adjustment plan, if confirmed, eliminates about $18 million per year in potential retiree health care costs to the authority for DWSD employees. Chad Halcom: (313) 446-6796, chalcom@crain.com. Twitter: @chadhalcom

Innovation fund to support preschool, data collection The first grants from the $4.5 million Detroit Head Start Early Childhood Innovation Fund will support the launch of a common data collection effort to identify best practices among five local agencies while expanding the services they provide, according to a fund announcement. This $2 million will also support the agencies’ work with HighScope Educational Research Foundation in Ypsilanti and ardentCause L3C, a Troy-based data collection, analysis and communication company, and meetings over the next two years so the agencies can share best practices. The Detroit Head Start Early Childhood Innovation Fund was launched in 2013 by the eight foundations that are part of the Southeast Michigan Early Childhood Funders Collaborative: Community Foundation for Southeast Michigan, Kresge Foundation, Skillman Foundation, Max M. and Marjorie S. Fisher Foundation, McGregor Fund, Jewish Fund, W.K. Kellogg Foundation and PNC Foundation. The fund was created to expand on a $48 million federal investment in Head Start programs in and around Detroit which was one of five cities selected to take part in a pilot in which applicants were encouraged to propose a “birth-to-5” approach to Head Start services, including services for expectant families.

The grants from the innovation fund are: $750,000 to Starfish Family Services, Inkster, to provide Head Start preschool services to about 1,300 children and families. 䡲 $668,392 to Matrix Human Services for Head Start services focused on early childhood education in Detroit neighborhoods. 䡲 $75,000 to Southwest Counseling Solutions, to support two community-based pregnancy and early infancy coaches, to provide birth and parenting support to pregnant women and new mothers. 䡲 $300,000 to New St. Paul Tabernacle, to implement evidence-based tools and staff development in its Early Head Start and Head Start programs, an oral- health education series, prenatal education, and training and enrichment workshops from Living Arts. 䡲 $190,000 to Metropolitan Children and Youth Inc., dba United Children and Family Head Start, to support prenatal care, infant and toddler programs, and an additional 210 spots for children in its preschool programs. A report commissioned in 2011 by the Fisher Foundation estimates that even a 1 percent improvement in school readiness among Detroit’s 7,200 kindergartners would result in savings of at least $7.2 million for schools and the public sector. — Sherri Welch

䡲

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CRAIN’S DETROIT BUSINESS

September 15, 2014

RUMBLINGS Digital First to consider sale of News igital First Media, owner of The Detroit News, said Friday that it will evaluate strategic options, which could include the sale of the company or some of its 76 daily and 160 weekly publications. John Paton, Digital First’s CEO, made the announcement to employees in an email Friday. The future potential sale of the newspapers was predicted in April, when Digital First shareholder and New York-based Alden Global Capital LLC, an activist investor, abandoned a centralized digital news effort, “Project Thunderdome.” Launched in 2011 and run by a 50-person staff in New York, Project Thunderdome provided prepackaged national news and data projects, akin to a wire service, to Digital First’s 75 daily newspapers. It owns The Oakland Press in Pontiac, Macomb Daily in Mt. Clemens, The Daily Tribune in Royal Oak and The Morning Sun in Mt. Pleasant. Digital First Media, formed in September 2010, operates Denver-based MediaNews Group Inc., owner of The Detroit News. Alden acquired a large, noncontrolling stake in MediaNews in March 2010 as MediaNews parent Affiliated Media Inc., also based in Denver, emerged from bankruptcy. Last year, Digital First merged the MediaNews and Journal Register publications, which included newspapers in 10 states, into a single operating unit. In Michigan, Alden also owns the Voice and Heritage chains of small newspapers. A potential wrinkle in any sale of The News is its business relationship with its chief competitor: The Detroit News is part of a 25year joint operating agree-

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ment with the owner of the Detroit Free Press. The papers have separate newsrooms in the same building but share advertising, printing and distribution under a JOA managed by the Detroit Media Partnership. The partnership is 95 percent owned by McLean, Va.based Gannett Co. Inc., the parent of the Free Press. Digital First’s MediaNews has the remaining 5 percent stake in the partnership. Gannett reimburses the News’ newsroom salaries and expenses monthly under terms of the JOA. The JOA, signed in 2005 and amended in 2009, calls for MediaNews to receive yearly payments from the Detroit Media Partnership that would total more than $45 million by the end of the agreement in 2030.. The JOA language allows for termination of the agreement after 10 years, which would be 2015, if both newspapers have been losing money for a set period. The partnership hasn’t discussed its finances since 2010.

Doner to launch ad campaign for UPS Store Continuing its two-year effort targeting small-business owners, The UPS Store next month will introduce an integrated campaign featuring UPS Store franchise owners and real business customers. And a metro Detroit ad agency is part of the brain trust behind the campaign. The campaign, called “Mailbox Confessions,” breaks this week and includes TV, print, radio and online. It was created by Doner Partners LLC in Southfield, The UPS Store’s agency of record, and UPS’ agency of record, Ogilvy &

The UPS Store chain is getting a boost from ad company Doner.

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WEEK ON THE WEB FROM WWW.CRAINSDETROIT.COM, WEEK OF SEPT. 6-12

Mather Chicago. Ogilvy created the TV spots, and Doner handled the rest of the work. The budget was undisclosed. Two years ago, The UPS Store launched a brand repositioning with the theme “Not Alone” after conducting research that found the majority of smallbusiness owners feel alone and often don’t get the support they need to cope with business challenges.

Snyder funny? Be the judge Of all the funny things you can say about the Great Lakes, Gov. Rick Snyder knows both of them. He has two “go-to” jokes when it comes to Michigan Lakes. (Stay tuned for the punch lines below.) To reporters who have heard them for the umpteenth time, you just endure them and wait for the portion of the speech you will actually be writing about. But to a crowd of Japanese business leaders and government officials last week, it was a safe bet this would be new material to them, so Snyder Snyder let both of his standard quips fly and neither reportedly landed with a dud. “There were a lot of laughs,” said Snyder, who was speaking to the 46th annual Midwest U.S.-Japan Association Conference in Iowa. In making the case for Michigan, Snyder talked about the Pure Michigan campaign and tourism and pulled out one of his favorites that we first heard him use on the campaign trail in 2010. When Snyder talks about the importance of branding, he mentions that Minnesota is known as the “land of 10,000 lakes.” But Michigan, Snyder points out, has 11,000 lakes. OK, so it’s not so much a joke, but a gentle stab at the Gopher state. Snyder said that after he made his point, Wisconsin Gov. Scott Walker leaned over and whispered that the Badger State has 15,000 lakes. OK, so Wisconsin has us there. But not to be outdone, Snyder pointed out something else to the crowd. Yep, there’s a stat that Wisconsin can never lay claim to, barring a major shift in tectonic plates. “Four out of the five Great Lakes prefer Michigan,” Snyder said. Take that, Wisconsin.

Citizens Research Council names Lupher president ric Lupher was named president of the Livonia-based Citizens Research Council of Michigan on Friday, following the resignation of Daniel Krichbaum. Krichbaum, the former Michigan Department of Civil Rights executive director, resigned Sept. 1 on the advice of his doctors after suffering a stroke earlier this year. Lupher, 50, has been with the council for more than two decades, most recently serving as research director. He had been serving as president on an interim basis this month.

ON THE MOVE 䡲 Rodney O’Neal will retire in March as CEO at Delphi Automotive plc and be succeeded by CFO Kevin Clark. O’Neal, 61, will remain with the Troy-based parts unit as an adviser until the end of 2015. Clark, 52, will become COO Oct. 1 and take the top job March 1. 䡲 Aimee Cowher left as CEO of Clinton Townshipbased Global Productivity Solutions LLC to become Detroit Mayor Mike Duggan’s executive assistant and director of lean process management. Founding partner Gary Cone replaces Cowher, 44, who succeeds Mary Martin in leading lean process. 䡲 Peter DeNunzio, a former Experian Marketing Services executive, was named CEO of Pleasant Ridge-based digital marketing and customer loyalty program management firm HelloWorld Inc., formerly ePrize Inc. DeNunzio, 55, replaces Matt Wise, who left the company. HelloWorld also hired Amit Dhadwal as COO and executive vice president; he was COO at Aon Affinity Worldwide in Chicago. 䡲 The Southfield-based William Davidson Foundation named Danielle Olekszyk its first CFO. A 2012 Crain’s “40 under 40” honoree, Olekszyk, 35, formerly was vice president of operations and CFO for the Skillman Foundation in Detroit. 䡲 Keith Johnson, president of the Detroit Federation of Teachers, plans to step down after leading the 4,000-member union for six years, AP reported. 䡲 Edwin Buss, former chief of prisons in Florida and Indiana, was hired to oversee Michigan’s troubled contract with Philadelphia-based Aramark Correctional Services, which supplies inmates with food, AP reported.

COMPANY NEWS 䡲 Detroit-based Compuware Corp. announced plans to separate its mainframe support business into a company operating under the Compuware name. The move is pending the closing of the sale of the IT services and support firm to San Franciscobased private-equity company Thoma Bravo LLC. 䡲 Visteon Corp.the Van Buren Township-based auto parts maker, is exploring a plan to split into two companies, one focused on electronics and one on climate controls, Bloomberg reported. 䡲 Southfield-based Federal-Mogul Holdings Corp. said it agreed to acquire the engine valve business from Livonia-based TRW Automotive Holdings Corp. for $385 million. Federal-Mogul will integrate the new business into its powertrain division in a deal expected to close in the first quarter of 2015. 䡲 The former Lowe Campbell Ewald headquarters building in Warren has sold to General Motors Co. According to the real estate information service CoStar Group Inc., GM paid $2 million for the 150,000-squarefoot building, on Van Dyke Avenue across from the GM Technical Center. 䡲 The Comerica Asset Management Group said it will move its offices from Birmingham to downtown Detroit early next year. The group is moving to Comerica Bank-Michigan’s local headquarters at 411 W. Lafayette Blvd. 䡲 Commonwealth/McCann plans to move its Detroit office — and 250-300 employees — down the street into about 50,000 square feet in the One Detroit Center building at 500 Woodward Ave. early next year. The ad agency’s office now uses 42,000 square feet in the Francis Palms Building at 2111 Woodward. 䡲 The Detroit Wayne Mental Health Authority will move about 120 employees next spring into a vacant 72,000-square-foot office building in Detroit’s New Center Area after more than $6.5 million in planned renovations. The DWMHA bought the building at 693-707 W. Milwaukee Ave. last month. 䡲 The owners of Victory Lane Quick Oil Change Inc. sold the franchise to one of its largest franchisees for an undisclosed amount. Justin and Lauren Cialella, who owned 10 locations across Southeast Michigan, bought the company from founders Derrick and Jane Oxender. Headquarters moved to Canton from Ann Arbor. 䡲 Flat Rock-based DT&I

Employees Credit Union and Wyandotte-based NuPath Community Credit Union agreed to merge under the NuPath name. Kathryn White will continue as NuPath’s president and CEO. 䡲 Cincinnati-based Kroger Co. is hiring to fill an estimated 20,000 permanent positions in its supermarket divisions, including about 1,800 in Michigan.

OTHER NEWS 䡲 Detroit’s bankruptcy trial was suspended until this week to give lawyers time to work on details of a settlement after a deal was reached with a major creditor, bond insurer Syncora Guarantee Inc. Detroit would extend Syncora’s lease on the Detroit-Windsor Tunnel and grant it a 30-year lease on the Grand Circus Park parking garage, and Syncora would recover roughly 26 percent of its claim, AP reported. 䡲 The I-96 construction project in Livonia and Redford Township is ahead of schedule, and the Michigan Department of Transportation expects to reopen the seven-mile stretch between Telegraph and Newburgh roads as soon as late September. 䡲 Detroit Emergency Manager Kevyn Orr plans to transfer up to 45,000 cityowned properties to the Detroit Land Bank Authority. 䡲 The University of Michigan Health System is the state’s only medical institution to be ranked in the top 10 nationally for graduate medical education by U.S. News & World Report. UMHS ranked in the top 10 nationally in 12 of 20 specialties surveyed by Doximity, an online physician network. 䡲 Gov. Rick Snyder signed a bill to clarify that Michigan never intended to give out-of-state companies a lower tax liability in a 2007 business tax overhaul. The legislation is designed to ensure the state isn’t forced to pay $1.1 billion in refunds in 134 cases after a July ruling from the Michigan Supreme Court in a case involving IBM.

OBITUARIES 䡲 Stella Sossi, whose family owns Roma Café in Eastern Market, one of Detroit’s oldest restaurants, died Sept. 8. She was 93. Sossi started as a bookkeeper for the restaurant in 1945 and married owner Hector Sossi in 1946. 䡲 Lillian “Lil” Erdeljan, a prominent metro Detroit philanthropist and the wife of Aleksandar Erdeljan, former CEO of Troy-based R.P. Scherer Corp., died Sept. 11.

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