Crain's Detroit Business, Nov. 18, 2019 issue by Crain's Detroit Business

CRAIN’S FORUM: STATE BUDGET PAIN

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PAGES 16-19

BIG HOPES DASHED AUTO SUPPLIERS

Detroit’s Sakthi Automotive likely to shutter amid lawsuits, ownership disputes

| BY DUSTIN WALSH

Sakthi Automotive’s plant at 201 Waterman in Detroit.

The company even shifted 90 percent of its aluminum castings work to Detroit from overseas. By 2020, Sakthi Automotive estimated, it would invest more than $100 million in the city. In turn, the state supported its expansion efforts with $5 million in grants, Detroit waived property taxes and carved out a Renaissance Zone around the nearly 40-acre property to alleviate Sakthi from paying hardly any state or local taxes at all until 2031. See SAKTHI on Page 25

LEGAL

DuMouchelle no stranger to litigation, court records show BY KIRK PINHO

A federal wire fraud charge against a prominent Metro Detroit jeweler is the punctuation on a year filled with civil litigation against him. Oakland County Circuit Court records show that Joseph Gregory Du-

Mouchelle, 58, has been enmeshed in complaints and judgments from investors totaling millions of dollars starting in March. DuMouchelle, owner of Joseph DuMouchelle Fine & Estate Jewellers LLC at 251 E. Merrill St. in downtown Birmingham and son of the late auction-

NEWSPAPER

eer-appraiser Lawrence DuMouchelle, faces up to 20 years in prison for the alleged crime, which federal investigators say happened in February and involved a purported purchase of the 77-carat Yellow Rose diamond. Circuit court documents show that Teodor Gelov of Carmel, Ind., is su-

ing DuMouchelle over a $1.8 million investment made in August 2018 that was to be used to purchase 16 pieces of jewelry ranging from diamond earrings and bracelets, a ruby and diamond necklace, a 1928 Cartier Art Deco coral and onyx brooch and other items. The promissory note re-

quired a guaranteed rate of return of 20 percent, or $360,000, the complaint filed in March says, meaning that Gelov was owed $2.16 million by Feb. 28. Those pieces of jewelry were to be sold at a profit. See DUMOUCHELLE on Page 22

FOCUS: RECAPPING CRAIN’S HEALTH CARE SUMMIT Health care executives discuss gaps at every level in patient coverage PAGE 10

COSTAR

n auto supplier that opened to great fanfare five years ago in Southwest Detroit is almost certain to close. Sakthi Automotive Group was the first new automotive parts supplier to open in Detroit in about a decade. The knuckle and steering arm supplier transformed a shuttered ArvinMeritor plant and planned to repurpose the 98-year-old defunct Southwestern High School into a training center. It prioritized hiring Detroiters and became the state’s benchmark employer for its returning citizens program by hiring more than 200 parolees.

NEED TO KNOW

WINTER'S BLESSINGS

THE WEEK IN REVIEW, WITH AN EYE ON WHAT’S NEXT ` DIPLOMAT PHARMACY’S DIRE WARNING THE NEWS: Flint-based Diplomat Pharmacy Inc. reported Tuesday a third-quarter net loss of $177 million and said it has “substantial doubt” it can stay afloat without “strategic alternatives” — potentially a sale of the company — by the end of the year. The loss of a major customer has made its position more precarious in a pharmacy-distribution business that has gotten progressively more difficult. WHY IT MATTERS: Diplomat has been a key economic driver in the beleaguered city of Flint. We’ll have to wait and see if the company can find a buyer. Retired founder Phillip Hagerman, who has sometimes been called the “Dan Gilbert of Flint,” still owns 23 percent of its shares. Holdings by him and family trusts in company stock were worth around $1 billion several years ago. As of Friday, they were worth less than $60 million.

` SYNCORA WANTS MORE TIME THE NEWS: A key creditor at the center of Detroit’s historic 2013-14 municipal bankruptcy is asking for two more years to acquire an east Detroit riverfront property it received development rights to in the case. The option is set to expire Dec. 10 but a subsidiary of Syncora Guarantee Inc. is asking the city to extend that until Dec. 10, 2021.

WHY IT MATTERS: Another aspect of the request is that Syncora is asking the city to nix a requirement that part of the property be allowed for use as parking for the Aretha Franklin Amphitheatre because it believes it “limits the value” of those properties. And very little of the land rights acquired by bankruptcy creditors have turned into actual projects.

` RECREATIONAL POT TO ARRIVE EARLY THE NEWS: The state of Michigan is opening the door to the sale of marijuana for recreational use starting next month, which is earlier than expected. The Marijuana Regulatory Agency issued a bulletin to license holders Wednesday. The state began accepting license applications Nov. 1. Some recreational licenses are expected to be approved soon. WHY IT MATTERS: The faster timeline is likely to create winners and losers, favoring medical sellers who got ahead of the recreational licensing process and executed it effectively. Many doubt that cannabis inventory will be nearly enough to meet demand.

THE NEWS: The Detroit Symphony Orchestra is launching a citywide effort to ensure all K-12 students in Detroit have access to music programs, whether they’re delivered in school or elsewhere. At the same time, the effort will seek to put in place a pipeline of professionals to sustain expanded participation and programs in the city. WHY IT MATTERS: The program, still being developed, aims to take stock of existing music programs, gaps and barriers to families accessing them such as transportation and funding. To a large extent, the onus has been on families to find the means to make musical participation work.

` BLIGHT BOND PROPOSAL REMAINS ON TABLE THE NEWS: Time is ticking away for Mayor Mike Duggan’s $250 million bond proposal after Detroit City Council again postponed a controversial vote on putting the plan before voters in March. If voters say yes, the city would issue new debt as part of an up to $500 million effort to raze all of Detroit’s abandoned homes by mid-2025 — within five years, instead of the 13 the city says it would take to do the job using just general fund dollars. WHY IT MATTERS: If the blight financing

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Ski resorts get an early workout

` DSO AIMS FOR ‘UNIVERSAL’ DETROIT MUSIC PROGRAMS

The snow and cold came early, and so has skiing season in Michigan — and not just up north. Mt. Brighton Ski Area in Livingston County opened Friday after last week’s heavy snowfall and cold, three weeks earlier than planned. “With expanded snowmaking capabilities and a hand from Mother Nature, we are thrilled to open three weeks ahead of our originally scheduled opening date,” General Manager Beth Lohman said in a news release. In northern Michigan, Crystal Mountain in Thompsonville, Caberfae Peaks in Cadillac, Nub’s Nob near Harbor Springs and Boyne Highlands in Harbor Springs also opened some of their runs starting Friday. It’s the earliest Crystal Mountain has opened in 23 years, COO John Melcher told the Traverse City Record-Eagle. It will open eight of 58 slopes. And Boyne Mountain opened to season pass holders Thursday, two days earlier than last year. It will open today to the general public. BOYNE HIGHLANDS

proposal doesn’t pass council in time, it could fall to August or next November and conditions might not be as good then for the bonds, city Chief Financial Officer Dave Massaron said during a previous council meeting. The council has set a Monday evening public comment session and could take the issue up again at its regular meeting Tuesday.

CORRECTION ` An article on marijuana and the health care industry incorrectly described male and female marijuana plants. Female marijuana plants are the most potent with THC with buds and flowers. Male marijuana plants contain much less THC and contain seeds.

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ECONOMICS

COMMERCE

Whitmer headed to Israel for the week Will be her first overseas business-attraction trip BY CHAD LIVENGOOD

creases and the movement to outpatient care all contribute to challenges in keeping small community hospitals open, Sharma said. “We don’t want to keep people in hospitals. We want to fix them and get them out. And the more we can do that on an outpatient basis, the better we see our health care (costs),” he said. ... What do we do with all those beds? (300 licensed) ... My solution is to focus on community needs.”

Gov. Gretchen Whitmer is leaving the state Sunday for a weeklong business attraction mission in Israel, her first international trip as Michigan’s governor. In an exclusive interview with Crain’s before she left for the Middle East, Whitmer said the trip is designed to keep “building some Whitmer relationships and drawing some investment into Michigan.” The governor said she will sign memorandums of understanding for economic opportunities with entities she did not disclose. Whitmer plans to tour General Motors Co.’s Advance Technical Center near Tel Aviv, a Ford Motor Co. research center in Tel Aviv that opened in June, the Peres Center for Peace & Innovation in Jaffa and an archaeological center founded by William Davidson, the late owner of the Detroit Pistons and Guardian Industries, according to the governor’s office. She has meetings scheduled with Israel’s energy minister Yuval Steinitz and foreign affairs minister Israel Katz, U.S. Ambassador to Israel David Friedman and Amnon Shashua, the CEO of Mobileye, a subsidiary of Intel Corp. that’s developing vision technology for self-driving vehicles. Whitmer also is scheduled to deliver a speech at the Water Technology and Environmental Control Conference being held this week at the David InterContinental hotel in Tel Aviv. “This is an opportunity to kind of showcase that we’re stewards of 21 percent of the world’s fresh water,” Whitmer said in an exclusive interview with Crain’s before she left for Israel. “There’s no place on earth that’s done more research and science around water stewardship than Israel and I think there’s some real opportunity here on that front.” The trip was organized by the Jewish Federation of Metropolitan Detroit and the Michigan Economic Development Corp., the state’s quasi-governmental economic agency. “In talking with the MEDC and the Jewish Federation, it became very clear that there were going to be some opportunities that we could build into a trip, and that’s how it came about,” she said. Whitmer is going on the seven-day mission seeking Israeli investment in Michigan at a time when the MEDC’s own business and tourism-attraction budget is in flux.

See PONTIAC on Page 24

See ISRAEL on Page 22

Haymaker Public House in Ann Arbor learned to stock up on popular spirits since delivery problems with Republic National Distributing Co. | HAYMAKER PUBLIC HOUSE

SHORTAGE OF SPIRITS

Liquor distributor’s woes start to pinch bars, restaurants BY KURT NAGL

With one of the biggest college football games of the year on Saturday and peak holiday season approaching, liquor delivery delays could not have come at a worse time for bars in Ann Arbor. Republic National Distributing Co. — one of only three distributors in the state — said Tuesday it was halting all new orders for the rest of the week. The company is scrambling to dig itself out of a backlog of orders after a botched move to an $80 million Livonia warehouse this summer. The company’s headaches have trickled down to more than 13,000 bars, restaurants and retailers

around the state. As the exclusive distributor of popular brands such as Jim Beam bourbon and Crown Royal whiskey and Captain Morgan rum, businesses have no other way to stock their shelves with the liquor. Restaurant and bar owners are legally restricted to purchasing liquor from state-contracted distributors; they can’t replenish their shelves with bottles of vodka, whiskey and tequila from retail stores. For downtown Ann Arbor bar Haymaker Public House, the tipping point was a depleted supply of Tito’s vodka and Jameson Irish whiskey, its two best-selling spirits, general manager Joe Violi said. “A couple of weeks ago, we had a

major bar crawl, and I ran out of Tito’s and Jameson,” he said. “When I’m telling people they can’t have Tito’s, that’s just not a good look.” Violi, like many other businesses around the state, started noticing problems around three months ago. Republic National had been gradually consolidating its operations to Livonia and cut the cord on warehouses in Grand Rapids and Brownstown Township. Steve Rochow, who runs the Grand Prairie, Texas-based distribution giant’s Michigan operations, said “huge software issues” set off the logistics nightmare. See LIQUOR on Page 24

“AS A BAR IN DOWNTOWN ANN ARBOR, THIS IS OUR BUSIEST TIME OF YEAR, MAKING THINGS EVEN MORE FRUSTRATING. WE’RE TRYING TO STOCK UP, BUT THE TIMELINES KEEP CHANGING, MAKING THAT DIFFICULT AS WELL.” — Joe Violi, Haymaker Public House general manager

HEALTH CARE

Pontiac General to triple size of profitable psychiatric unit to address inpatient regional bed shortage BY JAY GREENE

Pontiac General Hospital plans to nearly triple the size of its 44-bed adult psychiatric unit that will be complemented with a 16-resident psychiatry program to address shortages of psychiatrists and inpatient behavioral health beds, the hospital’s CEO said. Since emerging from bankruptcy protection in 2016 under new ownership, 115-year-old Pontiac General has generated more than $9.3 million

in profits that its owners say have been plowed back into upgrades and infrastructure improvements. It also has resolved more than a dozen quality and Sharma poor infrastructure citations from federal and state regulators, the last one issued in early 2018. It is also

trying to rebound from a lawsuit in which a family alleged they had paid the hospital $400,000 believing it would get their son a residency. “It’s not uncommon to see hospitals bankrupt or near bankrupt these days. It has made me think that what we are doing here is actually more unique (than turning around the hospital) from bankruptcy itself,” said Sanyam Sharma, CEO and chairman of Pontiac General. Regulatory challenges, rising expenses, slim reimbursement in-

NOVEMBER 18, 2019 | CRAIN’S DETROIT BUSINESS | 3

REAL ESTATE INSIDER

The Ilitch family has not submitted a development plan for a property at Woodward Avenue and I-75. | KIRK PINHO/CRAIN’S DETROIT BUSINESS

More secrecy from the DEGC, Ilitches on District Detroit property

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It’s been more than four months since the Ilitch family missed a deadline related to a key Woodward Avenue property, and it’s not any clearer Kirk when they will PINHO become compliant with terms of an agreement with the Downtown Development Authority. The Detroit Economic Growth Corp., which staffs the DDA, and the family’s real estate company are refusing to answer questions on why a development plan for a vacant property at Woodward and I-75 across from Little Caesars Arena hasn’t been submitted. Both sides are only saying they are in conversations about the site, which has been envisioned as a hotel. Here’s some background: Effective June 28, the Ilitch family’s Olympia Development of Michigan real estate company, subsidiaries of which have received nearly $400 million in public funding for the new arena, has been in violation of an agreement that requires a development plan for the parcel. In previous years, the DDA has given Olympia one-year extensions to submit a development plan for the site, thereby keeping the Ilitches in compliance with the agreement. However, the DDA has not approved one to date, meaning that the Ilitches have been in violation ever since the deadline passed. The DDA board has met since the deadline lapsed, but has not granted an extension. It also had a meeting Wednesday, but an extension was not on the agenda. The secrecy from the DEGC and the Ilitches is nothing new. The DEGC has long been criticized for being too opaque. I reported in December 2016 on the secrecy behind the DDA committee meetings on the deal to lure the Detroit Pistons to the new arena. A lengthy 2014 Metro Times story raised numerous questions about negotiations around the deal on Little Caesars Arena, which at that time was not yet named. Those are just two examples. The Ilitches for weeks declined to be interviewed for a story my former

A redesign of the building at 511 Woodward Ave. downtown is planned. | YAMASAKI INC.

“THE DREAM 511 NAME CAME FROM WHEN I WAS ENVISIONING WHAT THE PROJECT COULD BE, IT WOULD BE MY DREAM TO BRING THIS PROJECT TO LIFE IN THE HEART OF THE CITY. IT’S AS SIMPLE AS THAT.” — Zaid Elia, the developer behind the 511 Woodward project

colleague Bill Shea and I did in March on the lack of progress of The District Detroit (more than two months later, Christopher Ilitch granted an interview), and likewise didn’t participate for a story that HBO did on the project (Olympia later responded only after it aired by calling it a “self-interested, sensationalized and inaccurate” report). The family has also never answered questions about why it took so long to install pizza slice-shaped windows at the Little Caesars Global Resources Center on Woodward next to the Fox Theatre downtown.

511 Woodward project called Dream 511 An $18 million redevelopment of the downtown building at 511 Woodward Ave. next to the Guardian Build-

ing is being called Dream 511. Zaid Elia, the developer behind the project that is seeking $1.56 million in brownfield financing, is purchasing the 30,000-square-foot building from Wayne County for $4.65 million. He plans a dramatic redesign of the property that includes floor-to-ceiling windows and a unique screen wall covering most of the building’s Woodward frontage. “The Dream 511 name came from when I was envisioning what the project could be, it would be my dream to bring this project to life in the heart of the city. It’s as simple as that,” Elia said. The Brownfield Redevelopment Authority approved a brownfield plan Nov. 6 and it is on the Detroit City Council agenda today.

Office vacancy ticks up slightly in Q3 The metro Detroit office market vacancy rate rose 0.1 of a percentage point to 9.2 percent last quarter, according to a new report from the Southfield office of Colliers International Inc. That’s 0.3 percent lower than the 9.5 percent in the third quarter last year, Colliers says. Asking rents have increased from $19.81 per square foot to $20.13 per square foot. Kirk Pinho: (313) 446-0412 or kpinho@crain.com

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Vivian Carpenter, a former co-owner of MotorCity Casino Hotel, is leading a fundraising drive for music programs delivered by Music Hall Center for the Performing Arts at the School at Marygrove. The effort is one that has the potential to evolve into a model for bringing music programs and education back, more broadly, to schools in the Detroit Public Schools Community District, following arts cuts, Carpenter said. For now, however, she’s focused on raising the funds to cover firstyear and startup costs for the after-school choir and band programs launched this fall at the engineering- and design-focused school by Music Hall. Practically speaking, there are well-established links between music and STEM fields like engineering, said Carpenter, who has a bachelor of science in engineering in industrial and operations research from UM. Engaging in music also helps students face the challenges in their lives, said Carpenter, the former president of Atwater Entertainment Associates LLC, an owner of Detroit’s MotorCity Casino Hotel until 2005. “And great music talent is in the genes of many of the students in the city. ... They only need development opportunities.” Carpenter said if she can raise the money to support the fledgling music programs at Marygrove, “I could see this being a model for the whole district for getting music back in the schools.” “But right now, we have to focus on getting the basic program up and funded.” Detroit Public Schools Community District will always consider philanthropic opportunities to assist the district, schools and students, said Chrystal Wilson, assistant superintendent of communications and marketing, in an emailed statement. “We appreciate the support that is being provided with the after-school program.”

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The School at Marygrove launched this fall with its inaugural, ninth grade class on the historic Marygrove College campus in northwest Detroit, a year after the cradle-to-career plan for the campus was announced. The Kresge Foundation, the primary force that brought together the collaboration of public and private organizations working to make the expanded educational campus a reality, committed $50 million to the project. It includes what will be a preschool-through-12th grade school operating as part of the Detroit Public Schools Community District. The University of Michigan is developing a residency teaching school modeled after a doctor residency program on the campus, and Inkster-based Starfish Family Services will operate an early childhood center there.

Carpenter

Paul

Other organizations collaborating on the plan include the Marygrove Conservancy and Marygrove College, nonprofit community development financial institution IFF and the Detroit Collaborative Design Center of the University of Detroit Mercy. Carpenter, 67, said she’s been actively helping and supporting UM’s efforts to recruit Detroit students to join her in enrolling in its engineering program since her freshman year there in 1970. It was through that longtime relationship that she learned of UM’s involvement in the School at

“YOU HAVE TO DEVELOP THE ENTIRE STUDENT TO HAVE MAJOR SUCCESS. I THINK ANY PROFESSIONAL IN EDUCATION UNDERSTANDS THAT. ... IT’S LIKE RIPPING THE SOUL OF THE CITY OUT TO TAKE MUSIC OUT OF THE CURRICULUM.” — Vivian Carpenter, a former coowner of MotorCity Casino Hotel

Marygrove. This fall, she and her husband paid for graphic calculators for the inaugural class of 120 ninth-grade students at Marygrove. But she switched gears in her efforts tied to the northwest Detroit campus when she learned music education wasn’t part of the curriculum. “When we realized there was no music, I just found that to be unacceptable,” said Carpenter, a director on Music Hall’s board. “You have to develop the entire student to have major success. I think any professional in education understands that. ... It’s like ripping the soul of the city out to take music out of the curriculum,” Carpenter said.

Music Hall steps up It made sense to engage Music Hall — on whose board she sits — since it already has a long history of providing music programs to students in the district, she said. Through after-school programs, five educators paid by Music Hall are teaching music theory and appreciation, band and vocal jazz education (choir) in rooms provided by the school, Music Hall President and Artistic Director Vincent Paul said. “It was assumed Music Hall would come turnkey,” he said. Under the direction of Nir Saar, the former principal of the school

who recently left, the school provided rooms for the programs and helped promote them with parents and students, Paul said. Adrian Monge, who was assistant principal of the school, is now serving as principal, according to her LinkedIn page. The current agreement between the district and Music Hall is not affected by any school-level administrative changes, Elizabeth Birr Moje, dean of the University of Michigan School of Education, said in an email. Just over a third or 44 students in the inaugural freshman class are participating in the programs, all but 14 of them in band, Paul said. Music Hall bought the instruments needed by the first students in the program, including keyboards and percussion stands, and music stands, he said.

Seed money Carpenter was instrumental in raising the money to fund the instruments and startup costs, raising gifts totaling $75,000 from within her circle to support the Marygrove music programs. Most of that was raised in a two-week period to make sure the programs launched with classes, she said. She and her husband, Jon Barfield, president and CEO of LJ Holdings Investment Co. LLC, contributed to the fund for Music Hall education programs at Marygrove. Other donors included: ` Dr. Julius Combs, retired chairman of the National Healthcare Scholars Foundation, and his wife Alice. ` William Pickard, chairman and founder, Global Automotive Alliance. ` Leon Richardson, founder and president, The Chemico Group LLC. ` Avis Ford Chairman Walter Douglas and his wife Retha. Carpenter and Music Hall still must raise another $125,000 to cover costs this year. And Paul estimates the Marygrove programs will run that much again next year. Carpenter has been able to help leverage gifts in the past for other causes. In 2016, when Music Hall was on the verge of defaulting on an operating loan, she and Barfield provided a $100,000 challenge grant that helped it raise the final leg of $1.7 million needed to meet its debt obligations and keep the organization’s doors open. While continuing to enlist the support of her friends and acquaintances, Carpenter said she also plans to approach organizations she’s had a relationship with over the years, like MotorCity Casino Hotel. “I was part of an earlier ownership group ... (that) amended the state Constitution to bring the casinos in and made promises to the community” in doing so, she said. “I think the promises have to be honored. We told (the community) we would provide contributions that helped make the community healthy. ... I would hope that when it comes to launching a music program, they’d be helpful in that.” Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

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COMMENTARY

EDITORIAL

Sakthi’s woes shouldn’t derail second chances

he tale of Sakthi Automotive in Detroit is a dispiriting end for a project that began with lofty ambitions of bringing jobs to a city that needed them and at the same time helping ex-felons and parolees return productively to society. At the same time, as explained by Dustin Walsh on Page 1 this week, it’s a tale of business mismanagement and a partnership gone awry that should serve as an object lesson in the pitfalls of joint ventures and piling too much hope into a single project — especially one that received loads of taxpayer-supported help to exist. If the jobs for which Sakthi got a $3.5 million grant from the state don’t continue to exist, it’s on the hook to pay that back, though the state may THE EFFORT TO have to get in line other creditors. HIRE EX-FELONS with The effort to hire IS STILL WORTH parolees fills a need many businesses are MAKING, feeling keenly: workers during a time of BECAUSE full employment and THEY’RE STILL labor shortage. Removing those barriGOING TO BE ers to work can turn COMING OUT OF people who were a burden on society PRISON. into a positive. It seems Sakthi’s problems go right up to the top between the two joint venture partners, India’s Sakthi Group and Thailand’s Aapico Hitech Publico Ltd., not down to the workers on its factory floor. It appears to amount to a power struggle among ownership. Assuming Sakthi can’t find a solution to this apparently fatal loss of its General Motors’ business, we hope the employees who

were rebuilding their lives find employment elsewhere, and hope the decline of this company doesn’t sour other employers on trying to help people returning to society. We say that despite the fact that some of Sakthi’s troubles were due to a ring of employees stealing equipment from a warehouse. That can happen anywhere. A National Retail Federation study found that hiring a worker with a criminal record resulted in a slightly increased risk of theft with an average extra cost of $43, while it offered savings of $746 in turnover — a substantial difference. And there are other cost savings that happen at a societal level, because the single largest factor in whether an ex-felon returns to prison is whether or not he or she has a job. Pew Research Center has suggested that if states could lower recidivism rates by just 10 percent, they could save an average of $635 million annually. The effort to hire ex-felons is still worth making, because they’re still going to be coming out of prison. There are programs and best practices for recruiting and employing them that have been proven to work for employers. The Michigan Department of Corrections gave credit to Sakthi for inspiring other employers to take that plunge. It’s still important work.

Around 200,000 Michigan workers were deprived of overtime pay protections last month when the Donald Trump administration replaced a Barack Obamaera update of the overtime pay rules with a watered-down substitute. Under the weak Trump rule, thousands of Michiganders earn- M. Patricia Heidi Shierholz Gilda Jacobs is ing as little as $36,000 a year can Smith is senior is policy director president and be made to work 50, 60, or even 70 counsel of the of the Economic CEO of the hours a week, missing time with National Policy Institute Michigan their families, without receiving Employment League for any extra pay for their long hours Law Project Public Policy and dedication. The Trump rule will cost Michigan workers nearly $50 million a year. ing in higher overtime standards; WashingThat’s why we’re applauding Michigan ton state and Pennsylvania are in the process Gov. Gretchen Whitmer’s move last week to of following them. And states from Colorado restore stronger overtime pay protections for to Massachusetts to Maine are proposing doworkers in the state. Whitmer directed Mich- ing the same. igan’s Department of Labor and Economic The experiences from those states are posOpportunity to update the state’s overtime itive. In California and New York, where pay regulations to restore overtime protec- businesses are already operating under tions. stronger overtime standards, there have Whitmer cited the been no indications that Obama overtime stanemployers have had diffidard — which would THE PROBLEM WITH OUR culty adjusting. protect workers earning In fact, many major OVERTIME PROTECTIONS up to $51,000 as of 2020 employers in 2016 raised — as a key benchmark IS THAT THE SALARY salaried managers’ pay in for restoring overtime. anticipation of the She also noted that the THRESHOLD BELOW WHICH Obama overtime rule United Way’s ALICE re- WORKERS ARE and kept it at that level, showing that higher stanport on financially struggling households shows GUARANTEED TIME-AND-A- dards that improve workthat Michigan families HALF OVERTIME PAY WHEN ers’ lives are manageable need even more — about for employers. $61,000 a year — to af- THEY WORK MORE THAN 40 Polling also shows that ford the basics. the Trump administraHOURS IN A WEEK HAS NOT The problem with our tion’s weak overtime rollovertime protections is BEEN PROPERLY UPDATED back is deeply unpopular that the salary threshold IN DECADES. with voters nationally — below which workers are and particularly in Michguaranteed time-and-aigan, where voters suphalf overtime pay when they work more than port expanding overtime pay eligibility for 40 hours in a week has not been properly up- local workers by an overwhelming margin of dated in decades. 75 to 18 percent, according to a 2018 EPAs a result, the share of full-time salaried IC-MRA poll. workers guaranteed overtime pay has plumWhile our economy is growing on paper, it meted from 6 in 10 in 1975 to less than 1 in 10 hasn’t translated into robust wage growth for today. middle-class workers and their families. ReIn acting to restore overtime pay, Michigan storing overtime pay is one of the most imis joining a growing number of states that are portant steps policymakers can take to prostepping in to protect their workers from the tect middle-class workers. We applaud Trump rollback. Whitmer’s action and urge more states to New York and California are already phas- follow Michigan’s lead.

MORE ON WJR ` Listen to Crain’s Group Publisher Mary Kramer and Managing Editor Michael Lee talk about the week’s stories every Monday morning at 6:15 a.m. Mondays on WJR 760 AM’s Paul W. Smith Show.

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited for length or clarity. Send letters to Crain’s Detroit Business, 1155 Gratiot Ave, Detroit, MI 48207, or email crainsdetroit@crain.com. Please include your complete name, city from which you are writing and a phone number for fact-checking purposes. 8 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

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DANIEL SAAD FOR CRAIN’S DETROIT BUSINESS

Restore overtime pay to boost middle-class wage growth

Sound off: Crain’s considers longer opinion pieces from guest writers on issues of interest to business readers. Email ideas to Managing Editor Michael Lee at malee@crain.com.

OTHER VOICES

The FCA plant expansion: Detroit’s land assembly crisis BY JOHN MOGK

Mayor Mike Duggan’s administration is being roundly criticized for the exorbitant deal it made with a land speculator for his five small sites needed as part of the 200John Mogk is a acre Fiat Chrysler Wayne State plant expansion University law on Detroit’s east professor. side. The city erased $1.3 million in debt and fines and transferred 15 sites owned by the city, including waterfront property, in exchange. The price paid is viewed as highway robbery and far exceeding the fair market value the city would be required to pay if eminent domain were available to be used for economic development. But it is not. Therefore, the city has no choice when assembling land for economic development, other than to meet the terms of speculators, no matter how unreasonable. This bodes ill for Detroit’s future. The city has an estimated 25,000 acres of vacant land, much of which needs to be assembled to be economically productive. This crisis arose in 2004, when the Michigan Supreme Court prohibited the use of eminent domain to acquire property at fair market value for economic development. Then, in 2006, the Michigan Constitution was amended to expressly prohibit its use for that purpose preventing a later Michigan Supreme Court from reversing the earlier holding. Prior to these actions, the city could have acquired the five sites needed at their fair market value, kept the 15 sites it swapped and enforced the landowner’s outstanding fines and debt. This change in Michigan law places the city in a straitjacket, gives speculators free rein at the expense of city residents and will delay Detroit’s recovery for decades. What precipitated the change? Leading up to the Michigan Supreme Court’s decision, opponents of the use of eminent domain for economic development, including land speculators, convinced the public that Mayor Coleman Young’s use of eminent domain in the 1980s to acquire the site for the GM Hamtramck Assembly Plant (Poletown) bulldozed a vibrant neighborhood over the objection of its homeowners. But is it true? Not according to those familiar with the facts at the time or reporter Jenny Nolan writing in The Detroit News on Jan. 27, 2000. According to her, the neighborhood was declining, housing deteriorating and residents were leaving for better conditions when the project was announced. As she stated: “many homeowners agreed at the outset to sell their homes to the city and leave their crumbling neighborhood. The old workingmen’s houses, once solid, were losing mortar and siding. Blight was already driving residents north in the city and to Warren and Sterling Heights.” The mayor’s actions to keep auto production in Detroit were supported by the citizens district council, the elected and official voice of the neighborhood residents, and overwhelmingly by the Detroit City Council, as well as the Catholic

Archdiocese, UAW, civic, corporate cent of former residents older than 60 and 84 percent of younger residents and state leaders. The benefits to residents were con- were happy in their new homes. siderable. Fair market value THE CITY HAS NO CHOICE WHEN prices paid h o m e o w n e r s ASSEMBLING LAND FOR ECONOMIC were, on average, DEVELOPMENT, OTHER THAN TO MEET THE $13,000 and they received an addi- TERMS OF SPECULATORS, NO MATTER tional grant of up HOW UNREASONABLE. THIS BODES ILL to $15,000 to buy a replacement FOR DETROIT’S FUTURE. home in a neighThe city bulldozing story had been borhood of their choice. Added to the benefits package was $3,500 to cover festering for decades. Neither Mayor relocation expenses. A University of Young or GM did much to dispel it. Michigan report found that 87 per- Mayor Young was convinced of the

benefits of the project and widespread support both within and outside of the neighborhood and treated the opponents of the project at the time with disdain. For its part, GM stayed above the fray and has been silent on the project ever since. This leaves the myth of the city bulldozing a vibrant neighborhood over the objections and to the detriment of its residents alive and well and as an obstacle to changing eminent domain law and land assembly in Detroit. This is not good news for the city or residents in declining neighborhoods who need jobs and a helping hand to move to better living conditions.

The Fiat Chrysler plant on Detroit’s east side is being expanded. | LARRY PEPLIN FOR CRAIN’S DETROIT BUSINESS

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NOVEMBER 18, 2019 | CRAIN’S DETROIT BUSINESS | 9

MORE IN THIS REPORT  Health care innovation is moving at the ‘speed of light’. PAGE 14  Panelists discuss literacy as a major barrier to good health care. PAGE 14

HEALTH CARE

CRAIN’S 12TH ANNUAL HEALTH CARE LEADERSHIP SUMMIT

THE DISCONNECT

BY JAY GREENE

aps in health care delivery occur at every level in patient care from primary care, inpatient care and post-acute care. It happens because of communication disconnects among patient, family and provider, because of physician, nurse and employee burnout and because of racial, ethnic and religious disparities and exclusion. Hospital and insurance executives know about these gaps in care and are working to reduce them as they can with limited time and resources, said four health care executives at Crain’s 12th annual Health Care Leadership Summit last month in Dearborn. In a health care CEO panel discussion, Crain’s Managing Editor Michael Lee asked executives to describe the gap that bothers them the most or one they are actively working to resolve. See GAPS on Page 11

10 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

“EVERY SINGLE ONE OF OUR MEETINGS OR OUR HUDDLES, WE TELL A PATIENT’S STORY REALLY SO THAT WE’RE UNDERSTANDING WHAT’S HAPPENING IN OUR VARIOUS DEPARTMENTS WITH OUR PATIENTS AND FAMILIES.” —Nancy Susick, president of Beaumont Hospital in Royal Oak

RHUI1979/ISTOCK AND CRAIN’S DETROIT BUSINESS

Health care executives discuss gaps in patient coverage

Health care continues to be hot election issue BY JAY GREENE

Patients tell pollsters they are afraid of receiving surprise medical bills they can’t afford. They express anger that rising deductibles and co-payments means they pay more out of pocket for health care. They are also upset about high prescription prices. But all this angst, which is spilling out this year because health care is a top presidential election issue, boils down to rising health care costs. Over the past decade, health care costs have risen twice as fast as wages. At Crain’s 12th annual Health Care Summit, moderator Marianne Udow-Phillips asked a group of health experts their thoughts

about rising costs. “Health care continues to be one of the top polling issues that consumers are concerned about in this election,” at least so far on the Democratic side, said Udow-Phillips, who is executive director at the Center for Health and Research Transformation at the University of Michigan in Ann Arbor. “When consumers talk about health care costs, they are predominantly talking about issues that are really quite clear, right? They’re talking about too high deductibles and copays. They’re talking about prescription drug costs, and they’re talking about surprise medical bills.” See ISSUE on Page 12

FOCUS | HEALTH CARE LEADERSHIP SUMMIT College of Nursing

Left to right: Crain’s Managing Editor Michael Lee, Denise Brooks-Williams of Henry Ford Health, Shannon Striebich of St. Joseph Mercy Oakland, Nancy Susick of Beaumont Hospital Royal Oak and Dennis Reese of Physician Health Plan. | LARRY PEPLIN FOR CRAIN’S

GAPS

From Page 10

Denise Brooks-Williams, senior vice president and CEO of Henry Ford Health System North Market, said health equity care gap is one the Detroit-based six-hospital integrated system has spent time addressing. She said providers want to make sure that care is delivered in an inclusive way that creates the best patient outcomes. One way to reduce gaps in care, Brooks-Williams said, is by using Henry Ford’s electronic health record to capture key information on each patient during their office visit or inpatient stay. In 2012, six-hospital Henry Ford switched from a home-grown system to the Epic Corp.’s EHR system. “That helps to educate us so we can do the look back first and say did they get the outcome that we would have expected?” she said. “But it also helps us and helps our teams to make sure that we understand how they identify and what their needs are” and move to close care gaps. Shannon Striebich, president of St. Joseph Mercy Oakland in Pontiac, said the gap that disturbs her the most is in the area of social determinants of health. Studies have found that patients do poorly after health care if they lack access to transportation, healthy foods, medication, housing or they face other social and environmental barriers to recovery. “This is something that we’re all contemplating in our local markets. Within Trinity we’ve got a couple of different things that we’re doing,” Striebich said. St. Joseph Mercy Oakland is part of Livonia-based Trinity Health, which operates 13 hospitals in Michigan and 92 in 22 states. Trinity has several initiatives going to address social determinants of health, which Striebich calls social influencers of health. One is a working farm on the campus of St. Joseph Mercy Hospital in Ann Arbor that supplies fresh food to people in need, she said. “(The farm is) a place actually that staff go to decompress and to deal with burnout. So it serves a number of different purposes,” said Striebich, adding that St. Joes also is working with other agencies to coordinate healthy food services. Nancy Susick, president of Beaumont Hospital in Royal Oak, said eight-hospital Beaumont Health is

developing more patient- and family-centered care projects to address gaps in care. Too often in the past, providers have told patients what they should be doing and why, she said. But a better way to deliver care is to partner with patients and families on care design, Susick said. “That’s when you really can make a difference ... and then have better clinical outcomes,” she said. “Over the past couple of years, Beaumont Health has really moved forward with really bringing on about 240 patientfamily advisers, all volunteers.” The advisers have helped Beaumont redesign clinical programs and even facilities, including the recently opened emergency center at Beaumont Hospital in Royal Oak. “We have patient family advisers at orientation sessions, at ER huddles at times, quality meetings ... just infusing them in various places that really helps us understand how we need to develop and deliver care even in a more efficient manner,” said Susick, who added when she rounds hospital departments she is constantly talking

“IT’S CREATED THIS TRANSACTIONAL RELATIONSHIP THAT RESULTS IN AN AWFUL LOT OF FRICTION BETWEEN THE PROVIDER AND THE PLANS AND ALSO WITH THE MEMBERS.” — Dennis Reese, CEO of Physician’s Health Plan

with patients, families and employees. “Every single one of our meetings or our huddles, we tell a patient’s story really so that we’re understanding what’s happening in our various departments with our patients and families,” she said. Dennis Reese, CEO of Physician’s Health Plan, said one of his pet peeves is the gap that has to do with a lack of transparency in coverage and care for patients. PHP is part of Sparrow Health System, a four-hospital integrated system based in Lansing. “The relationship between (hospitals) and the health plan historically has been shaped by fee for service medicine,” Reese said. “It’s created

this transactional relationship that results in an awful lot of friction between the provider and the plans and also with the members.” Reese said the gap between health plans and hospitals “ends up with the members” not understanding what care they have covered and which provider is in their covered network. “And we ended up with gaps in coverage,” he said. As a result, provider-owned PHP is trying to address coverage gaps between hospitals and the health plan. Reese said he believes Priority Health and Health Alliance Plan, two other provider-owned HMOs, are also trying to address the same problem. Priority is owned by Grand Rapids-based Spectrum Health and HAP is owned by Henry Ford Health System. “The key is transparency, being able to provide real time data analytics using integrated tools,” he said. “So both from the health system and the health plan (there is) a bi-directional sharing of information and analysis.” For example, Reese said traditionally health plans send information one way. The trick is to have flexible benefit coverage and to share information through joint medical management. “Right now the payers tell the health systems what they need to do. We need to be able to do medical management in a non-duplicative process,” he said. “We all have case managers, we all have disease managers. We’re all doing a lot of the same work and not very efficiently. And then most importantly is really alignment. Trying to get the incentives and the goals to focus on the health of a population, not based on transactions.” Sharing claims and patient information in a collaborative way needs to take place, he said. “If someone went out of their system (for care)” other providers wouldn’t know their health record, Reese said. “As a health plan, we can get a lot more, a lot deeper data out of an electronic medical record.” But at this point, health systems EHRs are very much protected for patient confidentiality and competitive reasons, Reese said. “We have made a lot of progress on that with some of our other partners who are just beginning those discussions” with each other, Reese said. ““But it’s important, that transparency, and quite honestly trust of sharing that data.”

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insurance company pays, which can sometimes be a large sum. Under the bill, they could only collect 125 percent of the Medicare rate for their service. Bill Manns, president of St. Joseph Mercy Hospital Ann Arbor and a member of the Michigan Hospital Association Legislative Policy Panel, is confident the health care industry can reduce surprise medical bills without legislative oversight. He said educating the public on the importance of staying within their benefit network and giving providers and insurers the space to negotiate and deal with surprise medical bills are critical. But, negotiating isn’t easy for smaller provider systems and hospitals, Pallone said, in part because private equity firms that buy private physician groups often force them to make financial rather than human decisions. Bertolini recommended using cost estimators and notifying patients in advance of costly procedures when possible. Hertel suggested using predictive analytics could also curb costs. “Unless we can do better as a nation to take cost out of the system, it’s going to be very difficult, I think, to take cost sharing out of the system as well,” said Pallone.

FOCUS | HEALTH CARE LEADERSHIP SUMMIT

Health care innovation moving at â&#x20AC;&#x2DC;speed of lightâ&#x20AC;&#x2122; Telestroke program, precision medicine, pathogen identifier among developments BY JAY GREENE

Innovation in the health care industry is seen by many as a way to address rising health care costs by improving technology, managing Big Data to develop best clinical practices, reducing pain and suffering or maybe even curing diseases. Recent innovative developments in Michigan include a statewide telestroke program at the University of Michigan, a precision medicine program at Barbara Ann Karmanos Cancer Institute and a device that can identify pathogens developed by Seraph Biosciences Inc., a Detroit-based spinoff company of Wayne State University. At Crainâ&#x20AC;&#x2122;s 12th annual Health Care Leadership Summit, moderator David Ellis, a futurist and also head of the Detroit International Research and Education Foundation, led a three-member panel in a discussion about how innovation has changed medicine and patient care. â&#x20AC;&#x153;I like to think that my colleagues here (on the panel) are representative of the people who are moving towards the speed of light, if not at the speed of lightâ&#x20AC;? to develop innovative clinical solutions, Ellis said. â&#x20AC;&#x153;Innovation is not just happening, but it is happening faster and faster.â&#x20AC;? Ellis asked the panel â&#x20AC;&#x201D; Mollie McDermott, M.D., a neurologist and stroke specialist with Michigan Medicine; Elisabeth Heath, M.D., a medical oncologist at Karmanos; and Greg Auner, a medical engineer at Wayne State University School of Medicine â&#x20AC;&#x201D;

BY JAY GREENE

Left to right: Mollie McDermott of Michigan Medicine, Elisabeth Heath of Barbara Ann Karmanos Cancer Center and Greg Auner of Seraph Biosciences. | LARRY PEPLIN FOR CRAINâ&#x20AC;&#x2122;S DETROIT BUSINESS

to describe the biggest innovation to happen in their field in the past five years and to project the next five years. McDermott, who is the director of the telestroke program at Michigan Medicine, said the biggest innovation in her field is the widespread use of a special type of imaging called â&#x20AC;&#x153;perfusion imaging in acute stroke.â&#x20AC;? This advancement can identify tissue that could be saved through the use of thrombolytic therapy, or â&#x20AC;&#x153;clot busterâ&#x20AC;? drugs, in clogged arteries. â&#x20AC;&#x153;When I started medical school, there were interventions available for stroke out to three hours from last known normal. And now that time has expanded to 24 hours with the

idea that weâ&#x20AC;&#x2122;re selecting patients who may benefit based on this specialized imaging. Stroke call has gotten very complicated,â&#x20AC;? McDermott said. â&#x20AC;&#x153;It used to be, three hours and then youâ&#x20AC;&#x2122;re done. Now weâ&#x20AC;&#x2122;re getting called out to 24 hours. Decision-making is very complicated and there is a lack of vascular neurology expertise in our country.â&#x20AC;? McDermott said Michigan Medicine uses its telestroke program to pass along this vascular neurology expertise to small and rural hospitals where they donâ&#x20AC;&#x2122;t have specialists trained in perfusion imaging. Heath, who is Karmanosâ&#x20AC;&#x2122; associate center director of translational scienc-

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es, said the field of genomics and precision medicine â&#x20AC;&#x201D; more specifically precision oncology â&#x20AC;&#x201D; has grown tremendously over the past five years. â&#x20AC;&#x153;Explosion would be a small word to characterize (the pace of change) because thereâ&#x20AC;&#x2122;s no meeting that you go to now in the world of oncology where that concept (using an individualâ&#x20AC;&#x2122;s DNA to customize cancer treatment) is not discussed,â&#x20AC;? she said. Heath said Karmanosâ&#x20AC;&#x2122; partnership with McLaren Healthcare Corp., a 14-hospital system based in Grand Blanc, has been especially helpful in spreading knowledge of precision oncology throughout Michigan. McDermott said the next five years for telemedicine will bring even more specialists closer to patients in helping to diagnose complex problems. â&#x20AC;&#x153;Patients (are) at home and trying to figure out, do I need to go to the emergency room? Do I need to go to urgent care? Do I need to set up an appointment with my primary care physician? Do I need to call 911? These kinds of decisions (influenced by telemedicine or virtual care) ... seems to be the next place weâ&#x20AC;&#x2122;re headed.â&#x20AC;? Auner, one of the co-founders of Seraph, said individualized genetic analysis will transform cancer treatment. But the massive amount of data available will challenge researchers and clinicians going forward. â&#x20AC;&#x153;Something that is quite interesting is deep learning (or) artificial intelligence that can gather through data from different sources, images, diagnostic signals ... and put that together and provide that as a tool,â&#x20AC;? Auner said. â&#x20AC;&#x153;I see that probably as the biggest future breakthrough.â&#x20AC;? Heath said the next five years will challenge medical researchers because of all the clinical data on patients. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s a fine line between a hoarder and a collector (of clinical data),â&#x20AC;? she said. â&#x20AC;&#x153;I would really like to be a collector, not a hoarder. And at this moment weâ&#x20AC;&#x2122;re all hoarders of data and itâ&#x20AC;&#x2122;s wonderful ... but really understanding what it means, especially if on a patient level, thatâ&#x20AC;&#x2122;s (another) discussion.â&#x20AC;?

Understanding a doctorâ&#x20AC;&#x2122;s instructions, navigating health benefits or finding a quality provider can be challenging. Even health care administrators and doctors know that medical jargon can be a major barrier to patient care. At Crainâ&#x20AC;&#x2122;s 12th annual Health Care Leadership Summit, moderator Mark Lezotte, a health care attorney with Butzel Long in Detroit, asked four panelists to explain why the medical care system is so difficult to understand and what can be done to help patients improve what experts call â&#x20AC;&#x153;health care literacy.â&#x20AC;? Rana Awdish, M.D., a critical care medicine physician with Henry Ford Hospital in Detroit, said health care literacy has a lot of different definitions. She said her views on the topic have changed over time, especially since she nearly died as a patient at her own hospital. â&#x20AC;&#x153;What Iâ&#x20AC;&#x2122;ve come to see our role as health care providers as being is understanding that we have a skill set of clinical knowledge, and the patient is the holder of all of the information about themselves,â&#x20AC;? Awdish, now director of the hospitalâ&#x20AC;&#x2122;s pulmonary hypertension program. â&#x20AC;&#x153;Our job is really to translate what we can offer to patients in the context of who they are as people. So knowing what their goals and values are, knowing whatâ&#x20AC;&#x2122;s available to them in terms of treatment and getting out of the habit that I think weâ&#x20AC;&#x2122;ve been in for a long time of that sort of paternalistic versus shared decision-making.â&#x20AC;? At the Wellness Plan Medical Centers in Detroit, CEO Anthony King has a whole different problem than health care literacy. He said because the center is a federally qualified health center and deals with the most vulnerable population, 90 percent of patients struggle with basic literacy. â&#x20AC;&#x153;Health care is a complex system, and we all struggle with it,â&#x20AC;? King said. â&#x20AC;&#x153;We might as well be speaking a different language. And oftentimes in health care we are speaking a different language.â&#x20AC;? King said the Wellness Plan tries first to engage patients by speaking to them in a language they can understand and not talking over their heads. â&#x20AC;&#x153;We are often very proud of all our acronyms in health care. Nobody knows what they mean. And most of the time people donâ&#x20AC;&#x2122;t care,â&#x20AC;? King said. Another problem has to do with benefit design and employers choosing the best package to fit their needs. Jeff Romback, deputy director of policy and planning at the Michigan Association of Health Plans, said one area the association has been focused on is the 51 percent of Michiganians who get their insurance through their employers. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re trying to shine a very polite and a very welcoming light into the agent community here,â&#x20AC;? Romback said. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re trying to empower them in certain ways.â&#x20AC;?

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INSIDE: Charles Ballard on whether Michigan is ready for next recession. Spoiler alert: No. PAGE 18 MORE: Former Lt. Gov. Brian Calley offers a path to a deal that everyone can live with. PAGE 17

STATE BUDGET

PAIN, LESSONS IN STATE BUDGET FIGHT

Form Bria pres Sma Asso Mic

WH RE OB WH IT’

Whitmer’s $941 million in vetoes lay bare wide dependency on state tax dollars BY CHAD LIVENGOOD

DAVID FRECHETTE

CIT

One of the programs affected by the budget conflict was the Detroit Mercy Dental Center in Detroit, which saw a $1 million grant eliminated.

At a dental clinic in Detroit’s North Corktown neighborhood, University of Detroit Mercy students training to be hygienists clean the teeth of indigent residents without access to dentists who accept Medicaid. Near the Ohio border, the independent Hillsdale Hospital has the only emergency room and obstetrics department that delivers babies within a 40-minute drive from Hillsdale. In Pontiac, the Oakland County Sheriff ’s Office houses nonviolent criminals in the county jail at half the cost of housing them in a state prison for a longer sentence. And at the far eastern edge of the Upper Peninsula, a ferry boat built in the early 1940s that carries logging trucks and residents to the remote Sugar Island in the waterway connecting Lakes Superior and Huron is limping along with a failing boiler. The only thing these four entities have in common is their dependency on state tax dollars to continue operating as normal. 16 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

And that dependency has been laid bare by Gov. Gretchen Whitmer’s vetoes and internal defunding of $1.5 billion in programs — everything from foster placement programs and college scholarships to subsidies for rural hospitals serving a high percentage of low-income residents with low-paying Medicaid and Medicare insurance plans. The impact has been magnified by the fact that the cuts came without any notice as Whitmer handed down $941 million in line-item vetoes on Sept. 30 followed by $625 million of internal budget transfers in the next days. Unlike past years when the state of Michigan was running billion-dollar deficits, the state budget turmoil isn’t about a lack of money. “This state budget cut, that came out of nowhere for us,” said JJ Hodshire, vice president and chief operating officer of Hillsdale Hospital,

which stands to lose $600,000 in state aid for rural hospitals and obstetrics services. The wide-ranging impact of Whitmer’s vetoes and budget transfers are just starting to take root as the Democratic governor and Republican-controlled Legislature enter the eighth week of a budget impasse that’s largely centered around budgetary power between the two branches of state government controlled by different political parties. The impasse started as a standoff between the governor and lawmakers over a budget she had little hand in negotiating as talks broke down over long-term road funding. And now it has angered the recipients of state aid who were unprepared to be dragged into a protracted budget battle. See VETOES on Page 19

Bren pres Mic Mun Boa and for t Sag

Rea crai

 Co Mich auti state

STATE BUDGET BUDGET

Rebuild trust with short-term deal on state budget powers BY BRIAN CALLEY

he 2019-2020 state budget is a real predicament. As if the debate over programs and line items isn’t enough, at stake now is the very balance of powers between the Legislature and the governor. A few months ago, the State Administrative Board was a boring, little-known Former Lt. Gov. entity used for approval of state contracts. Brian Calley is Today, it is at the center of the budget depresident of the Small Business bate having just facilitated the largest Association of transfer of power between branches in at Michigan. least a generation. Here’s a little background before I get to the point. I sat on that board for eight years, typically sending a delegate representing my vote on routine state contract approvals. The Administrative Board was created by the Legislature 98 years ago to “promote the efficiency of state government,” granting it authority to make money transfers. While that transfer authority has existed in multiple forms during that time period, such authority has been scarcely WHEN A COMPROMISE IS modestly used. REACHED, IT SHOULD NOT BE and Instead, it has mostly been used OBVIOUS WHO “WON” AND for state contract WHO “LOST” IN THE DEAL. approvals. Back in 1991, IT’S A COMPROMISE. then-Gov. John Engler used the Administrative Board over a budget dispute with the majority House Democrats because the state was facing a deficit. After a lawsuit was filed by members of the Legislature, a compromise was reached, and life moved on. The Michigan Supreme Court still took up the larger question of Administrative Board powers

If the budget process is to be repaired, restoring some sort of balance between the branches of state government must be a priority for the Legislature, Calley writes. | WIKIMEDIA COMMONS

and sided with the governor in a 4-3 decision in 1993. Since the budget had been settled and the Legislature’s majority had shifted toward Gov. Engler’s Republican party, the issue never really came up again — until October 2019. So why are Gov. Gretchen Whitmer’s actions in 2019 such a big deal? In short, they are unprecedented. This board’s original purpose was for administrative conveniences. In October 2019, it was used for a wholesale rewrite of the budget, without the involvement of the Legislature. Even if you point to 1991 as precedent, those transfers were far more limited in size and number — and they never came to be because a compromise was reached to re-

solve the budget dispute. If you carry these contemporary actions to their logical conclusion, you must assume that the Legislature’s constitutional authority over appropriations is limited to only topline allocation to each department. Every line item would become a mere suggestion. It is a breathtaking shift of power from one branch to another. Naturally, restoring some sort of balance between the branches must be a priority for the Legislature. Predictability is important for citizens, businesses, schools, local governments and the rest of the people and entities operating in our state. For this reason, it is my hope that trust will be restored between the Legislature

and the governor. That will not be an easy task, but there is a solution that can restore the traditional process while sidestepping the long-term balance of powers concerns. My first suggestion is to stop broadly announcing lines in the sand. Even when a public official has a red line in a negotiation, announcing it publicly narrows your options, and it is not possible to see all potential deals on the front end of a dispute. When a compromise is reached, it should not be obvious who “won” and who “lost” in the deal. It’s a compromise. The Legislature wants some teeth added to their line items, limiting the ability of the governor’s Administrative Board to make transfers. The governor does not want to give up that authority. Both parties see their side as preservation of the traditional authority of their branch. Here’s the compromise: ` Hammer out a supplemental budget that has support among the House, Senate and governor. ` Tie-bar the supplemental to a temporary modification of the Administrative Board powers, limiting the size of transfer the board can make. ` Set the expiration of the Administrative Board change to Sept. 30, 2020, when the current budget expires anyway. While the governor would be limiting the Administrative Board powers statutorily, it would only be for a single year, and for a budget that she agreed to. And while the Legislature would not be solving their long-term problem, they would have assurance that at least for this budget year, their line items would be honored. Trust has been lost. This option allows them all to have a win together without having to trust each other just yet.

DAVID FRECHETTE

CITIES

Michigan cities not ready to endure another long-lasting recession BY BRENDA F. MOORE

Brenda F. Moore is president of the Michigan Municipal League Board of Trustees and mayor pro tem for the city of Saginaw.

Read more on crainsdetroit.com ` Colleen Allen: Michiganders with autism deserve state support

Are Michigan’s cities ready for the next recession? Simply put, no. For several years now the Michigan Municipal League, through our SaveMICity initiative has been sounding the alarm that we need to take steps to fix our municipal finance system. It is an obsolete and dysfunctional system that doesn’t track with the economy, and we need to take some major strides soon to build a system that works before the next recession hits. Historically Michigan is the first in and the last out of a recession, but what we never experienced before was the apocalyptic declines that occurred during the last recession. It exposed the flaws in our system in a deep and painful way, and we have done nothing to correct it. The fact is that Michigan was already hurting from the effects of a national downturn before the last recession. Median household income in the Great Lakes State was at its highest point in 1999, where the average household was earning approximately $67,000 per year. Michigan’s median household income has never truly recovered — in 2018, median household income in Michigan is still

only $57,000 per year — and shows no signs of returning to its previous high in 1999. Like it or not, an economic recession in Michigan is inevitable. The short and long-term effects damage our communities, and by extension negatively impact our residents and business. Attraction and retention is ever more difficult if communities aren’t thriving.

WE MUST ACT NOW TO POSITION OURSELVES DIFFERENTLY. NOT JUST FOR THE NEXT RECESSION BUT FOR GENERATIONS TO COME. OUR CURRENT SYSTEM CANNOT DO THAT. Michigan’s leaders need to cut through the partisan gridlock and realize that our cities are not prepared to endure another long-lasting recession. Our lack of preparation could be a fatal mistake for our state’s economy. We need to be focused on real solutions to solve the financial stresses facing our own backyards. Our challenges are many, but not in-

surmountable. We believe Michigan and its economy can only be as strong as its communities. It is the very foundation of everything from schools to neighborhoods, storefronts to offices. They all need a strong and vibrant community to thrive. We must act now to position ourselves differently. Not just for the next recession but for generations to come. Our current system cannot do that. Aging infrastructure and skyrocketing growth in legacy costs, such as health and retirement benefits for current employees and retirees, constrain a community’s ability to invest in critical services that are important to current and prospective residents. We should change existing laws to discourage wasteful duplication of infrastructure and services and equip local governments with tools to modernize the delivery of legacy benefits. The state must reverse nearly two decades of disinvestment in our communities and begin restoring revenue sharing. The $8.6 billion diverted to state programs and away from local services is a bad investment. Additionally, Michigan places far too many restrictions on local municipalities’ revenue-generating options. These rules

significantly limit a community’s ability to invest in itself. We should provide more options for communities to fund critical services, including additional special assessment authority, expansion of local taxing authority and grants for public safety. Property taxes are the largest source of revenue for local government services, but Michigan’s current system doesn’t allow for property taxes to rebound after a recession. We need lawmakers to decouple Proposal A and Headlee to allow local governments to grow with the economy when times are good. These laws are antiquated and are our single biggest vulnerability in a recession. More importantly, they no longer work or deliver value to cities, townships and counties across Michigan and are an impediment to a strong Michigan. We’re encouraging leaders across Michigan to take action, such as the possible solutions mentioned above to ensure that a future impending recession doesn’t have a catastrophic impact. It is a problem we can solve, but only if we come together and are willing to admit the status quo is our enemy and we begin to invest in a better future for Michigan. NOVEMBER 18, 2019 | CRAIN’S DETROIT BUSINESS | 17

STATE BUDGET STATE ECONOMY

Is Michigan ready for the next recession? Not even close. BY CHARLES BALLARD

n the last couple of years, many economists have suggested that the U.S. economy could enter a recession in 2020 or 2021. Trade wars, ballooning corporate and personal debt, a flat manufacturing sector and many other factors have fueled the concern. Fortunately, the U.S. economy is not yet Charles Ballard in a recession, but that doesn’t mean that is an economics we have repealed the business cycle. A reprofessor at cession will come; we just don’t know exMichigan State actly when it will hit. Right now, however, University. even as the national economy has slowed down, Michigan’s economy isn’t even doing nearly as well as the national average. As we came out of the Great Recession of 2007-09, Michigan’s economy rebounded strongly. For several years, we added about 75,000 jobs per year. But that slowed to about 43,000 jobs per year in 2017 and 2018. This year, Michigan has had no job growth at all. While the U.S. was adding more than 1.2 million jobs between January and September, employment in Michigan didn’t budge at all. The Bureau of Labor WHAT DID WE DO? WE Statistics estimates CONTINUED WITH THE TREND that employment in Michigan was very OF THE LAST SEVERAL slightly smaller in DECADES, WHICH IS TO September than in (Ohio and SACRIFICE A GREAT DEAL UPON January. Indiana have lost more jobs this year THE ALTAR OF LOW TAXES. than Michigan has lost, but that provides small comfort.) Employment is not the only sluggish indicator for the Michigan economy. Inflation-adjusted gross domestic product in our state declined in the fourth quarter of 2018. We have had a little bit of growth since then. Nevertheless, Michigan’s inflation-adjusted GDP in the second quarter of 2019 was only one-half of one percent larger than a year earlier. GEORGE PETERS/ISTOCK

These trends in employment and GDP paint a picture of a Michigan economy that is on the edge of recession. If the U.S. economy were to slow down further, as many economists predict, Michigan would almost certainly find itself in recession. President John F. Kennedy once said, “The time to repair the roof is when the sun is shining.” If we translate his words to fit the current situation in Michigan, they would be

something like, “The time to fix the damn roads was from 2012 to 2016, when the Michigan economy was growing at a brisk pace. It will be much harder to repair crumbling infrastructure and make other critical investments when the economy is growing slowly, or shrinking.” Those of us who have recently had a bone-rattling ride on Michigan roads know that we did not repair the roof when the sun was shining.

We did not fix the damn roads. We did not fix our decrepit water and sewer systems. We did not restore higher-education funding to the levels that existed before the savage cuts of 2003-2011. And the list goes on. What did we do? We continued with the trend of the last several decades, which is to sacrifice a great deal upon the altar of low taxes. Economists use the term “tax effort” to describe the fraction of the economy that goes to tax revenues. Michigan’s state and local tax effort is significantly lower than the national average. If we were at the national average, we would be collecting well over $3 billion per year more than we do now. Thus, if we were merely an average-tax state, instead of a low-tax state, we would have enough revenue to fix the damn roads, and then some. The economics of coming up with additional revenue is easy. We could tweak the sales tax, the income tax, the taxes on alcoholic beverages, property taxes, or business taxes in ways that would raise more revenue. The economics may be easy, but the politics is very hard. My sense is that most Michiganders really do want to fix the roads and a lot of other things; they just don’t want to pay for it. In the words of the late Sen. Russell Long, “Don’t tax me; don’t tax thee; tax that fellow behind the tree.” That attitude creates a lot of inertia, which makes it very difficult to raise revenue. That’s where political leadership comes in. When the sun was shining in the middle of this decade, our political leaders failed to make the tough choices that would have been necessary to overcome the inertia. Now that the sun isn’t shining as brightly, the choices will be even tougher.

EDUCATION

Vetoed charter school funding stifles K-12 education reform debate BY DAN QUISENBERRY

Dan Quisenberry is the president of the Michigan Association of Public School Academies, the state charter school association.

It’s been a cold, hard month-and-a-half for charter school students in Michigan — and not just because of the early onslaught of snow. On Oct. 1, Gov. Gretchen Whitmer dealt a devastating blow by vetoing a $240-per-pupil funding increase for charter school students, while OKing the same funding increase for other public school students. For one charter school in Detroit, it means losing more than half a million dollars this school year alone. Across the board, Michigan’s charter schools stand to lose upwards of $35 million. Just on the surface, we know that charter schools overwhelmingly serve populations of students and families in need — and that all charters already operate on lean budgets, as they are funded at the state minimum in per-pupil allocation. This funding matters. But the governor’s unfair and unwarranted veto has not gone unanswered. More than 10,300 charter stakeholders have spoken up. Many have made phone calls. Some have attended coffee hours to speak locally with their legislators — and it’s been a fresh reminder of who we are as a movement.

18 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

school students ended up on the chopping block, we’re told by one side to ask the governor, and the other side to tell the GOP-led Legislature to negotiate better road funding. Meanwhile, our schools will soon WHEN WE’VE ASKED ABOUT WHY CHARTER be receiving their SCHOOL STUDENTS ENDED UP ON THE second state-aid CHOPPING BLOCK, WE’RE TOLD BY ONE SIDE TO payment short of funding inASK THE GOVERNOR, AND THE OTHER SIDE TO the crease they’ve been TELL THE GOP-LED LEGISLATURE TO NEGOTIATE denied. We understand it’s a complex BETTER ROAD FUNDING. political standoff in Lansing right now, vigorated my team, and given us the but the effects are quite simple — and this is a dangerous game. necessary energy to fight this fight. There is a solution, though: quality educaBut in speaking out, we’ve also been reminded of how little our own neighbors, tion is a fundamental human right, and the colleagues and friends know about us. funding for that education should follow And how little some of our legislators those humans, not the institutions doing the know about us. In a candid video about teaching. It shouldn’t matter what kind of her vetoes, Gov. Whitmer shared that she public school a student attends, and no stuused her executive power to “protect dent should ever again be punished like this. We need our elected officials to fight for Michiganders’ public health and safety, access to health care, and classroom the right resources, the ones that support poverty, trauma, special education, vocaspending for our children.” Did she forget about our classrooms? tional training and more — and then distribute resources equitably among MichiAbout our children? When we’ve asked about why charter gan learners. We need them to recognize With nearly 300 schools statewide and about 150,000 students, we are a vibrant, diverse and passionate bunch. Harnessing the outrage of those parents, grandparents, teachers and students has rein-

that the students and families attending charter schools in their district are their constituents and fight for them to win just as hard as they fight for the local traditional district school. As a state, we have many hurdles to overcome with K-12 education. Nearly this time last year, the Michigan Legislature passed the A-F accountability bill to create a system that assigns every school, statewide, a letter grade that’s indicative of how well they service students — charter or traditional public that still needs to be implemented by the Michigan Department of Education. We’re in the middle of a teacher shortage, and we will continue to be until we can properly support educators. We know that childhood trauma affects daily learning, and we must adapt our funding and educator resources to address it. These are the critical K-12 conversations of tomorrow, and right now we can’t have them. It’s time to move on from the question of whether or not charters should stay or go. We are here. We’ve earned a seat at this table. Let’s work together to cultivate solutions to real problems, instead of wasting time tearing each other down.

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“We were absolutely used as a hostage,” said Oakland County Sheriff Mike Bouchard, a Republican whose agency lost $2.2 million for housing state inmates in the county jail and secondary road patrol. “We have absolutely nothing to do with fixing the roads.” Across the state, the budget pain is seeping in as sheriff’s departments, rural hospitals, nonprofit social service agencies, charter schools and others that depend on state aid put off capital projects, suspend planned pay raises, dip into reserve funds and reassign employees, while betting the political stalemate will eventually be resolved. “What the budget cuts, the line-item vetoes, really illustrate better than any pie chart or paper we could write is how the state budget really funds so many things that are outside of Lansing,” said Eric Lupher, president of the Citizens Research Council of Michigan. Just 20 percent of the nearly $60 billion in outlays from state government stays within the confines of the Lansing beltway, Lupher said. The budget malaise has raised questions about how ready are other levels of government and a vast array of social service agencies and nonprofits that carry out public services for an actual belt-tightening exercise at the Capitol. At the Autism Alliance of Michigan, Whitmer’s elimination of a $1 million grant for a program that helps people with autism navigate education and health care programs represented 25 percent of the Bingham Farms-based organization’s operation budget. Leaders of the Autism Alliance have scrambled to raise “bridge” funding in the event the group’s grant doesn’t get restored. But now they’re studying the creation of an endowment to absorb “these shocks that come along,” said Dave Meador, the DTE Energy vice chairman who chairs the board of the Autism Alliance. “We need to find alternative sources of funding and not be so dependent where you’ve got a quarter of an organization’s budget depending on a state grant,” Meador said. “But to replace that is going to take time too. And there are other things we’d like to do that we don’t have dollars for.”

‘Real lives behind these vetoes’ While Whitmer’s line-item vetoes appeared aimed largely at rural Michigan and Republican constituencies such as charter schools, there were some cuts to programs that affect her political base in urban and suburban areas. In Oakland County, the head of Oakland Family Services is mystified by Whitmer’s elimination of a planned 6 percent increase for adoption service providers — the first pay raise “in many years.” “We didn’t actually put it in our budget because we couldn’t trust it — and that tells you a lot,” said Jaimie Clayton, president and CEO of Oakland Family Services. “How do you cut the concept of preventing kids from going to foster care or if they enter foster care, keeping them a shorter period of time?” Oakland Family Services also was affected by Whitmer’s veto of boilerplate language in the budget that would have allowed the Pontiac-based organization to do state-sanctioned foster care training sessions outside of Lansing. “What was the upside to some of these vetoes?” Clayton asked. “There’s real lives behind these vetoes. There’s real agencies behind these cuts.” Whitmer also eliminated a $1 million grant for the Detroit Mercy Dental Center on Martin Luther King Boulevard in Detroit. The private Catholic university runs a dental clinic open to the public that has seen its state subsidy whittled away from $4.5 million in 2011, Detroit Mercy President Antoine Garibaldi said. Beyond its home city, the Detroit Mercy Dental Center operates dental clinics and education programs across the Lower Peninsula, with rural clinics in Cheboygan and East Jordan as well as a partnership with My Community Dental Clinic Inc. to offer dental services in Harrison, Hart, Ionia and Manistee. “We’ve got about 10 clinics around the state where our students in the dental school really go and help out in those communities,” Garibaldi said. “We try to keep the cost as low as possible. ... People really do count on these services.” For now, Detroit Mercy is subsidizing the lost state funding, which was set up to offset the shortage of dentists who accept adult Medicaid insurance coverage. That funding was reduced in recent years as the state increased Medicaid spending on

children’s dental services, even though “97 percent” of the dental school’s patients are adults, Garibaldi said. Detroit Mercy also was hit by Whitmer’s elimination of the $38 million Michigan Tuition Grants, a $3,000 annual scholarship for low- and middle-income students The university is covering the lost scholarship dollars for the 1,200 students affected by the cuts, Garibaldi said. “This impacts close to half of our undergraduate (student) population,” he said.

‘Devastating’ hospital cuts Nearly $322 million of Whitmer’s $941 million in line-item vetoes occurred in the Department of Health and Human Services budget — and they’re some of the more controversial cuts, such as the elimination of $1 million for the Autism Alliance of Michigan. But the wider-ranging cuts are being felt by hospitals and medical providers who treat patients with Medicaid — the state and federal health insurance program for the poor that already pays the lowest reimbursement rates of any insurer. Whitmer’s veto pen nixed reimbursement rate increases for hospital outpatient services ($95.2 million), critical access hospitals ($34.3 million), pediatric psychiatry ($10.7 million), neonatologists ($5.2 million) and private duty nursing ($3.9 million). The governor wiped out $16.6 million in special payments for rural hospital operations and nearly $8 million for hospitals in rural areas that run obstetrician departments for live birth deliveries. Hillsdale Hospital lost $400,000 from the rural hospital payments and $200,000 for its money-losing obstetrician department, Hodshire said. The $600,000 in lost payments, which help subsidize Hillsdale Hospital’s 70 percent Medicaid and Medicare patient base, represents about 1 percent of the 465-employee hospital’s annual $70 million operating budget, Hodshire said. For large health systems, $600,000 is “nothing,” Hodshire said. “In rural health, where we have no margin, that’s devastating,” he said. If the budget impasse extends into late winter, Hillsdale Hospital leaders will have to start looking at cutting programs. “We don’t have a C-suite of 15 vice presidents and 23 administrative assistants,” he said. “It’s programs and services.”

Oakland Family Services runs a preschool in Pontiac through the state’s Great Start Readiness program. The organization has diversified its social service programs to guard against losses in state funding. Gov. Gretchen Whitmer’s recent line-item vetoes included eliminating a 6 percent increase in funding for adoption placement services — the first raise in reimbursement rates in several years.

“THERE’S REAL LIVES BEHIND THESE VETOES. THERE’S REAL AGENCIES BEHIND THESE CUTS.” — Jaimie Clayton, president and CEO of Oakland Family Services

Island ‘lifeline’ in danger Whitmer’s use of the little-known State Administrative Board to defund programs and transfer the money to other areas of individual state department budgets has angered Republican lawmakers because it circumvents their spending decisions. The governor has cited a 1993 Michigan Supreme Court ruling that upheld the power of the board to re-arrange budgets. The Democrat-controlled State Administrative Board’s $625 million in fund transfers amounted to a second wave of line-item vetoes as money was moved around within departments. One little-noticed cut in the Michigan Department of Transportation’s budget swiped $599,900 that the Legislature had budgeted for marine passenger service to remote islands along the shores of the eastern U.P. The Eastern Upper Peninsula Transportation Authority runs three ferry boats to Drummond, Neebish and Sugar islands. In March, Whitmer proposed $5 million for EUPTA so it could purchase a new $3 million ferry to replace the 1940s vessel that ferries Native American residents, U.S Border Patrol agents and logging trucks from Sault Ste. Marie to Sugar Island at the northern tip of Lake Huron. Lawmakers funded a fraction of the EUPTA’s request. Meanwhile, the Sugar Island ferry boat’s boiler is failing, said Clark Harder, executive director of the Michigan Public Transit Association. “That boat, it’s my understanding, could get red-flagged by the U.S. Coast Guard literally at any point and taken out of service,” Harder said. “And if that happens, there’s no way that they can service the people on Sugar Island.” The rest of the funds for the EUPTA were going to pay for road improvements at the ferry docks and replacing obsolete security camera systems, said Pete Paramski, executive director of the EUPTA. The agency runs the ferries and a limited bus service in Chippewa and Luce counties, but relies on state or federal grants to finance capital improvements, Paramski said. “We’re in bad shape financially,” he said. Chad Livengood: (313) 446-1654 Twitter: @ChadLivengood NOVEMBER 18, 2019 | CRAIN’S DETROIT BUSINESS | 19

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CALENDAR  TUESDAY, NOV. 19  Championing the American Middle Class. 11:30 a.m.-1:30 p.m. Detroit Economic Club. Shahid Khan, CEO and president of Flex-N-Gate, a Detroit automoKhan tive OEM, will share his views on why Detroit, why now and why a strong middle class should be a priority for all. The Masonic. $45 members, $55 guests of members. Website: econclub.org  CREW Detroit’s Keynote Speaker Luncheon. 11:15 a.m.-2 p.m. CREW Detroit. Luncheon will feature Ari Weinzweig, co-owner and founding partner Weinzweig of Zingerman’s Bakehouse and ZingTrain. Weinzweig will present Zingerman’s 12 Natural Laws of Business with a focus on how to address the employee energy crisis in the American workplace. Birmingham Community House. $90 members; $115 nonmembers. Contact: CREW Detroit, email: admin@ crewdetroit.org; phone: (248) 5212372  Marketing Roundtable Series: The Website Reimagined. 5-7 p.m. The American Marketing Association Detroit. The program includes opportunity for marketers to solve problems, share best practices and bounce ideas off other experts. Hosted by Dale Keipert, vice president of sponsorship at AMA Detroit and partner at 3Sixty Interactive. Bigalora Wood Fired Cucina, Rochester Hills. $5 members; $15 nonmembers. Contact: Whitney Swistock, email: connect@amadetroit.org; phone: (248) 797-1976.

 SATURDAY, NOV. 23  2019 Women Entrepreneurs Conference. 8:30 a.m.-4 p.m. Michigan Association of Female Entrepreneurs. The conference will include keynote presentations, power talks, panel discussion with female entrepreneurs, networking and the 2019 Female Entrepreneur of the Year award presentation. Event topics include branding and marketing, networking and business strategy. The Westin Southfield-Detroit, South-

field. $75. Contact: Tonya McNeal-Weary, email: info@mafedetroit.org; phone: (844) 490-6233.

 UPCOMING EVENTS  Tech Over Torque: Priorities Shift from RPM to EPM (Experiences Per Mile). 11:30 a.m.1:30 p.m. Nov. 25. Detroit Economic Club. Harman President and Paliwal CEO Dinesh C. Paliwal will look to 2025, discussing the path toward a connected world. MotorCity Casino Hotel. $45 members, $55 guests of members. Website: econclub.org  100 Women Power Connect — 2019. 6-9 p.m. Dec. 3. Sashe LLC. Includes boot camps “Who Knows You?” and “How to Sell Yourself in 15 Minutes or Less,” facilitated by career expert and professional coach Jocelyn Giangrande. Also includes: executive mentor panel “Keeping It Real” discussion with leaders sharing journeys, lessons learned and what it takes to make it in careers and business, shopping bazaar supporting women entrepreneurs/vendors and networking reception to help build professional connections. Washtenaw Community College, Ann Arbor. $39. Contact: Jocelyn Giangrande, email: jgiangrande@sashewomen.com ; phone: (248) 789-0333.  Cannabis Summit & Simulcast. 7:30-11:30 a.m. Dec. 5. Michigan Association of Certified Public Accountants. Leaders in Michigan’s marijuana industry will discuss risk management, professional liability concerns and the latest in regulation and business valuation procedures. Speakers include: Ronald Seigneur, managing partner, Seigneur Gustafson LLP, Lakewood, Colo.; Marc Lichtman, partner, UHY LLP, Farmington Hills; Kareyna Miller, founder and president, LC Solutions Michigan PLLC, Flint; Christopher Rosmarin, principal, Rehmann, Grand Rapids; Jennifer Piggott, manager, Adult-Use Licensing, Marijuana Regulatory Agency, state of Michigan and James Baiers, chief legal officer, Trion Solutions, Troy. MSU Management Education Center, Troy. $145 members; $220 nonmembers. Contact: Kamal Webster, email: kwebster@micpa.org; phone: (248) 267-3700.  2019-2020 State of the Region. 10

a.m.-1:15 p.m. Dec. 5. Detroit Regional Chamber. The sixth annual State of the Region will reveal new data on Southeast Michigan’s economic health and how the region compares to peer regions. The report analyzes economic indicators related to business growth, talent, innovation and international commerce. Ford Field, Detroit. $75 members; $150 nonmembers. Contact: Katy Palahang, phone: (313) 596-0384.  Positive Links Speaker Series: Authenticity on One’s Own Terms. 4-5 p.m. Dec. 12. Center for Positive Organizations. Speaker Patricia Faison Hewlin, associate dean of Undergraduate Programs and associate professor in the Desautels Faculty of Management at McGill University, will discuss how people can be authentic on their own terms by identifying thresholds of authenticity as well as personal values that can be integrated into the workplace to increase work engagement, foster positive relationships and enhance overall personal well-being. Ross School of Business, Ann Arbor. Free. Contact: Center for Positive Organizations, email: cpo-events@umich. edu; phone: (734) 764-0544.  2020 Michigan Economic Outlook. 11:30 a.m.-1:30 p.m. Jan. 7. Detroit Economic Club. Grant Thornton chief economist Diane Swonk and Jeff Donofrio, director of Michigan’s Labor and Economic Opportunity Department, discuss the 2020 Michigan Economic Outlook. MotorCity Casino Hotel. $45 members, $55 guests of members. Website: econclub.org  2020 Detroit Policy Conference. 8:30 a.m.-4:30 p.m. Jan. 29. Detroit Regional Chamber. The 2020 Detroit Policy Conference: Defining a Decade, will discuss Detroit’s path to economic sustainability Local and national leaders will highlight the work underway, new ideas, opportunities and challenges that will define the next 10 years for the Detroit region. MotorCity Casino Hotel. $169 members; $245 nonmembers. Contact: Katy Palahang, phone: (313) 596-0384. To submit calendar items visit crainsdetroit.com and click “Events” near the top of the home page. Then, click “Submit Your Events” from the drop-down menu that will appear. Fill out the submission form, then click “Submit event” at the bottom of the page. More Calendar items can be found at crainsdetroit.com/ events.

DEALS&DETAILS  CONTRACTS  Siren PR, Royal Oak, a public relations firm, has the following new clients: Cohen & Co., Detroit, an accounting firm; Innovate Marquette SmartZone, Marquette, a nonprofit supporting tech entrepreneurs; iwerk, Royal Oak, a software company; Jeff Meldrum Realty, St. Clair Shores, a real estate agency; Koussan Hamood PLC, Detroit, a law firm; Lakeshore Financial Planning, St. Clair Shores, a financial planner; Merces Consulting Group Inc., Royal Oak, a business management consultant; and Omega Lending, Royal Oak, a mortgage lender. Websites: siren-pr.

com, cohencpa.com, innovatemarquette.org, iwerk.com, jeffmeldrumrealty.com, kh-plc.com, lakeshorefinancialplanning.com, mercesconsulting.com, omegalendinggroup.com DeMaria, Detroit, a construction firm, was awarded the Marriott Volt Lobby project located in the Detroit Renaissance Center. The project includes a multi-phased tile demo and installation. Website: demariabuild.com

 NEW PRODUCTS  TrialAssure, Canton Township, a software company specializing in

clinical trial transparency tools, has released Anonymize R, a document anonymization software that uses machine learning, natural language processing and artificial intelligence to protect patient privacy, on a limited basis. Website: trialassure.com  Chem-Trend LLC, Howell, designer, developer, and manufacturer of release agents, purging compounds and other molding products, has launched the Chem-Trend Now app for customers in the United States and Canada. The tool provides instant access to information about Chem-Trend products. Website: chemtrend.com

GAA taps former GM executive as new CEO BY CHAD LIVENGOOD

The Detroit-based logistics and light manufacturing firm Global Auto Alliance Manufacturing and Supply Chain Management has brought a former General Motors Co. executive out of retirement to be its new president and CEO. Kevin Williams, a former president and managing director of GM Canada Ltd., said he joined GAA in August and took an undisclosed ownership stake in the company. The privately held company formally announced Williams’ appointWilliams ment on Friday. GAA does warehousing, third-party supply-chain logistics and light assembly manufacturing work for automakers such as Mercedes-Benz, Ford Motor Co. and GM and tier one suppliers such as Cummins Inc. and Magna International. The company also does logistics work for companies in the health care, pharmaceutical and aerospace industries, including Boeing. “We’ve got a pretty diverse skills within in the company,” said Williams, who retired from GM in 2014 after 31 years with the Detroit automaker. “We’re going to take the best of GAA and its partner companies

have to really expand our footprint in North America.” GAA has 100 employees headquartered in southwest Detroit and 1,600 total workers across 13 states and Ontario. The company reported $302 million in revenues in 2018. Williams said he sees growth opportunities for GAA in doing sub-assembly work at the end of the supply chain to OEMs. “We’ve got a pretty diverse skills within in the company,” he said. “The key to success in this space from a growth perspective is to be able to partner with the right companies in the industry, those that don’t have the logistically skills and ability … in light manufacturing. It’s very helpful to the companies when we take work that’s not natural to them and grow that.” Williams took the reins of daily management of the company from Sylvester Hester, who was elevated to board chairman of GAA. GAA founder William Pickard assumed the role of executive chairman of the company he started in 1989. Williams got his start in GM as a reliability analyst at the one-time Buick stamping plant No. 12 in Flint and worked his way up the company ladder to leadership positions in GM’s European, Mexican and Canadian operations. Since his retirement from GM, Williams and his wife moved to Nashville, Tenn., where they co-founded a real estate business.

OneStream Software installs former Microsoft exec as CFO BY KURT NAGL

Following its $1 billion valuation earlier this year, Rochester-based OneStream Software LLC has hired a new CFO with experience steering finances for Microsoft and other major tech firms. Bill Koefoed, 55, started his new job with the performance management software provider Nov. 1, replacing John Von Allmen, who is transitioning to an undetermined role with the firm. Koefoed enters a company growing by leaps and bounds thanks to a $500 million infusion from New Koefoed York-based private equity firm KKR & Co. Inc., which took a majority stake with the investment. His first task is building out his financial planning and analysis team — with assistance from OneStream’s software, of course. “How often do you get to be a CFO of a company that is building software for CFOs?” Koefoed said. Founded in 2010, OneStream develops software that operates like a smartphone app to simplify financial consolidation, planning, reporting, analytics and financial data. Clients include UPS, Sagent Pharmaceuticals, Post Holdings Inc., Fruit of the Loom, The Carlyle Group, Melrose PLC and others. Koefoed is tasked with converting

the company’s cash infusion into return on investment for KKR. “Private equity investors don’t hold their investments forever,” he said. OneStream founder and CEO Tom Shea has said the company will work toward an initial public offering. Koefoed said he’s not ready to put a timeline on when that could happen. The company’s revenue was $88.3 million in 2018, according to a report from magazine Inc. It achieved 68 percent year-over-year sales growth in the first half of 2019, according to an August news release. It has more than 370 customers and employs 415 workers globally, including 124 in Michigan. Around 200 of those employees were hired this year. OneStream declined to offer updated revenue figures. A West Coast transplant, Koefoed recently moved to Rochester from Seattle, where he worked for the past couple of years as CFO at online jewelry retailer Blue Nile. Before that, he was partner and CFO for California-based investment firm BCG Digital Ventures. He spent three years as CFO for Portland-based software firm Puppet and eight years at Microsoft, including one year as CFO of its Skype division. He earned his undergraduate and MBA degrees from University of California Berkeley. “I’ve obviously spent a lot of my career on the West Coast. You’ve got great universities here, you’ve got great talent, and I think we can really build a great tech hub here,” he said.

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DUMOUCHELLE

From Page 1

In November 2018, DuMouchelle also allegedly tried to drum up interest in the Yellow Rose from Gelov, writing to him about “the larger 77 carat vivid yellow diamond and flawless pink diamond that I mentioned,” the complaint says. “They’re so rare and we’re hoping to have them for the December auction, too,” DuMouchelle allegedly wrote to Gelov, who said in a Friday email that he wanted “to maintain some degree of privacy on this matter” and declined further comment. George Donnini, shareholder for Butzel Long who was representing DuMouchelle in that case, likewise did not comment when emailed Friday morning. Jay Welford, senior partner for Jaffe Raitt Heuer & Weiss PC in Southfield who is representing Gelov, declined comment. In December 2018, DuMouchelle allegedly led Gelov to believe that 15 of the pieces had sold for nearly $6 million, and DuMouchelle allegedly sent screenshots of a Bank of America account on March 2 showing the deposited money. Bill Rands also claims in an October circuit court filing that DuMouchelle owes him money stemming from an alleged jewelry sale. He says in a complaint that he agreed in October 2018 to sell a few pieces of jewelry appraised at $43,000 at auction with DuMouchelle. Those items, including a pin and a clasp shortener, were sold Oct. 18 for $55,000, and after an 11 percent ($6,050) commission for DuMouchelle, Rands says he was owed $47,696. In the complaint, Rands says that

when he deposited the Aug. 1 check for that amount on Sept. 3, it was returned for insufficient funds. That wouldn’t be the only bounced check in the DuMouchelle saga. There are also a pair of judgments entered in August for Jonathan Birnbach of New York City for $3.4 million and one in September for Thomas Ritter of North Dakota for $16.4 million, both of whom were mentioned in the federal charging document as having lost money to DuMouchelle. DuMouchelle’s alleged fraud involves millions of dollars in diamonds and other jewelry and clients and investors from North Dakota to Indiana, Texas to New York. The wire fraud charge came a month after he and his wife filed for Chapter 11 bankruptcy protection, citing assets valued at about $2.28 million but liabilities of $23.44 million, including mortgages, car loans, credit cards and debts to others, including $12 million to Ritter. They claim monthly income of $16,667 and expenses of $15,485. He appeared in federal court in Detroit Thursday and was released on a $10,000 unsecured bond and ordered not to travel outside state lines. A Dec. 5 preliminary exam is scheduled. An email sent to him Thursday was not returned. In the criminal complaint, the FBI alleges that in February, DuMouchelle purported to purchase a $12 million 77-carat diamond, given the name of the Yellow Rose, from an estate in Texas using Ritter’s money. However, $4.25 million of Ritter’s money was then wired to the diamond’s seller, William Noble of Dallas, claiming instead to be for DuMouchelle selling other items of Noble’s, according to the complaint.

DUMOUCHELLE’S ALLEGED FRAUD INVOLVES MILLIONS OF DOLLARS IN DIAMONDS AND OTHER JEWELRY AND CLIENTS AND INVESTORS FROM NORTH DAKOTA TO INDIANA, TEXAS TO NEW YORK. Investigators allege that Ritter, whose brother-in-law is related to DuMouchelle’s wife, Melinda Adducci, agreed to wire the $12 million purchase money with the understanding that the diamond could be sold for $16 million, and that the two men would split the $4 million profit, with Ritter taking 75 percent ($3 million) and DuMouchelle taking 25 percent ($1 million). The complaint says DuMouchelle had already owed Ritter $430,000 from previous jewelry transactions; the two had met five or six years prior. A Feb. 9 email from DuMouchelle to Ritter included a receipt for the Yellow Rose Diamond’s purchase, according to the 12-page charging document. Noble, who represented the Dallas estate that owned the diamond, told investigators that he

never agreed to sell it to DuMouchelle. Two months later on April 12, DuMouchelle allegedly sent Ritter an email claiming that the diamond sold to the Jennifer H. Rands Trust in Bloomfield Hills for $16.5 million across three wire transfers of $2 million, $4 million and $10.5 million, although federal investigators say those transfers were not reflected in bank records. Ritter told investigators that he came to Detroit in April to see the diamond for himself with DuMouchelle, who told him it was in a Brinks security facility. DuMouchelle allegedly told Ritter that the person in charge of the facility was on vacation so the diamond could not be seen. According to the complaint, Noble said he and DuMouchelle were introduced last year and that he consigned a 13.04-carat diamond ring to him for $950,000. If DuMouchelle sold the ring, Noble would get $950,000 and the profit would be split evenly. DuMouchelle allegedly told Noble that the ring sold for $1 million and that he agreed to let the buyer pay in installments. The first check to Noble was for $100,000, while the second $450,000 check bounced, according to the complaint. In late July 2018 while on vacation, Noble was told that DuMouchelle went to his store without telling him, asking to take what ended up being 29 pieces of jewelery to a three-day private show in New York. Those items were subsequently listed “through his online auction at a fraction of the cost of what Noble consigned them for,” the complaint says. After asking, most of the

items were returned and Noble sent more for DuMouchelle to sell. Noble requested those pieces be returned as well, but DuMouchelle either refused to send them or doctored tracking numbers to make them appear en route. The complaint says that by the end of last year, $12.5 million of Noble’s jewelry was with DuMouchelle. In February, Detroit area jeweler Anthony DiMaggio of DiMaggio Fine Art & Jewelry contacted Noble about an estate sale DuMouchelle was having with items “selling for $.20 on the dollar,” the complaint says. In an email to Crain’s Friday, Noble said of DiMaggio: “Anthony was a hero in this when he alerted me that DuMouchelle was trying to sell our goods at pennies on the dollar, claiming they were out of an estate in Florida being sold by Comerica Bank.” According to the complaint, all of the items belonged to Noble, who then confronted DuMouchelle, who denied it. That same month, Noble received six items back and a $4.25 million wire transfer on Feb. 7 for three items that DuMouchelle allegedly sold for him. However, according to investigators, that money came from the $12 million wire transfer from Ritter for the Yellow Rose Diamond. It was then that DuMouchelle allegedly told Noble he had a buyer for the diamond. Noble says he sent an employee with the diamond to Miami to meet DuMouchelle and the buyer, but after several days of waiting, neither he nor the buyer showed. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

ISRAEL

From Page 3

In September, the Republican-controlled Legislature slashed the MEDC’s business attraction and community revitalization budget by $26 million or 25 percent. Whitmer responded on Sept. 30 by eliminating all $37.5 million in funding for the Pure Michigan tourism campaign, which has appealed to international visitors in the past. “The budget’s not done,” Whitmer said Friday. “And the fact of the matter, the Legislature’s on their (deer) hunting break right now — and that’s why this actually made sense in terms of an opportunity to take the time and make sure we had a well-rounded trip here.” Whitmer said she’s been “reticent to leave the state, frankly, until we had some conclusion with the budget.” “Despite the fact that we don’t yet, the Legislature not being in town seemed like an obvious time to make this happen,” she said. The governor said she’s hopeful she and GOP legislative leaders can settle their differences over the $60 billion state budget when lawmakers return to Lansing next month after the Thanksgiving holiday. GOP lawmakers want Whitmer to relinquish some of her budgetary powers, which she has refused to do. While in Israel this week, Whitmer also plans to tour two religious landmarks: the Church of the Nativity in Bethlehem and the Shrine of the Book museum in Jerusalem, where the Dead Sea Scrolls are housed. Awenate Cobbina, a vice president of business affairs for the Pistons and chairman of the MEDC executive 22 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

“THE BUDGET’S NOT DONE. AND THE FACT OF THE MATTER, THE LEGISLATURE’S ON THEIR (DEER) HUNTING BREAK RIGHT NOW — AND THAT’S WHY THIS ACTUALLY MADE SENSE IN TERMS OF AN OPPORTUNITY TO TAKE THE TIME AND MAKE SURE WE HAD A WELL-ROUNDED TRIP HERE.” — Gov. Gretchen Whitmer

committee, is going on the trip with the governor. Jeff Donofrio, director of Whitmer’s Department of Labor and Economic Opportunity, also is attending. An unusual addition to Whitmer’s delegation is Col. Joseph Gasper, director of the Michigan State Police. “I think that in the Jewish community, there’s a real need and interest in making sure they’ve got good, strong relationships with law en-

forcement,” Whitmer said when asked why Gasper is attending. “Obviously, there’s been an uptick in hate crimes, and I think that’s an important relationship. I also know that when it comes to security, Israel is a leader. And I think there’s some unique opportunities for the colonel to take part in.” Chad Livengood: (313) 446-1654 Twitter: ChadLivengood

SPONSORED BY:

Elisabeth Heath, M.D. is director of Karmanos’ Translational Sciences, director of Prostate Cancer Research and Genitourinary Oncology multidisciplinary team leader. She is also a professor of Oncology and Medicine at Wayne State University School of Medicine.

LIQUOR

From Page 3

Since then, customers have complained about delivery delays and a lack of communication from the company. The state’s Michigan Liquor Control Commission stepped in last week and ordered Republic National to improve deliveries and customer support. The company said it was moving 25 percent of its business back to Brownstown Township starting Monday. Ro-

chow said he expects the situation to improve next week, but delays could persist through the holidays. The situation has laid bare the vulnerabilities of the state’s three-tier system consisting of suppliers, wholesalers and retailers. As the wholesaler, the state of Michigan owns all the liquor that suppliers manufacture or import into the state. It contracts with three companies to distribute it: Republic National, Highland Park-based General Wine & Liquor Co. Inc. and Kalamazoo-based Imperial Beverage Co. The delays can impact the state’s

bottom line, too. Last year, distilled spirit sales in Michigan reached almost $1.5 billion. Business owners’ hands are tied because they can only receive certain products from certain distributors, while under state law, suppliers are locked into contracts with distributors. Meanwhile, frustrations are being passed on to patrons looking to imbibe. There were plenty of those expected in Ann Arbor on Saturday for the Michigan State University vs. University of Michigan football game at Michigan Stadium.

PONTIAC

From Page 3

So Sharma and the board decided to expand on the hospital’s financially successful adult psychiatric unit from 44 beds to 120 by 2022. He said the expansion would add much-needed profitability to the hospital and allow it to build up some of its other inpatient programs, including its low-volume 15-bed staffed medical-surgical unit. “We make money on our inpatient unit because we are efficient,” Sharma said. “We could handle a lot more. We think we are underutilized, but growth for hospitals isn’t (on the inpatient side). The beds allow us to provide a higher level of care to the community for other services such as surgeries and to support our urgent care (center).” An expansion would also fill a major need for behavioral health services as mental health professionals daily in Southeast Michigan are constantly searching for inpatient beds for patients in crisis, experts said. In Michigan, studies have shown a shortage of adult and adolescent inpatient psychiatric beds, including specialized beds for autistic and developmentally disabled patients. There also is an extreme shortage of psychiatrists nationally and especially in Michigan for outpatient care. Behavioral health and substance-abuse problems have increased over the years in Michigan and nationally with the opioid crisis alone taking 130 lives daily, including five in Michigan. One in five Americans, or 43.8 million adults, has a diagnosable mental health condition. Between 1999 and 2016, suicide rates in Michigan increased 33 percent, according to the Centers for Disease Control and Prevention. Based on the state Certificate-Of-Need Commission updating its rules that increased the number of allowed psychiatric beds in a market, Pontiac General, Beaumont Health and South Bend-based NeuroPsychiatric Hospitals have made plans to expand psychiatry services. Beaumont plans to open in 2021 a 75-bed private psychiatric hospital in a joint venture with for-profit Universal Health Services, a King of Prussia, Pa.-based chain. The $45 million, 100,000-square-foot psychiatric hospital and outpatient center in Dearborn will be located across from Beaumont Hospital Dearborn on Oakwood Boulevard. NeuroPsychiatric Hospitals recently announced plans to build a 64-bed behavioral health hospital in Kalamazoo County. The company has applied for a certificate of need for the $37.4 million facility that includes 31 adult psychiatric beds and 33 beds for people with developmental disabilities. Emily Ehrlich, director of Ann Arbor-based Altarum’s Center for Behavioral Health, said the need is great. In a study released earlier this year,

Pontiac General will recruit a number of new psychiatrists for its residency training program. | CRAIN’S DETROIT BUSINESS

Kovach

Ehrlich

Altarum found a serious shortage of psychiatrists and other mental health care providers in the state. It also detailed how 650,000 people with a mental illness and more than 500,000 with a substance-use disorder receive no treatment. Last year, Pontiac General received approval for a 16-member psychiatric residency program from the Accreditation Council for Graduate Medical Education, the Chicago-based organization that monitors the nation’s 10,000-plus residency programs. There are currently 10 residency programs in Michigan where about 290 psychiatrists are trained, ACGME said. Residents train for four years in mostly hospital-based psychiatry programs. Most of Pontiac General’s residents, four of whom will be selected next spring, will train at the hospital’s inpatient psychiatric unit, but residents will also rotate through nearby mental health clinics for such specialty services as child and adolescent psychiatry. Last fall, Beaumont Health announced it would also start a 16-doctor psychiatric residency program in 2020 to rotate through the new Dearborn hospital in 2021. However, $3 million in state funding earmarked for the program was vetoed last month by Gov. Gretchen Whitmer.

Psychiatric expansion Sharma said Pontiac General projects to spend about $5 million to expand its fourth-floor adult psychiatric unit, which averages more than 90 percent occupancy. Initially, the hospital will add 15 beds for developmentally disabled people, 13 geriatric psy-

24 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

chiatric beds and 25 medical psychiatric beds, later expanding to 120 beds by 2022. Heather Rae, CEO of Common Ground in Bloomfield Hills, said she welcomes additional psychiatric capacity. She said the shortage of inpatient beds causes many problems. “Getting psychiatric inpatient hospital units to accept people who are the sickest or have highly complex co-occurring conditions is a challenge,” Rae said in an email to Crain’s. “Pontiac General has been vocal about wanting to provide more inpatient beds to meet the needs of this population.” Sharma said he wants to open an inpatient unit for the developmentally disabled because of needs he has heard from other providers. “People heard about it and before we even opened it, we started getting calls from the west side of the state asking to send us patients,” Sharma said. “Now they are sending patients to Indiana and Illinois because they want to keep them safe.” Greg Moore, a health care lawyer who heads the behavioral health practice at Dickinson Wright in Troy, said hospitals that add psychiatric beds should have in place effective screening to ensure severely autistic patients aren’t “warehoused” in hospitals for undue periods of time. He said he knows 20 families with autistic family members who are dealing with these issues. “The state of Michigan’s only answer for this crisis is to warehouse individuals in places like Hawthorn Center, Kalamazoo Psychiatric Hospital and Caro Center,” said Moore, adding: “I worry the increased availability of inpatient psychiatric beds will lead to institutionalization of psychiatric patients, especially developmentally disabled patients, because they have nowhere else to go.” Ehrlich said while there may be certain situations where developmentally disabled people stay in inpatient settings too long, there is an overall shortage of specialized beds for seriously mentally ill patients.

“As a bar in downtown Ann Arbor, this is our busiest time of year, making things even more frustrating,” Violi said. “We’re trying to stock up, but the timelines keep changing, making that difficult as well.” A couple of blocks west of Haymaker, Frita Batidos is having similar problems. Owner Eve Aranoff, who opened a second restaurant in Detroit last month, said the liquor delivery inconsistency has put a strain on business. “We have been out of numerous spirits, including spirits we use regularly in our house cocktails,” she said

in an email. “We have had to increase our orders/inventory dramatically because the deliveries have been so unpredictable.” Over-ordering has become common practice for bars and restaurants as the distributor sorts through its issues. Violi learned that lesson fast after the brief drought of American vodka. “I ordered a full case of Tito’s,” he said. “I’m OK for this weekend.”

Tom Watkins, a longtime mental health and education expert, said more psychiatric beds are needed in Michigan, but they have to be adequately staffed and patients screened properly to avoid mixing seriously ill with those just needing acute-care services. “It (adding beds) will only help if they actually take the persons with serious mental illness and the state holds them accountable for doing so,” Watkins said. “If they get a certificate of need for psych beds that are inadequately staffed, screen the difficult patients out and only do medication therapy, (that just) simply adds to the revolving door of inadequate service for some of our society’s most vulnerable and underserved population.” Private psychiatric hospitals are often cited by regulators for poor quality and civil rights violations, but only after multiple complaints by families or workers, Watkins said. Problems include mental health facilities holding patients against their will, mixing young and old patients and moderately ill and severely ill patients, bad record-keeping and lack of trained staff. Sharma said Pontiac General will recruit a number of new psychiatrists for its residency training program, and it also has nursing leadership and staff who specialize in behavioral health problems. It currently employs three psychiatrists, he said. Ehrlich said Pontiac General’s plan to increase psychiatric beds and create a residency program for psychiatrists will help expand access to care, “which is good to see.” “We also need to expand outpatient services to keep up with that demand,” Ehrlich said. Moore said there needs to be other solutions to address persistently mentally ill people than housing them in hospitals or jails or allowing them to wander the streets, fueling the ranks of the homeless.

Common Ground to operate a crisis and resource center in Pontiac. Sharma said the hospital and Common Ground couldn’t reach agreement because state funding is needed to support hospital-based crisis services. “There is an obvious need. Because this is a totally new idea, there is no mechanism to pay for this,” he said “Our pitch (for state support) is that this resolves a problem (at lower costs) as we are using existing space and existing resources at the hospital instead of having the state build this and staff it from scratch.” Sharma said Pontiac General would spend more than $1 million on the project for 15 to 25 patients, but it would need a state program to reimburse the hospital. Moore said hospitals can open crisis centers without obtaining a state license and operate them as mental health urgent care centers. “You need to staff it appropriately because it requires extensive care when you keep people overnight,” Moore said. “You look at successful programs around the country (where there are) lounge chairs in a large room where people can be monitored by trained professionals who try and de-escalate” mental health issues. Kathleen Kovach, OCHN’s deputy executive director and COO, said an increased number of psychiatric beds will help behavioral health providers find places for people in need. She said using Pontiac General as a crisis center to alleviate hospital ER “boarding” is a good idea but not allowed by the mental health code or Medicaid program. “(Our) conversation focused on the possibility of utilizing service availability at Pontiac General for individuals in emergency departments who were awaiting admission into an inpatient facility,” Kovach said. “While the idea has merit, the proposed model is not a recognized service ... which is proving to be a challenge moving forward.”

Crisis center? Southeast Michigan also has grappled with a lack of mental health crisis centers, an alternative to hospital emergency rooms where patients can be evaluated, stabilized and either sent home or directed to appropriate further care. “We have the resources to do it that would be adjacent to our urgent care center and provide a good resource for the community,” Sharma said. The crisis center could handle up to 25 patients for the 24-hour period allowed by law, he said. “You hear about all these people going to ERs and sitting there for two days,” Sharma said. “There are better places equipped to take care of psychiatric patients for a very short period of time before they’re placed.” Rae said Common Ground and Oakland Community Health Network discussed partnering with Pontiac General to serve as a backup for crisis center overflow. OCHN contracts with

Kurt Nagl: (313) 446-0337 Twitter: @kurt_nagl

Financial turnaround From 2009 to 2015, Pontiac General lost more than $90 million, according to Medicare cost reports. In 2016, the Sharma family acquired Pontiac General after the hospital emerged from bankruptcy proceedings. The Sharmas began hiring staff (increased to 274 from 214), reopening services, rebuilding aging infrastructure and slowly began showing a profit, a feat many didn’t expect. “We have taken all excess cash and borrowed some money to reinvest in the hospital,” Sharma said. “That is for deferred maintenance. Obviously your HVAC system doesn’t (fail) in one year. It was a 30-, 40-, 50-year-old HVAC unit that was not maintained properly. The roof wasn’t in perfect shape when we came in, but we replaced all those things.” Jay Greene: (313) 446-0325 Twitter: @jaybgreene

SAKTHI

Returning to rot?

From Page 1

Sakthi Automotive was deemed the keystone to Detroit’s manufacturing resurgence — garnering photo opps with Mayor Mike Duggan and former Gov. Rick Snyder. Behind the scenes, however, Sakthi Automotive’s owners were battling over control while operations stumbled and financials tanked to the tune of about $1 million in losses per week during the spring and summer of this year. The result was a lawsuit filed by Huntington Bank in March, putting the company into receivership and the loss of its largest customer, General Motors Co. Sakthi Automotive will likely liquidate its assets and shutter operations in the coming months, barring the emergence of a buyer, according to documents filed this month in U.S. District Court in Detroit. Representatives from Sakthi Automotive did not return phone calls on the matter. Representatives from Duggan’s office did not make themselves available to discuss Sakthi Automotive.

Complicated bedfellows Sakthi Automotive was founded as a subsidiary of India-based conglomerate Sakthi Group to strengthen its operations in the U.S. Sakthi is best known for its commercial sugar operations in India as well as a logistics and auto dealership arm. But Sakthi needed a cash infusion to meet customer demand after securing contracts with GM, Ford Motor Co. and Volkswagen AG. It sought a partner. In May 2017, Thailand-based Aapico Hitech Public Co. Ltd. injected $50 million into Sakthi Automotive for a 25.1 percent minority stake in the company and another $25 million in the form of a convertible loan, according to a report from the Bangkok Post. A year later, Aapico boosted its stake to a majority position of 49.99 percent for $25 million and a $40 million loan personally guaranteed by Sakthi Chairman Manickam Mahalingham and then-CEO Lalit Kumar, who also went by Lalit Verma in previous Crain’s reporting. Under the deal, Kumar’s stake was lowered to 10 percent and Mahalingham’s to 40.1 percent. The investment secured greater management oversight over Sakthi Automotive, Yeap Swee Chuan, president and CEO of Aapico, told the Bangkok Post. Prior to the deal, Mahalingham terminated Kumar from the CEO position, placing himself as the top executive. Kumar filed a lawsuit in Wayne County Circuit Court in March alleging shareholder oppression and mismanagement. In that suit, Kumar alleges he was removed as CEO in July 2018 before resigning completely from the company in January. In the complaint, which is still ongoing, Kumar alleges the company performed well, netting a profit of $4.4 million between January 2018 and June 2018 even after discovering “corporate theft” of $4.5 million through a financial review. In a phone call with Crain’s, Kumar said a ring of employees stole equipment from a warehouse and sold it, eventually resulting in an FBI investigation. Kumar also alleges Mahalingham and Aapico grossly mismanaged the company following his departure, alleging a catastrophic loss of $18.9

HAPPIER TIMES: Detroit Mayor Mike Duggan tours the old gym of the former Southwestern High School with Sakthi Automotive Group CEO Lalit Kumar. Sakthi uses the gym as a warehouse for an adjacent manufacturing facility that producers steering column parts for General Motors Co., Ford Motor Co. and Volkswagon AG. | CHAD LIVENGOOD/CRAIN’S DETROIT BUSINESS

million between his termination and the end of 2018. “The other shareholders didn’t understand the business,” Kumar said in a call from London. “These guys started making decisions that were not in the best interest of the company. It was a complete mismanagement.” Neither Mahalingham nor Swee Chuan could be reached for comment. Emails to Sakthi Group in India and Aapico in Thailand received no response. Several calls to Sakthi’s operations in Detroit went unanswered.

The executioner’s tax

A month later, in April, Mark Fischer, GM’s director of supplier financial risk mitigation, began meeting with Sakthi Automotive’s COO in an attempt to right the ship. Sakthi Automotive was projected to lose an average of $877,575 per week between May 3 and July 26, according to financial documents provided by the supplier to Fischer, which was submitted to the court. Sakthi Automotive told Fischer the company required a cash infusion of more than $14 million though July 26 to remain operational, according to Fischer’s statement in the Huntington case. GM had already loaned Sakthi Automotive $9.7 million to keep parts shipping. Sakthi Automotive had already secured a lucrative contract to supply parts for GM’s next generation T1XX platform for the body-on-frame Cadillac Escalade, Chevrolet Tahoe and GMC Yukon SUV. Kumar told Crain’s that Mahaling-

Meanwhile, lenders were not getting paid. In early March, Huntington Bank sent Sakthi Automotive a loan default notice and only weeks later filed its lawsuit in Detroit. Huntington alleged Sakthi Automotive’s losses stem from production inefficiencies, including spending more than $9 million on premium freight to meet customer shipments. SAKTHI AUTOMOTIVE WAS PROJECTED “...the defendants’ ability to TO LOSE AN AVERAGE OF $877,575 PER meet daily operat- WEEK BETWEEN MAY 3 AND JULY 26, ing needs, including payroll is un- ACCORDING TO FINANCIAL DOCUMENTS certain ... PROVIDED BY THE SUPPLIER TO (Huntington’s) line of credit to (Sakthi FISCHER, WHICH WAS SUBMITTED TO Automotive) is THE COURT. near the maximum permitted available amount ... (and) ham and Swee Chuan had removed ... liquidity is impaired due to an in- millions of dollars of Sakthi Automoventory theft,” the Huntington com- tive profits from the firm’s holding company in the U.K. at this point, inplaint said. The complaint also alleges Sakthi stead of investing in operations in the diverted collateral obligated to Hun- U.S. “We needed money to launch the tington and submitted inaccurate fiT1XX platform, but instead they took nancial information to the bank. As of March 22, Sakthi Automotive all the money out of the U.S.,” Kumar owed Huntington $19.1 million in said. By May, Sakthi had stopped paying loans and fees. Other Sakthi lien holders included Punjab National vendors, Fischer told the court. A Bank (International) Ltd.; Chase In- month later Weihai Bethel-Sakthi vest Detroit Fund LLC, the $200 mil- Automotive Safety Systems Co Ltd., lion fund JP Morgan Chase & Co. another joint venture of Sakthi dedicated to investing in Detroit; De- Group, threatened to stop shipping troit Investment Fund LP, Hitachi castings to Sakthi Automotive until it Capital America Corp. and Bangkok was paid $6 million in past-due bills, according to court documents. Bank Public Co. Ltd. By the end of June, Sakthi AutomoThe Chase fund and David Blaszkiewicz’s Detroit Investment Fund tive needed $25 million just to mainloaned Sakthi $2.5 million each in tain operations, Fischer told the court. Huntington, GM and other lenders 2015. Blaszkiewicz did not return texts petitioned the court to put the company into receivership. about the matter.

Gambler’s ruin After months of posturing and legal filings, U.S. District Judge Stephen Murphy appointed a receiver — Kevin English of Lark Advisors LLC — to oversee the finances and operations of Sakthi Automotive in May. By September, Aapico emerged as the stalking horse bidder to acquire the remaining assets it didn’t already own of Sakthi Automotive. A sale was expected to close on or before Oct. 15. However, during the negotiations between Aapico and its customers on how the deal would play out, English attempted to strong arm GM into more favorable terms. English eventually ordered Sakthi Automotive to stop shipments of parts to GM. It’s unclear if that was at the request of Aapico. English did not respond to a request for an interview for this article. The gamble went awry and GM pulled its work — representing 70 percent of all work performed by Sakthi Automotive — and resourced its Sakthi Automotive competitors in the U.S. and China, according to a court document filed on Nov. 1. “GM was forced to move its remaining business from Sakthi Automotive Group USA (SAGUSA) to a new supplier after the court-appointed receiver stopped shipping parts, jeopardizing GM vehicle production and putting additional jobs at risk,” said Nick Richards, GM’s program operations and global purchasing and supply chain communications manager, in an emailed statement to Crain’s. “This was a difficult decision, as GM has spent several months and considerable funds to try and keep SAGUSA as a viable supplier.”

Kumar blames English “Honestly, the receiver is not very smart,” Kumar said. “If you’re smart, you should know that GM was preparing to move its work if you gave them a reason. He gave them a reason and they protected their production. I don’t blame them.” Sakthi Automotive is now largely out of options. With the loss of its largest supplier, continuing operations seems impossible. The receiver will now work with Sakthi Automotive, Huntington and other lenders to “develop a wind down agreement.”

The common thread to Sakthi Automotive’s investment in Detroit was second chances. A year after opening its urban headquarters in 2014, Sakthi Automotive added a 15,000-square-foot plant to its headquarters to supply Ford. In 2015, Sakthi remodeled an 80,000-square-foot dilapidated city site near its headquarters to supply GM. It planned to redevelop the deteriorating Southwestern High School and its football field. Its commitment to hiring parolees garnered the supplier ample attention, including at a groundbreaking ceremony for a new 60,000-squarefoot plant to accommodate manufacturing steering arms for Volkswagen in 2017. “Another year, another expansion, another 200 jobs — and Lalit, we’re going to find you some more room,” Detroit Mayor Duggan told the former Sakthi Automotive CEO. At that time, Sakthi Automotive told reporters in attendance that it currently employed 202 parolees. Sakthi Automotive received incentives to hire parolees through a state program called Community Ventures. “They definitely want a second chance,” Deepak Bhalla, director of purchasing and facilities for Sakthi Automotive, told Automotive News in 2018. “They made a mistake in the past for which they were incarcerated, and then they’re not getting hired by people. We have found that, given the proper opportunity and training and everything, parolees could be good employees. We believe everybody deserves a second chance.” Detroiter Corey Johnson, who got out of prison in June 2016, spoke at the 2017 groundbreaking about how the company gave him a chance after he applied for 35 other jobs. “We need Sakthi Automotives all over America because for us returning citizens, it’s hard (to get a job),” Johnson said. “I know there’s other Corey Johnsons out there like me. Sakthi Automotive has given us a chance.” Chris Gautz, public information officer for the Michigan Department of Corrections, said Sakthi Automotive was instrumental in building support for other businesses in hiring more parolees. “They found great success with hiring our parolees and wanted us to send them more, which we did,” Gautz said. “They were a great employer and one of the early companies in the state to embrace hiring returning citizens as we began to seek employers out.” As for the tax incentives Sakthi Automotive received, the state will likely become just another creditor. Sakthi Automotive received the entire $3.5 million Michigan Business Development Program grant by creating 350 jobs. The MEDC confirmed to Crain’s that the grant included a provision to repay the state if those jobs were eliminated. The supplier’s footprint, however, will be in hot demand, according to Daniel Labes, executive managing director of commercial real estate brokerage firm Newmark Knight Frank. “There is a huge demand to be located in the city of Detroit. We have clients who want to be there,” Labes said. “One of the biggest problems Detroit has faced in the last 30 years is finding good developable property of size. No one needs a quarter acre of land.” Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

NOVEMBER 18, 2019 | CRAIN’S DETROIT BUSINESS | 25

THE CONVERSATION

Weed guys talk green zones, HR and growth as Michigan enters green rush THC I23, STERLING HEIGHTS, and INDICA LLC (Sticky Ypsi), YPSILANTI: Chris Jackson and Anthony Sabatella are cannabis entrepreneurs who are building companies at different ends of Michigan’s green rush. Jackson is co-owner of Indica LLC in Ypsilanti, a state-licensed marijuana provisioning center that does business under the name “Sticky Ypsi.” Sabatella is the founder of THC 123, a backoffice support firm tailored to marijuana growers, distributors and retail stores. Jackson and Sabatella sat down with Crain’s Senior Editor Chad Livengood last month at the 2020 Net Impact Conference at TCF Center in Detroit to talk about how they got into the budding industry and what challenges they see ahead. This interview was recorded for the “Detroit Rising” podcast. | BY CHAD LIVENGOOD  CRAIN’S DETROIT BUSINESS: What’s your background? What did you do before you got into marijuana business? Sabatella: Back up all the way, I was a graduate in 2013 from Alma College in business administration, (with a) concentration in finance, minor in economics. And I might have been the weed guy at the campus. So after there I went and worked at my father’s company, America’s Back Office, which is the engine behind THC 123. And I’m currently our director of risk management and workers’ compensation. ... So I was able to see all of those resources and that opportunity and took a look at my former life and I saw the cannabis industry really needed that back office and that HR support. And from there we decided to create THC 123.  You’re trying to “professional” the potheads, so to speak? Sabatella: Absolutely, that’s what we are. We are professionals.  And Chris, what’s your background? How did you get into this business? Jackson: I hail from Pontiac. I graduated from Hope College. So we beat Alma a number of times in football when I was playing there. I ended up working as a project manager in corporate America for a pretty large corporation. Shortly after that, I moved back to Pontiac, ran for both City Council and state representative. ... Economic empowerment and criminal justice reform were my main platforms ... so it transitioned well in filling a gap for the company I work with now.

Ypsilanti. But we’ve been performing. ... We are incrementally growing but getting what we call vertically integrated as we speak. So that’s when you control the entire process — you manufacture your own plant, can extract oils or process and ultimately sell it at retail. Right now we have our retail location and are under construction for our processing plant (in Mt. Morris, north of Flint).  What type of problems have you run into trying to get into an industrial space? Jackson: Oh, my goodness. ... Some areas like Mt. Morris say, ‘Hey, here’s a green zone. You can only operate within a certain space.’ ... The main issue that we have is that once people find out that their building falls within the green zone, prices go way out of control. If you look at downtown Pontiac right now ... so many buildings are held up for the potential of a provisioning center, it’s almost impossible for anyone to get a good rate that is in any industry outside of the cannabis industry.

getting your foot in the door to sell your services? What’s the pitch? Sabatella: The pitch is the need for the cannabis industry to take a strong look at HR because (Chris Jackson’s) operation is just going to be a building with some plants in it if he doesn’t have the people. We’re really looking and showing business owners the need to dive down, take care of the people that are really taking care of the people to really retain that top talent to keep their business growing and to keep it on pace for the large industry growth that’s about to take place.  As we get closer to recreational marijuana sales starting in December, what are some of the issues that are going to emerge as the industry is getting its legs? Jackson: There’s a shortage of flower in the industry right now. It takes six to eight months to drop your first crop.

Then it has to be tested and meet certain testing standards. We’re doing OK, but the goal for now is just to stay alive. Because some only have a couple of strains on their shelf.  Chris, what trend should we watch for in the cannabis industry? Jackson: The interesting thing is going to be the micro business license. It’s going to be a new type of license where it’s essentially going to be like craft breweries, but for the cannabis industry. You’ll have an all-in-one opportunity to not only be the (retail) outlet, but manufacture a small amount of plant and extract oils... You’ll see a lot more of those popping up, I think, in the very near future. I’m interested to see how that plays out. Chris Jackson (left) is a co-owner of Sticky Ypsi, and Anthony Sabatella is owner of THC 123.

 Anthony, your business is really a business-to-business operation for these emerging companies like Sticky Ypsi. How are you

 So tell me a little about your operation you run in Ypsilanti right now. Jackson: We run a provisioning center. It’s called Sticky Ypsi in Ypsilanti. So we’re one of many in a saturated Ann Arbor-

HEAR THE ENTIRE INTERVIEW ON CRAINSDETROIT.COM/CONVERSATION

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26 | CRAIN’S DETROIT BUSINESS | NOVEMBER 18, 2019

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