Crain's Detroit Business, Dec. 7, 2015 issue by Crain's Detroit Business

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CRAIN’S Readers first for 30 Years

DETROIT BUSINESS

New look at downtown Dearborn

Tens of millions in projects target city’s two downtowns, PAGE 3

DECEMBER 7-13, 2015

Blue Cross sets plan to trim $300M by 2018 Cost cuts could include layoffs, insurer says cuts over the next several weeks. Blue Cross officials confirmed Blue Cross Blue Shield of Michigan that the initiative could lead to plans to cut $300 million in expens- more layoffs and staff reductions es by 2018, which could lead to an from attrition. unspecified reduction in employees Andy Hetzel, vice president of and contractors, according to corporate communications with records obtained by Crain’s. Blue Cross, said the comLayoffs of 25 employees pany is conducting an onand three contractors last going business review of month in the Detroit-based operations, as it has done company’s health care regularly since Dan Loepp value division were just the became CEO in 2006. first part of what it is calling “We are at the starting a “strategic business transgate of the process to beformation” as customers come more efficient,” HetAndy Hetzel: “We zel said. “Dan Loepp has push it to lower costs. Documents shown to are at the starting been very transparent employees and obtained by gate” of a push to about what that includes, Crain’s show that the Blue be more efficient. where the best people Cross plan targets rising need to be and where our administrative costs — costs up to strategy needs to be in three years.” 30 percent higher than those at naMath points to staff cuts tional insurers and other competing Outside experts told Crain’s that plans in Michigan, according to one it is highly unlikely Blue Cross can Blue Cross report. Sources inside Blue Cross told cut $300 million in costs, which Crain’s that more layoffs are coming would amount to about 10 percent as division department heads review SEE BLUES, PAGE 26 employee needs and potential cost By Jay Greene jgreene@crain.com

AUTO SHOW BY THE NUMBERS DUSTIN WALSH

Workers discuss plans for Ford Motor Co’s nearly 50,000-square-foot displays at the North American International Auto Show in Cobo Center.

Talk of the show As car connectivity evolves, NAIAS wants attendees to get interactive By Dustin Walsh dwalsh@crain.com

s cars edge ever closer to talking and even thinking for themselves, the North American International Auto Show is evolving to match. Technologies such as autonomous driving and connectivity are playing a more critical role in the auto show itself. Exhibitors, booth builders, media companies and show organizers say this year’s event, the 28th since the NAIAS became an international showcase, is designed to give attendees the “experiential” treatment. The new additions for 2016 even include a relationship with social media giant Twitter Inc. and coverage by tech website CNET.

“We realized with cars now being synonymous with technology, and connectivity, we had to get in that game, too,” said Rod Alberts, executive director of NAIAS and the Detroit Auto Dealers Association. “Everything we’ve done this year, and it’s a lot, is changing with the times.” With roughly 70 percent of the automaker displays newly designed for NAIAS 2016, the technology efforts are critical additions, Alberts said. Auburn Hills-based event and brand marketing firm George P. Johnson Co. designed roughly 40 percent of the displays for NAIAS 2016. Paul Hemsworth, vice president and executive creative direc-

NEWSPAPER

crainsdetroit.com Vol. 31 No 50

䡲 $425 million to $430 million in economic impact

䡲 More than 40 worldwide car debuts

䡲 More than 400,000 square feet of raised flooring

䡲 Show takes 12 weeks to install and two weeks to break down 䡲 More than 5,000 credentialed members of the media from 60 countries to attend

䡲 More than 750 vehicles will see the show floor

䡲 Total weight of attendees at the Charity Preview =

8.4 million pounds

tor at GPJ, said the concept of brand awareness has transformed and tech trends have changed the way companies interact with auto show attendees. “Everyone (clients) has different requirements and budgets, but what they all want is to create an intimate level of interaction with the nearly million visitors at the show,” Hemsworth said. “Technology has been a big aid in meeting those demands and creating something that goes beyond brand awareness to some$2 a copy. $59 a year. thing experiential for the show attendees.” For GPJ’s largest client, Fiat Chrysler Automobiles NV, the firm created specialized media content as well as a significant investment to turn the automakSEE AUTO, PAGE 28

Crain’s Best-Managed Nonprofit

The Detroit Zoological Society‘s commitment to green initiatives made it the winner of this year’s Crain’s Best-Managed Nonprofit contest. Pictured is zoo Director Ron Kagan outside the new, sustainably designed Cotton Family Wolf Wilderness. For more about the winner and finalists, see Pages 11-15.

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MICHIGAN

BRIEFS Northern Mich. ski areas resort to piping in fake snow Even if Mother Nature yields little or no snow, many of Northern Michigan’s ski areas can create enough of the white stuff to placate guests, thanks to major investments in snow-making equipment. Even in a region known for plentiful natural snow, the machines routinely play a major role in covering the slopes. “The lion’s share of snow you see at ski resorts, at least in Michigan, is of the man-made variety,” Randall Sutton, area manager at Boyne Mountain Resort in Boyne Falls, told the Petoskey News. In addition to human effort, snow-making involves water, electricity and compressed air — and many resorts typically have an onsite pond as a snow-making reservoir, with water pumped in from several wells. Some of the region’s larger ski operators, including Boyne and Harbor Springs-based Nub’s Nob , use snow guns, enabled by extensive networks of water pipes, which incorporate their own patented designs and are assem-

bled in-house. “If you were to take an X-ray of the ski area, you would find there are enough pipes to outfit most communities in our area,” Boyne Mountain President and General Manager Ed Grice told the News.

Senate OKs tax incentives to benefit data center plan The state Senate last week narrowly approved lucrative tax breaks designed to guarantee that a major Internet data center developer chooses Michigan as the site of its first mega-campus in the eastern half of the U.S. The fast-tracked bills, passed 2115 by the Republican-led chamber over objections from critics of targeted tax incentives, are needed for Las Vegas-based Switch to locate a facility near Grand Rapids, The Associated Press reported. The House could pass similar measures this week, setting the stage for final voting. The legislation would fully exempt Internet data centers and their clients from 6 percent state sales and use taxes on servers, computers and

other equipment for 15 years. They also would not have to pay property taxes on business equipment for 10 years, unless local governments object. Supporters say the tax breaks are essential to make Michigan competitive with at least 22 other states offering incentives to a flourishing cloud-computing sector.

MICH-CELLANEOUS 䡲 Grand Rapids-based law firms Varnum LLP and Law Weathers LLC

plan to merge Jan. 1, MiBiz reported. Varnum’s seven offices are in Detroit, Novi, Ann Arbor, Grand Rapids, Kalamazoo, Grand Haven and Lansing. Law Weathers, the oldest law firm in Grand Rapids, also has an office in Hastings. 䡲 A top researcher says it’s still too soon to drink Flint’s tap water unfiltered, Michigan Radio reported. Virginia Tech University researcher Marc Edwards, who has been studying the city’s water problems for months, said tests conducted by his team on water samples from more than 250 Flint homes still showed elevated levels of lead. The tests are tracking what’s happened in the six weeks since Flint switched back to Detroit water, after 18 months of getting tap water from the corrosive Flint River. 䡲 Grand Blanc-based Serra Automotive announced the addition of seven franchises and three dealerships with the purchase of three Traverse City-area dealerships. The

dealership acquired Cherry Capital Cadillac-Subaru , Traverse Motors Audi-Toyota Volkswagen and Traverse City Auto Plaza, which offer the Nissan and Volvo brands. Serra Automotive now includes 52 automotive franchises and 34 dealerships in seven states. 䡲 The UAW, fresh off its newly ratified labor contracts with the Detroit 3 automakers, said it reached a tentative deal with Saginaw-based steering parts supplier Nexteer Automotive , Automotive News reported. Details of the deal were not immediately known. About 3,200 UAW workers are employed by Nexteer, which is owned by Chinese investors Pacific Century Motors, which gained control of the company in 2010 after General Motors sold it. 䡲 Michigan’s largest utilities, Jackson-based Consumers Energy and Detroit-based DTE Energy , suspended an appliance recycling pro-

INSIDE THIS ISSUE BANKRUPTCIES . . . . . . . . . . . . . . . . . . 6 DEALS & DETAILS . . . . . . . . . . . . . . . 23 CALENDAR . . . . . . . . . . . . . . . . . . . . . . 23 CLASSIFIED ADS . . . . . . . . . . . . . . . . 25 OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . 8 OTHER VOICES . . . . . . . . . . . . . . . . . . . 8 PEOPLE . . . . . . . . . . . . . . . . . . . . . . . . . 24 RUMBLINGS . . . . . . . . . . . . . . . . . . . . 30 WEEK ON THE WEB . . . . . . . . . . . . . . 30

COMPANY INDEX: SEE PAGE 29 gram after a company picking up old refrigerators suddenly closed, The Associated Press reported. JACO Environmental picked up old appliances and paid utility customers, typically $50 for a refrigerator or freezer, but financial problems forced the Seattle-area company into receivership two weeks ago. 䡲

Corrections 䡲 Mary Kramer’s Nov. 30 column, “UAW vote offered lesson on social media,” should have said that Patrick Doyle was president of Domino’s Pizza in 2009, not CEO. He succeeded David Brandon as CEO in 2010. 䡲 Charter One Bank, Southfield, No. 10 on Crain’s Largest Banks in Michigan list in the Nov. 23 edition, should have been listed under its rebranded name of Citizens Bank . Its Michigan president is Richard Hampson. An incorrect name was listed. 䡲 A guest column by Tel Ganesan on Page 9 in the Nov. 30 edition misspelled his first name. Also, the column contained an incorrect dollar figure. It should have read, “A four-year increase in defense-related purchases hovering around $13 billion …”

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“Dearborn has a lot of great assets on hand and a great platform to build on.” John Petz,directorofreal estate and public affairs,Domino’s Farms Corp.

WSU med school maps out remake On list: Hiring freeze, push for research grants By Jay Greene jgreene@crain.com

PHOTOS COURTESY CITY HALL ARTSPACE

Among the projects in west Dearborn is the $16.5 million CityHall Artspace,which will renovate the former government center.

DEARBORN’S LOFTY PLANS City’s 2 downtown districts push for development By Kirk Pinho kpinho@crain.com

Dearborn isn’t Detroit, or Royal Oak, or Rochester. But it is facing the common conundrum of attempting to create a more lively suburban downtown experience for people who work or live nearby. Both of Dearborn’s two distinct downtown business districts are poised for a new wave of invest-

ment and mixed-use development as several vacant or underused sites are on deck for new investment. That’s in addition to at least $50 million in new recent development and a redevelopment push in the city’s two downtown districts, according to economic development officials. Developers and planners are seeing the city’s large institutions like Ford Motor Co., University of Michigan-Dearborn and Henry Ford College as hotbeds for young talent that would fill the more than 200 apartment units

nearing completion or in planning for downtown, said Cristina Sheppard-Decius, executive director of the West Dearborn Downtown Development Authority. “We have a lot of people working for Ford and they want to be able to bring in people and get them to live locally in the area,” said Sheppard-Decius, the former executive director of the Ferndale DDA who accepted the Dearborn job in August. Couple that with the new $28 million John D. Dingell Transit Cen ter just outside of west downtown, and you have the seeds planted for a more transit-oriented and walkable downtown, she said. In addition to the new development in east and west downtown Dearborn, dozens of businesses — from Dearborn Brewing LLC and Paint and Pour in west downtown to Green Brain Comics, Stormy Records Inc. and Dream Fashion LLC in east downtown — have also open or undergone rehabs since January 2014 in the two districts. SEE DEARBORN, PAGE 27

The 56 units planned for City Hall Artspace aim to create live/work space for creative workers and their families.

MUST READS OF THE WEEK On alert for fraud

Croissants to cupcakes:

State gets new tools, new emphasis in push to clamp down on unemployment fraud, Page 17

The bakery business has evolved, but what hasn’t changed is that eaters are fickle, Page 4

A $29 million loss at Wayne State University’s School of Medicine and its affiliated faculty group practice will mean a hiring freeze and a push to bring in more money at the school and the medical practices that help pay its faculty’s salaries and fund ongoing projects. The top-to-bottom restructuring will mean fewer employees, though no layoffs are planned. The school and medical practices will also push to improve billing, collections and communications at the affiliated groups, and press researchers to bring in more grant money. Last week, Jack Sobel, M.D., dean of the medical school, gave a 90minute presentation to staff members that outlined the losses and dire financial condition of the school, the Wayne State University Physician Group and the Fund for Medical Research and Education . FMRE collects funds from Universi-

School of Medicine’s dean sees opportunity amid the challenges, Page 8.

ty Physician Group and the four independent faculty practice plans that help subsidize medical school salaries and benefits. “We have a critical and serious problem,” Sobel said in the Nov. 30 town hall meeting video. “Most (private) companies (in this situation) would declare bankruptcy. As a university, we can’t do that.” In May, Wayne State President M. Roy Wilson, M.D., “sounded the alarm” on mounting financial problems, said Sobel, noting that the medical school “has a burn rate of $1.5 million” in losses per month that the university has been helping to cover. By mid-June, Wilson hired David Hefner as vice president of health affairs for the university. Hefner, SEE WSU, PAGE 29

Zilko looks to move fast with Fuel investment By Tom Henderson thenderson@crain.com

Dave Zilko has swapped the food business for the Fuel business. Zilko, who was co-chairman of Garden Fresh Ferndale-based Gourmet last June when it shocked the business community by announcing it had been sold to a division of Campbell Soup Co. for $211 million, has led an investment of $2 million in Fuel Leadership LLC, a Detroit-based company founded last February by Josh Linkner to hold leadership conferences around the country. The idea? To become the leading brand in the crowded field of such conferences. And Zilko certainly has a track record for growing a brand. In January, with his six-month consulting contract with Campbell Soup having expired at the end of December, Zilko will become CEO of Fuel, in charge of day-to-day operations.

TOM HENDERSON

Dave Zilko (left) and Josh Linkner are teaming up to build a business from leadership conferences. Fuel co-founder Jordan Broad, who had been CEO, will be president and COO. Linkner will remain chairman of Fuel and will continue his extensive speaking career. Linkner said he will SEE ZILKO, PAGE 27

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Changing tastes build appetite for specialty baked goods LOOKING BACK: Thirty years ago, croissants were trendy pastries in metro Detroit. More recently, cupcakes have had a flavorful following. But, as local specialty bakedgoods companies have found, changing consumer tastes can turn sweet stuff stale. More at crainsdetroit.com/30

By Sherri Welch swelch@crain.com

In December 1985, demand for croissants was on the rise. Jacques Patisserie Inc ., the largest croissant chain in the region, with five shops and $1.2 million in sales three years in, was looking to expand with new stores and franchises. Demand for the pastries was also sweetening sales for competitor C’est Si Bon, accounting for about 50 percent of sales at its two Detroit bakeries, Crain’s reported at the time. And French bakery/café chain Michel’s Baguette , which operated stores at Novi’s Twelve Oaks Mall, Eastland Mall in Harper Woods and Dearborn’s Fairlane Center, was selling 500-600 croissants each day at the Fairlane location alone. The pastries accounted for about 20 percent or more of the Dearborn store’s $500,000 in sales its first year. Even Burger King was getting in on the craze with its launch in spring 1985 of Croissan’wich breakfast sandwiches.

But what’s sweet today may be stale tomorrow. Within six years, Jacques Patisserie and Michel’s Baguette had closed. And C’est Si Bon was purchased and absorbed by Sanders Candy, which itself was acquired by Morley Brands LLC in 2002. It’s a reality that specialty baked-goods companies have learned over the years: Consumer tastes are fickle. More recently, Livonia-based gourmet cupcake retailer Just Baked Cupcakes LLC learned a similar lesson. Within six years of its 2008 launch, Just Baked grew to 21 locations in Michigan and Ohio, offering more than 40 varieties of gourmet cupcakes in flavors like Grumpy Cake and key lime. In 2011, it attracted investment

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cult for customers to rationalize spending $3 or more on a single cupcake when they could easily make a dozen for that price at home. There are still some cupcake R&E Development. businesses that are growing, but It took six or seven months to re- that’s because they offer something alize that wholesale, where Garden different from their competitors, Fresh focused, “wasn’t our spot in Hallow said. They include Beverly the world” because of the lower Hills, Calif.-based Sprinkles Cup profit margins, Just Baked founder cakes , which dispenses fresh cupcakes 24 hours a day from “cupcake Pam Turkin told Crain’s last year. Just Baked subsequently began ATMs,” and Houston-based Small cakes Cupcakery, which pomoving into a lower-cost sitioned itself as a dessert retail strategy, opening store by adding an ice mall kiosks in lieu of standcream line. alone stores. But its inSpecialty bakery convestors didn’t favor the apcepts can still exist if they proach, “so we never had can diversify their menu the opportunity to really with complementary see how the project would items (e.g., coffee and pan out,” Turkin said in an Pam Turkin: Just doughnuts, ice cream and email last week. In January, Just Baked Baked just couldn’t cupcakes) or offer something “so unique and closed all its stores, leaving keep up with craveable that customers only a handful of franchise growth. will go out of their way to locations. Then, in August, it sold most of its assets — including purchase it,” Hallow said. trademarks, recipes and the rights Retail and wholesale to franchise future locations — to Achatz Handmade Pie Co. , which Roseville-based Tubby’s Sub Shops Inc. , which plans to offer the cup- has sold fresh pies to consumers for cakes in Tubby’s locations. 22 years, has found another recipe Turkin said it was hard for her for success: selling into both the resmall bakery to keep up with the tail and wholesale markets. It began growth. As in any business there are selling fresh pies wholesale as it was cycles, and like others, Just Baked opening retail stores, said Wendy had run through its cycle. Achatz, who founded the company But the business “was such a with her husband, David. The comgreat ride from an entrepreneurial pany operates seven stores locally. standpoint that it is hard for me to “The difference between Achatz look back on it with anything but and Grand Traverse Pie Co . or Just Baked is that we’re going in the gratitude,” Turkin said. “In hindsight, I would have done same direction as them, opening many things differently. That is how new locations and franchising — we grow by taking those lessons and but we’re also going in a wholesale direction,” Wendy Achatz said. “We moving forward.” After the store closures, Turkin certainly wouldn’t be able to pay the said, she received many letters from overhead in our bake house with other entrepreneurs, telling her to just those seven shops.” The company, which makes 89 pay attention to the mistakes made, and she would rise a better business varieties of pies, began driving its creations to high-end wholesale cusperson. “At the time, that seemed impos- tomers such as Kruse & Muer Restau sible to me; but today, I have a different view,” she said. “Everything happens for a reason; you just need to find the reason.”

and expertise from Garden Fresh Gourmet . The plan was to take Just Baked into grocery stores, but Garden Fresh sold its stake in the cupcake business in 2013 to Ryan and Eric Goodman of Royal Oak-based

rants and Merchant of Vino , Achatz said, to supplement its revenue when business was slow at its stores. Whole Foods’ 1997 purchase of Merchant of Vino was what “really catapulted us to the next level,” she said. About eight years ago, when it moved into a large bake house in Chesterfield Township, Achatz also began selling private-label frozen pies. Its largest customers for those today include Whole Foods, Kroger Co. of Michigan and the 90-store Wegmans grocery chain based in Rochester, N.Y., Achatz said. Today, Achatz Pies’ $10 million in annual revenue is evenly divided between retail sales, wholesale Achatz-branded fresh pies and wholesale private-label frozen pies. Last year, the couple sold the Achatz franchising rights for an undisclosed amount to investors Kevin Sirois, COO of The Handmade Pie Co. LLC. ; his father, Keith Sirois, CEO of Warren-based Big Boy Restaurants International; and David Crawford, Big Boy senior vice president for marketing. As part of the deal, Achatz said her company will supply pies to the new franchises. She and her husband reserved the right to open more stores themselves, “but I don’t think we will,” she said, noting it’s tough to manage retail, baking and wholesale operations effectively at the same time. “Should we sell off the pie shops and just focus on manufacturing?” she said. “The strength of having those shops is instant cash flow every day, money going in the bank to pay the bills.” It’s nice to be able to sell a pie at retail for $18.99 versus selling a wholesale pie for $6, she said. And managers at each of the couple’s existing stores are now overseeing operations at each. Customers may be more inclined to pick up a pie rather than bake their own given that they are timeconsuming to make, Hallow said. Pies are also a nostalgic dish, “and Achatz Pies taps into that nostalgia by promoting it makes pies the old-fashioned way,” with recipes passed down through the generations, she said. 䡲 Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

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Cupcake businesses were very popular for a time, but most ultimately don’t succeed, said Lauren Hallow, associate editor, concept analysis for Chicago-based food research firm Technomic Inc. , in an email. A high-profile example was New York-based Crumbs Bake Shop Inc. , which went public in 2011 and was out of business three years later. The reason? Cupcakes are a special-occasion business, which means people don’t frequent cupcake businesses every day, she said. And it becomes diffi-

NATHAN SKID

Although AchatzHandmade Pie Co.has a significant retail presence,“we certainly wouldn’t be able to pay the overhead in our bake house with just those seven shops,” founder WendyAchatzsaid.Wholesale business helps fill the void.

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UM hires search firm to help find athletic director By Bill Shea bshea@crain.com

The University of Michigan will rely on an executive search firm owned by an alumnus with deep local connections to aid its quest for a permanent athletic director. UM President Mark Schlissel said last week that the university has hired Turnkey Sports , the executive search wing of Haddonfield, N.J.based Turnkey Sports & Entertain ment Inc. , to assist in finding and vetting candidates to become the 11th athletic director in the department’s 150-year history. Turnkey was founded in 1996 by

Len Perna, who earned a bachelor’s degree in 1982 and law degree in 1985 from UM. He’s a Michigan native and graduated from Brother Rice High School. The firm declined to comment. Perna, 56, has another local connection: He was executive director of the Detroit Tigers , Detroit Red Wings and Olympia Entertainment from 1988 to 1994, according to his LinkedIn profile and other online biographical materials. He was responsible for managing all marketing deals, licensing, media and new business development for teams and entertainment

business owned by Detroit’s Ilitch family. Perna’s sports industry bona fides are lengthy: His last job before launching Turnkey was as Len Perna: UM senior vice presigrad founded dent for operaTurnkey Sports. tion (and general counsel) for the National Hockey League’s Dallas Stars, a tenure that included construction of the $420 million American Airlines Center, which opened in 2001.

He’s a graduate of New York Uni versity ’s sports executive training programs, and has a master’s degree in sports administration from Ohio University. Before launching his firm, he worked as a lawyer at Hawkins De lafield & Wood LLP in New York City for clients such as ESPN and ABC ’s Capital Cities. Turnkey clients have included Detroit’s pro sports teams, and a slew of leagues, teams, stadiums, companies, organizations and events nationally. The company says it has done more than 500 executive searches. The firm’s other professional

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services portfolio includes data analytics, surveys, business intelligence and marketing consulting. Turnkey Search’s website lists active job candidate searches for chief revenue officer for the NHL’s Anaheim Ducks; CEO of U.S. Masters Swimming; director of food and beverage hospitality for Major League Baseball’s Milwaukee Brewers; and sponsorship organizational strategist for Citigroup Inc. For UM, Perna will help Schlissel and an internal search committee find a replacement for Jim Hackett, who has been interim athletic director since November 2014. Hackett replaced David Brandon, who resigned under pressure on Oct. 31, 2014. Hackett has said since taking the job that he wouldn’t be a candidate for the full-time position. The AD reports directly to the university president, who hires the position but must get contract approve from the board of regents. UM is asking for resumes to be submitted by Jan. 4, but said there is no specific timetable to make a hire. “I will take as long as necessary to make sure it is a great fit for what I think is the best opportunity for an athletic director in the country,” Schlissel said. The AD oversees a $151 million budget and 900 student-athletes across 31 teams, with a departmental staff of 350. Schlissel specifically asked Turnkey to devote “considerable effort” into ensuring a broadly diverse pool of candidates, UM said. Turnkey’s lead consultants on the search will be Perna and Gene DeFilippo, senior executive director at Turnkey and former athletic director at several schools including Boston College , Villanova University and the University of Kentucky. UM said it is paying Turnkey $150,000 plus expenses. The university used Los Angelesbased search firm Korn/Ferry Inter national to find former football coach Brady Hoke and Brandon. Hackett, a UM football player in the 1970s who retired last year after 20 years as CEO of Grand Rapidsbased furniture giant Steelcase Inc., was hired to oversee the athletic department after Brandon resigned. Hackett’s tenure likely will be remembered for hiring Jim Harbaugh as football coach at the end of 2014. The university noted that Hackett’s other accomplishments include a $169 million apparel and equipment contract with Nike Inc. , and contract extensions for basketball coaches Kim Barnes Arico and John Beilein. 䡲

BANKRUPTCIES

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The following business filed for protection in U.S. Bankruptcy Court in Detroit Nov. 20-Dec. 3 . Under Chapter 11, a company files for reorganization. Chapter 7 involves total liquidation. General Test & Automation Group Corp. , 51446 Danview Technology

Drive, Utica, voluntary Chapter 7. Assets and liabilities not available. Natalie Broda

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This exhibition has been organized by the Rubell Family Collection, Miami. Funding for Free First Weekends has been provided for visitors by the Ford Foundation and the John S. and James L. Knight Foundation. Support for the exhibition has been provided by the Friends of African and African American Art and DTE Energy Foundation. Additional support has been provided by MGM Grand Detroit, Dickinson Wright PLLC, Richard and Jane Manoogian Foundation, Siebert Brandford Shank & Co., L.L.C., Reuben & Cheryl Munday, The Skillman Foundation, Lorna Thomas, M.D., P.C., BLAC Detroit Magazine, Comerica Bank, Michigan Roundtable for Diversity and Inclusion, Global Automotive Alliance, Roy S. & Maureen Roberts, Mark & Tiffany Douglas and Avis Ford, St. John Providence, Fifth Third Bank, Greektown Casino, U.S. Trust, and other generous supporters. Image: Bird On Money (detail), Jean-Michel Basquiat, 1981, acrylic and oil on canvas. Courtesy of the Rubell Family Collection, Miami

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CRAIN’S DETROIT BUSINESS

OPINION MEGA mess lesson for future credits T

he MEGA tax credit mess is close to being cleaned up. Fiat Chrysler and Ford have agreed to a cap on the maximum amount they can claim and also agreed to make additional investments in Michigan in order to claim them. The administration is in talks with General Motors. FCA’s credits were valued at an initial $1.3 billion in 2010, but rose to nearly $2 billion. It agreed to a cap of $1.7 billion. Ford agreed to a $2.3 billion cap this summer. Its incentives were valued at just over $900 million in late 2010. GM’s credits were originally valued at $2.1 billion. The moves will help restore more stability to state budget forecasting, an issue the state has been wrestling with as credits granted a number of years ago kept rising in value and it couldn’t be predicted when they would be used. The result has been unexpected state budget cuts, due in part to high credit usage. The lesson in all this seems clear to us: Incentives, used judicially, can help spur economic development. But they need to be structured in a way to avoid unintended consequences.

U.S. needs to commit on plazas Michigan’s U.S. senators and U.S. Rep. Candice Miller are pushing the Obama administration to budget for the yearsdelayed expansion of the Blue Water Bridge’s customs plaza. The land was cleared more than a decade ago for the $165 million project. The delay has meant lost tax revenue and also has irritated Canada. In a meeting with St. Clair County officials earlier this fall, representatives of the Canadian government wondered whether promised funding for a $250 million plaza at the Gordie Howe International Bridge in Detroit can be counted upon, given the years’ delay in funding the Port Huron project. The federal government needs to live up to its commitments on both of these projects.

OTHER VOICES

WSU medical school will meet challenges s you may have read in Crain’s, State University School of Medicine, the Wayne State University Physician Group, the School of Medicine’s clinical practice plan, and the Fund for Medical Education and Research are addressing a difficult financial situation. The article described the magnitude and causes of the financial deficit, but it gave only slight reference to what we feel is the most important part of this story — the opportunity presented by this situation. Einstein once said, “In the middle of difficulty lies opportunity.” We agree. Like many challenges, our current situation provides us a golden opportunity to evolve with the complex and ever-changing health care landscape, and create a new interprofessional model of health care that will revolutionize medical education and health care delivery. As physicians, we approach problems of health systematically. When we see a patient, we listen and observe to understand symptoms, develop a preliminary diagnosis, test this diagnosis with scientific data, develop a treatment and restore the patient to health. We tend to approach most problems in a similar manner. This is a complex issue that we discovered through our own diligence. Symptoms of “illness” were present, but for years went unattended or were masked by success. The arrival of Wayne State University President M. Roy Wilson, howev-

Athe Wayne

OTHER VOICES: Dr. Jack Sobel Jack Sobel is dean of the Wayne State University School of Medicine and vice chairman of the University Physician Group’s board of directors. The plan: A top-to-bottom restructuring that will mean a hiring freeze and a push to bring in more money, Page 3.

er, prompted a new approach. As a renowned surgeon and researcher with deep experience in medical schools and hospital systems, President Wilson saw underlying symptoms that went unnoticed, and moved quickly to examine the issue. The financial deficit in question was discovered after President Wilson appointed David Hefner vice president of health affairs in June and had him conduct a thorough, systemwide analysis. This triggered a deeper analysis to verify the financials, and examine the processes and practices that led to this deficit. This “diagnosis” was quickly shared with stakeholders of the School of Medicine and WSUPG, and already work has begun to “heal the patient.” This is a serious issue, and resolving it will require tough deci-

LETTERS

Support medical marijuana regs Editor: Michigan policymakers have an opportunity to establish a responsible regulatory framework for medical marijuana, which will provide much-needed certainty for businesses and communities, protect patients and prevent unfair monopolies that shut out state entrepreneurs. In November, Ohioans rejected a ballot measure to legalize marijuana that would have given 10 entities exclusive rights to grow marijuana in the Buckeye State. Michigan’s Legislature is considering medical marijuana proposals that would prevent monopolies from controlling the market. Michigan’s proposal caps the number of plants a grower can cultivate to 1,500. Businesses can hold five licenses, no more. All businesses must play by the same set of rules, to be enforced rigorously by a state agency that will track all products from seed to sale, license businesses and conduct background checks. These safeguards not only ensure good business practices and keep out bad actors, but they also level

Send your letters: Crain’s Detroit Business will consider for publication all signed letters to the editor that do not defame individuals or organizations. Letters may be edited for length and clarity.

Email: cgoodaker@crain.com

sions and significant changes. But it will be resolved. How can I be so confident? First, Wayne State University’s School of Medicine was founded in 1868 — nearly 150 years ago. Woven into its DNA is an aspiration for excellence, an ethic to push the boundaries of healing and discovery, and a calling to serve. This DNA has helped us develop a model of urban clinical excellence, and a strong foundation upon which to build. Second, under the leadership of President Wilson, this unique mission of urban clinical excellence has been re-energized. An operational culture once mired in tradition and leaning on past success is quickly being transformed into one of transparency, accountability, collaboration and productivity. There is a new urgency and a new enthusiasm in the School of Medicine. We are mission-focused and confident that we will achieve our vision. We have no illusions that this will be easy. But we have begun in earnest. We are working extremely hard to accelerate our progress toward a School of Medicine that meets the demands of today’s — and the future’s — medical environment — one that better prepares a diverse body of students and residents to be top doctors, one that provides patients with the best possible care and one that pushes the boundaries of research on behalf of medicine. We are “healing,” even if the regimen for rehabilitation is challenging. 䡲

TALK ON THE WEB Re: Senate OKs some retired teachers to return with pension They drove all the teachers out. They created the shortage. They destroyed the occupation so no one wants to work as a teacher. We have the thirdhighest-paid state Legislature in the country. It is time to make them part time. Willow

the playing field so small family operations can compete fairly. They protect patients, while providing clear direction for local communities and promoting public safety. Additionally, Michigan’s medical marijuana framework will raise revenue for critical public services such as law enforcement and help fund Michigan’s roads. Voters hate monopolies. They want small business to get a fair shake and compete. Michigan’s medical marijuana proposals will spark local entrepreneurship and provide common-sense safeguards that can protect patients and support local businesses. Willie Rochon Secretary, Michigan Cannabis Development Association Owner, Michigan Wellness Group, Detroit

Re: Four get $325,000 from Entrepreneurs of Color Fund I am extremely pleased to see the new opportunities coming to persons of color in Detroit to obtain financial assistance for their businesses. The lack of access to capital has long been one of the many exam ples of “structural racism.” Kurt Metzger

Re: Development planned for part of Hazel Park Raceway site There is a shortage of green space in the area. Why not a public park? I feel that there needs to be long-range views of property use and what is truly needed for a better life for local residents. BigDan

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Quarton Partners merges with German investment banker By Tom Henderson thenderson@crain.com

Quarton Partners LLC, an investment banking firm based in Birmingham, has merged with a German investment banker to help make more and bigger deals globally. Quarton and Munich-based Blue Corporate Finance have formed a holding company, Quarton International AG, which will be based in Switzerland for tax and legal purposes. Quarton co-founder Andre Augier said the companies funded the holding company equally, and each will have two members of the fourmember board. There will be no CEO at the holding company, and each partner firm will continue to operate out of its current headquarters. Augier will be chairman and CEO of North American operaAndre Augier: tions, and coAllows tackling founder Robert larger transactions. Parker will be president. Quarton has 14 investment professionals operating out of the Birmingham office. Blue has 36 in Munich; Berlin; Leipzig, Germany; Graz, Austria; Zurich; and London. Quarton has focused on industrial, distribution and business service companies, typically doing 15 deals a year with an average transaction value of $65 million to $75 million, Augier said. He said Blue does about 20 deals a year, of a similar size, with an added focus on information technology and health care. “They have expertise in fields we don’t, and this allows us to tackle larger and more complicated transactions,” Augier said. “We’re looking for more access in Europe, and they’re looking for more deals in the U.S. And it’s important for us to say, ‘We have a partner in Zurich.’ ” “This doesn’t make Detroit New York, but it’s a source of pride to Andre and I to create a firm of this reach right here,” Parker said. Parker said the two companies have been working on the deal Robert Parker: for a year. Source of pride to He said it locate in Detroit. made sense to brand the holding company with the Quarton name because it is an established brand in the U.S., the largest M&A market in the world. “The M&A market in the U.S. is spectacular right now,” Augier said. He said that despite the U.S. dollar having strengthened, which means it takes more euros to do a deal here, now, the strength of the U.S. economy compared with Europe’s still makes this an attractive market for overseas buyers. Other local investment bankers praised the merger.

“This is important news, and it’s a great thing for the investment community here,” said Rajesh Kothari, managing director of Southfieldbased Cascade Partners LLC. “This is a global marketplace. Having resources that help them get better access to deals and companies is a good for Quarton, and it’s good for the marketplace as a whole. As more folks from Europe look at deals here, and vice versa, it might drive deal multiples, but more important, it helps you find the best strategic partners and the best fit.” “The reality is, every middle-market firm like theirs and ours has to

have a global footprint. You have to have a global view of who the potential buyers are worldwide,” said Scott Eisenberg, managing partner of Birmingham-based Amherst Partners LLC. “One-third of our transactions are with international buyers and probably 90 percent, if not 100 percent, of our transactions have foreign buyers looking at them,” he said. He said Amherst is a member of IMAP, a Barcelona-based affiliation of 40 investment banking firms in 32 countries, an affiliation that began in 1973 as International Mergers & Acquisition Partners

but now goes by the acronym. “I know the guys at Quarton and they’re quality guys, so I’m sure Blue is quality, too. This is the largest M&A market in the world, so it makes sense they want to be here,” Eisenberg said. Quarton Partners was formed in 2010 after talks broke down to have employees at Detroit-based W.Y. Campbell & Co., the area’s preeminent investment banking firm, buy the company back from Comerica Inc.

William Campbell and William McKinley, who co-founded the firm in 1988, departed. Soon after that,

Augier, Brian Dragon and Parker left W.Y. Campbell to form Quarton. Although Quarton does business nationally, two recent local deals it worked were the sales of Livonia-based Quality Metalcraft Inc., an automotive metal components and assemblies supplier, to The Watermill Group LLC of Lexington, Mass.; and Detroit-based Siding World to ABC Supply Co. Inc. of Beloit, Wis. In 2013, Crain’s named Quarton as adviser of the year for 2012 at its annual M&A awards. 䡲 Tom Henderson: (313) 446-0337 Twitter: @TomHenderson2

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SPECIAL REPORT: BEST-MANAGED

NONPROFITS PHOTOS BY ANDREW POTTER

Detroit Zoological Society CEO Ron Kagan (left) and Scott Carter, chief

life sciences officer, show off the Cotton Family Wolf Wilderness, one of the zoo’s new attractions designed with sustainability in mind.

WINNING WAY Detroit Zoo walks a green path to become Crain’s best-managed nonprofit $3 million, and others planned are expected to generate more than $500,000 in annual savings and enable the zoo to recoup its investment by 2020. But more importantly, the zoo says, within five years the changes will translate to a 25 percent reduction in its energy usage and zero waste from the zoo going to landfills. And it will save 11 million gallons of water and reduce 1,063 metric tons of greenhouse gas annually — the equivalent to the carbon dioxide emissions of 203 passenger vehicles. To expand its green efforts and influence others to live and operate in more sustainable ways, the zoo has engaged its board and its staff, collaborated with other organizations and identified dedicated funding for green projects to en-

By Sherri Welch swelch@crain.com

ost nonprofits face trends or threats that require a response on their part. But not many face global threats. Several years ago during strategic planning, the Detroit Zoo realized that while sustainability was implied in its conservation and animal welfare mission, it hadn’t been intentional about being green. And environmental concerns were rising. In 2010, it set out on a path to change its own behavior and influence others to decrease environmental degradation. The changes it has made over the past six years, at a cost of more than

sure no impact to existing programs. And, in what is viewed as a pioneering project, the zoo plans next year to begin construction of a biodigester that will convert organic waste to energy that could serve as a model for other small to medium-sized businesses. For all of those reasons, the Detroit Zoological Society is Crain’s 2015 BestManaged Nonprofit.

Breeding crickets “Conservation isn’t just about trying to save gorillas in Africa; we needed to have a much broader impact on the environment,” said CEO Ron Kagan. “It was important to ‘walk the talk,’ ” he said.

ABOUT THIS YEAR’S BEST-MANAGED NONPROFIT CONTEST The Detroit Zoological Society, this year’s Crain’s Best-Managed Nonprofit Contest winner, will be honored at Crain’s Newsmaker of the Year lunch early next year and will receive a $1,500 cash prize: $1,000 from Crain’s and $500 from Gary Dembs, president and CEO of the Nonprofit Personnel Network in Southfield. Dembs also is a judge.

The other judges:

Lutheran Social Services of Michigan.

Karla Hall, who spent 30 years in corporate

philanthropy, now operates Hall Strategic Consulting LLC. .

Gerald Lindman, private nonprofit consultant.

Also ran the former Center for Nonprofit Management at Lawrence Technological University.

Richard Martin, chief advancement officer,

Mike Rafferty, director, metro Detroit office, Michigan Nonprofit Association.

SEE ZOO, PAGE 12

THE FINALISTS JVS: Page 13 Detroit Symphony Orchestra: Page 14

Jennifer Oertel, partner and coordinator of Jaffe Raitt Heuer & Weiss PC‘s nonprofit practice group.

Wayne Metropolitan Community

The nonprofit practice group at Plante Moran PLLC, led by partner John Bebes, did a financial analysis of the applicants.

Grandmont Rosedale

Action Agency: Page 14 Development Corp.: Page 15

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BEST-MANAGED NONPROFITS

ZOO FROM PAGE 11

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A board committee worked with senior management to develop a “greenprint” for the projects it would undertake and its advocacy and education initiatives around sustainability. The group is one of 12 operating subcommittees of the zoo’s 65-member board and enables the nonprofit to effectively tap its board expertise, Kagan said. Accepting a challenge from board member John Erb, president of the Fred A. and Barbara M. Erb Family Foundation , the zoo weaned its 1.3 million visitors from disposable water bottles, selling the last of them in September. It installed water filling stations and began selling reusable water bottles. The zoo is operating on a $35.3 million budget this year, an amount that has doubled over the past decade, thanks in part to the tricounty operating mill- GerryVanAcker: age voters ap- Seeking impact for proved in 2008. zoo as “green leader.” Management has also engaged staff members by welcoming their ideas, such as a crowdfunding campaign to involve individuals as well as large funders in the green initiatives. Another staff suggestion: a cricket breeding program that eliminates packaging and emissions from transporting purchased crickets that are part of the diet of about 1,900 animals at the zoo. The program has saved an estimated $225,000 in its first thee years.

Study commissioned

SERVICE DOESN’T STOP

just because you’re outside our doors.

At Kroger, we think of ourselves as more than just your neighborhood grocer. We think of ourselves as your neighbor, and we have been serving Michigan for more than 100 years, beginning in 1909. And with over 19,000 dedicated associates committed to the diverse Michigan communities in which they live and work, Kroger is proud to support events for charitable groups, health organizations, educational initiatives and more. The Kroger promise – to help our communities grow and prosper.

The zoo also has collaborated with others. To create a benchmark on public behavior and attitudes toward sustainability, the zoo in June commissioned Washington, D.C.-based Belden Russonello Strategists to survey 1,000 adults in Wayne, Oakland, Macomb and Washtenaw counties. Environmental groups, businesses and state agencies helped form the questions and have been given the survey results for use in their work as well, said Scott Carter, the zoo’s chief life sciences officer. Among other things, the results showed support for recycling, turning off lights, less packaging and stricter bottle return requirements, but less support for carpooling, biking to work or choosing food with the environment in mind. “What we discovered is people were very knowledgeable but not action-oriented,” said zoo COO Gerry VanAcker. “So we will continue to do surveys to see if can have an impact as an educator and green leader.”

Gaining momentum

Next spring, the zoo plans to break ground on the first dry anaerobic digestion system at a U.S. zoo, which is pioneering the use of dry

Taking the initiatives Green initiatives the Detroit Zoo has rolled out include:

Securing tier-two Green Certified

Restaurant status for the Arctic Café.

Posting tips on water

conservation in restrooms and reminders to minimize napkin use at the concession stand.

Pursuing no-cost efforts that still

produce a return, such as rearranging the education staff offices to increase daylight access.

Transitioning to solar- and

electric-powered golf carts for staff.

Completing a $2 million project

with Johnson Controls Inc. to improve energy efficiency in more than 50 buildings at the Detroit and Belle Isle zoos.

Designing new exhibits with

sustainability in mind. The 2-acre Cotton Family Wolf Wilderness includes permeable pavement and recycled soil from the Polk Penguin Conservation Center construction site. The penguin center has a lightcolor exterior and reflective roof to reduce heat gain; used renewable, recycled and locally manufactured materials; and has native and waterefficient vegetation.

biomass, according to the Associa tion of Zoos and Aquariums . The zoo believes it could serve as a demonstration project for similar digesters as producers of clean energy for other small to medium businesses. The $1.2 million project will convert the 400-500 tons of manure and other organic waste produced annually at the zoo into methane-rich gas to power the 18,000-square-foot Ruth Roby Glancy Animal Health Complex. It will also produce compost for the animal habitats, gardens and public spaces on the zoo’s 125 acres, saving it $30,000-$40,000 in waste disposal fees and $70,000$80,000 in energy costs. The zoo has raised about $1 million toward the project, with a $600,000 grant from the Erb foundation, the Michigan Energy Office and Michigan Economic Development Corp. and more than $79,000 in donations through crowdfunding. Two years ago, it relaunched Greenfest, a two-day educational event at the zoo, inviting other environmental groups to bring displays and offering attendees earthfriendly crafts for children, an endangered-species scavenger hunt, games using recycled materials, science classes and other related activities. More than 17,000 attended. You “see inertia before you start seeing results,” Kagan said. “About two years ago, things really started to come to fruition ... (and) we realized we had a lot of momentum. “We view this as an opportunity and a serious responsibility that while people are enjoying the zoo we need to show them how to tread more softly on the environment,” he said. Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

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BEST-MANAGED NONPROFITS: FINALIST

JVS electronics recycling program creates jobs, reduces e-waste To help supplement flat and declining public funding for its programs serving those with disabilities, Southfield-based JVS in June launched a new subsidiary, eCycle Opportunities.

JVS is no stranger to social entrepreneurism. Twenty-four years ago, it established a janitorial services business employing some of its clients, and in 2004 it launched HR Solutions Group to provide human resource services to small nonprofits and businesses. The latter business pro-

duced almost $307,000 in revenue last year to help bridge funding gaps, JVS said. The agency also saw an opportunity in recycling electronics. In 2012, the U.S. generated 8.5 billion pounds of e-waste, and that amount is expected to increase by a third in the 10 years following, JVS said, citing data from Virginia-based CyclePoint from SourceAmerica.

With its latest subsidiary, JVS saw an opportunity to not only create another source of sustainable revenue and reduce the waste going to

JVS

JVS launched eCycle Opportunities this year not only to create a source of sustainable

revenue and reduce landfill waste, but also to create jobs for people with disabilities.

landfills but also to create jobs for an oft-ignored segment of the population: people with disabilities. It launched eCycle in June with four employees, three of them clients with disabilities. The new subsidiary collects unused electronics through community collection events, at its home office and at the Jewish Community Center in West Bloomfield Township. The operation salvages and recycles steel, aluminum, gold, copper and plastic from defunct electronic products. It then ships the salvaged materials to CyclePoint, which sells the salable materials and disposes of the excess in an environmentally safe manner. Since its June launch, eCycle has collected more than 65,000 pounds of unused electronics. It projects it will bring in 260,000 pounds its first year, producing about $129,000 in revenue, depending on commodity prices, said President and CEO Leah Rosenbaum. JVS, which is operating on a $21.6 million budget this year, is working with local businesses and organizations to establish additional drop-off locations. And it’s in the process of seeking R2/RIOS certification for electronic recyclers, which ensures materials

are handled safely and responsibly, including data on hard drives, and that all electronics collected are kept out of landfills.

“That is the big turning point for us, because the big companies can’t use us without it,” Rosenbaum said. Sherri Welch

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BEST-MANAGED NONPROFITS: FINALISTS

DSO tunes in to more audiences

T RADITION WITH A

l is ay Schoo al D y r t n ded liber troit Cou tion, De ides a well-roun izens. a v o n in istory of hat prov global cit With a h cademic leader t t generation of a -3 p.m. ex y 10 • 1 a proven ucation to the n r a u n a J unday, arts ed House S n e p O r Visit ou

To fulfill its quest to become “the most accessible orchestra on the planet,” the Detroit Symphony Or chestra in 2011 launched a multiprong approach to engage with the larger community — both in metro Detroit and around the globe. The settlement of a six-month musicians’ strike, reportedly one of the longest in symphony orchestra history, in April 2011 paved the way for the DSO to more broadly engage with audiences through community performances and educational initiatives. And it provided greater flexibility for distribution of its performances through digital media. The DSO opened its home, the Max M. and Marjorie S. Fisher Music Center, to smaller organizations, providing office space and marketing assistance to the Detroit Children’s Choir and hosting the Sphinx Finals Concert and workshops, Wayne State University ensemble concerts, Detroit Public The atre , graduation ceremonies and other community events. It began sending small ensembles to perform in hospitals, senior living communities, at events like the opening of Whole Foods in Detroit’s Midtown neighborhood and other community events. And the DSO established performance residencies in eight Southeast Michigan neighborhoods. The neighborhood performances are helping the DSO to reach new

CYBELLE CODISH

The Detroit SymphonyOrchestra has expanded its audience in metro Detroit and beyond. audiences; 75 percent of those audiences have either never attended a DSO performance or haven’t in more than 10 years. At the same time, audience numbers have remained strong for Orchestra Hall. After pioneering radio performances in the 1920s, the DSO became the first American orchestra to present a full series of performances on the Web with its launch of “Live from Orchestra Hall” free HD webcasts in 2011. Since then, they have been viewed by nearly 1 million people in more than 100 countries. The orchestra is also providing a concert series to more than 100,000 students across the country each year, including Detroit Public Schools students with an accompanying curriculum guide. And in August it

launched Replay, an on-demand digital archive of “Live from Orchestra Hall” performances. The DSO, which operated on a $32.8 million budget for fiscal 2014, debuted its in-house recording label under the “Live from Orchestra Hall” name this season, with the release of Tchaikovsky’s six completed symphonies recorded live in February. As of August, the recording, available on iTunes and Amazon , had seen hundreds of downloads and 31,800 streams. It was featured on Apple Music’s “The A-List: Classical” and appeared in the Top 10 on Billboard’s classical charts. The DSO is led by CEO Anne Parsons. Sherri Welch

Wayne Metro agency opens portals to client aid When the state designated the Wayne Metropolitan Community Action Agency as Detroit’s interim provider of services for low-income residents and community building programs in April 2012, it was clear the agency couldn’t continue to do business as it had. It had been serving 42 outer Wayne County communities, but its client load increased exponentially when Detroit’s Department of Human Services was defunded in 2012 amid allegations of mismanagement of funds. To serve more clients quickly and efficiently, Wayne Metro began offering several technology-enabled portals for seeking assistance: a call center, its redesigned website and social media. In January 2013, it shifted to the new call center system and “soft phones,” which allow users to make telephone calls over the Internet via a computer, enabling them to work remotely while accessing calls and emails. Staffed with eight to 10 employees, the call center system provides quick screenings of callers to determine their eligibility for assistance, locates program staff members in the field near them, and books appointments for the same day when possible, preventing program staff from having to respond to large numbers of calls. With the soft phone capability, staff members can leave the office to meet with clients who can’t come to the office, while still able to access calls and emails offsite. “With the huge need in the city, this is crisis time ... it’s not like we have a lot of time to play phone tag,” said Mia Cupp, chief development and communications officer. “The first time you call us, we want to deem if you’re eligible, find out what your issue is and get you scheduled.” Wayne Metro included shifting to automated reminders for clients to remind them of what they needed to bring to appointments — something that’s reduced no-show rates by 50 percent. It also upgraded its website, enabling residents to contact the agency via an online

WAYNE METROPOLITAN COMMUNITY ACTION AGENCY

Wayne Metropolitan Community Action Agency client David Bailey (right) gets help from digital literacy specialist Damien Benson.

form available in English, Spanish, Arabic and Bengali. The site also enables clients and residents to take self-improvement and community building classes online and affords the same platform for staff training. Wayne Metro, operating on a $30 million budget, has also begun to send texts about the availability of classes on topics like financial literacy or energy optimization and free services such as tax preparation. Named the permanent community action agency for Detroit in March, Wayne Metro answered 137,000 calls — 70 percent of them from Detroit residents — in fiscal 2015 ended Sept. 30. The shift has enabled the agency to build its reserves to $1.8 million from $500,000 two years ago and to keep overhead down. Last year, its administration rate was 6 percent, meaning 94 percent of every dollar went directly to client services. The nonprofit is led by CEO Louis Piszker. Sherri Welch

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BEST-MANAGED NONPROFITS: FINALIST

Grandmont backs entrepreneurs, works to make neighborhood safer To strengthen its northwest Detroit neighborhood, Grandmont Rosedale Development Corp . is supporting entrepreneurs in its backyard. The nonprofit, with roots in housing development, is also working to make its neighborhood safer. And it’s doing so on a budget of just $795,100 this year. In January, under the leadership of Executive Director Tom Goddeeris, Grandmont opened the Grand River WorkPlace, a co-working facility and business incubator. The thought was that helping residents succeed as entrepreneurs would help stabilize area households and build community wealth. The new center provides small office space for rent and flexible workspace for entrepreneurs and independent workers, with shared conference space, free Wi-Fi, printing and copying machines and individual mailboxes. Since opening in January, the center has attracted 12 small businesses, most owned by people who live within a mile. The co-working space also provides information, services and training to small businesses, entrepreneurs and startups, collaborat-

GRANDMONT ROSEDALE

Ebony Rutherford opened a pop-up shop

at the Grand River WorkPlace this year. ing with groups like ProsperUs De troit and the Center for Empowerment and Economic Development , which operates from WorkPlace and holds weekly orientation sessions for businesses interested in its Small Business Detroit Loan Program. In September, the New Economy Initiative awarded Grandmont a $110,000 grant to support comprehensive business development and commercial revitalization efforts on the Grand River corridor. On the side of the co-working space fronting Grand River is a popup space to allow retailers to test their business ideas for six months. So far,

the space has housed two businesses owned by neighborhood residents. Grandmont has also teamed up with the Detroit Economic Growth Corp . and its Revolve Detroit program to sponsor four retail businesses along Grand River, providing retail space, a small marketing grant, startup costs and free publicity for those fledgling businesses. All four have reported an increase in sales as a result of the pop-up project, and Pages Bookshop opened there in a permanent space in June. To address crime and safety concerns, Grandmont established monthly community meetings and an email-based crime prevention network to share concerns and report crimes or suspicious behavior. It also participated in a pilot program with the Detroit Police Depart ment that led to a 26 percent drop in home invasions after one year. Property crime as a whole in the neighborhood is down 24.3 percent, and violent crime is down 8.7 percent this year. Grandmont also led a citywide campaign to get the Detroit City Council to adopt an ordinance allowing for special assessment districts in the city. It was adopted in May 2014. Grandmont is now work-

ing to build support among neighborhood residents for a special assessment and plans to launch a pe-

tition needed to establish the district in Grandmont Rosedale.

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SPECIAL REPORT:

BUSINESS LAW G N I D FIN Fake jobless claims under scrutiny with software, lawsuits and legislation By Chad Halcom chalcom@crain.com

nemployment insurance fraud — whether by employer or employee — will get heightened attention the next few months as Michigan officials ready for a wave of new software, new litigation and even legislation tackling the issue. The state Unemployment Insurance Agency is pursuing nearly 300 open fraud cases involving either employer tax evasion, fictitious business schemes or identity theft, said agency Director Sharon MoffettMassey. About three-quarters of those cases as of mid-November involve what is known as State Unemployment Tax Act or “SUTA” Dumping — when an employer shifts payroll from one company to another business entity, or subsidiary, to artificially reduce the state unemployment tax the company pays. An additional 19 are fictitious business cases (usually a conspiracy to create

phony business and payroll records to support fraudulent benefit claims), and 60 or more might be fraud tied to identify theft, Moffett-Massey said. Unemployment fraud as a whole appears to be on the decline, since a 2011 audit by the state Office of the Auditor General found Michigan had missed more than $70 million in benefit overpayments and a possible $200 million-plus in fraud-related penalties. Moffett-Massey said that decline is tied partly to benefit claims declining as a whole — but it is not uniform, and some areas are becoming more active. “The more claims you have in a given period, like we had a few years ago (during and after the recession), the more likely you have to get fraudulent claims within it due to the voluminous nature,” she said. “But you still do have employer cases like SUTA dumping or fraudulent business cases entering the system, from beginning to end. And quite a few claimants make SEE FRAUD, PAGE 18

Bar exam pass rates fall, but don’t blame students, says Cooley chief T here’s more than one reason the Western Michigan Univer -

sity Thomas M. Cooley Law School isn’t where it wants to be on

graduates passing the Michigan bar examination, President Don LeDuc says. And it is going to take more than one solution to improve on future exams. LeDuc, dean and president of the state’s largest law school since 1996, rejects the idea that recent test-takers are less qualified or capable than past law school grads, even though pass rates have tumbled at Cooley and elsewhere. The president of the National Conference of Bar Examiners , Erica Moeser, in a 2014 memo to law

school deans called recent test-takers “less able” than a previous crop. “There is hardly any difference over the last six years in the overall academic profile of the students who take the bar exam. It does not become a factor in those test results,” LeDuc said. “And at Cooley, we often have more attrition than at other schools, so the averages can move a point or so up by the time a group of graduates sits for the exam. So things like GPA or LSAT profiles of entering law students aren’t relevant to bar results — only the profile of graduates is.” About 53 percent of first-time exam-takers from Cooley passed the July bar exam in initial results

CHAD HALCOM chalcom@crain.com Twitter: @chadhalcom

last month. That’s off from 56 percent a year earlier, and compares with 71 percent of all first-time takers who passed statewide. But the school learned last week

it still met standards in an on-site American Bar Association committee review, mandated every seven years. “So, we meet the bar examination performance level set by our accreditor. The question is how much we desire to exceed it,” LeDuc said. Cooley completed some internal research on the exam issue earlier this year, he said, and hired a new academic programs director who is in the process of a review to expand and redefine that role. Also, the school has been replacing some high-stakes final exams in courses with ongoing assessments, designed to help improve critical analysis and response time that as-

sessors have looked for in recent bar exams. Some changes to the exam itself in 2012 affected pass rates for most schools statewide, he noted, but Cooley is also calling for more transparency in how answers are weighed, to help the school help students prepare. “We do get some information, but it is not nearly enough to be helpful for us because it’s not as transparent an examination and scoring and scaling process as it could be,” LeDuc said. “The relationship is much improved, and we are getting more information. There’s just much more that we could use.” 䡲

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SPECIAL REPORT: BUSINESS LAW ment both through data tools and increased efforts to address the most prevalent causes of overpayment, according to reports from the Benefit Accuracy Measurement program at Labor. Not all improper payment is fraud, but the department reports about 31 percent of the state’s overpayments stem from laid-off employees continuing to make claims even after returning to work. An additional 14 percent are due to untimely or inaccurate separation information provided by employers or third-party administrators. The state paid out just over $1 billion in total unemployment benefits in fiscal 2014, according to UIA. Nearly $144 million in payments that year were improper in some way, according to the Labor Department.

FRAUD FROM PAGE 17

benefit claims using stolen identities or with inflated or fabricated employee information.” Identity theft cases in particular are on a sharp climb, she said. But SUTA dumping, which had fallen off considerably from a peak eight years ago when the state was cracking down on offenders under a relatively new law, is inching upward again as pieces of a new Enterprise Fraud Detection System software package come online for the state agency to use. The new system, which uses data analytics to spot possible fraud leads for investigators to pursue and finds patterns among benefit claims, is already available in pieces, but the complete system goes online next spring, she said. An average of 2.8 percent of all benefits paid by Michigan over the past three years were fraudulent — anywhere from $30 million to $50 million or more based on total benefits. That compares with about 2.98 percent of all benefits nationally over the same period, and 3.19 percent or more than $1.5 billion in fraudulent payouts nationally in fiscal 2014 alone, according to financial reports by the U.S. Department of

Downside of data? About three years ago, the state launched its Michigan Integrated Data Automated System, which is able to cross-check benefit claimants against other computer records and flag events that might disqualify someone from benefits: obtaining a new job, being dead, having other benefits or a misreported cause of separation. The new system has spurred thousands of new fraud investigations and curtailed overpayments, but is sometimes controversial and

Labor.

Michigan has made considerable progress targeting improper pay-

“Even if someone collected $5,000 in benefits, they can get garnished to the tune of $20,000, without even knowing what happened or being able to present a case to anyone .” JenniferLord,attorney,Pitt,McGehee,Palmer& Rivers PC

now faces a possible class-action lawsuit. Jennifer Lord, an attorney at Pitt, McGehee, Palmer & Rivers PC in Royal Oak, is leading a potential class-action lawsuit against UIA in the Michigan Court of Claims, on behalf of unemployment claimants who lost benefits without the chance to make a case for themselves to the agency. “In some cases once a determination is made, an automatic penalty four times the payment sum is imposed,” she said. “Even if someone collected $5,000 in benefits, they can get garnished to the tune of $20,000, without even knowing what happened or being able to present a case to anyone.” But Tony Stamas, vice president of government relations for the Small Business Association of Michi gan, said small-business employers

generally have welcomed the new anti-fraud measures, and Gov. Rick Snyder’s administration is addressing employer concerns. “We’ve been hearing from our membership that there is real im-

provement in recent years,” he said. “And the department is proactive about asking us about our concerns with current policy. We don’t want to see people get paid benefits out of fraud of course, but we also want to make sure people aren’t denied being paid appropriately.” The lawsuit claims the MiDAS software makes automated determinations that benefits were paid improperly, sometimes months after the fact, and often sends notices or questionnaires to an account on the Michigan Web Account Management system — an account which the user might not even be accessing anymore if the unemployment benefits period has expired. It also contends recipients aren’t given 60 days’ notice or the opportunity for a hearing before imposing penalties, and the agency doesn’t properly notify them of a determination of fraud, and in some cases intercepts income tax refunds or garnishes wages from new employers. The agency has brought a motion to dismiss the case before

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Court of Claims Judge Cynthia Stephens, who has yet to rule on it. Moffett-Massey wouldn’t comment on the litigation, but said MiDAS is effective at cross-checking benefit claimants against Social Security numbers that turn up in other federal databases, and will be able to interact with the agency’s other new software. Assistant Labor Secretary Portia Wu in October issued a directive for UIA and other state agencies to include the opportunity for a hearing in all adverse benefit decisions, and state Rep. Roger Victory, R-Hudsonville, introduced a bill requiring UIA employees to review and approve automated findings of fraud. The bill would also require the agency to notify the claimant via mail, email or other means besides the user account. “It appeared there was a lack of a human element. Sort of one of the greatest fears in a modern society — being accused of something by a computer and not being able to do anything about it,” he said. “They’re starting to do that now, but this way (with the bill) we won’t go back later to the errors of the past, because then it’s been codified into the law.” The bill has gone to the House Committee on Government Oversight, and Victory said he hopes it will take action this month or early next year.

Businesses in court Employers, for their part, are getting a day in court either to face allegations of unemployment fraud, or for reporting it. Last month, Shelby Townshipbased Lutz Roofing Co. Inc . pleaded guilty to mail fraud and health care fraud, defrauding the unemployment agency of more than $100,000 in benefits through a practice of “banking hours” between 2007 and 2012. Banking hours is bringing back laid-off workers on a temporary or part-time basis, and not paying them until they’ve built up 40 hours of work over time, then reporting the wages for one week — allowing the employees to work and collect unemployment at the same time. Sara and Kevin Johnson, co-owners of landscaping company Lansing Total Lawn Care , were sentenced in 2013 to three and four years’ federal prison respectively for allegedly forcing employees to work in winter without pay from 2006 to 2010. The Johnsons, mother and son, allegedly told employees that unemployment “was their paycheck,” and if they didn’t cooperate the company would report to UIA they’d refused to work, canceling their benefits. And Stacy McCray awaits a preliminary examination Feb. 23 at U.S. SEE NEXT PAGE

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SPECIAL REPORT: BUSINESS LAW

Attorneys: Bankruptcy giveback from biz unlikely By Chad Halcom chalcom@crain.com

It’s one thing for Detroit to ask for $50 million or more of its money back from scores of businesses that received payments shortly before the city’s 2013 federal bankruptcy. Getting that much, local bankruptcy attorneys said, is a whole different matter. The city, through New York Citybased bankruptcy law firm Togut, Segal & Segal LLP, was well on its way last week to filing a projected 185 Bankruptcy Court actions against vendors who got “preferential” payments on past-due debts in the 90 days before Detroit’s petition for Chapter 9 bankruptcy. A large share of the businesses sued last week were local construction firms or legacy contractors with the Detroit Water and Sewerage Department, though some are also staffing and professional services companies, accountants, IT firms and some out-of-town businesses. Going after creditors once a bankruptcy is over is fairly common, attorneys said — it’s usually something a debt-laden company or municipality waits on doing until after those creditors have already approved its exit or reorganization plan in court. But $50 million is a pretty big sum, and debtors usually settle for a fraction of whatever they request in court. “Rarely do preference (payment) cases get tried. Almost always they’re settled at some point,” said Douglas Bernstein, managing partner of the bankruptcy and creditors’ rights practice group at Plunkett Cooney PC in Bloomfield Hills. “And as you get close to the statute of limitations running, there’s often a slew FROM PAGE 18

District Court on allegations he’d

filed more than $159,000 in Michigan unemployment benefit claims on behalf of several laid-off Detroit city employees since 2010. Detroit officials reported the various claimant identities McCray had used never worked for the city, according to a federal complaint. The state also opened 59 investigations into employer SUTA dumping in 2014, compared with 54 in 2013. Moffett-Massey said those cases continue to climb, and while much of the state’s new software reviews employee claims for fraud, the data tools sometimes reveal patterns implicating companies as well.

Recovering trust Starting in October, the Michigan Taxable Wage Base used to compute businesses’ state unemployment or SUTA tax decreased from $9,500 to

of filings on bigger cases. But you can’t play favorites when you do it, and realistically you have ethical obligations when you file to make sure that facts and figures back up what you’re claiming.” The city plans to ask U.S. Bank ruptcy Court Judge Thomas Tucker in Detroit to temporarily suspend the companies’ obligations to formally answer its complaints so its lawyers can try to settle the claims before a trial. “Every effort will be made to reach mutually acceptable settlements of these lawsuits, if possible,” Deputy Corporation Counsel Chuck Raimi said in a statement from the city last week. “It is our hope that the city will be able to recover a substantial portion of these payments, which could then be used to support further improvements to city services.” Albert Togut, managing partner of the Togut law firm, did not return phone calls seeking comment. The city contends that the pre-petition payments allowed certain companies to be paid more than others that had comparable claims or were grouped into the same class of creditors against Detroit in the bankruptcy. At issue for each business, according to partner Scott Wolfson of Troy-based Wolfson Bolton PLLC, and Bernstein, is whether it received payments in the ordinary course of business — based on a payment schedule the debtor usually follows or for ongoing services rather than accumulated debts. That will come down to reviewing the payment history between the city and that vendor. “Whenever I’m prosecuting a preference payment, the best-case

scenario for me is when there was normally a huge delay or irregular payment history, and the only reason the debtor paid in that period is because the creditor was threatening to cut off services. Because that’s going to be a payment outside the ordinary course,” Wolfson said. “But it’s going to vary a lot by the facts in each company’s case.” Unlikely to fetch much, for example, might be the city’s $2.7 million preference claim against Lakeshore Engineering Services Inc ., since successor company Lakeshore TolTest Corp. filed for Chapter 7 bankruptcy liquidation in 2014. Bankruptcies put an automatic stay on litigation claims, even from other bankruptcy cases. Detroit filed the biggest U.S. municipal bankruptcy in history more than two years ago, with more than $18 billion in claimed debt, and went on to cut deals with almost all of its major creditors, including retired city employees, in a plan confirmed late last year by then Bankruptcy Judge Steven Rhodes. The city did not specify in court filings Monday what the payments were for, other than to satisfy debts to vendors who provided goods or services for which “Detroit was obligated to pay.” Federal bankruptcy law typically allows a debtor to recover payments or transfers made to creditors within 90 days before filing for bankruptcy, when the debtor was insolvent, on the basis that pre-petition payments allows one or more creditors to recover more than they would have as a creditor going through the normal bankruptcy process. 䡲

$9,000 per employee, which could save businesses about $57 million in taxes next year. The rollback reverses a 2011 increase to shore up the then debtstrapped Michigan Unemployment Trust Fund, since it was the first time since then that the fund balance exceeded $2.5 billion and was projected to remain that way for two quarters. Businesses compute their SUTA tax quarterly, based largely on the first $9,000 each employee earns multiplied by a percentage or tax rate based largely on how much the company has used the fund via layoffs or restructuring over the past three years. That can range from 0.6 percent to more than 10 percent, which is ostensibly the motivation for employers to “dump” employees to another entity with a lower experience-based rate or a 2.7 percent tax rate upon new businesses. A new

bill pending in the state Senate could change the employer SUTA tax reporting requirement from quarterly to annually. The state fund is paying more than $1 billion less per year in total benefits than it did two or three years ago, as federal assistance for extended benefits and other expenses began winding down. Delaney McKinley, director of human resources policy and membership development for the Michi gan Manufacturers Association , said she thinks more effective anti-fraud measures have helped improve the trust fund’s health almost as much as the state’s economy and the decline of benefit claims as a whole. “I think it’s both,” she said. “And we follow it pretty closely, since it’s a topic of some importance to many of our manufacturing members.” 䡲

Chad Halcom: (313) 446-6796 Twitter: @chadhalcom

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SPECIAL REPORT: BUSINESS LAW

2 auto dealers returning to FCA fold after legal battle

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The Fox Hills ChryslerJeep dealership in Plymouth Township is expected to reopen in January. case, Village Chrysler Jeep, now doing business as Village Automotive Inc. in Royal Oak, is still in discussions with the automaker. It has a letter of intent to return to the dealer network but has not met all the requirements for a final agreement with Fiat Chrysler, Palese said. The Supreme Court during the summer declined to hear Chrysler’s appeal in a 2010 federal dealership lawsuit from Detroit, which allowed

pected to do so as well. Fiat Chrysler US “is pleased to add Livonia to our network, and expects to add Fox Hills in the near future, in accordance with applicable court rulings … ,” Palese said. “Their satisfaction of the (letter-of intent) requirements places the dealerships in a good position for success in the Detroit metro market.” A third dealership in the court

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a ruling in the dealers’ favor from the 6th U.S. Circuit Court of Appeals to stand. The appeals court found that the federal law allowing the dealers to prevail in arbitration trumped state dealer franchise laws governing Michigan and other states. This meant competing dealers who have since opened within their former market radius could not block their return. A separate claim over whether Livonia’s letter of intent was customary and usual for Chrysler dealers was also resolved in McDonald’s favor.

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Two auto dealers have been quietly re-entering the Fiat Chrysler A u t o m o b i l e s U S L L C network in Southeast Michigan after more than six years away, now that the U . S . S u p r e m e C o u r t has ended a long legal battle over their reinstatement. Colleen McDonald, president of the once and future Livonia Chrysler Jeep on Plymouth Road, said the dealership reopened last month and will host a formal grand opening in January. The location had operated for several years as Livonia Mitsubishi while a legal battle over McDonald’s Chrysler dealer license lingered in court, but she said the company has finished a remodeling and returned to flying the Chrysler flag. Also soon to reopen is Fox Hills Chrysler Jeep in Plymouth Township, which had joined Livonia in a 2010 federal lawsuit over dealer license terminations. The dealership, owned by James Schebil, has been undergoing its own remodeling and is expected to reopen in January, said Township Supervisor Shannon Price. “Every day it gets better. Our neighbors in the area and the city of

Livonia have been incredibly welcoming and have been telling us, ‘We’re so glad you’re back,’” McDonald said of the journey to reopening the Livonia dealership. “It’s good to be working with (FCA) again as well. Before now, we were only dealing with each other through attorneys. Now the attorneys are gone, and we’re interacting again with the business office again, and the company’s been wonderful and very supportive. They just want to sell cars — and so do we.” Some 32 dealers, including five in Michigan, won reinstatement via a federal arbitration process in 2010 — but various lawsuits dragged on for years over what those victories actually meant. Chrysler moved to terminate 789 dealers as part of its 2009 bankruptcy reorganization, reducing its dealer count at the time to about 2,400. But FCA, for its part, welcomed the returning dealers Tuesday. Michael Palese, corporate communication strategy and litigation communications manager, said in a statement that Livonia has satisfied the financial and operational requirements of the automaker’s standard letter-of-intent agreement with dealers — and Fox Hills is ex-

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Crestwood Chrysler Dodge Jeep Ram in Garden City, which was later acquired in 2013 by The Suburban Collection , previously opposed the

return of Livonia Chrysler Jeep dealership five miles away. Dick Scott Chrysler Dodge Jeep Ram also now operates less than half a mile from where Fox Hills expects to reopen, along Ann Arbor Road. “They (Fox Hills) ran into a few roadblocks first, to do what they had to do to open again. But there was a lot we’ve been able to do administratively to help, rather than bring the company through the planning commission review, and they’ve been getting ready,” said Price, who drives by Fox Hills on his way to work at the township. Tom Celani, co-owner of Dick Scott and owner of Luna Entertain ment LLC, said he has not yet heard of an opening date for Fox Hills but thinks the head-to-head competition could actually help both dealerships — and customers. “Nobody ever takes the first price they’re offered from any car dealer. A lot more people are going to come now for the chance to price cars at two Chrysler dealers within walking distance,” he said. “We’re going to be able to draw buyers from a lot farther away than we could have before this happened, and it presents an opportunity.” McDonald said all but one of the former Livonia Chrysler Jeep managers have returned to the revived dealership, and many of its employees are back as well. The dealership finished a remodeling and operates in a very different market today than before arbitration, she said, so her company has made many changes to adapt. “The learning curve on that can be enormous. We’ve always kept in touch with our customers and friends by going through Facebook and social media, but we’ll be doing a lot more,” she said. McDonald also said regaining the dealership has been a lesson in persistence. “Don’t give up. We fought so hard to get here, and I’m just thanking God and my husband and family for being here through it, and we’re thankful that not giving up led to a good result,” she said. 䡲 Chad Halcom: (313) 446-6796 Twitter: @chadhalcom

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“We’ve made some mistakes, and we’ll probably make some more, but if you’re going to gamble on something, it might as well be yourself.” Stacy Pillera,Olympus Fare salsa

Job loss spurs couple to bring salsa recipe from home to market The next level

By Laura Cassar Special to Crain’s Detroit Business

It was Dan Pillera’s fourth layoff in six years, and he and his wife, Stacy, were at a loss. With three young children and a milestone birthday gone by, the stress was mounting and the question loomed, “What are we going to do now?” “I know,” Stacy said, when Dan’s job search was striking out. “We’ll bring your salsa to market.” Dan’s salsa was a family legend and something that friends and relatives fought over. Raised in an Italian household, he had swapped out some of the conventional ingredients to make his own unique recipe that he spent one weekend a year canning in mass quantities. Dan, now 42, had an interesting mix of work experience, both as culinary manager at Applebee’s and Olive Garden and in the mortgage business at Rock Financial Corp. and Troy-based Shore Mortgage . Stacy knew she did not want Dan to return to restaurant management and the hours it entailed. “Why work all those hours for someone else? Let’s do our own thing,” she said. Thirty days later, they launched.

of sodium, compared with the typical 105-180 mg. “Olympus Fare Salsa is filling the true Michigan brand niche,” said Kelly Martinez, category manager at Ann Arbor-based Busch’s Fresh Food Market, which carries the salsa. “It’s fresh, as if it was just made, and that’s what sets them apart.” Dan also came up with their tagline: “Inspired by the gods, and enjoyed by the mortals.” On Feb. 28, 2014, Dan and Stacy had their first demo. Both admit they were nervous. “We had 60 units; that’s a lot of product,” Stacy, 38, said. “And we were still buying our vegetables at the grocery store, so it was a lot of money.” They sold out that day.

With the product demand established, the Pilleras moved production to Lansing-area Incu-Bake. The shared-used commercial kitchen space also came with the expertise and connections of owner Marcy Bishop Kates. The Pilleras said her help was “amazing,” but when Busch’s decided to carry Olympus Fare salsa, and the Pilleras were paying $400 a month to use the Lansing facility only once a week, they knew they had to move. “One of our store managers discovered it on vacation in a smaller convenience store. He brought it in, and I was impressed with the salsa and with their concept — no preservatives, no additives — and we brought them on,” said Martinez, who also added that Busch’s focuses on local items, with more than 1,000 in its stores. Production was ramping up, and the Pilleras needed someplace less expensive and closer to home if they were going to be in the kitchen five days a week.

“All in” For Holly-based Olympus Fare salsa to go from concept to launch in one month, the Pilleras cashed in all three of their 401(k)s, for a total of $71,000. Stacy also quit her job as account executive at United Whole sale Mortgage to better support the new family business. “Yeah, we’re all in,” Dan said. “Literally, all.” The 30 days included a lot of research, including deciding to sell the product fresh in the deli section rather than canned in the center store. “Fresh has a ‘wow factor’ to it,” Dan said. “And there were at least 50 different jars in the center store versus only one competitor in the deli.” (That one competitor is a big one: Ferndale’s Garden Fresh, which was acquired last summer by Campbell Soup Co. for $231 million.) The couple also had to decide on packaging (square container), design labels (the more colorful, the better) and a name for their product (no, they’re not Greek). Dan was inspired by a late-night bout of insomnia that had him tuned into the movie “Clash of the Titans” at 3 a.m. When Stacy woke up the next morning, their company had a name and so did their four varieties: mild Aphrodite, medium Zeus, verde Athena and hot Hades. All four are still made by hand, with Dan chopping the vegetables. They use fresh spices, not powdered; the plant-based sweetener stevia, instead of sugar; and sea salt, giving their salsa 30-80 milligrams

$1 Billion

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Stacy and Dan Pillera cashed in their 401(k)s to launch Olympus Fare salsa.

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They found space to lease in Holly and set out to fill it with equipment from an auction. One expensive mistake was buying refrigeration units at the auction that did not work once they got them, with considerable effort, to the facility. â&#x20AC;&#x153;We lost $2,000 on that,â&#x20AC;? Stacy said. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve made some mistakes, and weâ&#x20AC;&#x2122;ll probably make some more, but if youâ&#x20AC;&#x2122;re going to gamble on something, it might as well be yourself.â&#x20AC;? Now in about 40 locations, including Buschâ&#x20AC;&#x2122;s, Troy-based Hollywood Markets and select Kroger stores, the Pilleras put to use an important lesson they learned from Michigan State Universityâ&#x20AC;&#x2122;s Product Center. â&#x20AC;&#x153;They told us that 25 percent of people who try a product will buy a product, so we knew we had to get a lot of people to try it,â&#x20AC;? Dan said. Every weekend, Olympus has five â&#x20AC;&#x153;product ambassadorsâ&#x20AC;? in the stores to give samples and tell the Olympus Fare story. Dan says in contrast to MSUâ&#x20AC;&#x2122;s numbers, they

see 60 percent to 90 percent of people buying their salsa after sampling it. A 16-ounce container of Olympus Fare salsa is $4.99 to $5.99. Even at $1 more than the leading brand, Dan says his salsa â&#x20AC;&#x153;sells itself.â&#x20AC;? Last year, Olympus Fare had $50,000 in sales and lost money. This year, it should break even with $100,000 in sales. In 2016, the company is conservatively projecting $150,000-$200,000 in sales and hopes to have profits to show for it. Olympus Fare is still a two-person company, with the exception of family help and the part-time ambassadors, but Dan and Stacy know they will have to hire help and get more equipment if they keep growing â&#x20AC;&#x201D; and growth is their goal. Plans for 2016 include introducing a low-sodium, preservative-free chip and adding more Kroger locations. There are talks of a test in the Grand Blanc Wal-Mart. To expand, the company is actively seeking investors. â&#x20AC;&#x153;We are looking to take this to the next level,â&#x20AC;? Stacy said. äĄ˛

Affiliation to create stateâ&#x20AC;&#x2122;s largest hospice provider By Jay Greene

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Hospice of Michigan and Arbor Hospice & Palliative Care announced

they will join in an affiliation Jan. 1 that will create Michiganâ&#x20AC;&#x2122;s largest hospice provider. The affiliation will allow both hospice providers to continue to offer their current programs and services under their own names, but executives said in a statement that the combination will allow them to dedicate more resources to patient care. Jointly, Detroit-based Hospice of Michigan and Ann Arbor-based Arbor Hospice care for more than 2,200 patients in 58 counties in the state. Hospice officials said both companies are in good financial shape, though specific figures werenâ&#x20AC;&#x2122;t available at press time. However, over the past several years, Medicare has cut hospice reimbursement, leading to financial challenges at most hospices. Under the Affordable Care Act of 2010, hospice providers are having their rates cut 12 percent through

2020. These cuts are on top of a 4.2 percent rate cut that began in 2010 and will be phased in over seven years. In a recent study, Medicare cuts are expected to reduce hospice provider margins that averaged 2 percent in 2008 to a minus 14 percent margin by 2019, said the Na tional Hospice and Palliative Care Organization.

Under the new, yet-unnamed unified organization, Robert Cahill, who has led HOM the past several years, will become CEO. Gloria Brooks, current president of Arbor Hospice, will become vice president and chief strategy officer of HOM. She will continue as president of Arbor Hospital and the Arbor Hospice Foundation. Earlier this year, Arbor Hospice announced expanded services in Washtenaw and Wayne counties through new affiliations with Glacier Hills Retirement Community and C.S. Mott Childrenâ&#x20AC;&#x2122;s Hospital, both in Ann Arbor, and Henry Ford Village in Dearborn. äĄ˛ Jay Greene: (313) 446-0325 Twitter: @jaybgreene

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DEALS & DETAILS CONTRACTS The American Society of Employers,

Livonia, an employer association, announced an agreement with HR Certification Institute, Alexandria, Va., a professional credentialing organization, which allows human resources professionals in ASE member organizations to receive recertification credits toward their HRCI credentials. Websites: aseonline.org, hrci.org. Ash Stevens Inc., Riverview, a

provider of global contract pharmaceutical chemical development and active pharmaceutical ingredient manufacturing services, announced that the U.S. Food and Drug Administration has approved the Riverview facility for the manufacture of the API ixazomib, an oral proteasome inhibitor. Website: ashstevens.com. Macomb Community College, Warren, and Wayne State University, Detroit, are initiating Wayne Advantage-Macomb, a concurrent enrollment program for qualified

students, with joint admission, coordinated financial aid and joint academic advising. Website: go.wayne.edu/wayne-advantage.

EXPANSIONS ChannelNet, Dearborn, a hybrid

digital marketing, sales and tech firm, has opened field offices in New York City and Austin, Texas. Website: channelnet.com. Fjällräven, Örnsköldsvik, Sweden, has opened a retail store featuring outdoor clothing and accessories at 213 S. Main St., Ann Arbor. Website: www.fjallraven.us. Fathead LLC, Detroit, has launched Studio F, a platform for artists to merchandise and sell their work as high-quality vinyl decals and wrapped canvases using Fathead’s website, marketing and customer service. Website: fathead.com/studiof.

NEW PRODUCTS Gravity Software LLC, Southfield,

an online cloud business management software company,

has released the Gravity 2015 Inventory module. Gravity gives small and midsized businesses the ability to track products wherever they conduct business. Website: gogravity.com. ZipLogix LLC, Fraser, a real estate technology company, has released zipTMS, the company’s new transaction management system, to optimize and enhance workflow capabilities for real estate professionals. Website: ziplogix.com. Hino Trucks, Novi, a Toyota Group company, announced custom color paint options for all conventional trucks beginning with the 2017 model year. Hino will offer exterior truck colors that customers can order as a factory option or color match to their customized request. Website: hino.com.

NEW SERVICES Make Your Dreams Come True Corp., St. Clair Shores, a company

providing individuals and companies with business support services, has added a Kid CEO Program, offering classes to students ages 8-18. Website: mydct.net. Deals & Details guidelines. Email cdbdepartments@crain.com. Use any Deals & Details item as a model for your release, and look for the appropriate category. Without complete information, your item will not run. Photos are welcome, but we cannot guarantee they will be used.

CALENDAR WEDNESDAY DEC. 9

State of the Region. 5-7 p.m. Detroit Regional Chamber. The chamber will release its second annual State of the Region report, which offers an analysis of economic indicators related to business growth, talent, innovation and international commerce for Southeast Michigan. Westin Book Cadillac, Detroit. $30 chamber members, $595 to join. Contact: Janelle Arbuckle, (313) 596-0340; email: jarbuckle@detroitchamber.org.

UPCOMING EVENTS Michigan Supreme Court Justices. 11:30 a.m.-1:30 p.m. Dec. 15. Detroit Economic Club. With Justice Bridget Mary McCormack and Chief Justice Robert Young Jr. MotorCity Casino

Hotel, Detroit. $45 DEC members, $55 guests of DEC members, $75 nonmembers. Phone: (313) 9638547; email: info@econclub.org. Multicultural media luncheon. 11 a.m.-2 p.m. Jan. 14. The Ajamu Group LLC. Honors ethnic groups for their achievements in the automotive industry. Keynote speaker is Heisman Trophy winner Tim Brown on “Managing Your Brand’s Image.” A portion of the proceeds benefits Orchards Children’s Services of Michi-

gan and Project Medishare of Haiti. Westin Book Cadillac Hotel-Detroit. $75 general admission; $150 VIP admission includes reception with Tim Brown after luncheon. Contact: Cheryl Ajamu, (248) 223-0904; email: cheryl.ajamu@ajamugroup.com; website: www.ajamugroup.com. 14th Annual NAIAS Breakfast. 7:309:30 a.m. Jan. 15. Inforum. General Motors President Dan Ammann talks about GM’s bold vision for revolutionizing the automotive industry. Detroit Marriott. $40 Inforum members, $65 nonmembers, $25 students, $1,000 table sponsor (table of 10 preferred seating includes company logo recognition in event presentation and event signs). Website: inforummichigan.org. Professional Leadership — The Jack Aronson Story. 7:30-9 a.m. Jan. 20.

Leadership Oakland. Featuring Jack Aronson, founder, Garden Fresh. MSU Management Education Center, Troy. $32 members, $36 nonmembers. Website: leadershipoakland.com. Technology Industry Outlook. 8-11 a.m. Feb. 22. Automation Alley. The key findings of Automation Alley’s annual technology industry report will be discussed. Detroit Institute of Arts. $25 members, $45 non-

members. Contact: Lori Podsiadlik, (248) 457-3212; email: podsiadlikl@automationalley.com. Detroit Policy Conference. 7:30 a.m. Feb. 24. Detroit Regional Chamber. Keynote remarks by David Maraniss, Pulitzer Prize-winning journalist. MotorCity Casino Hotel, Detroit. $159 chamber members, $225 nonmembers. Contact: Janelle Arbuckle, (313) 596-0340; email: jarbuckle@detroitchamber.org. Young Professionals Panel. 7:309:30 a.m. Feb. 24. Leadership Oakland. Moderator: Jennifer Korman, Mercedes-Benz Financial Services. Panel: Ryan Bladzik, Village of Holly; Kim Martin, Henry Ford Health System; and Treger Strasberg, Humble Design, on perspectives to leadership. MSU Management Education Center, Troy. $32 members, $36 nonmembers. Website: leadershipoakland.com.

Calendar guidelines. 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.

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LEGACIES John Adamo Jr.

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John T. Adamo Jr., the CEO of Detroit-based excavation contractor Adamo Group Inc., died suddenly in a construction accident Dec. 2, 2015. He was 57. Adamo was born Dec. 31, 1957, to the late John and Gloria Adamo and graduated from Michigan State University in 1981. He is survived by his wife, Barbara; and children, Leslie (Andrew MacKellar), Lauren McBroom (Michael), Carolyn, and Julie; and brothers James (Diane) and Richard (Sandra). Visitation was planned for Sunday. A funeral mass will be held at 11 a.m. Monday at St. Hugo of the Hills Church, 2215 Opdyke Road, Bloomfield Hills. Visitation at the church begins at 10 a.m. The family asked that memorial tributes be sent to St. Jude Children’s Hospital.

Crain’s will publish selected obituaries of businesspeople in its print edition and online. For placement of a paid obituary item or tribute advertisement, contact Marla Wise, (313) 446-6032 or mwise@crain.com.

the latest executive to part ways with the economic development nonOlga Stella profit. On Jan. 19, Stella will replace Matt Clayson, who left DC3 in August. DC3, an economic development organization serving the Detroit design industry, is a joint initiative of the College for Creative Studies and Business Leaders for Michigan. At DEGC for nine years, Stella was promoted to her current role this year from her previous job as vice president of business development. Earlier this year, Brian Holdwick announced he was leaving the DEGC after 22 years. He was replaced by Moddie Turay, now executive vice president of real estate and finance. George Jackson left the DEGC last year after heading it for 13 years; he was replaced by Rodrick Miller.

J.R. Thompson Co. names Bellissimo as CEO Farmington Hills-based marketing services firm J.R. Thompson Co. named Mark Bellissimo as CEO. Bellissimo, 51, is taking over responsibilities from Clay Thompson, who will

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Carhartt Brett Lauter will be responsible for driving and scaling the company's global brand presence in continued service to the consumer. He will oversee the operations, merchandising and marketing for the ecommerce team. Most recently, Lauter was the president of Decluttr, where he was responsible for the launch and ongoing operations of Entertainment Magpie, Inc. He was also the managing director of digital and e-revenue for the American Cancer Society from '11-'13.

Crain’s has moved its complete list of appointments and promotions to www.crainsdetroit.com/peopleonth emove. Guaranteed placement in print and online can be purchased at this website.

remain president of the firm. Bellissi- Mark Bellissimo mo will be CEO of J.R. Thompson automotive and motorsports graphics affiliate Competition Graphics LLC. Bellissimo was a senior marketing adviser for MWB LLC. He has spent most of his career in various roles at Detroit-based marketer Campbell Ewald, most recently as president until 2013.

Montri new Grand Prix GM Michael Montri, a veteran Penske Automotive Group execu-

tive, was named general manager of the Chevrolet Detroit Belle Isle Grand Prix. Montri, 42, most recently vice president of fleet operations for Penske Car Rental and vice president of procurement for Penske Automotive Group, replaces Charles Burns, who left the Grand Prix last month after three years as general manager. 䡲

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City youth summer jobs program seeks employers By Sherri Welch swelch@crain.com

Grow Detroit’s Young Talent , a public-private effort to provide summer jobs for the city’s youth, has set a goal to get 8,000 young people into jobs next summer. And it’s looking for commitments from 1,000 local companies to hire them. The Downtown Detroit Partnership is leading efforts to engage companies in the program with a $100,000 grant from the Detroit-based Skill man Foundation. It also has hired Edward Duggan — son of Detroit Mayor Mike Duggan — as chief recruitment officer, youth summer employment. As the program enters its second year, “we believed it was Edward Duggan: critically imporMayor’s son will tant to bring in head recruitment. an organization that has deep relationships ... (with) the corporate community in Detroit,” said Kristen McDonald, vice president, program and policy, at Skillman. Edward Duggan had been doing similar recruitment work during his recent tenure with Belfor USA Group

Inc., said DDP CEO Eric Larson. And as a part of his father’s mayoral campaign, he had met many businesses and community leaders. “Quite frankly, (it) does not hurt, as we’re trying to connect with these organizations, to have someone who has been in the community and has a reputation and the background he has,” Larson said. According to his LinkedIn profile, Duggan, 27, was a property restorer at Belfor for two years before joining the DDP. Before that, he was director of campaign coordination for his father’s mayoral campaign and a law clerk at Allen Bros., Attorneys and Counselors PLLC in Detroit, and held roles with a number of political, ballot initiative and advocacy campaigns before that.

Need for speed “This is a program that needs to move quickly,” Larson said. “Minimizing the learning curve and understanding the landscape was very important.” Grow Detroit’s Young Talent matches employers with Detroit young people for summer jobs and provides work readiness training, transportation and employer support services. It launched this summer with an online platform at GDYT.org to

For next summer, the goal is to place 8,000 or more young people in summer jobs with local companies and nonprofits. In 2015, about 5,600 were employed at 107 companies and 92 nonprofits.

20 firms pledge 1,600 jobs manage youth recruitment, screening, placement and payroll for employers and allow employers to log on to provide employee reviews. Participating companies were also provided one of 50 youth employment specialists through City Connect Detroit to help match students with jobs and employers and to manage any issues. Detroit young people looking for summer jobs can apply through the website to get free rides on city buses during the summer to get to their jobs. While City Connect and the De troit Economic Growth Corp. administered the program this year, the city

Kresge awards $2.2M for city revitalization By Sherri Welch swelch@crain.com

A $550,000 grant from the Kresge Foundation will fund, among other things, creation of a corporation to spur development of the Eastern Market district and surrounding neighborhoods. The grant, which will go to East ern Market Corp. over the next three years, will also support operations, Kresge said in a release. The funding is one of 10 grants approved as part of $2.2 million in Detroit revitalization grants approved by the Troy-based foundation’s board of directors last week. Other grants included: 䡲 $250,000 to the Detroit River front Conservancy to work with a coalition of organizations to update plans for the riverfront district from the MacArthur Bridge near Belle Isle to the Ambassador Bridge. 䡲 $100,000 over two years to the recently formed Corktown Economic Development Corp. to lead planning to establish Michigan Avenue as the main artery of a walkable neighborhood and regional attraction. 䡲 $70,000 to the Southwest De troit Business Association to collaborate with the city of Detroit on redevelopment of the abandoned, former Detroit Public Works vehicle maintenance yard at West Vernor Highway and Livernois Avenue. The 7-acre site sits near the landing for the new Gordie Howe International Bridge and has been recommended as a retail, business incubator and

community gathering space, Kresge said. “The explosion of commercial and residential activity extends well beRip Rapson: yond downtown Grants aimed at and the Woodneighborhoods. ward Corridor, yet the tangible results are not yet felt as strongly in neighborhoods as they should

is selecting a lead agency through a request-for-proposals process for a $1.5 million Community Development Block Grant contract. For next summer, the goal is to place 8,000 or more young people in summer jobs with local companies and nonprofits, up from a goal of 5,000 this past summer. In 2015, about 5,600 youths were employed through the program at 107 companies and 92 nonprofits, McDonald said. The need, she said, “is probably close to 15,000, based on the interest we saw last year.”

be,” Rip Rapson, president and CEO of the foundation, said in the release. “These latest grants support the shoulder-to-wheel attitude that we see in Detroiters from southwest to northeast.” Kresge has made more than $30 million in new grant commitments this year to Detroit revitalization projects ranging from mass transit to early childhood development. 䡲 Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

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So far, 20 companies have verbally committed to hire a total of 1,600 youths for summer 2016, said Kailey Poort, director, communications and marketing, at the DDP. In tandem with securing corporate commitments to hire the city’s youth next summer, the program will seek to raise $7 million to $8 million to cover work readiness training, transportation, wages and program administration, McDonald said. Administration of the public-private effort this past summer was supported by Skillman, the W.K. Kellogg Foundation, the DTE Energy Foundation , J.P. Morgan Chase , philanthropist Marjorie Fisher and the

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Bank of America Foundation. For this past summer’s program, Detroit Mayor Mike Duggan committed $1,000 in Community Development Block Grant funding — or half of the amount each young person could earn during the six-week program — as a match for every $1,000 that local companies contributed. For the 2016 program, the city will fund a lead agency to administer it with $1.5 million or more in block grant funding, said Alexis Wiley, the mayor’s chief of staff. Last week, the city named Ricardo Marble its new youth services director to help lead the continued expansion of Grow Detroit’s Young Talent on behalf of the city and to expand the Goal Detroit Soccer League , a joint effort between the mayor’s office, Detroit PAL and local schools. Marble, 43, previously was manager of outreach services at Teen Hype in Detroit. “The city has been a deep and critical partner in helping to build and grow the youth employment system so we can scale it across the city and serve the number of kids we need to serve,” McDonald said. “The kids need summer jobs to develop and be successful adults.” 䡲

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BLUES FROM PAGE 1

of total administrative expenses each year, by simply improving efficiencies and claims processing. That kind of cut would almost require staffing to shrink. Sources told Crain’s that multiple factors are forcing the Blues to cut costs. They include adjusting the workforce after a huge expansion to prepare for changes and new customers from the Patient Protection and Affordable Care Act of 2010. Most insurers have expanded workforces and operations to comply with new demands under the health care overhaul and to keep up with competitors, said Harry Dalsey, a consultant with Dalsey & Associates in West Bloomfield Township. Blue Cross also has expanded its sales and marketing workforce, say sources, to capture more individual customers. In the past two open enrollment periods since December 2013, Blue Cross has added 90,000 individual members, primarily through the federally managed health insurance exchange in Michigan. Blue Cross now has 261,000 individual members. But the major external force demanding lower administrative costs is Blue Cross’ own client base, including auto suppliers, the three Detroit automakers, and large, selffunded companies. Sources said these companies want Blue Cross to lower its fees for managing their self-insured health benefit plans. Sources told Crain’s that Blue Cross is concerned that to save money, major employers will defect from the Blues and sign on with Aetna , Cigna , United Healthcare or competing Michigan insurers that include Priority Health and Health Alliance Plan.

Customers want affordability Hetzel confirmed that one of the driving forces for cost-cutting is talks Blue Cross recently has had with some of its largest customers. “When we are in the room with our customers, this is what we hear: ‘Our employees prefer Blue Cross, but you need to help us offer it affordably,’ ” Hetzel said, adding: “We are not going to wait and be outflanked by our competitors.” Blue Cross also faces potentially new competition from hospitalbased systems that have formed two major clinically integrated networks to contract directly with employers. Sources said these provider networks, coupled with third-party administrators, could offer employers an option to bypass the Blues’ formidable network and lower discount pricing arrangements with hospitals, doctors and other health providers. Last year, Together Health Network was formed by Livonia-based Trinity Health Michigan and Warren-based Ascension Health Michigan . The network encompasses 27 hospitals and more than 5,000 physicians.

This year, a network tentatively called the “Federation” was formed by Allegiance Health in Jackson, Sparrow Health System in Lansing, Covenant HealthCare in Saginaw, Mid Michigan Health in Midland, Bronson Healthcare Group in Kalamazoo and Lakeland HealthCare in St. Joseph. With Henry Ford Health System planning to acquire Allegiance and talk about an affiliation with Kaiser Permanente , the Federation could become a powerful statewide contracting force that could threaten Blue Cross’ dominance, experts said. “Successful companies initiate change before they are forced to change,” Hetzel said. Six years ago, Blue Cross’ “strategic transformation” led to a reduc-

tion of nearly 1,000 workers through attrition, layoffs and retirements. The reduction amounted to a 12 percent cut in the Blues’ workforce to about 6,900. Since then, however, Blue Cross and its related subsidiaries have grown to 7,921 employees.

Administrative cost squeeze Jerry Konal, Mercer ’s principal business leader in Detroit, said Mercer’s surveys have found a large variance in Blue Cross administrative service costs compared with those of competitors. Moreover, because of a variety of factors — including Blue Cross’ recent legal settlement with Aetna over

Six years ago, Blue Cross’ “strategic transformation” reduced the company workforce to about 6,900. Since then, the health insurer and its related subsidiaries have grown to 7,921 employees.

BLUE CROSS BLUE SHIELD OF MICHIGAN

its arrangements with providers that guaranteed Blue Cross the lowest rate — Blue Cross’ discounts from hospitals aren’t as deep as they used to be. Another source told Crain’s that Blue Cross’ settlement with Aetna, which asked for nearly $2 billion in damages, added “a couple hundred million dollars” in administrative costs this year to the Blues. Hetzel confirmed that discounts have narrowed compared with those of competitors but said the Aetna settlement was “not a significant driver of that narrowing.” Since 2010, Blue Cross has “experienced faster admin cost growth and lower membership gains than national, for-profit plans,” according to a confidential Blue Cross document. For example, United Healthcare cut administrative costs by 0.5 percent while increasing membership 11.3 percent, the Blue Cross report said. From 2013 to 2014, Blue Cross’ general administrative expenses increased 25 percent, from $863.4 million to $1.077 billion, a Blue Cross financial document said. The Blue Cross report stated its overall administrative costs are “20 percent to 30 percent higher than local competitors in the commercial business.” For example, Blue Cross monthly administrative costs per member increased 27 percent from 2010 to 2013, or from $27.63 to $35.04. Its membership increased only 0.4 percent during that period, to 4.4 million members. Other plans increased costs, but at a lower rate. They include Aetna, with 4.6 percent administrative cost growth to $31.19 a month per member, and Cigna, by 5.8 percent to $32.22. But those plans increased membership by 6.3 percent and 4.5 percent, respectively. But more striking are comparisons with local Michigan health plans. For example, Blue Cross administrative and commission expenses on the federal health insurance exchange in Michigan are $64 per member per month, compared with $49 for Humana HMO, $41 for McLaren Health Plan, $37 for Priority Health HMO and $25 for Molina Healthcare of Michigan. Hetzel confirmed that Blue Cross’ administrative expenses have been increasing. He cited higher medical costs, coverage mandates because of the Affordable Care Act, the costs of litigation and increased investment in technology. “Large national payers are consolidating rapidly to reduce costs and maximize efficiencies,” he said. “We are taking that very seriously and addressing our own cost structure. Large national insurers have significantly more capital to invest in new capabilities, new technologies and have the scale to aggressively spread costs over their enterprises.” Fran Parker, CEO of the UAW Re tiree Medical Benefits Trust in Detroit, said Blue Cross is reviewing its employee needs and administrative expenses in ways similar to what other health insurers are doing. “Blue Cross is being prudent to

react and be proactive to changes in market dynamics” in Michigan and nationally, said Parker, who formerly headed Health Alliance Plan. Parker said market changes in Michigan include an increasing number of people with Medicare and Medicaid coverage and a shift to the individual market and away from fully insured plans. “The business climate has changed dramatically,” she said. “The market is very dynamic and is demanding greater transparency around cost and value.” Blue Cross also competes with national plans such as Aetna and United Healthcare that have developed scale and presence principally because of Medicaid and Medicare to compete more effectively with the Blues in Michigan. “The need to invest heavily in technology has created greater pressure on traditional administrative costs,” Parker said. “The market is far past doing business as usual, and (Blue Cross) obviously knows this.”

New revenue also important Despite posting earnings of more than $1.1 billion the past five years, Blue Cross wants to expand to generate more revenue. “We recognized the market is rapidly changing,” Hetzel said. “We need to identify how to streamline our cost base, grow revenue through new types of business ventures and involve all employees in what we are doing.” On the revenue side, Blue Cross plans a multipronged effort that includes adding Medicare Advantage and Medicaid business in Michigan and nationally, partnering with other Blues state-based plans and acquiring or investing in independent companies. “We are in a growth mode in Medicare Advantage,” said Hetzel, noting that since 2006, the Blues’ Medicare managed-care plan has grown to cover 440,000 members in 1,900 counties in all 50 states. Sources told Crain’s that Blue Cross is in talks with the nonprofit Arkansas Blue Cross Blue Shield about a partnership plan for Medicare Advantage and is expecting to develop other similar partnerships with Blues plans nationally. Last month, Blue Cross acquired ikaSystems Corp. , a Southborough, Mass.-based information technology vendor, to primarily help it manage its Medicare plans and as a revenue-generating source. Blue Cross also expects to increase revenue through its minority interest with AmeriHealth Caritas , a national Medicaid management company. In June, Blue Cross also spun off its Medicaid health plan, Blue Cross Complete , into a 50-50 AmeriHealth joint venture. Hetzel said Blue Cross expects revenue growth on the commercial insurance and administrative services organization side of its business. “If we get our costs more streamlined,” Hetzel said, “we see tremendous potential with continuing relationships with existing companies.” 䡲 Jay Greene: (313) 446-0325 Twitter: @jaybgreene

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ZILKO FROM PAGE 3

do 112 speaking engagements this year, promoting his best-selling motivational books. Zilko’s first task? Finish making arrangements and signing contracts for what could be a make-orbreak three-day leadership event for Fuel in Las Vegas early in 2017. He hopes the event will make Fuel Leadership a national brand and be a springboard for a series of smaller, regional events around the country. Zilko said he has been receiving bids from Las Vegas venues, with the plan to have a day of informal events both before and after a day of speeches and presentations. “We want that to be the place to be in America that day,” Zilko said. He said the plan is to build an event that generates so much buzz it will then be easier to market regional events across the country. “The star power of our presenters will take this to the next level,” said Linkner, adding that he has been negotiating with speakers for Las Vegas but can’t yet announce any names. Fuel’s first event was at the Mo torCity Casino Sound Board last April 13. Linkner said it sold out, selling about 1,300 tickets at between $895 and $1,695 apiece. Speakers included Mark Fields, the CEO of Ford Motor Co. ; retired basketball star-turned-businessman Magic Johnson; retired U.S. Navy commander and author Michael Abrashoff; author and entrepreneur

Seth Godin; Gov. Rick Snyder; and actress Jessica Alba, who co-founded The Honest Co., a maker of ecofriendly products for babies. Zilko said he had been friends with Linkner for years, occasionally having breakfast or lunch together. When Linkner told him about his plans to put on leadership conferences, Zilko said, he didn’t get the concept. “I went to the first one last year,” he said. “I wasn’t sure what it would be, but I went out of courtesy for Josh. I was blown away. “I emailed Josh the next day and said, ‘If you need investors, let me know.’ I was so moved by the event, I wanted to become a part of it. “A number of food companies had reached out to me, probably in double figures, but I wasn’t interested. It sounds corny, but I want my next venture to be doing something that inspires people.” Last April, the world didn’t know it yet, but Zilko did: After the deal to sell Garden Fresh to Campbell closed, he’d have plenty of money to invest. The maker of hummus, salsa and tortilla chips generated revenue of $110 million in 2014. Zilko said he took “the lion’s share” of the $2 million investment round, with Linkner and a small group of high-net-worth individuals putting up the rest. When Crain’s broke the story in February 2014 that Linkner — who had co-founded ePrize, an Internet marketing company, in Pleasant Ridge in 1999 and was a co-founder in 2010 of the venture capital firm

Detroit Venture Partners — was launching Fuel, the plan was to put on six to eight events in the U.S. next year and build up to 30-40 in the U.S. and abroad over the next five years. While the first show in Detroit met expectations, a second one, in September in Cleveland, did not. “It was definitely under expectations, but it wasn’t like it was a disaster,” said Linkner, who had hoped to sell 1,500 tickets and ended up selling about 1,000. “As a startup, you learn from your mistakes, and we did.” He said one problem was he isn’t as well-known in Cleveland as he is in Detroit. He said another was the Republican National Convention will be in Cleveland next summer. While that may seem far away, companies from which he was hoping for sponsorships were targeting all their sponsorship money for convention-related events. Fuel did what startups call a pivot. Instead of proceeding with regional shows around the country, the plan became to target Vegas. Fuel will hold its second show in Detroit at the MotorCity Sound Board on April 21 and then hold off on more shows until after Vegas. Fuel’s original investors were David Farbman, CEO of HealthRise in Southfield and founder of Carbon Media Group in Bingham Farms; and Craig Erlich, the CEO of pulse220, an events and marketing company in Ferndale where Fuel shares space. 䡲 Tom Henderson: (313) 446-0337 Twitter: @TomHenderson2

DEARBORN FROM PAGE 3

Artspace Lofts Ranging from the $16.5 million City Hall Artspace Lofts, with 53 units

of live/work space in the former city hall for artist families expected to open starting next month, to multiple planned smaller developments on a pair of city-owned parking lots at Michigan Avenue and Schaefer Road, the two downtowns are hopping. “It’s a pretty vibrant downtown,” said Robert Gibbs, managing principal of Birmingham-based Gibbs Planning Group Inc., which is helping the East Dearborn DDA compile a master plan for the two parking lots, one 4 acres and the other 8 acres. The sites could accommodate 80 to 90 residential units and about 100,000 square feet of retail, he said. “There is a very thriving restaurant scene, and we found a very strong market potential and really a great opportunity.” Jennifer Bridges, community manager for Artspace, said about 30 of the units, which range from about 600 to 1,200 square feet, have been leased so far and more than 50 applications have been received.

Other sites Other redevelopment opportunity also exists, particularly at the historic 120-year-old former Wagner Hotel at the corner of Michigan and Monroe Street. Closed in the 1920s — but a part of the downtown entertainment and shopping scene

The 56-unit City Hall Artspace Lofts are expected to open starting next month. until about 10 years ago — the hotel is a prime redevelopment candidate in west downtown. A technical assistance panel of the Urban Land Institute Michigan recently drafted a 40-plus-page report outlining a proposal for 26,000 square feet of retail space along with 71 units of residential housing ranging from 440 to 900 square feet renting for $1.57 per square foot. “Dearborn has a lot of great assets in hand and a great platform to build on,” said John Petz, director of real estate and public affairs for Ann Arbor-based Domino’s Farms Corp. who chaired the ULI panel on the Wagner Hotel block. “This is just one more piece in the puzzle of making Dearborn more of a fun suburban-urban experience for people that isn’t the towering skyscrapers of downtown Detroit, but provides the walkability and variety of opportunities we want to see in our communities.” And even some property that was

part of the West Village Commons development, on Michigan Avenue east of Military Street, is soon expected to be back in play. That project was expected to eventually include 48 condominium units, a retail center and two midrise buildings for residential, office or hotel use at the former Jacobson’s store site. The city, as part of a development agreement with West Village Com mons LLC , which was registered to developer Peter Burton, agreed to borrow money to pay for two parking decks, with $12 million of the construction costs repaid by revenue through a tax-increment financing agreement. The two parking decks, 36 of the 48 condos and the retail center with second-floor office space were built. But the two seven-story buildings that were to be sandwiched between the two parking decks were not constructed. A contentious legal battle ended up in the U.S. Court of Appeals and an

Doner wins Food Lion grocery chain account By Bill Shea bshea@crain.com

Southfield-based advertising agency Doner Partners LLC has picked up Salisbury, N.C.-based grocery chain Food Lion as a client. Terms of the deal were not disclosed last week, but the chain is said to spend $30 million to $40 million per year on media. As agency of record, Doner will handle integrated marketing planning, targeted advertising campaigns, and media planning and buying. “This is a significant account win for us,” agency President and Co-CEO David DeMuth said. Doner beat Miami-based Crispin Porter + Bogusky and Durham, N.C.-based McKinney in a review. Doner replaces Boston-based Mullen , which had been Food Lion’s agency of record since 2012. Raleigh-based consulting firm Hasan + Co . managed the review process, which began in June. “I think our expertise and experience in retail business was a big factor, as well as our understanding of their consumers,” DeMuth said. Food Lion’s top executive agreed. “Doner has tremendous

out-of-court settlement. It is that land now that SheppardDecius says the city is close to having clear title on and will be able to market to developers for new construction. But other projects never happened, or at least not in full, such as the Dearborn Village North and Dear born Village South , originally proposed as a $200 million mixed-use development proposed as residential towers up to nine stories and more than 350 new units, along with a movie theater, commercial space and a hotel. Ultimately built was a much-smaller-scale commercial and residential project, with Buffalo Wild Wings and Panera Bread outlets and only 24 loft units. Mike Bewick, executive director of the East Dearborn DDA, said he and his board are trying to make sure the area offers more for visitors outside of traditional business hours. “In East Dearborn, Monday through Friday after the 9-to-5, you could basically roll the sidewalks up because there was nothing happening,” he said, adding that he views his part of downtown as Midtown is to downtown Detroit’s core. Part of the city’s downtown appeal are the big local institutions in the area, including the Ford headquarters, the student communities of UM-Dearborn and Henry Ford College, and cultural attractions like the Henry Ford Museum and its Greenfield Village , and the Arab American National Museum . The Arab American Museum, an affiliate of the Smithsonian, recently demolished

experience in the retail sector and we believe has a unique opportunity to help us continue to elevate the Food Lion brand and further enhance the emotional connection with our customer,” chain President Meg Ham said in a statement. Doner’s grocery experience includes past work for Meijer Inc. and The Kroger Co. The agency’s first creative and advertising for Food Lion should appear in late first quarter of 2016, DeMuth said. Food Lion, which began business in 1957, has 1,100 stores in 10 Southeast and Mid-Atlantic states and employs more than 66,000 people. It claims about 10 million customers a week. The chain is part of Belgian grocery giant Delhaize Group. The new advertising work comes on the heels of Doner’s Nov. 2 announcement that it had laid off an undisclosed number of staffers after losing the J.C. Penney account in October. Advertising Age ranked Doner as the nation’s 102nd-largest agency by revenue at $102 million in 2014. Bill Shea: (313) 446-1626 Twitter: @Bill_Shea19

an adjacent building and completed construction of a 4,700-square-foot annex for meeting and event space. West downtown runs on both sides of Michigan between Outer Drive to the west and east of Brady Street. East downtown generally surrounds the intersection of Michigan Avenue between west of Schlaff and Oakman Boulevard and Schaefer between Ruby and Bryan streets. Both DDAs were established by ordinance in 1977. Although demographic trends in the one-mile radius around the Wagner Hotel block show that the population is expected to drop a half-percent from 7,566 to 7,371, the median and average household incomes are expected to increase, as is the per capita income, according to data from ESRI Inc. prepared by Gibbs Planning Group. That bodes well for retail around the block, parcels with a variety of owners. One thing that can help both downtown districts in Dearborn: A more cohesive identity. Sheppard-Decius said the two DDAs are working on a new branding strategy that better unifies the two downtowns, perhaps under the name Downtown Dearborn Inc. That would help promote efficiencies and eliminate confusion over the two districts. “People don’t think of two different downtowns or districts” when they think of the city,” she said. “They just think of Dearborn.” 䡲 Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

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Auto show organizers hunt for extra parking space The North American Interna t i o n a l A u t o S h o w is on the

PHOTOS BY DUSTIN WALSH

Porsche’s display (above) at the North American International Auto Show takes shape on the floor of Cobo Center. BMW’s display (below) is also underway.

AUTO

show experience. The website will also offer the reviews and consumer product information CNET is known for, he said.

FROM PAGE 1

er’s 60,000 square feet into an illuminated motion sculpture, Hemsworth said. “It took a deep bench of programmers and technical direction staff to pull this off,” Hemsworth said. “We expect it to be the talk of the show.” But it’s behind the scenes that GPJ will be producing the biggest return on investment for its automaker clientele. The firm, without confirming whether the technology will be used at NAIAS, uses beacon technology to track movements of auto show attendees. Beacon technology provides instant feedback from attendees’ smartphones on where they spent the most time in a display and what their potential car buying preferences are, Hemsworth said. “If the attendees opt in, say, through an app, we can unlock personalized content as they move through the space or drill down to the demographics of the people in the space,” Hemsworth said. “Generally, display content is painting with a broad brush, but this technology can be harnessed to better interact with attendees on a personal level.” Alberts said the investment by automakers into displays next year will likely top $200 million. “People show up at this event interested in the cars, but there is a lot of magic and wizardry in pulling off the show itself,” Hemsworth said.

What’s the buzz? Media content doesn’t stop at the displays, as NAIAS forged relationships with Twitter and CNET for the

The nostalgia factor

North American International Auto Show Where: Cobo Center Press Preview: Jan. 11-12 Industry Preview: Jan. 13-14 Charity Preview: Jan. 15; tickets cost $400 Public show: Jan. 16-24; tickets cost $13, or $7 for seniors and children ages 7-12. Children under 7 are admitted free.

2016 show to highlight what’s hot on the show floor. Twitter will place several “buzz boards” throughout the show floor and concourse at Cobo Center , allowing media and other attendees instant access to what cars, topics, etc. are trending at the event. W a y i n I n c . , an analytics affiliate to Twitter, will also provide instant analysis on trending topics for reporters covering the event, Alberts said. The estimated 5,000 media attendees from around the world will

also have access to press kits, photos and other facts about what’s happening at the show through a portal on the NAIAS website created by IBM Corp. “It’s a nice asset to assist the reporters covering our event,” Alberts said. “A successful press week is vital to a very good run for the show.” IBM is expected to make an announcement about integrating its artificial intelligence machine Watson, as seen on the quiz show “Jeopardy,” into cars. CBS Corp. ’s CNET is launching a new auto-centric brand, called Roadshow by CNET, at NAIAS 2016. Roadshow by CNET will livestream every product unveil at the show as well as interviews and commentary at its own dedicated booth on the show floor. “CNET has been doing auto show coverage for 10 years, but it became clear we needed to bring more attention to the coverage we were already doing,” said Tim Stevens, editor in chief of the Roadshow. “We decided to break out the coverage into its own area for CNET and add a lot of video series and really bring viewers into the auto

But not all that’s new at NAIAS 2016 is high-tech. To kick off the festivities, three classic cars built in Detroit will embark the day after Christmas on an 11-day trip from their home at The LeMary-America’s Car Museum in Tacoma, Wash., to the show in January. As part of the show’s theme, “All Roads Lead to Detroit,” a 1966 Ford Mustang, 1957 Chevrolet Nomad and a 1961 Chrysler 300G will rally down Woodward, finally arriving at a private NAIAS pre-party on Jan. 7, Alberts said. “We wanted to find a way to build excitement before the show, and this is a perfect match,” Alberts said. “We’ll do this every year, but start it in a different city.” A new sponsorship is expected to be announced at the completion of the rally, Alberts said. In total, there are more than 100 sponsors for the 2016 auto show. Alberts said he expects as many as 850,000 attendees and a large turnout for the NAIAS Charity Preview on Jan. 15. “When I arrived here 25 years ago, I believed in incremental success because it’s hard to live up to a blowout show every year,” Alberts said. “But the fallout in 2009 was a wakeup call for us. We know we needed to get aggressive with ideas for the show, and I think this year is a prime example of that thinking.” 䡲 Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

lookout for places to park cars that won’t grace the show floor. With downtown Detroit’s swelling employee ranks filling up formerly underused office buildings and parking lots, show organizers have to get creative. Max Muncey, NAIAS public relations manager, acknowledged that the number of downtown employees who use monthly parking is on a definite upswing, “so from a show perspective, we are looking into numerous parking venues now” during the show’s 2016 Preview Week, Jan. 11-15. “We are looking at adjoining parking structures and parking at Joe Louis Arena” because the Red Wings will be out of town that week, he said. Eric Larson, CEO of the Downtown Detroit Partnership Inc., said the number of down-

town employees now is about 85,000, compared with 60,000 to 65,000 six years ago. “We are projecting another 10,000 employees downtown in 2016,” he said. Some parking lots also have been repurposed for other uses. With the greater demand, Larson said, that’s put a premium on available spots. Muncey said efforts also are being made to use the large downtown venues such as the parking lots at Comerica Park and provide shuttles to Cobo Center, where the auto show is held. Thom Connors, regional vice president and general manager of SMG/Cobo Center , said that when it comes to parking at Cobo itself during the auto show, not much has changed from previous years. Cobo roof parking is normally about half-filled with monthly parkers Monday through Friday. During Preview Week, the other half will be contracted by the NAIAS for use by show organizers, Connors said. “During the public show days, that half of the roof can be used by the general public like usual,” he said. Added Muncey, “Public service announcement: If you own a lot, contact the show now.” Marti Benedetti

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who came from Augusta, Ga.-based Georgia Regents Health System and has known Wilson for many years, was given the job of reviewing the medical school’s financial condition, Sobel said. Within 45 days, Hefner discovered communication problems between the medical school, FMRE, the University Physician David Hefner: Group and pracFound problems in tice plans that communication. were hurting their ability to generate revenue, Sobel said. Those included a lack of joint strategic planning and coordination of hiring and compensation plans. “The university had to pay the costs of the professors because the money was not covered by UPG,” said Sobel, noting that UPG this year lost $9 million, despite the $27 million sale of a 175,000-squarefoot corporate office and ambulatory surgery center in Troy. Losses for the medical school in fiscal 2015 totaled $7 million and losses for FMRE were $13 million, Sobel said. Combined revenue for the medical school and UPG in 2015 was about $640 million. “I am not here to point fingers,” Sobel said. “There are too many fingers to point, and the fingers have grown long” over the past 20 years. Sobel said a turnaround team led by Hefner is exploring various options this month to cut costs and increase revenue. “We cannot have a burn rate of $1.5 million in January, not even a $1 million” per-month loss rate, Sobel said. “We have already fleeced the university more than what is reasonable.” Starting next year, Sobel said, there will be a period of austerity for some departments at the medical school. “There will be a (hiring) freeze in many departments. There will be (expense) cuts,” he said. “I am against the concept of across-theboard cuts. We cannot cut successful individuals.”

Total employees at the medical school and UPG are 3,285, with 985 at UPG and 2,300 at the medical school. Total clinical, science and research faculty is 827 professors. “We don’t know about (employee) reductions. Things are thin now. We are looking possibly at attrition,” Hefner told Crain’s on Tuesday. “On the faculty side, there will be redeployments and cuts in overhead areas.” To turn around operations, Hefner said, the medical school and UPG also must increase revenue in a variety of areas. Immediately, he said, UPG has taken action on improving billing and collections and in renegotiating supply and management service vendor contracts. “We are opening up (physician) schedules and removing barriers to see more patients and beginning to interact and share information with faculty,” Hefner said. “We need to take systemic actions, but some of that does require more planning and design work.” Sobel said plans call for renegotiating contracts with such partner organizations and increasing research funding and philanthropy. Efforts are also underway to decrease overhead costs and tie physician pay to productivity. “We need to fundamentally change how we operate,” Sobel said. “The chairs have not been held accountable, and that will stop. We need to increase faculty productivity and reduce administrative overhead. We need to create a high-performing team across the organization.” Sobel said one disturbing finding was the low percentage of clinical faculty and basic science faculty that are contributing funded research grants to the medical school. In a Thursday interview with Crain’s, Sobel said the lack of research and grant dollars is a “dominant factor” in accounting for the $29 million in losses. For example, the national average for tenured faculty with grants is about 40 percent, but Wayne State’s average recently has been about 14 percent. “Most (science and clinical) faculty don’t have grants. This has got to stop,” Sobel said in the town hall

INDEX TO COMPANIES These companies have significant mention in this week’s Crain’s Detroit Business: Achatz Handmade Pie ...................................... 4 Adamo Group ................................................... 24 Amherst Partners .............................................. 9 Arbor Hospice & Palliative Care .................... 22 Blue Cross Blue Shield of Michigan .................. 1 Cascade Partners .............................................. 9 City Hall Artspace Lofts.................................. 26 Dalsey & Associates........................................ 26 Detroit Symphony Orchestra ......................... 14 Detroit Zoological Society ............................... 11 Dick Scott Chrysler Dodge Jeep.................... 20 Downtown Detroit Partnership..................... 25 eCycle Opportunities ....................................... 13 Fiat Chrysler Automobiles .......................... 1, 20 Fox Hills Chrysler Jeep .................................... 20 Fred A. and Barbara M. Erb Family Foundation . 12 Fund for Medical Research and Education .... 3 George P. Johnson Co. ........................................ 1 Gibbs Planning Group ..................................... 26 Grandmont Rosedale Development.............. 15 Grow Detroit’s Young Talent .......................... 25

Hospice of Michigan ........................................ 22 Just Baked Cupcakes ........................................ 4 JVS ...................................................................... 13 Kresge Foundation .......................................... 25 Livonia Chrysler Jeep ...................................... 20 Mercer ............................................................... 26 Michigan Manufacturers Association........... 19 Michigan Unemployment Insurance Agency ... 17 North American International Auto Show... 1, 28 Olympus Fare .................................................... 21 Pitt, McGehee, Palmer & Rivers..................... 18 Plunkett Cooney ............................................... 19 Quarton Partners............................................... 9 Skillman Foundation ....................................... 25 Small Business Association of Michigan...... 18 University of Michigan ...................................... 6 Wayne Metropolitan CommunityAction Agency 14 Western Michigan Univ. Cooley Law School..... 17 Wolfson Bolton ................................................. 19 Wayne State University .................................... 3 Wayne State University Physician Group....... 3

video. “They can go to another hospital, not here. … We have too many (faculty) who are unable to support themselves with clinical services or research.” Sobel estimated “we have 200 FTEs (full-time equivalent) in excess of what we are doing.” He said the Wayne State turnaround team is closely looking at the clinical and science departments to identify faculty who either have no research grants or grants with small amounts of funding. “We have to redeploy, resize and right-size,” Sobel said at the town hall meeting. Hefner said Thursday the medical school will have a plan sometime in January to address what to do about the differential in faculty salary and research grants. It is standard practice at most medical schools that when researchers receive grants, part of their salaries is paid from those grants. However, in fiscal year 2015, medical school faculty brought in $117 million in research grants and sponsored awards, but only $12 million of salary was recovered from these grants, Hefner said. If Wayne State moved to a national median, $5 million to $15 million more could be recovered, he said. However, in the last three quarters, Sobel said, the amount of research grants alone has picked up by at least $10 million. For example, research grants increased to $70 million in the first nine months of this year from $60.3 million during the same period in 2014. “We have a lot of wonderful researchers here,” Sobel said, adding that the medical school is working on a way to increase incentives and share resources to encourage departments and faculty to increase their research capabilities without affecting their educational and clinical responsibilities. While in the making for 20 to 30 years, financial problems started to become serious in 2009, when Wayne State settled a contract dispute with the Detroit Medical Center that led to a reduction in funds from DMC to the medical school and university. Hefner said the DMC contract and lower payments was a significant contributor to the financial downturn at Wayne State. He said the school is still researching how much less the medical school has received from DMC since 2009. The DMC contract with the medical school expires in March and will be renegotiated “to make it fairer,” he said. “It is very difficult to manage the school of medicine and take care of our commitments with that amount” of money from DMC, Sobel said. But Hefner said the financial problems facing Wayne State are also due to reductions in funding from the state, the National Institutes of Health and more recently, a decline in clinical services revenue, primarily because of declining reimbursement for care. “We did not address these decreases with commensurate cost re-

ductions,” Sobel said. Hefner said Wayne State now is focusing on mostly non-labor expense improvement. However, Nicole Mascia, UPG’s chief of corporate affairs and COO, resigned in early November. Sobel and Hefner said there could be more resignations at the medical school before January, when the full turnaround plan is expected to be in place. Hefner said historically the medical school — as most medical schools nationally — has lost money as part of the university, but the affiliated entities have generated enough revenue to keep the school in the black. In 2014, for example, the Wayne State medical school and its related entities lost about $8 million, Hefner said. But UPG, the medical school’s faculty practice plan, which was founded in 2006 as a 501(c)(3) nonprofit organization by former Dean Robert Mentzer, M.D., traditionally has been profitable and helped contribute revenue to the medical school. While UPG is affiliated with the medical school, the board is independent with seven community members and six medical school members, including Sobel. Each year, UPG contributes an annual “dean’s tax” that has ranged from 8.7 percent to 17 percent of professional fees annually to FMRE to support research and medical education. That dean’s tax has amounted to between $10 million and $14 million per year. From 2009 to 2012, UPG was profitable, averaging about $2 million to $3 million a year. But beginning in 2013, UPG has lost an increasing amount of money, culminating in a $9 million loss in 2015.The discovery of financial losses led to a delay in construction this summer on a $60 million, 125,000square-foot ambulatory care and administrative building for Wayne State’s UPG at 3750 Woodward Ave. The new office would enable UPG to consolidate its various offices around DMC into a central location. The newly appointed chairman of UPG, Michael Busuito, M.D., a Troy plastic surgeon, told Crain’s on Thursday that the UPG board is taking aggressive action to reduce costs and modernize business practices and its information technology system. “UPG is still in its infancy, still evolving,” Busuito said. “There are changes (in health care) that are happening at the speed of light. In surgery, we say, there can be complications.” Over the next 30 days, Hefner said more data will be collected from University Physician Group and the medical school to make decisions early next year on how to improve operations and break even. “We have 30 to 40 people today working together to develop the data that we didn’t have before,” Hefner said. “This is long overdue.” 䡲 Jay Greene: (313) 446-0325 Twitter: @jaybgreene

CRAIN’S DETROIT BUSINESS www.crainsdetroit.com Editor-in-Chief Keith E. Crain Group Publisher Mary Kramer, (313) 446-0399 or mkramer@crain.com Associate Publisher Marla Wise, (313) 446-6032 or mwise@crain.com Editor Jennette Smith, (313) 446-1622 or jhsmith@crain.com Executive Editor Cindy Goodaker, (313) 446-0460 or cgoodaker@crain.com Director, Digital Strategy, Audience Development Nancy Hanus, (313) 446-1621 or nhanus@crain.com Managing Editor Michael Lee, (313) 446-1630 or malee@crain.com Managing Editor/Custom and Special Projects Daniel Duggan, (313) 446-0414 or dduggan@crain.com Assistant Managing Editor Kristin Bull, (313) 446-1608 or kbull@crain.com News Editor Beth Reeber Valone, (313) 446-5875 or bvalone@crain.com Senior Editor Gary Piatek, (313) 446-0357 or gpiatek@crain.com Research and Data Editor Sonya Hill,(313) 446-0402 orshill@crain.com Editorial Support (313) 446-0419; YahNica Crawford, (313) 446-0329 Newsroom (313) 446-0329, FAX (313) 446-1687 , TIP LINE (313) 446-6766

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WEEK OU, Crittenton forge sports partnership akland University and Crittenton Hospital Medical Center agreed on a five-year

contract that makes Crittenton the official health care provider for all 18 of OU’s intercollegiate sports, the Rochester-area organizations announced. The value of the contract was not disclosed.

COMPANY NEWS 䡲 Detroit-based Wolverine Packing Co. is adding a second story to its Eastern Market headquarters as it expands its sales and administrative offices. The work on the building at Rivard Street and the Chrysler Service Drive will be done in early 2016. 䡲 Dearborn-based manufacturing company Viconic Sporting Inc. won a grant of up to $1 million for firms developing technology to maintain athletes’ brain health. The funds come from the Head Health Initiative, a collaboration of the National Football League, Under Armour and General Electric. 䡲 Sparrow PHP and its 21,000 Medicaid members will be sold and transferred Jan. 1 to Blue Cross Complete, a Medicaid HMO coowned by Detroit-based Blue Cross Blue Shield of Michigan, said officials of Lansing-based Sparrow Health System, which owns Sparrow PHP. Officials declined to disclose the price for the sale, which came after Sparrow PHP lost its contract with the state.

䡲 MMI Engineered Solutions Inc.

plans to invest $5.6 million to add 50,000 square feet and 47 jobs to its 80,000-square-foot, 100-employee Saline manufacturing facility. The company wants space for distribution, injection molding, assembly and tooling. 䡲 Achates Power Inc., a California opposed-piston engine startup with engineering in Farmington Hills, received a three-year, $9 million grant from the U.S. Department of Energy’s Advanced Research Projects Agency-Energy to develop a more fuel-efficient engine. The agency awarded $4.5 million to Ann Arbor-based Accio Energy to develop utility-scale wind energy generation systems with lower costs of generating offshore energy, and $3.5 million to a solid-state battery project at the University of Michigan’s engineering school. 䡲 Detroit-based Huron Capital Partners LLC sold its interest in Bloomer Holdings Inc., which does business in the specialty chemical and films market as Optimum Plastics, to Milton, Wis.-based Charter NEX Films Inc. for an undisclosed price. 䡲 Southfield-based automotive

ON THE WEB NOV. 26-DEC. 4

Detroit Digits A numbers-focused look at last week’s headlines:

1,700

The acreage of property of Drummond Island Resort and Conference Center acquired by Bloomfield Township-based Princeton Enterprises LLC. The offer for the property, which includes 8,000 feet of lakefront on Lake Huron, was not disclosed but exceeded $3.5 million.

$325,000

The amount of foundation funding for four metro Detroit minorityowned businesses as part of the Entrepreneurs of Color Fund. The $6.5 million program is funded by the New York City-based J.P. Morgan Chase Foundation and the Battle Creek-based W.K. Kellogg Foundation.

160

The number of LED lights to be installed in the Avenue of Fashion district in Northwest Detroit. The project is supported by a $106,000 grant from the Greater Wayne County Economic Development Corp. to increase foot traffic and improve safety in the region.

supplier Lear Corp. announced it acquired Troy-based automotive connectivity supplier Arada Systems Inc. for an undisclosed price. Arada develops hardware and software for vehicle-to-vehicle and vehicle-to-infrastructure communication technology. 䡲 Detroit-based Quicken Loans Inc., which recently ended sponsorship of Michigan International Speedway’s June NASCAR race, signed a deal with Hendrick Motorsports as primary sponsor of the Charlotte, N.C., team’s Chevrolet SS driven by Kasey Kahne for three 2016 NASCAR Sprint Cup races. 䡲 Farmington Hills-based wholesale insurance broker and underwriting manager Burns & Wilcox signed a sponsorship deal with PGA Tour golfer Jimmy Walker for undisclosed terms. 䡲 A lawyer for Volkswagen said the German carmaker would like hundreds of federal civil lawsuits filed against the company over its emissions cheating scandal to be consolidated in Detroit before U.S. District Court Chief Judge Gerald Rosen, AP reported. 䡲 Bonuses, pay increases and benefit improvements for hourly workers at General Motors and Ford Motor Co., who narrowly ratified new labor contracts last month, will have a negligible effect on the Detroit automakers’ bottom lines, analysts told Automotive News.

OTHER NEWS 䡲 Bondholders agreed to trans-

fer more than $3.8 billion of Detroit Water & Sewerage Department debt to the newly created Great Lakes Water Authority, eliminating

the last obstacle standing in the way of a regional utility created during the city’s bankruptcy case. 䡲 Detroit Mayor Mike Duggan announced a plan that would raise starting pay for police by 13 percent to $36,000 and give 4 percent raises to officers with at least five years on the job, AP reported. In exchange, the city wants to extend the contracts by a year and make some changes. 䡲 Oakland University and Wayne State University celebrated in a ceremony a new law school partnership in which students can earn an OU bachelor’s degree and a WSU law degree in six years, a year less than the traditional path.

䡲 Brightmoor Artisans Community Kitchen is working with the state

and a local nonprofit on a crowdfunding campaign to raise $60,000 in donations and matching funds to add a community kitchen and cafe to an urban farm in northwest Detroit. 䡲 The Detroit Symphony Orchestra ratified a new contract with Music Director Leonard Slatkin through the 2019-20 concert season. Slatkin will stay in the post through 2017-18, then become the DSO’s first music director laureate. 䡲 Detroit Free Press business columnist Tom Walsh said he will take a buyout and retire this month. He has been with the newspaper as a reporter, editor and bureau chief since 1982. 䡲 At its 23rd annual breakfast meeting at the Detroit Marriott Troy, the Oakland County Business Roundtable unveiled a new committee for millennials, which will target issues facing the largest working generation in the U.S. 䡲 The Southeast Michigan Purchasing Managers Index, a research partnership between Wayne State University and the Institute for Supply ManagementSoutheast Michigan, slipped in No-

vember from 58.4 to 57.1. The three-month average is 57.7. 䡲 A $1 million U.S. Environmental Protection Agency grant to Southwest Detroit Environmental Vision will be used to help reduce

emissions from diesel trucks with the goal of improving air quality in Detroit, AP reported. 䡲 The Dearborn-based Arab American National Museum opened an exhibit about St. Jude Children’s Research Hospital in Memphis, Tenn., and its founder, the late entertainer Danny Thomas, who was born near Detroit. The exhibit will run through May, AP reported.

OBITUARIES 䡲

Ron Scott, a Detroit civil rights

activist, political consultant and media strategist known for longtime efforts to deal with police brutality, died Nov. 29. He was 68. 䡲

RUMBLINGS Robot butler to serve Detroit hotel guests H

otel guests of Aloft Detroit at The David Whitney on Tuesday might be greeted by a robotic butler. Aloft Hotels, a brand of Starwood Hotels & Resorts Worldwide Inc., is bringing Botlr to its Detroit location for a demonstration day. Botlr will be in the lobby assisting the front desk with tasks such as bringing water and snacks to guests. It will also be available for selfies, which the hotel says is a popular activity among guests interacting with Botlr. Botlr, whose appearance is along the lines of an oversized coffee maker sporting a bow tie, does more extensive work at its usual place of work in Cupertino, Calif. The company has two Botlrs in total, usually kept at Aloft locations in the San Francisco area. Aloft is considering adding more Botlrs next year. Travelers should know that Botlr does not accept cash for tips. It prefers tweets.

Brogan & Partners takes top honors at The D Show For its work on a hard-hitting brochure for the Michigan Women’s Foundation, Birmingham-based Brogan & Partners earned Best of Show last week at the Adcraft Club of Detroit’s ninth annual The D Show. The brochure was for Enough SAID (End Sexual Assault in Detroit), part of a larger campaign to draw awareness to the 11,000 untested rape kits found in the city in 2009. The pamphlet featured the code that labels each rape kit as a design element to show that each code represents a real victim. Advertising for the automotive industry also fared well at this year’s show. Five out of the nine “best of” winners were ads for auto companies or suppliers such as Chevrolet, Fiat, Ford Motor Co. and NGK Spark Plugs. They were created by agencies Doner Partners LLC, Commonwealth/McCann, Team Detroit and The Richards Group.

Restoration Hardware backs out of Gilbert space Restoration Hardware is apparently back on the market for digs downtown after a deal for space along Woodward Avenue collapsed. Nearly a year after Crain’s first reported that the Corte Madera, Calif.-based luxury home-furnishings retailer was planning a Detroit outlet store, sources now say Restoration Hardware has backed out of a plan for space in the Dan Gilbert-owned building at 1217 Woodward Ave.

ALOFT HOTELS

Botlr prefers tweets, not cash, for tips.

However, the company is still looking in and around downtown in other properties along the Woodward corridor, sources said. No more specific intel is available just yet. One source said the issue complicating the deal was that RH would have to be spread across as many as five floors in the 36,000square-foot building. Another source was unaware of the circumstances surrounding the retailer backing out of the plan.

TV documentary to profile Bartech founder Barfield Detroit Public Television will broadcast a one-hour documentary on John Barfield, who founded Southfield-based The Bartech Group Inc., one of the country’s largest African American-owned businesses. The documentary follows Barfield from his birth in 1927 and early life as the son of Alabama sharecroppers to his days of selling newspapers and soap door to door. He opened his first business, Barfield Cleaning Co., in 1955 and later founded Bartech, a workforce management and staffing services provider managing about $3 billion in contingent labor contracts for Global 1000 firms. Narrated by actor and Michigan native Jeff Daniels and produced by award-winning filmmaker Clara Wilkerson, the documentary is based in part on Barfield’s autobiography, Starting From Scratch: The Humble Beginnings of a Two Billion-Dollar Enterprise. DPTV will premiere the documentary, “Starting From Scratch: The Remarkable Life of John W. Barfield,” on Dec. 16 at 8 p.m. 䡲

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