Crain's Detroit Business, Dec. 5, 2016 issue by Crain's Detroit Business

Blue Cross cost-cutting on path to hit target

Meet the new head of Detroit mobility

Insurer also concerned about Obamacare uncertainty, Page 3

Page 3

DECEMBER 5 - 11, 2016 State government

The pension problem

Unions vow to fight as lawmakers consider limiting retirement benefits for municipal workers to reduce ballooning costs By Lindsay VanHulle

Crain’s Detroit Business/Bridge Magazine

LANSING — Republican lawmakers are trying to force public employees to pay more for health care and convert their pensions into 401(k)style plans, confronting the same union forces they targeted in a push four years ago to make Michigan a

right-to-work state. The bills working their way through a GOP-controlled Legislature would bring government workers in line with what has become the norm in the private sector. One of the last bastions of union power in America — public employees — promises to fight to protect their

dwindling interests in a state long considered the ancestral home of organized labor. Get ready for “Right-to-Work 2.0.” That December 2012 battle over legislation to prohibit unions from collecting dues as a condition of employment also was fast-tracked during the lame-duck legislative ses-

sion. It drew more than 10,000 protesters at the Capitol. House and Senate committees’ decisions last week to take up bills intended to control costs of pensions and retiree health care are just as acrimonious. The bills are contentious for more reasons than simply timing. Any

Sports business

change to retirement benefits would directly affect public employees, including teachers, police officers and firefighters — who will make for telegenic protesters. Legislation in the House would ban unions from bargaining retiree health care terms with their SEE PENSION, PAGE 18

Shared arenas

United Center, Chicago NBA — Bulls NHL — Blackhawks Air Canada Centre, Toronto NBA — Raptors NHL — Maple Leafs American Airlines Center, Dallas NBA — Mavericks NHL — Stars Staples Center, Los Angeles NBA — Clippers NBA — Lakers NHL — Kings Madison Square Garden, New York City NBA — Knicks NHL — Rangers Verizon Center, Washington, D.C. NBA — Wizards NHL — Capitals TD Garden, Boston NBA — Celtics NHL — Bruins

Pistons deal revives DEGC secrecy issue

Wells Fargo Center, Philadelphia NBA — 76ers NHL — Flyers Pepsi Center, Denver NBA — Nuggets NHL — Avalanche Barclays Center, Brooklyn NBA — Nets NHL — Islanders

DDA committee went in blind to approval meeting for $34.5M deal By Kirk Pinho kpinho@crain.com

At 10 a.m. on Nov. 22, members of the Detroit Downtown Development Authority board’s finance committee convened for a closed-to-the-public meeting in which they would be asked to recommend a $34.5 million

commitment of tax dollars to move the Detroit Pistons back to the city. But they went into it completely blind. No one from the Detroit Economic Growth Corp., the 501(c)(4) nonprofit that staffs the DDA and seven other city economic development agen-

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cies, had briefed them on exactly what they were being asked to recommend for adoption by the 13-member board (one member was absent) just 4 1/2 hours later: the framework for the public financing, how the deal would materialize. Sources have said the Pistons meeting is an extreme case of the committee being kept in the dark. But the way that deal, which still requires approvals from the Michigan Strategic Fund, the DDA board and the Detroit City Council in the coming months ahead of the 2017-18 Pistons season, was brought to light is emblematic of a 38-year-old organization that has long been criticized SEE DEGC, PAGE 17

Who’s paying whom in the Pistons-Red Wings deal? By Bill Shea bshea@crain.com

The Detroit Red Wings are getting a roommate, but who is paying the rent? The long-speculated on deal to relocate the Detroit Pistons from Oakland County to the Red Wings’ new downtown arena that will open in September was formally announced Nov. 22. What hasn’t been disclosed are any details about the upcoming financial relationship between the clubs. Neither team is willing to discuss terms of the deal — which apparent-

ly still is being finalized — and a spokesman for Detroit’s Downtown Development Authority that owns the new arena said the Pistons-Red Wings contract has not yet been shared with the city. Terms of the deal between the teams do not have to be provided to the city or DDA. Sports insiders say there are some joint arenas that suggest a few scenarios for what that financial relationship might look like. Such arrangements can be fairly straightforward rent deals to deeply sophisticated arrangements SEE TERMS, PAGE 17

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

MICHIGAN BRIEFS How Kellogg worked with ‘experts’ to boost cereal The distinguished “Breakfast Council” of “independent experts” touted by Kellogg Co. on its website for guiding its nutritional efforts appears not to have been all that distinguished or independent. The Battle Creekbased food maker paid the experts and fed them talking points, according to a copy of a contract and emails obtained by The Associated Press. Kellogg paid the experts an average of $13,000 a year, prohibited them from offering media services for products “competitive or negative to cereal” and required them to engage in “nutrition influencer outreach” on social media or with colleagues, and report back on their efforts, AP reported. Kellogg used the breakfast council, which began in 2011, to teach a continuing education class for dietitians, publish an academic paper on breakfast, and try to influence governmental dietary guidelines. Council members disclosed their affiliation in public engagements, the company said. Still, the company said, it could see how its description of the experts as “independent” could create confusion. It told the AP it had been reviewing its nutrition work and decided not to continue the council. The

cease-and-desist order, but the San Francisco-based business has continued to operate in Michigan.

MICH-CELLANEOUS

Republicans in the state House introduced legislation to address rising costs for municipal retirees’ health care, including restricting public employees from counting banked overtime, sick leave or vacation days toward their salary before retiring. GOP lawmakers said the 13bill package is intended to help local governments struggling with unfunded obligations related to retiree benefits, including health care. Meanwhile, a legislative committee voted to close the pension system to newly hired school employees in Michigan and instead provide them solely a 401(k) in retirement. J Gov. Rick Snyder signed legislation to limit the number of state-sponsored license plates used to raise money for groups and causes, AP reported. The signing came after the Senate and House approved legislation to cap the number at 20, not including university plates. Michigan has 15 university plates and 14 specialty fundraising plates, not including military plates. J

BLOOMBERG

Kellogg products may not have been touted as honestly as the public thought. breakfast council page is no longer online.

Bills likely to legalize ride-hailing services Uber and other ride-hailing services could legally operate in Michigan under a statewide regulatory framework endorsed last week by state lawmakers, who are expected to enact the bills before year’s end, AP reported. The legislation, approved overwhelmingly by the Senate and poised for House passage, would create uniform rules and registration fees for ride-hailing, taxi and limousine companies, and pre-empt most local regulations. The businesses would have to conduct annual background checks on drivers and review applicants’ driving histories. In 2013, the state sent Uber a

Gerald R. Ford International Airport

in Grand Rapids named James Gill, most recently COO and CFO of the

INSIDE BANKRUPTCIES

Allegheny County Airport Authority in

Pittsburgh, as president and CEO, the Grand Rapids Business Journal reported. He replaces Brian Ryks, who left in March to become CEO of Minneapolis-St. Paul International Airport.

An energy executive at Zeeland-based Herman Miller Inc. is accused of fleecing the furniture maker out of more than $1.7 million over five years for natural gas services that were never provided, WZZM-TV reported. Jerry Lee Akers is named in felony information accusing him of conspiracy to commit mail and wire fraud with the help of an unnamed co-conspirator. He is scheduled to appear in U.S. District Court in Grand Rapids Dec. 20. If convicted, Akers faces up to 20 years in prison. J Michigan State University is getting up to $122.5 million over five years for the National Superconducting Cyclotron Laboratory, AP reported. An agreement with the National Science Foundation allows for continuing funding to support research in nuclear and accelerator science and continue operation of the cyclotron laboratory. The new funding will cover the period until the Facility for Rare Isotope Beams in East Lansing becomes operational, likely in 2021. J Lansing-based Cinnaire (formerly the Great Lakes Capital Fund) and J

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COMPANY INDEX: SEE PAGE 18 Michigan Bankers Association Service Corp. established a $12.5 million

fund to provide housing for low-income seniors, families and the disabled. The fund will support the development and rehabilitation of 10 apartment complexes across the state, providing 669 housing units. J The president and CEO of a Flintbased nonprofit won the American Express Aspire Award presented by the National Trust for Historic Preservation to an emerging leader in community preservation. Glenn Wilson, who heads Communities First Inc., has led restoration efforts for historic buildings in Flint. He was one of 11 recent honorees by the trust. J Following declines in housing starts and auto production, the Comerica Bank-compiled Michigan Economic Activity Index fell in September for the third straight month, down 0.9 percentage points to 128.1.

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Analysis

Health care

New mobility chief must be a prime mover

Blue Cross on path to cut expenses by $300 million by 2019 By Jay Greene jgreene@crain.com

Blue Cross Blue Shield of Michigan

Veteran executive’s hiring brings fresh perspective on transportation to Detroit By Dustin Walsh dwalsh@crain.com

The city of Detroit just got serious about mobility. The hiring of veteran transportation and engineering executive Mark de la Vergne puts the city, which has historically struggled with making its residents mobile, on the front lines of the race to build a new economic reality, not just for Detroit, but for the region and state. Before joining the city as chief of mobility, de la Vergne served as the principal of growth and innovation for traffic and transportation planning and engineering firm Sam Schwartz Consulting LLC in Chicago. There, he managed Chicago’s plan for pedestrians and cycling. The pedestrian plan — which has faced significant delays — sought to create safer travel for Chicago’s wealth of commuters on foot, including eliminating dedicated right-turn lanes, creating pedestrian islands, reducing one-way streets and more. The plan is part of an initiative to reach zero-traffic fatalities, including pedestrians, by 2026. Before that, he served as principal

at Land Strategies Inc. De la Vergne is not entrenched in the automotive world. He’s an outsider — which the city desperately needs to solve the mobility conundrum. “He has a much more multimodal and broader perspective about mobility than an auto background,” said Jean Redfield, president and CEO of Next Energy LLC, a Detroit-based energy and transportation business . “He’s coming at this with a different experience, and that’s refreshing.” Glenn Stevens, executive director of MichAuto, met with de la Vergne last week. “This is an excellent hire,” Stevens said. “With his tremendous background in mobility as a service, the city, region and state are going to gain a lot for mobility efforts.” After all, no other U.S. city faces a more critical challenge tied to mobility. While the industry of mobility is tied, locally, to autonomous cars, car-sharing services and other ad-

MUST READS OF THE WEEK Growing the ‘agrihood’ The Michigan Urban Farming Initiative is expanding its presence in Detroit’s North End area, Page 13

vancements in automotive, it’s far more. The literal definition of mobility is the movement of people from place to place, or from job to job. De la Vergne now has one of the most difficult positions in the region, yet potentially the one with the greatest impact for Detroit, and beyond. De la Vergne did not respond to requests for comment for this story, but here is a “todo” list to shape Detroit’s future around mobility.

Connect Detroiters, jobs Of the 258,807 jobs in the city, 71 percent are held by employees commuting from the suburbs, according to a 2015 report by the Corporation for a Skilled Workforce and funded by J.P. Morgan Chase & Co. That’s only 0.37 jobs for every resident — abysmal compared with other cities. In Detroit, 108,000, or 61 percent of employed Detroit residents, travel outside the city for their jobs, according to the Corporation for a Skilled Workforce study. Roughly 46 percent of those travel more than 10 miles from home, the study said. Unreliable transportation options for the city’s residents precludes many from finding those jobs in the suburbs. SEE MOBILITY, PAGE 15

appears to be on schedule to cut $300 million in overhead expenses by 2019, Crain's has learned from an internal Blue Cross document. Since CEO Dan Loepp announced its three-year strategic business transformation project in November 2015, Detroit-based Blue Cross has reduced expenses by $106.5 million, according to a Loepp memo to staff on Friday. But uncertainty about what President-elect Donald Trump and a Republican-dominated Congress might do to alter insurance markets by repealing or changing the Affordable Care Act concerns top Blue Cross executives. Sources told Crain’s that executives briefed Loepp about the potential volatility of the Obamacare health insurance market. They are concerned that changes could be made early Dan Loepp: next year that Briefed about could disrupt potential volatility. planned individual health insurance products for 2018 that will be due to the Michigan insurance commissioner’s office in April. Blue Cross has formed an internal work group to create contingency plans based on likely actions Congress could take. Executives are expected to develop various capital plan scenarios for the next four years that could include membership losses or gains, and profit margin projections for those scenarios. For 2016, Blue Cross projects to lose $73 million in its individual business unit, according to one Blue Cross executive. Last year, Blue Cross lost $68 million in net income on its overall operations,

Blue Cross has formed an internal work group to create contingency plans based on likely actions Congress could take. which included the individual market. Over the past several years, Blue Cross has been attempting to diversify its business lines — having some success by boosting revenue in the Medicare Advantage managed care service line — to help subsidize its commercial individual and Medicare supplemental insurance lines, which have lost hundreds of millions of dollars in recent years. Blue Cross of Michigan has averaged revenue of $9.7 billion with a three-year profit average of $162 million on all business lines from 2012 to 2014, according to a recent report by Chicago-based Fitch Ratings. For 2017, however, Crain’s has learned that employees are worried about further layoffs in the effort to reduce corporate overhead costs. Over the past year, Blue Cross reduced staff by more than 50 employees, outsourcing some information technology and automating processes in benefits. Blue Cross and its related subsidiaries employ about 7,900 workers. Moreover, Blue Cross has informed independent agents it will cut commissions next year to further reduce costs. While it is unclear how much commissions will be cut, some agents expressed displeasure with the move. But experts believe that more individual business will come through the online Obamacare SEE BLUES, PAGE 16

<< Best-managed nonprofits For tackling the complexity of meshing an affordable senior community with increased access to health care and related services for seniors, Presbyterian Villages of Michigan was named Crain’s Best-Managed Nonprofit. Read about PVM as well as the other finalists, Pages 8-12

Lone respondent Wayne County is evaluating the qualifications of just one construction company to finish building the Wayne County Consolidated Jail, Page 16 CHRIS EHRMANN/CRAIN’S DETROIT BUSINESS

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

Crain’s Detroit Business announces restructuring of news operations Plan adds breaking news reporting team, special projects editor

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proud I was here to help shape it.” She said she plans to seek a “second-act” career that taps her skills in communications, marketing, business strategy, tactical operations management and/or project management. “I’m excited to think about an interesting and challenging leadership role.” Along with the restructuring, Kramer announced other changes including: J Lisa Rudy, previously general sales manager at WWJ 950 AM, will succeed Matt Langan as advertising sales director. Langan is retiring at the end of the year. J Dan Duggan, managing editor of custom and special projects, is leaving to join the commercial real estate firm, Southfield-based Bernard Financial Group, as a vice president in the loan origination group. J Duggan will be succeeded by Kristin Bull, currently assistant managing editor. Bull will now oversee the creation and production of customized content on behalf of advertising clients. J In the newsroom, veteran reporter Tom Henderson, who covered the finance and technology beats for the past 10 years, is retiring but will continue to work on major projects in 2017. J Gary Piatek, senior editor, and Chad Halcom, litigation, education and defense industry reporter, are also leaving as part of the reorganization. At a staff meeting last week, Kramer thanked other Crain’s veterans for their contributions: “Tom Henderson has been an authority on technology, venture capital and other key finance areas," she said. "On the sales side, we thank Matt Langan, who was the highest-achieving account executive in our publication’s history before tak-

Lisa Rudy: Named Kristin Bull: Will advertising sales oversee custom director. and special projects.

ing on the leading sales management role. He has been a remarkable representative of our Crain brand. At the same time, we’re excited to welcome Lisa Rudy to help us bring our plans for revenue growth to fruition. She can build on the strong platform that Matt has helped to shape.” Rudy joins Crain’s with a deep background in media advertising sales in radio, digital and print. Her career stops include 14 years at the Metro Times, Detroit’s alternative weekly, where she served five years as publisher. She also held sales and management roles at the radio group Greater Media Detroit and the Detroit Media Partnership as a senior director for retail advertising in the Detroit News and Free Press. Founded in 1985, Crain’s Detroit Business is a national leader among regional business publications with numerous national awards. Its website won “gold” or first-place honors from the Alliance of Area Business Publications in 2011, 2013, and 2015. Also in 2015, its breaking news coverage of plans for the new Detroit Red Wings hockey arena won first-place honors. In addition, it was a finalist in the prestigious Jesse H. Neal Awards contest in 2014 and 2015.

BANKRUPTCIES

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Crain’s Detroit Business is reorganizing its digital-first newsroom, shifting resources to produce deeper enterprise reporting and comprehensive breaking-news coverage across its platforms. The plan will add a three-reporter breaking news team, a special projects editor and a page designer. The plan was initiated by Publisher Mary Kramer and developed by Associate Publisher Ron Fournier, whom she recruited from Washington in September. The restructuring will allow Crain’s reporters to focus on a single beat rather than being spread across multiple topic areas. The newsroom will be led by Fournier, the former Associated Press Washington bureau chief and Atlantic columnist who has added the title of editor. Jennette Smith, who was editor, is leaving the publication at the end of the year. (See column, Page 7.) “Ron’s arrival came at a time when we were looking at new ways to improve our newsgathering for a fast-changing audience. This plan brings his experience and our needs together,” Kramer said. “We are reducing in some areas,” Fournier said, “and expanding in others.” Still, he said, any change is painful. “I want to build on Crain’s extraordinary reputation for needto-know content. We’re doing that with a digital-first restructuring plan that allows beat reporters to dive deeper into their specialties while a new team of breaking-news specialists provides broad and comprehensive coverage of all business news.” Kramer praised Smith, saying: “She has led this effort in every imaginable way," highlighting her tenure as an award-winning beat reporter, managing editor and editor over her 18-year career at Crain’s. Smith said her decision to leave freed resources to make the new hires for the newsgathering plan she helped to create. “I’m very

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The following businesses filed for protection in U.S. Bankruptcy Court in Detroit Nov. 25-Dec. 1. Under Chapter 11, a company files for reorganization. Chapter 7 involves total liquidation. n The Outbound Group, Inc., 28795 Goddard Road, Romulus, voluntary Chapter 11. Assets and liabilities not listed. n Mt. Carmel Leasing LLC, 28795 Goddard Road, Romulus, voluntary Chapter 11. Assets and liabilities not listed. Chris Ehrmann

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

DMC to reduce workforce to cut $17 million in expenses By Jay Greene jgreene@crain.com

Detroit Medical Center has notified its employees that it will cut at least 1 percent of its 12,400-member workforce in December to reduce expenses by about $17 million, Crain’s has learned. While DMC’s cost-cutting was decided locally because of Medicaid and other state budget reductions for 2017, sources said DMC’s parent organization, Dallas-based Tenet Healthcare Corp., is also moving to cut costs at many of its 80 hospitals in the U.S. to help pay health care fraud fines of $514 million and to shore up stock prices that have dipped 60 percent the past year. DMC’s layoffs are expected to total about 60 employees with another 40 unfilled positions eliminated, a DMC official said. “We regularly evaluate operations and staffing to enhance the quality of care and patient experience we provide,” Conrad Mallett Jr., DMC’s chief administration officer, said in a statement to Crain’s. “DMC operates in the most efficient way possible so we can continue to invest in our facilities and community. “Recently we made the decision to reduce approximately 1 percent of the DMC workforce. We minimized the number of affected employees by first eliminating open positions and realigning certain job functions, with careful attention to avoid affecting direct patient care.” Two physician sources told Crain’s that the cost cutting at DMC and Tenet is expected to be more severe over time. “DMC wants to save $20 million, but all Tenet hospitals have to cut top-level executives,” a physician manager source at DMC said. “It’s because of the (fraud) settlement and shareholders want better price per share. Revenue grows each year, but profit per share has not.” Another physician source on the DMC medical staff said he has heard internal management talk that cuts are going to happen in departments that range from administration to janitorial to dietary. “This (initial layoffs) is a smokescreen that will lead to management positions being eliminated that will pale in comparison to all the other areas,” the second doctor source said. DMC officials refused further comment. Tenet officials in Dallas did not return a phone call seeking comment. Sources also told Crain’s that DMC is making cost cuts despite it being Tenet’s most profitable teaching hospital. This year, DMC’s EBITDA (earnings before interest, taxes, depreciation and amortization) has been the highest in years, between $100 million to as high as $175 million, sources said. DMC officials refused comment. Over the past year, Tenet’s stock prices have dropped by more than half, to $15.23 on Nov. 29 from $33.69 on Nov. 24, 2015. Tenet reported it finished the third quarter that ended

Oct. 31 with a net loss of $9 million, an improvement from the $28 million net loss the company recorded in the same period of 2015. Tenet has lost $3.6 billion in market cap the past year. Besides improving its stock price, sources said Tenet is also attempting to recoup its losses from a recent $514 million settlement in a False Claims Act lawsuit by the U.S. Centers for Medicare and Medicaid Services. Tenet’s four hospitals in Geor-

gia allegedly developed a scheme to send pregnant women on Medicaid to their facilities for alleged kickbacks to doctors at its hospitals for maternity referrals. In 2006, Tenet agreed to one of the largest fraud settlements in U.S. history by paying a $900 million fine for inflating hospital charges to Medicare and other federal payers. Tenet is also facing a $1.5 billion class action federal lawsuit over allegedly failing to protect patients and newborns from being exposed to tuberculosis at Providence Memorial in El Paso, Texas. Vicki Bryan, senior analyst at New York City-based Gimme Credit LLC, said Tenet has not announced acrossthe-board cost cutting, but that it makes sense based on the company’s overall numbers, which include low EBITDA numbers of 8 percent for the

third quarter this year, the lowest of any investor-owned chain. “It is about half of what HCA Holdings posted and even lower than Community Health Systems,” Bryan said, noting two other major investor-owned chains. “Couple that with low profitability, and that would justify significant cost cutting.” Tenet recently made $500 million on the sale of its Georgia hospitals, which could be used to help pay the federal fine, Bryan said. “They are generating the lion’s share of EBITDA growth from its ambulatory and (Conifer Health Solutions) group,” she said. “Tenet should be looking for very significant cuts in costs at its hospitals.” Last month, Tenet announced it would sell its health plan business to raise revenue. DMC sold its Harbor Health Plan for $16 million to Trusted Health Plans Inc., a Washington, D.C.-based Medicaid HMO, generating a $10 million profit, according to a filing with the Michigan Department of Insurance and Financial Services.

Last December, DMC also announced layoffs of about 1 percent of its workforce, which amounted to about 125 employees. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

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OPINION

Education reform: Focus on best results

etsy DeVos, President-elect Donald Trump’s choice for secretary of the Department of Education, will put her own stamp on the department many Republicans would like to dismantle. Labor unions and educators, parents and policy wonks are asking: What will Betsy do? According to the Washington Post, the Michigan ACLU’s Kary Moss is urging Congress to “scrutinize” DeVos’ record, especially the tuition voucher plan Michigan voters rejected that would have allowed public dollars to follow students into the schools they chose — public, private or parochial. Michigan voters rejected that idea 16 years ago. But would they today? Maybe not, if they fully understood that Michigan has fallen from “average” among 50 states in stuToo often, dent achievement in elementary grades to education the bottom 10 among the 50 states. The status quo is not working. The only reform is thing we can bet on is that DeVos will focused on shake up the status quo. the adult She may push on a national level a tuiissues; it’s tion voucher concept, funneling the billions now earmarked for Title I programs easy to for low-income students into vouchers. Of forget the course, the internet is filled with doomschildren. day scenarios envisioning white supremacist private schools popping up all over the country as a result. Or she may take an entirely different tack. But let’s be clear: The reason charter schools are popular across the country is millions of parents believe traditional schools have failed their children. Still, if choice expands with federal dollars, DeVos should heed some lessons from Michigan. Charters have not been the panacea in Michigan and Detroit that they have been in other parts of the country. Why? We believe that state law created too many authorizers, leading to too many schools, many of them — including high-achieving schools — with empty classroom seats. And there’s nothing that requires charters to be more than marginally better than the traditional public schools they compete with. That dilutes the power of the public dollars invested. More bad tax-funded choices is not really choice. What DeVos, lawmakers and policy makers need to do is bring to scale the models that create the best results for children. Too often, education reform is focused on the adult issues; it’s easy to forget the children. And, lest we forget, children are the future workforce.

DAN SAAD

TALK ON THE WEB Re: Rizzo CEO resigns as feds charge 2nd official All this came down a few weeks after the company was sold? Extensive litigation is on its way. 1socratesdave46

Re: Pistons to make move to Detroit official I can understand the Pistons wanting to move downtown. I do not understand why they want to “bulldoze” the Palace. Seems like a huge waste of a facility to me. hn376rar

Re: Summit to discuss changes under Trump Although I am not in the health insurance business, I believe the following actions would benefit the current issues: 1) Allow health insurance providers to sell policies across state lines. 2) Allow catastrophic-only poli-

Reader responses to stories and blogs that appeared on Crain’s website. Comments may be edited for length and clarity. cies to be available in all 50 states. 3) Force health care providers to publicize their costs for routine procedures. 4) Demand health care providers give itemized bills in layman’s terms so patients can contest a charge if necessary. 5) For doctors taking on/maintaining a certain number of Medicaid/Medicare patients, those doctors can purchase malpractice insurance through a pre-established state-run program in their state. DetroitDom

which the Red Wings have generated this tremendous increase in value, from which this family enjoys the entire benefit. How much of that $625 million will benefit Michigan taxpayers or Michigan schools? Oh, I forgot, fans may stop for a bite to eat after the events. Probably, at Hockeytown Café, which is also owned by the Ilitch organization. Thank you, Michigan taxpayers! Carolyn Mazurkiewicz Time to start paying the players accordingly. 304113

Re: Restoring civility set as Mackinac theme

taxpayers for providing hundreds of millions of dollars for the facilities in

You can have all of the conferences you want and talk about restoring civility in U.S. politics until you are blue in the face, but the two sides are so far apart and have such different beliefs about what is right and wrong that compromise is just not possible. Gary Briggs

dent-elect has a lot on his agenda before he and the vice president take their oaths of office. A lot of objectives to meet. There is no doubt that we are going to see a different kind of executive direction of the federal government. Most likely, we’ll see more of a mindset that it’s a very large corporation rather than a government bureaucracy; cabinet secretaries will be given the responsibility to run their departments like they would run a business. That is going to be a mild revolution in our federal gov-

ernment, but one that is long overdue, regardless of who is in charge. Let’s all hope that the glass is half full, not empty. We need to see lots of private-sector economic growth in our country after years of dismal growth. Whether Trump can pull it off remains to be seen. But let’s stay as optimistic as possible. The new president deserves a grace period. We have done it before, and we need to do it now. Until someone spills the glass, I shall assume that the glass remains half full.

Forbes: Value of Wings increases to $625 million The Ilitch family should hold a press conference thanking Michigan

The glass is half full It really does not matter who we voted for or what our issues are with President-elect Donald Trump. He is our new president and, like others before him, we should give him a chance before we start shooting the poison-tipped darts. Wait 100 days, maybe six months. If we are looking for indications, most everyone, except for the biggest critics, must give him credit for saving 1,000 jobs at Carrier Corp. in Indianapolis. And just about all of his appointments so far have been pleasant surprises, considering

KEITH CRAIN Editor-in-chief

that anti-Trump folks had been warning us what will lie ahead. Some even have ties to Michigan and the Midwest, like Wilbur Ross.

People I talk to are expressing optimism, regardless of their prior opinions. There is not much doubt that this election held more emotion on both sides than your usual election. But most Americans seem to be coming around to the results except for a few die-hard Hillary backers. All indications look good. If we see more positive results, it’s going to be harder to be a naysayer. We still have more than a month before the inauguration. The presi-

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

After a great adventure at Crain’s, a new beginning Eighteen years of business journalism in Detroit. That’s a lot of news cycles. As I exit the editor’s desk at Crain’s Detroit Business after a long and great adventure as a beat reporter/storyteller, editor and manager, let me offer a few highlights. A memory: During the hubbub of Super Bowl XL in 2006, I was walking back to the office from Ford Field to write a post-game column. I was struck by the scores of limousines corralled near the Crain Communications Inc. building on Gratiot. Limo after limo after luxury SUV. Not an everyday sight in Detroit. Except maybe a year or so later in disgraced former Mayor Kwame Kilpatrick’s entourage to court dates. The city’s municipal bankruptcy was a once-in-a-career opportunity for me as an editor. What a wild ride it was in 2014. Detroit journalists learned that actuarial tables can be sexy, as can reviewing the mind-boggling tallies of hourly legal fees. The Grand Bargain takes the grand prize as the most creative civic victory engineered by foundations and local leaders that I’ve seen in my career. The stories over 20 years have been remarkable. In 2003, as a commercial real estate reporter, I worked with then-colleague Terry Kosdrosky to document the investment along the Detroit River — hundreds of millions of dollars, beginning with General Motors’ purchase of the Renaissance Center in 1996. But what has emerged since exceeds my wildest imagination at that time. The RiverWalk. A new state park. New housing. Expanded Cobo Center. Plans to reinvent the site of “The Joe.” In our 2003 package, Matt Cullen, founding chairman of the Detroit RiverFront Conservancy at the time, said the riverfront had a “once-in300-year opportunity” to get things right. Now, Cullen is part of Dan Gilbert’s team planning a new high-rise at the Hudson’s block site. The circle of news and the people who make it repeats. Stories of sheer relentlessness and great vision are my favorites, and I could go on for days. Detroit is a hotbed for them. I’m proud of Crain’s Detroit Business for its 31-year track record of chronicling those hard-wrought successes — and the region’s challenges. There will be capable hands to tell those stories. I know that the plans

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notch business beat reporting will always remain at the core. I’m getting out of the way partly to fund the plan. I want to thank Mary Kramer and the Crain family for taking a chance in 1998 on a 23-year-old kid freshly minted from Michigan State University journalism school, with short stints at The Macomb Daily and The Times Herald in Port Huron. And my first two bosses here: Cindy Goodaker and Phil Nussel. Sometimes, when you have a vision, it all works out. My next career reinvention? I don’t know yet. I have a notebook ti-

What a wild ride it was in 2014. Detroit journalists learned that actuarial tables can be sexy, as can reviewing the mind-boggling tallies of hourly legal fees. The Grand Bargain takes the grand prize as the most creative civic victory engineered by foundations and local leaders that I’ve seen in my career. tled “Ridiculously Good Ideas” that my sister gave me as a birthday present. I’ve been carrying it around to jot

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

SPECIAL REPORT: BEST-MANAGED NONPROFITS

Presbyterian Villages of Michigan took on the complexities of developing an affordable senior community with a continuum of care and on-site health services. Left to right: Paul Miller, president, Presbyterian Villages of Michigan Foundation; Gloria Robinson, chair of the Thome Rivertown Senior Housing Board; and Roger Myers, president and CEO, Presbyterian Villages of Michigan. JACOB LEWKOW

Building a model for senior care About this report The winner of this year’s Best-Managed Nonprofit Contest will be honored at Crain’s Newsmaker of the Year lunch in February.

Winner Presbyterian Villages of Michigan, this page

Finalists Jewish Federation of Metropolitan Detroit, Page 9 Ronald McDonald House of Detroit, Page 9 Rose Hill Center, Page 10

Judges Gary Dembs, president and CEO of the Nonprofit Personnel Network Gerald Lindman, nonprofit legal and management consultant and former head of the Center for Nonprofit Management at Lawrence Technological University Kelley Kuhn, vice president, Michigan Nonprofit Association. William Liebold II, president, The Liebold Group LLC, a nonprofit and higher education consultancy, and former president of the Michigan Colleges Foundation Richard Martin, chief advancement officer, Samaritas (formerly known as Lutheran Social Services of Michigan) The nonprofit practice group at Plante Moran PLLC, led by partner John Bebes, did a financial analysis of the applicants.

By Sherri Welch

swelch@crain.com

he affordable senior living community Presbyterian Villages of Michigan spearheaded near Detroit’s east riverfront was a challenge right from the start. Planning for the Edward N. and

Della L. Thome Rivertown Neighborhood began to take shape in 2008,

just as the recession took hold of Detroit and the rest of the country. Financing obstacles, early concerns about an affordable development near the city’s ripe-for-development east riverfront, unexpected environmental remediation needs, cost overruns and other issues arose along the way. But Southfield-based PVM pushed through them, developing a community for low-income seniors that offers a continuum of care, health clinic, dental care, therapy, rooftop garden, salon and other services for hundreds of seniors in the community and surrounding neighborhood. It’s a project that’s been lauded as potentially a national model. For tackling the complexity of meshing an affordable senior community with increased access to health care and related services for seniors in the surrounding

 Winner: Presbyterian Villages of Michigan neighborhood and collaborating at high levels to do it, Presbyterian Villages of Michigan is Crain’s 2016 Best-Managed Nonprofit. To bring the community to life, PVM collaborated with Chelsea-based United Methodist Retirement Communities, bringing it in as co-general partner of the community and managing partner of the affordable assisted living there. And through a joint venture with Henry Ford Health System, it brought in the Program of All-inclusive Care for the Elderly. The continuum of care and coordination of individual benefits that makes the community affordable is enabling seniors who have spent their lives in Detroit to live out their years in their hometown. And those living in the surrounding community can remain in their own homes thanks to the inhome health and therapy services and transportation to the PACE center on the Thome campus. The integrated approach to care is reducing hospitalizations and emergency room visits for seniors in the neighborhood.

Located two blocks south of Jefferson Avenue, at McDougall Avenue and Franklin Street, Thome Rivertown has become an anchor for redevelopment in Detroit’s Rivertown neighborhood. It’s taken eight years to complete the first two phases of the $45 million project and more than 20 different sources of funding to meet capital costs. And it’s not completed yet. Two Harry and Jeanette Weinberg Green Houses are expected to open near the end of this month, providing an alternative, home-like setting to nursing home care. And a community center and café is set to open next year, providing a social space for seniors and a beacon for the community as a whole. “As we were looking at this broadly integrated campus, it was an idea a lot of people struggled with,” given the complex layers of financing and numerous organizations taking ownership of the various parts of the project, PVM President and CEO Roger Myers said. Early on, the Detroit Economic Growth Corp. also had concerns about whether an affordable senior community was the correct economic development strategy

for the neighborhood. “At that pivotal point when we needed to push through what could have been some opposition ... the (Community Foundation of Southeast Michigan) was extremely important ... in helping with a broader understanding of the need for the project ... and what an asset (it) was going to be to the rebuilding of the neighborhood,” Myers said. The Rivertown neighborhood is a very strong anchor on the neareast side of Detroit, Mariam Noland, president of the Community Foundation, told Crain’s in 2014. It provides a safe environment for elderly people in the city, makes “first-class services” available to low-income residents and could be a model for other parts of the country, she said. The Community Foundation made a $2 million grant in support of the project, which spurred funding from other foundations, including the Kresge Foundation,

Edward N. and Della L. Thome Memorial Foundation and Harry & Jeanette Weinberg Foundation.

Financing also included individual donors, low-income housing tax credits from the National Affordable Housing Trust, HOME SEE PVM, PAGE 12

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

SPECIAL REPORT: BEST-MANAGED NONPROFITS

Jewish Federation works to connect with younger donors Like many nonprofits, the Jewish Federation of Metropolitan Detroit has

n Finalist: Jewish Federation of Metropolitan Detroit

faced an aging donor base and declines in giving among younger generations. Many of the traditional forces that created a sense of community for older generations do not exist for Gen X, Gen Y and Millennial Jews, the agency said. To spur young Jewish engagement in the community and support of the agencies the federation funds, the Bloomfield Hills-based nonprofit in 2012 launched NextGen Detroit, a program to engage people ages 21-45. Building on its earlier efforts to engage younger supporters, the federation created programs spanning areas of interest from social and professional to educational and young families. It

began hosting professional networking events, cultural events and social gatherings and fundraisers geared to the younger set. While the concept of having an effort aimed at engaging young donors is not unique, the Jewish Federation went deeper in the number of programs it offered and its focus on connecting with younger Jews. And it began to think long term about creating relationships with new supporters, looking at every touch point as part of an ongoing relationship “rather than just trying to get them in the door,” said Chief Marketing Officer Ted Cohen. Last year, over 6,000 people ac-

By Sherri Welch swelch@crain.com

JACOB LEWKOW

After moving to the second floor of the former Hutzel Hospital, Ronald McDonald House had to keep its name and mission visible and transport guests back and forth to hospital care. It did both by benchmarking affiliates. Left to right: Chrissy Cooper, marketing director; President and CEO Jennifer Litomisky; and board president Joel McCormick, director of retail sales, Coca-Cola Refreshments.

McDonald House eases site transition By Sherri Welch swelch@crain.com

When Ronald McDonald House of Detroit moved into its new home on the second floor of the former Hutzel Hospital in March 2015, it faced two challenges it never had before. The house was now tucked away in the St. Antoine Street building a mile from DMC Children’s Hospital of Michigan, after operating just 100 steps away since it opened its doors in November 1979. The Beaubien Street location had been leased from Children’s Hospital, and the hospital needed the land to pave the way for a new patient tower. The Hutzel site provided an opportunity to provide more spacious, updated accommodations to guests at a longterm lease rate of just $1 per year. But how would the nonprofit maintain the house’s visibility for families in need of it, and how would it get families to the hospital? Operating on a budget of $1 million, Ronald McDonald House turned to affiliates to benchmark

n Finalist: Ronald McDonald House how they handled those issues, and it came up with a plan for both. It purchased a van, hired and trained six part-time drivers and secured a $50,000 grant from the Chil-

dren’s Hospital of Michigan Foundation to support the door-to-door

transportation for guests of the house for two years. In its first full year of operation, the van has transported close to 4,000 families. To address the visibility issue, the Detroit charity adopted a program affiliates had dubbed the Happy Wheels Cart, a tiny house on wheels that holds refreshments and toys. The cart provides increased visibility for Ronald McDonald House and gives those circulating the cart an opening to ensure parents and caregivers of children know the house doors are open to them. Visions of Paradise Landscaping and Szott Auto Group are sponsoring the $5,000 annual cost of the cart.

tively participated in NextGen programs, up from about 2,000 in 2012. The number of younger donors to the federation more than doubled between 2012 and 2015, growing to 3,398 last year. At the same time, the total amount raised from the younger demographic of donors as a whole increased to $894,000 last year from $772,000 three years earlier. NextGen Detroit has become a national model. Federation agencies in dozens of communities have come to Detroit to benchmark the program. The Jewish Federation, which is operating on a $15.4 million budget, is now expanding the NextGen model to reach other, “hard-to-reach” sets of its community, including interfaith couples, families living in Detroit, physicians and other professionals.

JACOB LEWKOW

To spur young Jewish engagement and support of the agencies it funds, the Jewish Federation of Metropolitan Detroit launched a program to engage people ages 21-45. Pictured are Scott Kaufman, the federation’s CEO, and Miryam Rosenzweig, chief development officer.

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

SPECIAL REPORT: BEST-MANAGED NONPROFITS

Rose Hill fills need for combined alcohol, drug addiction treatment By Sherri Welch

n Finalist: Rose Hill

After a year of mental health treatment at Rose Hill Center, a young female client headed off to college, but it wasn’t long before she was back on the Holly center’s doorstep, addicted to alcohol and drugs. A deeper look at the center’s client population showed she wasn’t alone. About 40 percent of clients suffered from both mental illness and substance abuse, the center said. Recognizing that treatment for people with both issues is more complicated than the treatment for either condition alone, Rose Hill launched a treatment program to jointly address both issues in 2014. The programmatic expansion came amid a decline in public paid enrollment at the center, which left existing housing capacity open to establish a dedicated home for those facing both issues. Rose Hill, which operates on a $5.8 million budget, benchmarked similar programs in other parts of the country to understand best practices around policies and procedures for clients facing both issues and settled on the need for a dedicated environment for those clients, given their high-risk behaviors. A grant request to fund staff visitation to similar programs, updates to

an existing home on its campus and staff training for the co-occurring program was turned down. So the nonprofit took its case for support to the public, raising a combined $65,000 from individuals and its supporting organization, the Rose Hill Foundation. The program’s six beds were filled immediately, and Rose Hill soon added two more beds, bringing it to the maximum it can accommodate on its campus, given the intensive services needed for the program. It’s been self-sustaining, funded through per diem fees paid by the clients’ families, insurance, community mental health agencies and subsidies from the center. And it’s having a proven impact. Fourteen of the 17 people who came through the program last year, or 82 percent, have maintained sobriety from alcohol and drugs and maintained mental stability post-discharge, the center said. Two years after the program’s launch, calls are still coming in daily from around the state and surrounding states to inquire if beds in the co-occurring program are available, CEO Ben Robinson said, proving Rose Hill is filling an unmet treatment need.

swelch@crain.com

JACOB LEWKOW

Recognizing that treatment for people with both mental illness and addiction issues is more complicated than treatment for either condition alone, Rose Hill Center launched a program to address both issues. Left to right: Gayle Flanigan, director of development and special events; Cheryl Wallace, vice president of programs; and Ben Robinson, president and CEO.

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

SPECIAL REPORT: BEST-MANAGED NONPROFITS

Planning for the Edward N. and Della L. Thome Rivertown Neighborhood began to take shape in 2008, just as the recession took hold of Detroit and the rest of the country. At right, David Simpson draws in the lobby of the senior living community. PHOTOS BY PRESBYTERIAN VILLAGES OF MICHIGAN

PVM FROM PAGE 8

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dies for the independent living apartments, and brownfield funding from the state. “Getting the tax credits was one thing, but finding a financial institution to buy the credits was a real challenge, at a time when there was a lot of retrenchment on the part of financial institutions,” Myers said. The project included the rehabilitation of two former Parke Davis buildings fraught with environmental remediation concerns, construction of a third building, and ongoing coordination of individual benefits ranging from Medicaid vouchers to HUD housing vouchers through the Detroit Housing Commission and meal assistance from the Detroit Area Agency on Aging, a piece UMRC is deftly navigating. The 80 units of assisted living for low-income seniors and the PACE health and wellness center opened in one of the renovated buildings in 2013. The PACE center provides health and related services for over 300 people, many from a 30-minute drive in the surrounding neighborhood, Myers said. The program provides transportation to the PACE center on the Thome campus, at-home services, primary health care, therapies and other clinical services and day care to allow aging seniors to remain living in their own homes. Also opened in the building: a pharmacy, beauty salon and large commercial kitchen for meal preparation for residents. Three hundred people were on a waiting list for the 50 units of independent-living senior apartments opened in October 2014. The units were fully leased within three hours, and there’s been a waiting list hundreds of names long ever since, Myers said. Late this month, the two Weinberg Green Houses will open in the second, renovated building. An alternative to nursing home care, the “houses” will provide a home-like

setting, with 10-12 private rooms for senior citizens, a communal kitchen and living areas, social programming and 24-hour nursing care. The renovated building will also include a rooftop garden and a community center and café, which is set to open on the ground floor next year. “The property values adjacent to and in the surrounding area have clearly increased,” Myers said. “It has stabilized an area and we’re seeing new business right across the street,” where the Detroit Denim Co. has opened, along with other development happening in the neighborhood.

PVM, which operates 30 senior communities around the state and is operating on a $27.2 million budget, didn’t have a presence in Detroit until the mid-’90s. Since then, it’s invested over $100 million to open 10 senior communities in the city. All but one have been affordable projects. The Thome Rivertown development was, by far, the most complex project PVM has ever done, Myers said. “But things that are worth it are not generally easy.” Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

Michigan Urban Farming Initiative grows plan for ‘agrihood’ in Detroit By Chris Ehrmann cehrmann@crain.com

The Michigan Urban Farming Initiative is expanding its presence in Detroit’s North End area with a new partnership to help transform a vacant apartment building into a community center and cafe as part of what is being touted as the country’s first urban “agrihood.” The nonprofit last week announced the support of BASF SE and Sustainable Brands, a global community of business innovators, which will help renovate the 3,200-squarefoot, three-story apartment building at 7432 Brush St. and across from MUFI’s 2-acre urban garden. It will house commercial kitchens that will service the planned cafe and allow for future production and packaging of goods for the organization. Other new amenities being developed include a children’s learning sensory garden. Tyson Gersh, co-founder and president of MUFI, said the nonprofit bought the apartment building in 2011 for $5,025, winning the bid by $5. Renovations on the building and cafe are expected to be finished by May — in time for Sustainable Brands’ conference at Cobo Center May 22-25. Other organizations assisting MUFI with the project include General Motors Co., which joined Zeeland-based furniture manufacturer Herman Miller and its rePurpose program to furnish MUFI’s community resource center with collaborative and community spaces designed by the company with repurposed furniture from GM’s renovations at the Warren Technical Center, Milford Proving Ground and its global headquarters in Detroit. The rePurpose program works with companies to donate furniture no longer needed to nonprofits. Architectural design and construction work will be done by Detroit-based Integrity Building Group. Since its first growing season in 2012, the Michigan Urban Farming Initiative has distributed more than 50,000 pounds of free produce, Gersh said, and over the last four years has had more than 8,000 volunteers put in more than 80,000 hours of service into the project. According to a news release, the nonprofit also has several other projects underway, including turning a vacant home near the garden into a student intern housing facility and using a destroyed building’s basement as a water harvesting cistern that will automatically irrigate the garden and prevent runoff into the Detroit sewer system. MUFI is an all-volunteer nonprofit founded in 2011 that uses urban agriculture to promote education, sustainability and community effort to empower urban neighborhoods. It provides free produce to neighborhood residents, area churches and food pantries. Currently, the nonprofit’s focus is a two-square-block area in Detroit’s North End, which has benefited from $4 million in investments because of the farm.

“This is part of a larger trend ... in which people are redefining what life in the urban environment looks like. ” Tyson Gersh, co-founder and president of MUFI

“We’ve seen an overwhelming demand from people who want to live in view of our farm,” Gersh said in a news release. “This is part of a larger trend occurring across the country in which people are redefining what life in the urban environment looks

like. We provide a unique offering and attraction to people who want to live in interesting spaces with a mix of residential, commercial, transit and agriculture.” For more details on MUFI and the project, visit miufi.org.

DAVE DAROVITZ/GLOBAL PRODUCT DEVELOPMENT COMMUNICATIONS

A rendering of what the future community resource center and food cafe will look like on Brush Street in Detroit’s North End.

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

CALENDAR THURSDAY DEC. 8

Embrace the possibilities

www.pvm.org (248) 281-2020

Presbyterian Villages of Michigan (PVM) creates opportunities for seniors of all faiths. Connecting seniors to resources and their community for a vibrant life. Alpena Alpena Village 989.356.3396

The Village of Brush Park Manor Paradise Valley 313.832.9922

Battle Creek The Village of Mill Creek 269.962.0605

The Village of Harmony Manor 313.934.4000

Bay City The Village of Hampton Meadows 989.892.1912

The Village of Oakman Manor 313.957.0210 The Village of St. Martha’s 313.582.8088

Chesterfield The Village of East Harbor 586.725.6030 Clinton Township The Village of Peace Manor 586.790.4500 Detroit Delta Manor 313.259.5140

Flint McFarlan Villages 810.235.3077

Kalamazoo The Village of Sage Grove 269.567.3300

Gibraltar The Village of Gibraltar Manor 734.676.4802

The Village of Bethany Manor 313.894.0430

Harbor Springs The Village of Hillside 231.526.7108

Jackson The Village of Spring Meadows 517.788.6679 The Village of Spring Meadows II 517.788.7502

The Thome Rivertown Neighborhood 313.259.9000

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Holly The Village of Holly Woodlands 248.634.0592

The Village of Woodbridge Manor 313.494.9000

Fort Gratiot Township The Village of Lake Huron Woods 810.385.9516

Hartford Village 248.281.2024

Rosebush The Village of Rosebush Manor 989.433.0150 St. Clair Shores Lakeshore Senior Living 586.218.6228 Warren The Village of Warren Glenn 586.751.5090 Westland The Village of Our Saviour’s Manor 734.595.4663

Perry Farm Village 231.526.1500

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Pontiac The Village of Oakland Woods 248.334.4379 Redford The Cottages at Redford 313.541.6300 The Villa at Redford 313.541.6000

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Warren Alternative Care 855.445.4554

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.

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PACE Southeast Michigan: Southfield 248.556.9711 The Thome Rivertown 855.445.4554

BANKING

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mund Weis School of Business at

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sylvania, as its next president and CEO. Marsha Kelliher Kelliher will join the Troy-based college in April, succeeding retiring President Stephanie Bergeron, who has led Walsh since 2007. Kelliher joined Susquehanna in 2013. She previously held leadership roles over 19 years at St. Edward’s University in Austin, Texas, serving as dean of the school of management and business and overseeing graduate and undergraduate business programs. She has practiced law in Texas and California.

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has a new ownership structure after three of its top-performing brokers purchased equal owne r s h i p stakes.

K e v i n Baker and D a n i e l Kukes are

partners of Landmark and LandDaniel Kukes

mark Investment Sales,

as well as co-founders of the investment sales team.

Matthew Swantko is a

partner at Landmark. All three purchased Matthew 20 percent Swantko ownership stakes in Landmark and join Bruce Simon and Michael Lippitt as co-owners. Each now own one-fifth of the company, which specializes in retail brokerage. Lippitt, 55, called the deal part of a “transition” strategy as he and Simon, 57, near retirement age. Landmark, founded in 1989, has 17 employees.

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6 CRAIN’S DETROIT BUSINESS

December 5, 2016

MOBILITY FROM PAGE 3

Get Detroit thinking beyond the automobile More than a quarter of Detroit households don’t own an automobile, ranking eighth among the 30 largest cities in the U.S., and behind only cities with robust mass transit systems, such as Chicago, New York City and Washington, D.C., according to a 2014 study by the University of Michigan’s Transportation Research Institute. The city’s mass transit options are terrible, even if it’s gaining a new rail line in the QLine. In the November election, the Regional Transit Authority’s transit tax was narrowly defeated. Detroit must connect itself to the suburbs to ensure migration of Detroit residents to and from the aforementioned jobs located outside the city limits. The RTA needs a new plan, and Detroit must be central to the plan.

Woo the federal government The federal government has supported mobility initiatives in Columbus, Ohio; Pittsburgh; and Denver. Detroit, despite submitting

More than a quarter of Detroit households don’t own an automobile, ranking eighth among the 30 largest cities in the U.S., and behind only cities with robust mass transit systems, such as Chicago, New York City and Washington, D.C. proposals, continues to get overlooked. De la Vergne must ensure the federal government knows Detroit is a serious mobility contender. Experts said Detroit failed to get federal funding because of a lack of leadership. The U.S. Department of Transportation is expected to meet with the state’s mobility leaders, including MichAuto, a unit of the Detroit Regional Chamber dedicated to boosting the region’s automotive collaboration and marketing; Detroit Economic Growth Corp.; NextEnergy LLC; the New Economy Initiative; and others. De la Vergne will need to make an impression that will resonate with the feds to boost Detroit’s chances and profile in the space.

Take a leadership role within the regional and state mobility efforts The state closed last month on 300

acres at Willow Run in Ypsilanti to create an $80 million testing hub for connected and driverless cars called the American Center for Mobility, which is expected to open in 2018. University of Michigan opened its MCity early-testing facility for the same technologies last summer. General Motors Co. acquired driverless car tech firm Cruise Automation for $1 billion, invested $500 million into San Francisco ride-sharing service Lyft, and launched its own car-sharing service, Maven, all earlier this year. Ford Motor Co. created a mobility subsidiary, Ford Mobility LLC, and began testing driverless cars in Pittsburgh with Uber this year. Uber then announced it was opening an office in Detroit to partner with local automakers. It‘s de la Vergne’s responsibility to ensure these regional efforts can benefit Detroit and its citizens. Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

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REQUEST FOR PROPOSALS REQUEST FOR QUALIFICATIONS AND PROPOSALS FOR THE REDEVELOPMENT OF FORMER MCKINLEY SCHOOL AT 640 PLUM STREET WYANDOTTE, MICHIGAN 48192 Sealed bids will be opened on Monday, January 9, 2017, 2:00 P.M. to furnish: FILE #4630 - SPECIFICATIONS FOR QUALIFICATIONS AND PROPOSALS FOR REDEVELOPMENT OF FORMER MCKINLEY SCHOOL AT 640 PLUM IN THE CITY OF WYANDOTTE, MICHIGAN in the Council Chambers at Wyandotte City Hall, 3200 Biddle Avenue, Wyandotte, Michigan, 48192, at which time and place all bids will be publicly opened and read aloud. The City of Wyandotte is offering a prime Wyandotte Parcel for residential redevelopment. This property is a vacant elementary school approximately 53,719.5 square feet (not including the basement). There are two (2) floors and a full basement. The City will consider the rehabilitation of the current building or the removal of the building and redevelopment of the entire site into a residential use. Specifications can be obtained through the Michigan Inter-governmental Trade Network (MITN) website at www.mitn.info or at the City of Wyandotte’s website at www.wyandotte.net . The City will only consider projects that are taxable entities. The property is zoned Plan Development (PD). Proposals must be on forms furnished by the City in the specifications labeled "QUALIFICATIONS AND PROPOSALS FOR REDEVELOPMENT OF FORMER MCKINLEY SCHOOL AT 640 PLUM, IN THE CITY OF WYANDOTTE, MICHIGAN" and be accompanied by a bidder’s bond, certified or cashier’s check payable to the City of Wyandotte for the sum of not less than ten thousand Dollars ($10,000.00). Bids received without a bidder’s bond, certified or cashier’s check WILL NOT BE CONSIDERED.

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EXECUTIVE DIRECTOR Oakland Mediation Center is seeking a full-time Executive Director. The Executive Director (ED) is responsible for overseeing all OMC operations. The ED must be familiar with mediation concepts, practices, and procedures. Bachelor’s degree or equivalent work experience required. Advanced degree is desirable. 5-7 years experience in the field or related areas required. For the full job description go to www.mediation-omc.org Questions, cover letter and resumes are to be submitted by email to: Bonnie Hanes at: bhanes@mediation-omc.org

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The City of Wyandotte reserves the right to reject any or all bids, in whole or in part, to waive any irregularities therein and accept that bid which best serves its interest.

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cdbclassified@crain.com 313.446.6068

Crain News Service

Penske Automotive Group Inc. is adding used-only vehicle dealerships. Bloomfield Hills-based Penske, the nation’s second-largest auto retailer, has signed a deal to acquire CarSense, a stand-alone retailer of used vehicles with stores in Philadelphia, Pittsburgh and southern New Jersey. The acquisition is expected to generate about $350 million in estimated annual revenue. Terms of the deal were not disclosed. “With the completion of this acquisition, we intend to expand our share of the growing used-vehicle marketplace,” Penske Executive Vice President Whit Ramonat said in a statement last week. The deal will also further diversify Penske’s business, which includes commercial truck dealerships and car dealerships outside the U.S., said Chairman Roger Penske in the statement. He added that it offers Penske “an opportunity to grow its customer base while capitalizing on the highly fragmented used automotive

CrainsDetroit.com/JobConnect |

retail segment.” CarSense, in operation since 1997, has five locations, according to its website: two in Philadelphia, two in Pittsburgh and one in southern New Jersey. It reconditions and sells “high-quality, late-model used vehicles at no-haggle prices,” Penske said in the statement. “We believe the CarSense model is scalable to other markets across the United States and complementary to our existing core auto retail business,” said Ramonat. The transaction is expected to close in the first quarter. Penske is the latest publicly owned auto retailer to get into used-only vehicle stores. In October, AutoNation Inc., of Fort Lauderdale, Fla., said it will launch stand-alone used-only stores, following similar moves by Sonic Automotive Inc. and Asbury Automotive Group Inc. in prior years. Penske ranks No. 2 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail sales of 233,524 new vehicles in 2015. From Automotive News

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C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

CHRIS EHRMANN/CRAIN’S DETROIT BUSINESS

Detroit-based Mannik & Smith Group Inc. found no structural issues that would require demolition after the jail has sat languishing, exposed to the elements, at Gratiot Avenue and I-375 in downtown Detroit.

Walsh Construction of Chicago is lone respondent to Wayne County jail RFQ By Kirk Pinho kpinho@crain.com

Wayne County is evaluating the qualifications of just one construction company to finish building the Wayne County Consolidated Jail. Chicago-based Walsh Construction Co., which has an office in Detroit, was the only company to respond to the county’s request for qualifications that was issued in September. The county said in a Thursday news release that it expected more responses to the RFQ. “This has the potential to expedite the process, and that’s good news,” county Executive Warren Evans said in the release. “Walsh is a renowned firm with expertise in

RESTAURANT & BANQUET CENTER Downtown Detroit

building correctional facilities. We will evaluate their response to determine whether the team they’ve assembled is qualified to complete the jail at Gratiot.” The county said that if Walsh Construction gets a favorable review of its qualifications, it could let the county begin direct negotiations with the company. That could expedite the construction time frame, the county said. The news came two weeks after a report from Detroit-based engineering company Mannik & Smith Group Inc. found no structural problems with the half-built jail, construction on which was halted 3 1/2 years ago due to cost overruns. The project, on which the county has spent $151 million so far, is at Gratiot Avenue and I-375 at the edge of downtown Detroit. Evans said in an interview last month that finishing the jail is expected to cost about $250 million; the county has about $50 million in bond funds left over from the $200 million it issued in December 2010 to pay for the jail. The jail project was originally expected to cost $220 million, but the final price tag was expected to be $391 million before construction was stopped. The county had said it expected to issue an RFP for companies to design and finish building the jail in January. Even though Walsh was the

BLUES FROM PAGE 3

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health insurance exchanges, at least for 2017, than through traditional agents. In a previous interview, Andy Hetzel, vice president of corporate communications for Blue Cross, told Crain’s that the state’s largest health insurer had identified up to $180 million in savings opportunities in at least 151 areas. In an email statement Friday, Hetzel said he wasn’t familiar with current financial numbers for Blue Cross in the individual market. He said the 2016 financial audit and report will be

only respondent to the request for qualifications, the county can still issue the RFP next month. A contract with Walsh would have to be approved by the Wayne County Commission and Wayne County Building Authority. Billionaire businessmen Dan Gilbert and Tom Gores have proposed turning the site into a $1 billion development anchored by a Major League Soccer stadium and three 18to 28-story high-rise towers with residential, office and hotel uses. Gilbert said in an interview with Crain’s after the Mannik & Smith report was released that he expects a final determination on the project will be made soon. “Look, you never know in politics and with holidays, but my gut is that one way or the other, this thing will probably come to a head by New Year’s Day,” he said. Gilbert is the founder and chairman of Detroit-based Quicken Loans Inc. and Rock Ventures LLC, and the owner of the NBA's Cleveland Cavaliers. Gores is the owner of the Detroit Pistons, which last month announced it would be moving to downtown Detroit in the under-construction Little Caesars Arena for the Detroit Red Wings. An email was sent to Rock Ventures seeking comment Friday morning. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

made public in April. “We remain very confident that we are tracking well against our business transformation goals and are on track to achieve our $300 million goal savings in 2018, which is when our effort is expected to conclude,” Hetzel said, referring to the end of that year. However, Loepp’s staff memo described the $106.5 million in cost savings as “SBT value captured to date.” The three categories listed were administrative recurring, with savings of $104.9 million; administrative costs for SBT, $500,000; and cost avoidance of $1.1 million. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

TERMS FROM PAGE 1

divvying up every penny of revenue. Perhaps most surprisingly, the Pistons may not pay the Red Wings anything to play their 41 regular-season home games at Little Caesars Arena. In fact, instead of a traditional tenant lease payment, the Pistons could be the entity getting cash to play downtown. They will bring people to the Ilitch family’s $2.2 billion, 50-block mixed-use redevelopment plan, called The District Detroit, anchored by the new arena. “I’d be surprised if the Pistons pay rent,” said Andrew Zimbalist, a noted professor of economics at Smith College in Massachusetts and author of several sports finance books. That’s because the Ilitches, who have owned the Red Wings since 1982, may need the Pistons more than the basketball team needs to be downtown. Zimbalist pointed to the relationship between hockey’s Boston Bruins and basketball’s Celtics, who share TD Gardens arena. The venue and the Bruins are owned by Jeremy Jacobs, who is chairman of sports concessionaire giant Delaware North. The Celtics play rent-free at the arena because the building is more valuable with them there to Jacobs than without. In return, Delaware North (which operates the arena for Jacobs) keeps revenue generated from the sale of premium seats and suites, and from concessions. The Celtics keep their ticket sales revenue, and other streams of cash such as local TV rights. In Brooklyn, hockey’s New York Islanders get an average lump sum of $53.5 million a year to play at the Barclays Center, opened in 2012 as home of basketball’s Brooklyn Nets, according to the New York Post. The Isles moved in this season under a 25-year deal by former owner Charles Wang that was signed four years ago. The arena, owned along with the

DEGC FROM PAGE 1

publicly and privately for being too secretive and opaque. It was done “to ensure the committee members had the latest terms, which were being reviewed by all parties close to the time of the meeting,” said Bob Rossbach, a spokesman for the DEGC and DDA.

Perception of process On its website, the DEGC describes itself “not part of the city of Detroit’s government, but ... a longtime partner of it.” Richard Hosey III, a DDA board member who owns Detroit-based Hosey Development LLC and is a partner with Detroit-based Capitol Park Partners LLC, said it shouldn’t be concerning that finance committee members went into their Nov. 22 meeting unaware of the deal’s details. “The amazing qualifications of the DEGC’s current staff makes it much easier to evaluate complicated deals in shorter periods of time,” said Hosey,

THE DISTRICT DETROIT

A conceptual rendering of the exterior of Little Caesars Arena, which will be shared by the Detroit Red Wings and Pistons. Nets by Russian mining billionaire Mikhail Prokhorov, generates its revenue off ticket and suite sales, sponsorships and other promotions, the Post said. However, the Islanders-Nets sharing arrangement illustrates the perils of shared venues. Barclays was built primarily as a 17,732-seat basketball venue, and the hockey team struck a deal to move there to escape its cash-bleeding tenure at elderly Nassau Coliseum. Voters rejected using tax dollars to build the Isles a new arena. Barclays seats 15,795 for hockey, including 1,500 seats with obstructed views, and Isles fans have been unhappy and less inclined to buy tickets — fueling speculation that the team may end up building its own arena elsewhere in the market. Little Caesars Arena is getting a mid-construction retrofit to accommodate the Pistons, such as courtside seating and their own locker rooms. Reconfiguring the 20,000-seat arena adds $34.5 million to the venue’s $635 million hard cost. The additional spending will be through refinancing some of the public bonds sold to pay for construction. A DDA property tax capture around the arena repays some of the bonds, while revenue

from games and events at the arena will pay off other bonds. Olympia Entertainment, which handles the Red Wings’ business functions, will collect all revenue at Little Caesars Arena under the 35year management deal it has with the DDA. Olympia is free to create whatever revenue or lease deal it wants with the Pistons via a sub-concession agreement. The Pistons currently pay nothing to play at the Palace of Auburn Hills, built and owned by former team owner William Davidson for $90 million in 1988. Its fate after the team leaves is unknown, but it could be razed for commercial redevelopment. Current Pistons owner Tom Gores also got the Palace in his $325 million deal to buy the team in 2011. The Red Wings have been at cityowned Joe Louis Arena since 1979, and pay $1 million annually in rent under a deal struck in 2014. Under their old lease, they paid $552,000 combined in rent and a use tax to the city. The team keeps all revenue from Joe Louis under the 2014 lease. Under the previous lease, the city collected taxes on tickets, concessions and suites sales that generated $2 million and $3 million annually. A question that remains to be an-

swered is how the teams will handle revenue streams such as corporate sponsorships and suite leases. And what makes revenue splits among teams in a shared arena especially complex are the labor deals between pro sports leagues and player unions. Collective bargaining agreements define what team revenues are used to calculate how money is split between team owners and the players. Cash streams from ticket sales, premium seating and suites, corporate sponsorships, parking, merchandise, concessions, local TV rights and much more, must be itemized for the purpose of calculating how much revenue gets paid to players — often governed by salary caps and floors that can fluctuate annually based on total league revenue. Additionally, the cash a pro sports team generates is subject to league-level revenue sharing agreements intended to subsidize poorer clubs in smaller markets with money from more affluent teams, usually in larger markets. The myriad revenue sources and need to meet labor deal requirements mean any deal short of a simple rent payment is likely to be complicated. “No two (team) deals and relationships are the same for a variety of rea-

Detroit Economic Growth Corp.-staffed agencies

the staff has done a great job, everything that might have been a concern has already been addressed.” Rossbach said the deal approved is preliminary and nonbinding. “There is still plenty of time for the DDA and elected officials to review the proposed terms and hear additional comment from the public before final agreements are reached and all public votes are cast,” he said. Robert Gibbs, a retail and urban planning expert who is managing principal of Birmingham-based Gibbs Planning Group Inc., said he is not an expert on the DEGC but has worked with economic development entities across the country and world for three decades. “The process and perception of the process is almost more important than the substance itself. With the economic groups I’ve worked with, they have really bent over backward to have public agendas, public meetings,” he said. “It’s important that you have a very open, public process in order to have confidence of the local community and the citizens, yes. I think eventual-

ly that comes back and harms you if you don’t.” Yet the secrecy of the DEGC, which was incorporated in 1978 and whose website lists 47 employees, doesn’t appear to have harmed the organization all that much.

n Detroit Brownfield Redevelopment Authority n Detroit Downtown Development Authority n Detroit Next Michigan Development Corp. n Economic Development Corp. of the City of Detroit n Eight Mile Woodward Corridor Improvement Authority n City of Detroit Local Development Finance Authority n Neighborhood Development Corp. of Detroit n City of Detroit Tax Increment Finance Authority

a four-year board member who does not serve on the finance committee. “If you don’t have a bunch of hanging threads on a deal or unanswered or unanswerable questions because

Proper notice? Full DDA board meetings are open to the public and notices of those meetings are provided 24 hours in advance, as required by the state’s Open Meetings Act, Rossbach said. Committee meetings are not required to be open to the public, he said. The DDA is regularly criticized for stonewalling attempts from the media and others to access information in advance of its public full board meetings. A lengthy 2014 Metro Times story raised numerous questions about negotiations around the deal on the new Little Caesars Arena under construction, which at that time was not yet named. As recently as last week, a copy of the full DDA board agenda was not posted on its website and was not provided to a reporter on the pro-

17 sons,” said David Carter, principal at The Sports Business Group consultancy and executive director of the University of Southern California’s Sports Business Institute. The Red Wings had $137 million in revenue last season, while the Pistons had $154 million in revenue, according to the most recent annual estimates from Forbes.com. The new arena is expected to add millions more for both clubs via increased fan interest and spending — and expected increases in ticket prices. If the Pistons have a basic no-frills lease payment arrangement with Olympia, it could be a set annual payment or it could be a sliding amount linked to team revenue. It also is unclear if Olympia will handle business functions such as sales for both clubs, or if they will maintain separate or mixed staffs. Gores has made it clear he intends to deepen his business, civic and philanthropic ties to Detroit, with the Pistons being the most high-profile element of that initiative yet. The private equity billionaire may see a financial advantage in surrendering some revenue in favor of jettisoning his upkeep and operations costs at the Palace, a building he’s put $40 million-plus into for upgrades since 2011. What is known about the new relationship between the Red Wings’ owners, the Ilitch family and Gores is that they’ll form a joint venture to operate their non-sports entertainment businesses (Olympia Entertainment and Palace Sports & Entertainment), which covers a number of major entertainment venues. It’s also been hinted that they could jointly negotiate local broadcast rights deals, or even form their own network (with the Ilitch-owned Detroit Tigers). The Pistons relocation deal still requires approval from the NBA, DDA board, and Detroit City Council. Those approvals are expected to be handled in the first quarter of 2017. Bill Shea: (313) 446-1626 Twitter: @Bill_Shea19

posed Monroe Block development by Dan Gilbert until a 3 p.m. meeting Wednesday began. DDA meetings are generally held in a Guardian Building room with a long, brown conference table surrounded by several dozen black chairs. Rossbach said the DEGC is exempt from the Freedom of Information Act as a nonprofit organization but “the documents it creates under contract specifically for the DDA are subject to FOIA.” The DDA and the seven other city entities that it staffs all have bonding authority. The DDA’s current budget is just over $7 million, with about $5 million, or roughly 71 percent, of that coming from city professional services contracts to staff Detroit’s various economic development agencies. “They are doing a great job, but I think the process is really important,” Gibbs said. “It has to be a public, open process. What I often hear people say is that if they want to hide something, they’ll hide it in plain sight.” Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

PENSION FROM PAGE 1 www.crainsdetroit.com Editor-in-Chief Keith E. Crain Group Publisher Mary Kramer, (313) 446-0399 or mkramer@crain.com Associate Publisher/Editor Ron Fournier, (313) 446-1674 or rfournier@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 Kristin Bull, (313) 446-1608 or kbull@crain.com Digital Editor Carlos Portocarrero (313) 446-6056 or cportocarrero@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 or shill@crain.com Newsroom (313) 446-0329, FAX (313) 446-1687, TIP LINE (313) 446-6766

REPORTERS Jay Greene, senior reporter Covers health care, insurance, energy, utilities and the environment. (313) 446-0325 or jgreene@crain.com Tom Henderson Covers banking, finance, technology and biotechnology. (313) 446-0337 or thenderson@crain.com Kirk Pinho Covers real estate, city of Detroit. (313) 446-0412 or kpinho@crain.com Bill Shea, enterprise editor Covers media, advertising and marketing, the business of sports, and transportation. (313) 446-1626 or bshea@crain.com Lindsay VanHulle, Lansing reporter. (517) 657-2204 or lvanhulle@crain.com Dustin Walsh, senior reporter Covers the business of law, auto suppliers, manufacturing and economics. (313) 446-6042 or dwalsh@crain.com Sherri Welch, senior reporter Covers nonprofits, services, food and hospitality. (313) 446-1694 or swelch@crain.com

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municipal employers after Jan. 1, while the Senate is considering moving newly hired teachers into a 401(k)-style retirement savings account. Proponents, including GOP legislators and some municipalities, say generous benefits were promised decades ago in different economic times and are now unsustainable. Researchers estimate municipalities across Michigan are on the hook for an estimated $11 billion just in unfunded health care obligations. The scale of the problem has many cities, townships and counties struggling to set aside enough money without cutting services. Local finance experts and some local leaders are warning that could lead to insolvency, if nothing is done to control costs. Union leaders argue the changes would amount to reduced benefits and a weakened position to attract quality teachers, firefighters and police. Some opponents say the ability to pay into retirement plans also has been hurt due to state revenue-sharing cuts and the effects of Proposal A of 1994, which restricts annual property tax growth. It’s broadly agreed that Michigan municipalities are underwater in funding their retirement benefits. Pensions are constitutionally protected and local governments are required to contribute annually; retiree health care has no such requirements. But that’s where the agreement ends. “The good news is we’ve identified a problem,” said Mark Diaz, president of the Detroit Police Officers Association who also sits on the city’s police and firefighters’ retirement board and sees the legislation as chipping away at public unions. “Every local municipality should have the ability to negotiate their own benefits within their own community with their employers. “Trying to correct — and I’m using air quotes when I say that — trying to correct a problem by employing a scorched-earth policy is not the solution. In fact, it becomes more of a hindrance.” The right-to-work push sprang up partly as a backlash against a unionbacked attempt to enshrine collective bargaining rights in the state Constitution that voters ultimately rejected. Like right-to-work before it, reforming public retirement benefits is a priority of conservative lawmakers and influencers, including the West Michigan Policy Forum, whose attendees in September ranked reforming benefits its top issue. The group invited public union leaders last week to discuss the problem together, adding that they want legislators to take action to preserve benefits from being eroded and to recruit younger workers who desire more flexible benefits. Americans for Prosperity and the Reason Foundation, both of which have ties to the conservative billionaire Koch family, testified last week in the Senate in support of moving teachers into defined-contribution retirement plans. Some of the biggest advocates for legislative action are municipal leaders themselves, who have to make

spending decisions about retirement benefits while balancing the need to pay for city services. The Michigan Municipal League supports the House bills in concept, but is polling its member cities on revisions. Employee legacy costs have reached a tipping point, said James Freed, Port Huron’s city manager, who convened about 100 local leaders this fall to discuss the issue. “We recognize the problem. We have defined the problem. Inaction is immoral,” Freed said.

Unfunded obligations Other post-employment benefits, which include health care for retirees, have surpassed pensions as local governments’ biggest unfunded liability, said Eric Scorsone, deputy state treasurer and a Michigan State University faculty member who has written recent reports on the issue. Just 14 percent of local retiree health care plans across the state were funded in 2014, up from 9.5 percent in 2011, according to Scorsone’s updated research, which was published this year. In comparison, local pension systems overall are about 78 percent funded, he said. Cities, counties, villages and townships are paying $480 million annually toward retiree health care obligations, mostly for premiums, he said. He estimated it would take an estimated $800 million per year to also prefund the benefits. Dave Walker, a former U.S. comptroller general and senior strategic adviser for auditing and consulting firm PricewaterhouseCoopers, studied pension and health care benefits in several municipalities — Ann Arbor, Grand Rapids, Kalamazoo, Lincoln Park, Port Huron, Saginaw and Grand Traverse County — in a presentation to the West Michigan forum this fall. Walker reviewed their reported retirement obligations in their annual year-end audit documents, and then adjusted them based on lower, or “normalized,” estimated investment rates of return — roughly 5.5 percent, compared with at least 7.5 percent as used by some municipalities, he said. Lowering the rate indicated that underfunded obligations were roughly three times greater than what municipalities reported, he added. Municipalities included in the study disclosed unfunded pension and health care obligations of $321 million and $855 million, respectively, according to Walker’s report. Those figures swelled as high as $1.7 billion and $1.1 billion, respectively, when adjusted for lower investment returns. The bottom line, he said, is that using rosier expectations could mask the true problem. And since Americans are living longer and health care costs continue to rise, Walker added, “it’s going to end up being a bigger problem if left unaddressed.” House Speaker Kevin Cotter testified last week that the proposed health care reforms were necessary to prevent costs from bankrupting cities. Scorsone said he doesn’t think bankruptcy is inevitable, because local governments would have to choose that path. Still, he added: “I definitely see a lot of fiscal distress. We see that today. It’s not something that’s going

to happen. It is happening.”

Shifting plans The Legislature is moving forward with two separate sets of bills affecting two groups of public employees. In the Senate, bills would move newly hired teachers into a defined-contribution plan, rather than the hybrid defined-contribution and pension plan they receive now. New teachers were moved to the hybrid in 2010 and its pension component is fully funded today, according to the Senate Fiscal Agency. Sen. Dave Hildenbrand, R-Lowell and chairman of the Senate’s appropriations committee, said during a hearing that the proposal would modernize the teachers’ retirement system and offer long-term benefits. But the Senate’s fiscal analysis showed that shifting to a 401(k)-style plan would cost at least $28 billion, including $3.8 billion over five years, due to the costs of operating a defined-contribution system and accelerating funding the old pension system, which has a $26.7 billion unfunded liability. The legislation narrowly passed a Senate committee, and Senate Majority Leader Arlan Meekhof hasn’t set a date for a floor vote, a spokeswoman said. It’s opposed by Gov. Rick Snyder, who favors the hybrid plan, spokeswoman Anna Heaton said. “He believes moving to close that system right now would not be financially prudent due in large part to the transition costs,” Heaton said. A spokesman for the state’s Office of Retirement Services, which administers the Michigan Public School Employees Retirement System, said closing the hybrid plan would do nothing to pay down state pension liabilities that already exist. Doug Pratt, a spokesman for the Michigan Education Association, the state’s largest teachers union, said teachers already are paying more toward their retirement. Educators are concerned that fewer teacher candidates would consider applying for jobs in Michigan. “Nobody gets into education to get rich, but you should be able to lead a comfortable, middle-class existence,” Pratt said.

Statewide issue The House last week introduced a 13-bill package meant to control cities’ costs toward retiree health care. Overtime pay, sick or vacation leave, bonuses or other compensation “paid for the sole purpose of increasing final average compensation” would be excluded from determining an employee’s base pay. Municipalities would be limited to paying 80 percent of annual retiree health care costs starting May 1,

2017, and 2 percent of an employee’s base pay into a tax-deferred retirement health account for new employees hired after April 30, 2017. The requirements would only apply to municipalities whose retiree health care costs are less than 80 percent funded, or municipalities that fall below the 80 percent threshold for two straight years. All but one of the sponsors of the House bills is term-limited after this month. Rep. Earl Poleski, R-Jackson and a bill sponsor, said term limits are a significant reason the bills are being introduced now. “The object is to try and make sure that those benefits are available for employees in the future,” Poleski said. “To provide health care to pre-Medicare retirees is incredibly expensive and, frankly, has to decline very steadily or end. Most folks in the private sector are working until they are Medicare-eligible.” In September, Freed, Port Huron’s city manager, gathered municipal leaders in Lansing to talk about their funding scenarios and set the stage for possible legislative action. Freed said he would like the Legislature to lower the bond rating required by state law for cities to issue pension bonds. Port Huron has a larger pension shortfall than health care — $103 million in unfunded liabilities, compared to $37 million for retiree health care, Freed said, though both gaps are issues. The city last year paid $3.9 million toward its pension obligations and $3 million toward its other post-employment benefits, he said. The city expects combined payments for both to rise north of $12 million within five years. “Was it just a Port Huron issue or was this a universal issue? And it turns out this is a statewide issue,” Freed said. “To be frank, I was taken aback at the size and scope of this challenge.” Auburn Hills’ retiree health care obligations are 49.2 percent funded, according to data from Auburn Hills City Council member Bob Kittle. Its pension liabilities are in better shape, at 87.1 percent funded, he said. Kittle, who also is president of Munetrix LLC, which performs financial analyses for local governments, said simply lowering assumptions on investment returns by a quarter of a percentage point led the city to roughly double its annual contribution, from $1.6 million to about $3.2 million. He said the outcome of past lucrative benefits is that some retirees are drawing a pension longer than they’re drawing a salary — and taxpayers are footing the bill. “You got people who are retiring for 40 years after working for 25,” Kittle said. “That’s unsustainable.” Lindsay VanHulle: (517) 657-2204 Twitter: @LindsayVanHulle

INDEX TO COMPANIES These companies have significant mention in this week’s Crain’s Detroit Business: Blue Cross Blue Shield of Michigan

Detroit Red Wings

City of Detroit

Jewish Federation of Metropolitan Detroit 9

Crain’s Detroit Business

Michigan Urban Farming Initiative

Detroit Downtown Development Authority 1

Penske Automotive Group

Detroit Economic Growth Corp.

Presbyterian Villages of Michigan

Detroit Medical Center

Ronald McDonald House of Detroit

Detroit Pistons

Rose Hill Center

8 9 10

C R A I N ’ S D E T R O I T B U S I N E S S // D E C E M B E R 5 , 2 0 1 6

THE WEEK ON THE WEB NOVEMBER 24-DECEMBER 2 Rockbridge Growth Equity sells e-retailer to Chicago PE firm

etroit-based Rockbridge Growth Equity LLC has sold Purchasing Atlanta-based

Power, an e-retailer offering purchasing programs for name-brand consumer products and services using payroll deductions at participating companies, to Flexpoint Ford LLC, a private-equity firm in Chicago. Terms were not disclosed.

COMPANY NEWS

Adient Ltd. announced the acquisition of the Marquette Building in J

downtown Detroit for its new global headquarters. The world’s largest automotive seating supplier, recently spun off from Milwaukee-based Johnson Controls Inc., plans to spend $97.5 million — including $20 million to $25 million to buy the 10-story building and $50 million more to renovate it. J Troy-based Delphi Automotive formed a partnership with Santa Clara, Calif.-based Intel Corp. to use Intel chips starting late next year for a technology package being developed for self-driving vehicles, Automotive News reported. J Bloomfield Hills-based O2 Investment Partners LLC acquired Kansas City, Kan., countertop fabricator Top Master Inc. for one of its portfolio companies, Clio Holdings LLC, a Birmingham-based countertop and fabrication business. Terms were not announced. J Detroit-based Huron Capital Partners LLC announced it acquired Lubbock, Texas-based Lone Star Auto Auction for one of its portfolio companies, the Indianapolis-based XLerate Group, which runs online and onsite auto auctions. Terms were not disclosed. Also, Huron Capital Partners formed affiliations with two more dental practices — Richmond, Va.-based Jack Dunlevy Orthodontics and Wood, Lombardozzi PC — for its Dundee-based Spring & Sprout Dental Holdings Inc. portfolio company. J Henry Ford Health System plans to announce on Monday the largest individual gift in its 100-year history. Given by a Detroit businessman and philanthropist in honor of his late wife, the donation is part of a multimillion-dollar gift that will support Henry Ford’s new Detroit cancer building project, the system said. J Dearborn-based Quick Lane Tire & Auto Center will extend its title sponsorship of the annual college football bowl game at Ford Field for three more seasons, through 2019, the Detroit Lions announced. Financial terms were not disclosed. The Quick Lane Bowl began in 2014 and will next be played Dec. 26. The bowl’s primary tie-ins are the Big Ten and Atlantic Coast conferences. J Classic hip-hop and R&B radio station 105.1 The Bounce, which debuted in July, introduced its on-air talent lineup. Detroit natives Suga

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

825,000 The approximate square footage in a

Dan Gilbert plan to turn two vacant, largely abandoned blocks east of Campus Martius Park into new office and residential space. The Detroit Downtown Development Authority

approved a term sheet for the plan for the Monroe Block and the block immediately northeast containing the historic National Theatre building.

$3.5 million The estimated cost to renovate a

downtown Royal Oak space for a HopCat bar and restaurant to open in the first quarter of 2017. The project led by Grand Rapids-based BarFly Ventures LLC and Innovo Development Group LLC of Kalamazoo last week won approval for a liquor license transfer and plan of operation from city officials.

$625 million

The estimated value of the Detroit Red Wings, according to Forbes. com’s new annual National Hockey League team valuations. The Wings

increased in value by 4.1 percent from the previous year in ranking eighth in the league for both years.

Rae, DJ Dinero and Reggie Reg Davis as well as Deongello “Gello” Vanorsby from Phoenix are the Detroit station’s new “ambassadors.” WMGC 105.1 FM ended a three-year experiment as a sports talk station in late June to become The Bounce. The station had been using a roster of remote talent since then. It is owned and operated by Beasley Media Group Inc.

OTHER NEWS

J Construction on a Dan Gilbert-led development of 410 apartments and for-sale units in Detroit’s Brush Park is expected to begin this week. The plan for the City Modern development has grown to 107 for-sale units and 303 rental units at a cost of more than $100 million. Units are expect-

ed to become available for move in starting in early 2018. J The leader of an investigation into the Detroit Medical Center questioned the capability of his staff to investigate dirty instruments, emails show. The Detroit News obtained 220 pages of emails related to an investigation prompted by articles in the newspaper in August. A contractor was brought in to assist the investigation of DMC surgical tools. J The University of Michigan-Dearborn announced the launch of a car-sharing study on the university’s campus. Southfield-based Denso International America Inc. is funding the study, and Denso hired Detroit-based NextEnergy LLC to support project management. The study, MDrive, is designed to allow Denso to learn what technologies are most needed in future vehicles, particularly those used in car-sharing. Three Ford Focus electric vehicles will be available to 30 pre-selected UM-D students to drive. Denso will collect vehicle data through real-time onboard equipment and cameras. J Michigan State University is getting into the health clinic business in Detroit with the new Popoff Clinic. MSU’s College of Osteopathic Medicine is sponsoring the family health care facility with a donation from the family of Michael Popoff, D.O., who owned and ran the Mack Avenue clinic for 47 years. Popoff died in 2015. MSU osteopathic students and newly graduated doctors in residencies with the Detroit Wayne County Health Authority will help staff the clinic. J Miami-based Vitas Healthcare, a hospice care provider, denied that it paid kickbacks to disgraced Oakland County cancer doctor Farid Fata but said it is paying $200,000 to the federal government to avoid costly litigation, AP reported. Officials said an employee at Vitas reported that the company contributed about $16,000 to a foundation run by Fata and got 23 patient referrals over a two-year period. Fata is serving a 45-year prison sentence for putting hundreds of patients through needless cancer treatments. J Fuataina Afutiti, the former president and CEO of the now-closed Veterans Health Administration Credit Union in Detroit, was sentenced to 30

months to up to 20 years in prison for stealing nearly $2 million from the credit union.

ANDREW POTTER

A building permit was issued last week to begin a $2.6 million restoration of the Old Wayne County Building in downtown Detroit. Most of the work will be on the exterior masonry and window restoration, said a source familiar with the project. The building is owned by New York-based 600 Randolph SN LLC.

RUMBLINGS

AARON ECKELS

Networking in the D Lori Walton (left) was one of more than 50 job seekers who networked with prospective employers over Thanksgiving weekend for the first Jobs in the D event. The job-matching event was an offshoot of Detroit Homecoming, the annual expat immersion event produced by Crain’s Detroit Business, and was a partnership with Work Fountain and the nonprofit affinity group Born and Raised Detroit. Here, Walton talks to Gail Wambsgans, director of talent acquisition and human resources operations for American Axle & Manufacturing, which was one of 14 employers on hand for the event.

‘Above & Beyond’ awards honor slain officers The night before a funeral mass for slain Wayne State University Police Officer Collin Rose, Mayor Mike Duggan addressed a huge gathering of Detroiters honoring the heroism of police and firefighters. He spoke of the Detroit Pistons’ Mike Duggan: return to “Feelings are downtown and tempered.” an influx of new businesses to the city’s core. “We have a lot of good things” happening in the city, he said. “But everybody in this room knows the feelings are tempered.” Tempered by the killing of Rose,

the university cop shot while investigating car break-ins in Detroit’s Woodbridge neighborhood. Tempered by the death of Detroit Police Officer Myron Jarrett, who was assisting officers at an October traffic stop when a speeding van slammed into him. Tempered by the September killing of Detroit police Sgt. Kenneth Steil, who pursued the man who shot him and later died from complications, as his family was preparing for his return from the hospital. With the mayor’s help, all three men — and their grieving families — were honored at the annual “Above & Beyond” awards ceremony at Cobo Center on Wednesday. “I am lucky to be the mayor,” Duggan said, “of the finest police and fire department in the United States.”

Pistons to unveil interactive 1-on-1 video game Detroit Pistons fans who want to go one-on-one with Andre Drummond now have the opportunity, at least digitally. The club was scheduled on Monday to unveil an interactive video game called “One-on-One with the Detroit Pistons,” created by New York City-based tech firm

Interlude Ltd.

Players are represented by a human avatar on screen going against one of the actual Pistons starting five, using their touch screens or keyboard to control the one-onone style half-court game action. It responds as if users are watching a live broadcast. “Our software did all of the magic of stitching all of the shots to-

gether seamlessly for the consumer,” said Jim Spare, Interlude’s president and COO. “It really plays out like a movie or game without having to stop the video or audio to load the next scene.” It can be accessed on mobile device, tablet, or desktop computer at pistons.com/1on1. No app is necessary. “You can play this a hundred times and get a hundred different outcomes. This isn’t a one-anddone,” said Pistons CMO Charlie Metzger. The game is free and had no premium component. Monetization is from an eight-second ad before the game begins.