MiBiz Crystal Ball 2017 by MiBiz

CRYSTAL BALL INSIGHTS, ECONOMIC SENTIMENT and forward-looking strategies from the regionâ&#x20AC;&#x2122;s business leaders

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special year-end issue | december 26, 2016 | vol. 29 | no. 5 | $3.00 P

“The best way to predict the future, is to create it.” -Abraham Lincoln

At Warner Norcross, we don’t need a crystal ball to help you predict future opportunities and challenges. We rely on our experience and knowledge to help you succeed. You should too.

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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UNCERTAINTY AHEAD

n speaking with hundreds of business executives over the last couple of months, we heard plenty of different phrases to describe their overall bullishness: All-time record year. Double-digit growth. Expansion. New markets. New products. While their vernacular was varied when it came to describing their positive outlook for 2017, virtually all of them used a single word to describe the potential downside risk of the coming months. Uncertainty. Despite traditional indicators pointing to 2017 being a good year for the economy in Michigan and nationwide, most executives say they just can’t overcome this nagging sense of uncertainty when it comes to President-elect Donald Trump and the still sharply partisan atmosphere in Washington, DC. At JSJ Corp. in Grand Haven, Chairman, President and CEO Nelson Jacobson said he expects the incoming administration to set a pro-business tone for the federal government that ratchets back on regulation and invests in job-creating infrastructure programs. But as a “real strong believer in global trade” whose business has benefited from NAFTA and manufacturing in China, he’s also very concerned about the antiglobalization rhetoric and unpredictable behavior coming from the nation’s incoming chief executive. “It’s the uncertainty,” he said when asked about his main concern for 2017. “I’m looking out for thousands of employees and families globally and (wondering) how does that affect them. Is it rhetoric or is it real? How will it affect us?” R. Kevin Clay, vice president of business development at Pridgeon & Clay Inc., a family-owned automotive supplier in Grand Rapids, has a similar dichotomy in his outlook. “Reducing taxation and regulation, if that’s the true business environment, then my colleagues — the manufacturing business owners — we’re pretty excited about that,” Clay said during a roundtable discussion of middle-market executives. “But there’s been this anti-globalization rhetoric out there, and that’s foolish. Globalization and the free trade agreements have been a huge net benefit to America since World War II. … If we eliminate these things, it’s reckless and it hurts nobody worse than the very poorest people. I

think this rhetoric against globalization is at best intellectually dishonest, at worst it’s dangerous.” For Open Systems Technologies Inc. CEO Meredith Bronk, the clash of potential business opportunities resulting from the new administration and the “unnerving” political environment has led to “a little bit of a bifurcation for me.” Any significant changes to the Affordable Care Act — or an outright repeal — will likely translate into additional client opportunities for OST, a Grand Rapids-based technology services firm that’s developed a specialty in health care. Any reduction in business taxes and regulation also would be beneficial, if not for OST then for the company’s clients. But as a “female leader with three young daughters,” Bronk said she feels especially compelled to live out her beliefs about corporate responsibility, community and inclusion. Her outlook for the next year is simple: “Uncertainty is the name of the game.” And so it goes. Executives across West Michigan believe in the traditional indicators demonstrating the health of their businesses and the economy, but they’ve tempered their outlook because of the unpredictability brought about by an unconventional leader who’ll soon be occupying the White House. Jacobson at JSJ likened the current situation to an athlete coping with pre-game jitters as game day approaches. “It’s a little bit anxious,” he said. “We need to be flexible. How are we going to make sure we can understand, assess and deploy our people and our capital effectively? When is this really going to start and what’s it going to really look like? … As things will change pretty dramatically, (we want to) be able to take advantage of them.” Here’s hoping we’re all flexible and nimble enough to take advantage of whatever opportunities come our way in the new year.

Cheers,

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Publisher Brian Edwards / bedwards@mibiz.com Associate Publisher Denise Schott / dschott@mibiz.com Editor Joe Boomgaard / jboomgaard@mibiz.com Senior Writer Mark Sanchez / msanchez@mibiz.com (finance, health biz, life sciences) Staff Writers Nick Manes / nmanes@mibiz.com (real estate & development, small biz) John Wiegand / jwiegand@mibiz.com (manufacturing, agribiz, econ. development) Associate Editor Josh Veal / jveal@mibiz.com (nonprofits, web editor) Contributing Reporters Andy Balaskovitz, Jane Simons Copy Editor Claire Boomgaard Photographers Katy Batdorff, Jeff Hage Director of Marketing & Audience Development Kristi Kortman / kkortman@mibiz.com Senior Advertising Consultant Shelly Keel / skeel@mibiz.com Advertising Consultant Renee Looman / rlooman@mibiz.com Editorial Designer & Ad Traffic Coordinator Rachel Harper / rharper@mibiz.com Circulation For address corrections or subscriptions, contact MiBiz at 1-877-443-1977 or subscribe@mibiz.com

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Join us as we honor deserving nonproﬁt organizations and professionals with an awards presentation, lunch and panel discussion on Jan. 24, 2017 at the Goei Center in Grand Rapids!

MiBiz ISSN 1085-4916 • USPS 017-099 Established 1988 MiBiz is published every other week by REVUE Holding Co., Inc., 65 Monroe Center NW, Suite 500, Grand Rapids, MI 49503. Telephone (616) 608-6170. FAX (616) 6086182. E-mail: info@mibiz.com. Subscription changes: subscribe@mibiz.com. Periodicals Postage is paid at Grand Rapids, MI. POSTMASTER: Send address changes to MiBiz, 65 Monroe Center NW, Suite 500, Grand Rapids, MI 49503. Paid subscriptions are $59/year, $109/two years and $149/three years. Single copy and back issues (when available) are $3 each, plus first class postage. Call 1-877-443-1977 to order. GRAND RAPIDS 65 Monroe Center NW, Suite 500 Grand Rapids, MI 49503 616-608-6170 phone • 616-608-6182 fax COPYRIGHT ©2016. All Rights Reserved. Reproduction or use of any portion without permission of the publisher is prohibited.

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

2017 OUTLOOK

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conomists expect Michigan to maintain economic growth in the coming year, albeit at a slower pace that will further tighten labor markets. Even with slower economic growth and a flattening of auto sales, unemployment in Michigan should fall further in 2017. The continued decline in the jobless rate will come as many employers report they’re already struggling to find qualified workers, a growing issue that could limit the state’s economic performance. “That is a long-term constraint to how fast Michigan can grow in the future,” said Comerica Inc. Chief Economist Robert Dye. In his most recent outlook for Michigan issued in mid-November, Dye predicted 1.9-percent growth in the state domestic product for 2017, versus projected growth of 2.4 percent this year. However, Dye expects unemployment will decline to 3.8 percent, which would compare to an estimated 4.6 percent for 2016. Payrolls should grow by 1.4 percent in 2017 after increasing a projected 2 percent in 2016, according to the Comerica outlook for Michigan. “I do expect overall job growth to remain positive but slower over the next year,” Dye said. University of Michigan economists offer a similar outlook. They predict decelerating job growth of 0.9 percent the first half of 2017. State job growth “then creeps up to a fairly steady, moderate pace of 1.1 percent to 1.2 percent in the second half of 2017 and into 2018,” according to the latest outlook from the U-M Research Seminar in Quantitative Economics. The state overall should gain 41,600 jobs during 2017 and 50,000 the following year, U-M predicts. “Those are smaller job additions than we have seen in recent years, consistent with a tightening labor market,” U-M economists wrote in their latest outlook. The state was on pace to add 69,000 jobs in 2016, according to U-M economists. Both across the state and in the Grand Rapids area, fewer employers answering a quarterly survey by Manpower Inc. expect to add staff in the coming three months. The number of companies that planned to trim their workforce remained low as well. In the Grand Rapids-Wyoming metropolitan statistical area, 17 percent of respondents planned to hire in the first quarter of 2017, which compares to 23 percent going into the fourth quarter and 30 percent a year ago, according to the Manpower outlook. Just 7 percent planned to decrease staff in the first three months of 2017, versus 9 percent in the fourth quarter and 5 percent a year ago. Statewide, 20 percent of the employers answering Manpower’s survey said they planned to add staff in the first quarter. That compares to 23 percent in the fourth quarter and 20 percent in the first quarter of 2016.

TECH DEMAND, OPTIMISM GROWS

An outlook for high-demand technology workers in West Michigan indicates hiring will remain steady or trend slightly upward through the first half of 2017. Fifty-two percent of the roughly 100 companies surveyed by Holland-based Paragon Recruiting LLC said they plan to add tech staff in the first half of next year. Manufacturers accounted for 60 percent of those companies, up from 40 percent six months earlier, according to Paragon Recruiting. “Everything’s very positive. There’s a lot of diversity (in tech hiring) in industry and services,” said Beth DeWilde, chief recruiting officer at Paragon Recruiting. The one negative: a shortage of tech workers to meet demand, she said. “There’s just a lack of people with the skillsets companies are looking for,” DeWilde said. As 2016 headed to a close, a quarterly outlook by Business Leaders for Michigan found significantly higher optimism in the Michigan economy following the November presidential election. Sixty-two percent of members surveyed expect the state’s economy to improve over the next six months, which compares to just 8 percent at the end of the third quarter. Looking longer term, 61 percent of Business Leaders for Michigan members forecast improvements in the state’s economy over 18 months, versus 24 percent three months ago.

AUTO LOSES STEAM Two longer-ter m issues that concer n Comerica’s Dye are the continued lack of population growth in Michigan that limits growth in the labor pool, and a slight easing or lack of growth in auto sales that are coming off highs over the past few years. “We’re at sort of the top of the wave of auto sales for this cycle,” said Dye, who’s also concerned with plans by some automakers to start moving small vehicle production out of Michigan. Comerica still projects 2017 auto sales of 17.5 million units, equal to 2016. That lack of growth in auto sales stalls a key driver for industrial job creation in Michigan as the state recovered from the Great Recession. As a result, the manufacturing sector “loses a little energy as time goes on,” although Dye expects overall job growth “to remain positive but slower over the next year or so.” U-M forecasts a dip in auto sales from 17.4 million units this year to 17.3 million units in 2017 and 17.2 million units in the following year. PNC Bank expects auto sales of 17.5 million units in 2017 and 17.4 million in 2018. “We are not worried about it,” said PNC economist Kurt Rankin. “They’re coming down off the peak from last year. At some point, you can’t set a new peak every year. Everybody’s not buying a new car every single year.” One positive for the auto industry is that consumers in the millennial generation are now getting to a point in their careers after college and the Great Recession where buying a new vehicle is “on the radar or at least possible.” “So that’s something we can count on keeping vehicle sales strong in the U.S. in the coming years,” Rankin said. n Visit www.mibiz.com

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

2017 OUTLOOK

OPTIMISM PERCOLATES AS NATIONAL ECONOMIC POLICY COMES INTO FOCUS Experts caution tax reforms, infrastructure spending may not materialize quickly By MARK SANCHEZ | MiBiz msanchez@mibiz.com

resident-elect Donald Trump will enter office in January with an economy that experts say is stable and growing, but one that could probably do better. How much better may well depend on what kind of stimulus package and tax reforms the new president proposes and Congress enacts to drive economic growth higher in 2017 and beyond. President-elect Trump has said he wants a massive $1 trillion, 10-year infrastructure plan. That kind of federal spending, combined with a cut in the corporate tax rate the president-elect also plans to seek, would drive economic growth and potentially bring millions of people back into the workforce “if growth were stronger than it is in this current state of things,” said PNC Bank economist Kurt Rankin. “There’s still going to be debate and negotiation on how big or small those packages are, but we do expect them to be implemented and enhance our stronger growth forecast for the second half of 2017 and going into ’18,” Rankin said.

Real GDP growth for the U.S. was 3.2 percent for the third quarter. PNC projects fourth quarter Real GDP growth of 2.2 percent and 1.5 percent for all of 2016, followed by 2 percent in the first quarter of 2017 and 2.3 percent in the second quarter. PNC expects growth to inch higher in the latter half of the year. Economists elsewhere are projecting similar national economic growth. The University of Michigan’s latest outlook issued last month predicts 2.3 percent growth in Real GDP in 2017 and 2.1 percent growth in 2018, with lower unemployment nationally and increases in home construction and housing sales. The Federal Reserve forecasts Real GDP growth of 2.1 percent for next year. Economist Mitch Stapley, chief fixed income officer at ClearArc Capital in Grand Rapids, expects Real GDP growth of “2 percent-plus” in 2017, and maybe as high as 2.5 percent. Corporate tax reform and an infrastructure spending package are likely in 2017, although Stapley cautions against “getting too exuberant” and expecting quick action by Congress. Fiscal hawks “are not just going to rubber stamp” higher federal spending and restructuring of the tax code, Stapley said. “It’ll come. It just won’t come as fast as people would think or hope it’s going to be coming,”

Stapley said. “It’s something that’s going to require a fair amount of time.” Comerica Inc. projects annualized Real GDP growth of 3 percent for the first quarter of 2017 and 2.9 percent for the full year. Real GDP growth for the third quarter of 2016 was upgraded recently to 3.2 percent and Robert Dye, Comerica’s chief economist, expects a similar result for the fourth quarter after a “fairly weak” start to the year. “It looks like as we end 2016, the U.S. economic momentum is increasing,” Dye said. “The U.S. as a whole is in pretty good shape.”

OPTIMISM BUILDS Members surveyed by Business Leaders for Michigan agreed with the notion that the U.S. economy continues to strengthen. In a quarterly economic survey conducted after the Nov. 8 presidential election, the Detroit-based business roundtable found far greater optimism among executives in Michigan than it did a few months earlier. Among the CEOs and university presidents in the state who answered the survey, 74 percent expect the U.S. economy to improve in the next six months, compared to 8 percent in the prior survey last summer. The new findings were the most optimistic response ever in the Business Leaders for Michigan’s survey. Eighty-four percent of survey respondents believe the U.S. economy will continue to improve over the next 18 months, versus just 13 percent three months earlier. “Michigan’s business leaders have substantially improved economic outlooks this quarter,” said Doug Rothwell, president and CEO of Business Leaders for Michigan. “Optimism was deteriorating over the last year headed into the November elections, but dramatically improved after the election this quarter. Getting the election

behind us removed uncertainty for the market and resulted in renewed hope that long-standing policy and regulatory issues might get addressed, particularly at the federal level.”

MORE CAPITAL TO INVEST?

Rankin

While the U.S. economy “should and could use stronger growth” based on the labor force participation, it remains “stable, solid and strong” and growing at a moderate rate that Rankin says is not necessarily a bad thing. “There are benefits to a Stapley long, stable pace of growth, as opposed to a boom or a bust. One of the benefits is we don’t really have any bubbles we’re looking at or any imbalances in the U.S. economy as we head into 2017,” he said. “Offsetting that is we’re just now starting to see wage growth accelerDye ate, which is something that’s been missing through much of the economy but looks to be returning in 2017.” PNC Bank built its U.S. economic forecast based on expectations that 2017 will see some kind of infrastructure spending and corporate tax reform with the new presidential administration. A reduction in the corporate tax rate would make the U.S. more competitive globally and “put more money into businesses’ coffers (and) available for investment” at a time when corporate earnings remain in good shape, Rankin said.

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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U.S. ECONOMIC OUTLOOKS Here are various outlooks for U.S. economic indicators in 2017:

Consumer Price Index

Real GDP Growth

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2.5%

2016

2017

2018

Comerica

1.6%

2.9%

—

PNC Bank

1.5%

2.2%

2.3%

University of Michigan

1.6%

2.3%

2.1%

Federal Reserve

1.9%

2.1%

Auto Sales

1.5%

2018

2016

2017

Comerica

$17.5M

—

PNC Bank

$17.4M

$17.5M

$17.4M

University of Michigan

$17.4M

$17.3M

$17.2M

Federal Reserve

$17.4M

$17.3M

—

2016

2017

2018

Comerica

4.8%

4.7%

—

PNC Bank

4.9%

4.7%

University of Michigan

4.9%

4.7%

4.6%

Federal Reserve

4.7%

4.5%

.5%

U.S. Employment

“This isn’t for lack of money. Business profits have been solid. They’ve been a little weaker than they were in the earlier parts of the recovery, but businesses are making money and interest rates are low as an incentive to invest. So if corporate tax rates are lowered, all of a sudden there is a new injection of money available for businesses,” he said. “At some point, the scale has to tip and businesses need to look at their balance sheets and say, ‘This money has to be put to use.’” Amid the expectations for an infrastructure stimulus package and corporate and income tax reform are worries about what they will do to the federal debt, particularly as monetary policy tightens and interest rates rise. While a stimulus package and tax reform could spur higher economic growth, both need to take into account the potential unintended consequences, Dye said. “This is going to be a really interesting balancing act for the Trump administration to put some sort of meaningful boost to the economy without pushing the debt too high and pushing interest rates too high as a consequence,” he said.

A MATTER OF INTEREST (RATES) Dye and others expect to see two increases in 2017 — at midyear and at the end of the year — of a quarter-point each in the federal funds rate, which would come on top of the quarter-point hike the Federal Open Market Committee made earlier this month with indications for more increases in 2017. An uptick in inflation and a stronger economy could result in more than two interest rate increases in 2017, Dye said. Interest rates have been at historic lows since the financial crisis in the fall of 2008 and the subsequent Great Recession. Many economists view higher rates as being long overdue. “We are looking at gradually higher interest rates over time, but not radically higher. I’m not expecting this to be a huge cost burden on businesses or consumers, just a gradual set of increases over the next couple of years,” Dye said. “This has been an absolutely unprecedented period and we’ve been in it for a long time, so it starts to feel normal. It’s important for people to realize that this is not normal and the Federal Reserve is trying to normalize it. They want to have interest rates up a little bit so they have some space to do some things in the next downturn. Visit www.mibiz.com

2016 2017 2018 Comerica PNC Bank University of Michigan Federal Reserve

“There will be another recession out there, and the Federal Reserve will have to respond at some point, and so they need to position themselves while the economy is still strong and (can) tolerate higher rates.” Stapley at ClearArc Capital anticipates two quarter-point increases in the federal funds rate in 2017. Some interest rates have been going up already this year, he said.

HEADWINDS EMERGE While the U.S. economy will remain in good shape, higher interest rates could cause a slowing in home and auto sales as the cost of credit rises. “Manufacturing and housing are not going to have the wind behind them from interest rates at multi-year lows like they have for the previous six or seven years,” Stapley said. “Will it derail the economy? No. But it’s going to be a headwind.” Another potential headwind in 2017 is that higher interest rates and a stronger U.S. economy will make the dollar stronger, possibly hurting exports, particularly for businesses in border states such as Michigan, according to Dye and Rankin. Exports account for about 13 percent of the U.S. economy, Rankin said, noting the incoming president needs to take care not to make the U.S. dollar too strong. “There are going to be international concerns,” Rankin said. President-elect Trump also wants to re-negotiate trade agreement such as NAFTA, the North American Free Trade Agreement enacted in 1994 under President Bill Clinton. As with the strength of the dollar, the new president needs to tread carefully to negotiate a better agreement for the U.S. and do so without triggering a trade war, Dye said. Dye’s encouraged that since the election, the president-elect has been “pivoting away from some of the very aggressive campaign rhetoric” on foreign trade. “No one wins in a trade war, but I think the Trump administration is going to be a little smarter than that,” Dye said. “An out-and-out trade war would be a lose-lose for everybody, and I don’t expect to see that.” University of Michigan economists hold the same view. They wrote in an outlook issued in mid-November that they are “cautiously optimistic that incoming policymakers will avoid any major disruptions to international trade.” n

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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2017 OUTLOOK

2017 LEGISLATIVE OUTLOOK: LANSING WEIGHS OPTIONS TO CONTROL UNFUNDED LIABILITIES By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

he Legislature’s 2016 lame-duck session was marked by both bipartisan agreement on tough policy issues as well as contentious attempts to solve ongoing state problems that nonetheless split along party lines. The former includes the celebrated two-bill energy package that cleared the state House on Dec. 15, the last day of session, and quickly followed with support in the Senate and from Gov. Rick Snyder. After a roughly two-year process, the legislation passed muster with nearly everyone from environmental groups to free-market advocates, and what had once split the business community Johnston ended up bringing it together. The other set of policies, however, were mostly tabled and are likely to be picked up in 2017. MiBiz spoke with multiple state and local business groups who all agreed that rising unfunded liabilities in employee health care and pensions are on their radar in the year to come. Andy Johnston, vice president of government affairs for the Grand Rapids Area Chamber of Commerce, called it the biggest issue his organization is watching next year. The Grand Rapids Chamber is working with the West Michigan Policy Forum on the issue, which identified retiree costs as its own top issue earlier this year. “The numbers are clear, and we’re cognizant that the people it affects are the story here,” Johnston said. “As a state, we should not get bogged down with political attacks and conspiracies. We need to look at the financial reality and take steps to address the problem while keeping promises that we made. The easiest thing would be to do nothing, but that’s also the irresponsible thing to do. “The risk is that real people could get hurt because of the promises made to workers. That sends a bad message for those doing business in the state and it also saddles our kids and grandkids with debt.” Johnston also identified more flexibility in high school graduation requirements and modernizing the port authority in Muskegon as other upcoming issues for his organization. The unfunded liabilities issue — which both

sides of the aisle agree is a mounting problem — roared back into the public eye this lame-duck session as a Republican-backed plan would have increased costs for municipal retirees and eliminated retiree health benefits for new hires starting next year. Meanwhile, a separate plan sought to address the Michigan Public School Employees Retirement System’s $26.7 billion in unfunded liabilities that would have put new hires into a 401(k)-style retirement plan. That legislation brought swift pushback from the Snyder administration, which said transition costs wouldn’t do anything to address the problem. Snyder has reportedly said he wants municipalities and labor unions to work jointly and that he plans to create a bipartisan task force early next year to address the municipal side of the debate, which is pegged at $11 billion. Officials with the Michigan Chamber of Commerce, the Small Business Association of Michigan and Business Leaders for Michigan each said unfunded liabilities is a priority for them going forward. “At this point, we’re absolutely supportive of making sure we have an open discussion,” said James Holcomb, vice president of business advocacy and general counsel at the Michigan Chamber. “It’s going to be an anchor around everyone’s neck until we tackle that problem.”

RELIEF FOR EMPLOYERS, ECONOMIC DEVELOPMENT Holcomb said the Michigan Chamber board will meet in January to adopt specific legislative priorities, but a general theme is “getting government out of the way and making sure job providers and employees can work together,” particularly on issues like health insurance. Tony Stamas, vice president of government relations with SBAM, agreed that not completing reforms to the Health Insurance Claims Assessment, or HICA, was a “disappointment.” In October, Snyder vetoed a plan that would have replaced the so-called “HICA tax” with a new revenue source for Medicaid. Snyder

“As a state, we should not get bogged down with political attacks and conspiracies. We need to look at the financial reality and take steps to address the problem while keeping promises that we made. The easiest thing would be to do nothing, but that’s also the irresponsible thing to do. The risk is that real people could get hurt because of the promises made to workers. That sends a bad message for those doing business in the state and it also saddles our kids and grandkids with debt.” — ANDY JOHNSTON Grand Rapids Area Chamber of Commerce

said at the time that he was concerned the Legislature’s plan would not be recognized by the federal government and the state risked losing Medicaid funding. The HICA is a .75 percent tax paid by individuals and businesses on health insurance claims. “That’s a conversation that’s certainly not going away,” Stamas said. “We were very supportive of bills that went through the process and disappointed they were vetoed.” Stamas said SBAM also is prioritizing talent retention and attraction and bills that encourage entrepreneurs to invest dollars within the state. Meanwhile, the lame-duck Legislature also saw a variety of tax exemptions introduced for various industries, from sportsmen’s clubs (which failed) to county long-term medical care facilities (which passed). Holcomb said while the Michigan Chamber didn’t take a position on these various proposals, his group is more interested in “broadbased low tax rates.” “Historically, the government doesn’t have a great track record of picking winners and losers,” he said. “What people are understanding is that tax policy is an important force, but it’s only one factor. There is also concern for energy costs and

workforce development and how do we match up with kids coming out of college today. There’s a lot of discussion on that, but I don’t think we’ve ever really solved that.”

MORE PUBLIC ENGAGEMENT Politically, 2017 comes after a historic national election that trickled down to statewide races in Michigan. Republicans will maintain a 63-47 majority in the state House, though roughly a third will be newly minted freshmen legislators. Holcomb thinks the election of Donald Trump will have a “dramatic impact” on policy that results in lawmakers paying more attention to their constituents. “Legislators at the state and federal level will be extremely focused on communicating with constituents,” Holcomb said. “The public stood up and raised their collective voice and said, ‘Enough is enough. You’re not doing what we want, you’re kicking the can down the road.’ On a specific policy, I don’t think there will be much direct impact, but the big impact will be on the entire structure of government. The public is much more engaged now.” n

“What people are understanding is that tax policy is an important force, but it’s only one factor. There is also concern for energy costs and workforce development and how do we match up with kids coming out of college today. There’s a lot of discussion on that, but I don’t think we’ve ever really solved that.” — JAMES HOLCOMB Michigan Chamber of Commerce

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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MIDDLE MARKET

Joining MiBiz for a middle-market roundtable were (top left to right) Joel Brandt of Macatawa Bank, Meredith Bronk of Open Systems Technologies and R. Kevin Clay of Pridgeon & Clay Inc.; (bottom left to right) Jeff Lambert of Lambert, Edwards & Associates Inc., Kerri Miller of Fishbeck, Thompson, Carr & Huber Inc. and Mike Stevens of Founders Brewing Co. PHOTOS BY K AT Y BATDORFF

— Middle Market Roundtable —

EMBRACING CHANGE Middle-market companies push innovation as they grapple with talent concerns

msanchez@mibiz.com

Given the present business conditions in your market and your industry, what do you see ahead for 2017? BRONK: What’s happening in our industry is a change in consump-

s they worry about talent and uncertainty, executives from a cross-section of industries voiced optimism in the pro-business policies pushed by President-elect Donald Trump. The two issues highlighted a roundtable conversation MiBiz held with leaders from middle-market companies and firms that serve the middle market. Participating in the discussion, which was sponsored by the law firm Clark Hill PLC and held at the corporate office of Founders Brewing Co. in Grand Rapids, were: n Joel Brandt, vice president of commercial banking at Macatawa Bank n Meredith Bronk, president of Open Systems Technologies Inc. in Grand Rapids n R. Kevin Clay, vice president of business development at Pridgeon & Clay Inc., a Grand Rapids-based auto supplier n Jeff Lambert, co-founder and president of Lambert, Edwards & Associates Inc., a Grand Rapids-based investor relations and public relations firm n Kerri Miller, a principal and senior vice president at engineering firm Fishbeck, Thompson, Carr & Huber Inc. n Mike Stevens, CEO and co-founder of Founders Brewing Co. Here are some highlights from the conversation.

tion of technology. It used to be that companies used technology to run the business, and now it’s all about technology as a competitive advantage. What’s my e-commerce? What’s my total customer experience? How can I make sure that once clients interact with me that they are getting what they want and getting what they need? What can I do to make them smart and connected? The pace of adoption of smart and connected devices is really just in its infancy if you look at the overall market capability. So we expect in 2017 and beyond that we’re just right on the precipice of that adoption. MILLER: We see 2017 being a lot the same as 2016. We have several different divisions and our divisions are largely different but continue to see growth. In infrastructure, for instance, obviously all of the city, the state and the federal infrastructure is starting to collapse, whether that’s roads or whatnot. So it’ll be interesting with the president-elect and different administration moving in (to see) where that is going to go. CLAY: 2016’s been a big year for the auto industry. 2017’s not supposed to be quite as big, which is actually sort of a relief. When you look at the cyclical nature of the auto industry, you have big launch years and then you kind of have years that are not as big. 2016 was a big launch year. Now that most of the

By MARK SANCHEZ | MiBiz

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launch activity is done, it’s more on the operational side of stabilizing the business, looking for cost reductions, process optimizations, things like that. STEVENS: We’re seeing challenges in that when we started the brewery 20 years ago, there were 500 breweries in the country and now there’s 5,000. The pie is continuing to grow, but the slices are getting much smaller, so the competition is starting to get a little more fierce. We’re seeing kind of pricing adjustments, and people are, I think, getting a little more cutthroat than what we used to be. We used to be a brotherhood, and it still is, but we’re facing a time where we have to start getting smarter about our business. LAMBERT: There’s an integration happening where the traditional ad agency, PR firm, marketing firm are all coming together, and our clients are asking us to do a lot more. Where we’re headed is going to be more full service and being an integrated marketing firm. In ’17, we’re going to be looking at adding creative services, traditional marketing people where we’ve been much more siloed in the PR world, as well as heading down the consulting path. We own the relationships with the senior leadership team, and they’re asking when they do a transaction to not just do the organizational communications, but ‘what’s your view on organizational development’ or ‘how do you roll that out.’ So we’re looking at consulting as a practice that we need to head into. BRANDT: Locally for 2017, there’s going to be a number of customers — with the movement in interest rates — that will look at See MIDDLE MARKET on page 12

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

MIDDLE MARKET “We could be looking at a renaissance in American manufacturing. If the tax rates go down, we will immediately put that money in capital, which will immediately create jobs, which will immediately create opportunity. That could legitimately create a renaissance in manufacturing in America.”

MIDDLE MARKET Continued from page 11

the fixed-rate debt that they have maybe coming up in the next 12 or 16 or 24 months and approach their banker and maybe pull that forward. It may not be new business to the banks, but it will be activity, and that activity might include checking their bank relationship against another bank. We’ve seen some of that already. West Michigan in general continues to be competitive and there are several new players that have announced they are moving into Grand Rapids, so it’s going to continue to be busy and aggressive in banking.

— R. KEVIN CLAY, PRIDGEON & CLAY INC. PHOTO: KATY BATDORFF

What tailwinds are pushing your business forward right now? BRONK: For us, it’s business model change and it’s the idea that we’re having to get creative as businesses in how we serve our consumers. It’s challenging for me to run my business during a business model change. It’s also hugely opportunistic for us externally because all of our clients are struggling with it. And I hear it from almost every business I talk to. They’re thinking differently about revenue sources and how am I doing and how am I thinking about it differently. We are all challenged to think differently, whether you’re in manufacturing or services. CLAY: To us, it’s pretty simple. What’s going to propel us through 2017 really is the strong launch year in 2016. We had some huge programs that launched. Being able to have time to stabilize the business is good. You can focus on your processes and work on the business itself, not just putting out fires constantly. STEVENS: The wind in our sails has been through innovation. We’re the 12th-largest brewer in the country right now in the craft space. We see top 10 in the next couple years and it’s because of innovation.

It’s because of All Day IPA, basically. It’s now the number-one-selling craft can in America and it’s the third best-selling IPA. It’s interesting because what the craft industry cut its teeth on were all these big, huge, bold flavors in beer, and now we’re starting to see all of a sudden this shift where, ‘OK, I’ve been in this space now for 30 years, can I just have some really good-tasting beer that doesn’t knock me off my feet?’ We’re riding that wave and we’re already looking at what’s the next thing. So you’re always innovating. You can’t rest, that’s for sure. LAMBERT: We’re heading more into being business consultants and the marketing is really the go-to-market strategy. How do you get involved in that? One of my goals for the next year is for us to create a client with an innovation, an idea, a product — something that has nothing to do with PR. I have plenty of ideas that go unexecuted, so let’s pick one and put a business around it and in the process use our talent — whether creative services or marketing or social media — to then support that organization and grow it.

How are you looking at mergers and acquisitions versus organic growth to drive your business? BRONK: We look at growth from an adjacency. We made an acquisition that was in a competence that was adjacent to us in a way that we thought the market was going. It was small, it was local, it was safe. It’s been awesome. We would do another one if we needed to. Our next acquisition would not come for a couple years and it would be into a new market. We’ll go into a new market in a competence we already have or think we need to gain because expanding geographically is a hard, hard thing to do organically. We’ve been at it for a while in Minneapolis, eight or nine years right now, and we’re getting some traction. It’s a tough thing to do. MILLER: In the past year, we opened an office in Columbus, Ohio. We already had one in Cincinnati that we opened about 10 years ago and have been doing those both through trying to figure out what service offerings we would like to add down in that market, whether it’s civil

engineering or architecture. We’re just about to open an office in downtown Detroit and a lot of that was reaction to that market and how much is going on there. For us, I think we’ll continue to add organically, and maybe a couple small acquisitions. Failing infrastructure is kind of a good thing for a design company, so you kind of follow where things are getting really old and there’s going to have to be something happening. CLAY: We’re probably a couple, three years out from a major expansion. This year, as far as acquisition, it’s super unlikely, so the growth will mostly be organic. STEVENS: Our space is fairly dynamic right now. Obviously, we sold 30 percent to Mahou San Miguel in Spain (in 2014) and that partnership has been exactly what we wanted it to be. It’s great. It’s helped us get into the 22 countries that we’re currently in and we opened a little Founders facility in Madrid, more of a retail facility, and that’s going well. We’re looking for other opportunities domestically, though. We investigated some

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opportunities on the acquisition side — nothing that has really surfaced, but there’s a ton of opportunity out there. It’s somewhat obvious who’s going to be able to accelerate and grow through the next wave here, and there’s a lot of them saying, ‘I didn’t sign up for this.’ There are some good brands that would like to maybe not completely exit but hand it off to the next group of individuals that have to take it to different level.

What main challenges are you going to have to overcome next year? MILLER: Ours is recruiting, just finding really good people. We’re at 100-percent employee owned, and so it’s really important to find people that want to be invested in the firm and want to grow within the firm. We have a lot of employees that stay for 25, 30 years of their careers. It’s really competitive to land talent. CLAY: Talent is the biggest thing I worry about. It’s the biggest thing that keeps me up at night. It’s very difficult to find talented people out there. The schools aren’t churning them out. The trade schools aren’t what they used to be. Manufacturing really needs a facelift out there. We have some fantastic jobs … but we are really having a really difficult time selling people.

We’re heard this for a few years now as the economy recovered. How have you adjusted your businesses and training to try to get the people you need? LAMBERT: It’s not just finding new talent but retaining the talent you have, and the millennial thing is real. We all used to just show up and work hard and not ask questions and be there until our boss left. Now it’s just a different generation. That doesn’t mean it’s bad, it’s just how are they motivated and having a pipeline for when they inevitably switch jobs every two or three years. … Creating internal culture more intentionally is how we’ve been trying to have better retention, keep people motivated, and have a 10- to 15-year trajectory in the business. MILLER: We’ve really started to spend a lot more time getting down into the lower level of high school, junior high trying to grasp interest in some of the STEM fields for kids because there’s really great jobs. Then it’s really working on retaining that talent once you have it, and that all is driven by culture and how the firms act and how the employees feel. BRONK: There are things in technology that are going away, so part of what we’re trying to do is take some of the folks who have been around a long time and have skillsets that may be a little dated and we’re training people. We’re doing a lot more cross-functional training and getting exposure to some of the newer technologies for folks who’ve been around for a long time and we’re not trying to hire new if they’re already part of the culture and buy into what we do and have longtime client relationships.

to be active. It’s a lot of uncertainty for everybody. STEVENS: To what Kevin pointed out, what’s being presented or discussed, if all of that happens, it’s going to be great for the manufacturing companies around the country. And, frankly, it’s kind of fun to watch. Whether you are a Hillary fan or a Trump fan, I don’t really care. But I’m a fan for shaking it up, and at least we’re talking about stuff. LAMBERT: For me, as a small business owner serving corporate clients, it was more of me planning for what if Hillary was coming. I don’t have to plan as much for a Trump presidency because the things he is going to be doing are generally in favor of business.

How can the incoming president push for higher economic growth? CLAY: The things that he has proposed are what most people who are fiscally conservative, which obviously coming from a long line of entrepreneurs we tend to think that way, (would want). I think on the economic side, he has a reasonable idea on (what to do). BRONK: We can’t quell the entrepreneurship and the organizations and the businesses and the companies with ideas that are coming to market. It is a global economy. You have to feed a global economy and ideas are going to drive a global economy. And if we can create an environment that fosters that and supports that, that’s our highest path to growth. Cap that and put restrictions around it, that’s where you get into trouble. And I don’t sense that’s where we’re headed. LAMBERT: His best opportunity is to do what we’ve all been told to do, which is to surround yourself with smart people. If he can be self-aware to some degree of his weaknesses, I think he can be a very effective president. But he’s going to need to take a step back from the act, which I think it very much was an act. Once he saw it was working, he continued it. Step back from the act and get some people around him that can be effective. MILLER: And really try to unify. We have great people across the entire country in businesses and everything else. If we try to unify that, that’s only going to make things better. STEVENS: And he’s got to lead that, but we have to suck it up and be a part of it.

What worries you today? MILLER: Talent and retention. That is the one limitation to continued growth.

CLAY: It’s not something that’s going to be cyclical. We’re going to have to go and fix this one, and we’re going to have to go and restart the engineering programs at the schools. We need to come to terms with that. BRONK: For me, it’s about innovation. It’s about making sure that we are totally exploiting the innovative opportunities that are around us and adapting our own businesses as fast as we possibly can to the innovation that is happening.

PHOTO: KATY BATDORFF

“We’re seeing challenges in that when we started the brewery 20 years ago, there were 500 breweries in the country and now there’s 5,000. The pie is continuing to grow, but the slices are getting much smaller, so the competition is starting to get a little more fierce. We’re seeing kind of pricing adjustments, and people are, I think, getting a little more cutthroat than what we used to be.” — MIKE STEVENS, FOUNDERS BREWING CO.

Choose where to lead and choose where to follow. When I wake up at two o’clock in the morning, those are the things going through my mind. STEVENS: The competitive landscape and the industry’s finally matured. Where we used to take price (increases) every three to five years, this year for the first time we’re reducing. We’re starting to see price compression. LAMBERT: I think Michigan is still an apologist for the downturn and ‘poor us compared to Ohio.’ We just have to up our game. I’m tired of this stat that ‘we moved from 50th to 32nd.’ I think we have to kind of raise our collective self-esteem a little bit and say we’re going to be nationally dominant. We need to stop saying that we’re in some way inferior when comparing us to the coasts. Talk about who we are and the talent that we have, and I think that’s attractive. BRANDT: If the region isn’t growing, then that means it’s harder for us to grow. That means you have to be more competitive, you have to

How might the incoming Trump administration affect your business or your industry? CLAY: For small and mid-sized manufacturers, if the tax breaks come through and the simplification of taxes and the repatriation of capital — if all of those things come through — and repealing some of the issues in the Affordable Care Act, it’d be a huge benefit to manufacturers. BRANDT: We’re really in a wait and see. ... Until something’s done, we won’t do anything differently because it’s a big part of the banking industry to be compliant with the regulations because it’s a big deal and it’s important. We’ll continue to have robust compliance departments. MILLER: It’s the uncertainty. What are the changes going to be? What is the timing of them? We’re just kind of watching to see how that stuff plays out from the health care side and the business tax side. We’re also paying attention to what plans actually get implemented. There are infrastructure plans that directly affect our business. If there’s regulations on manufacturing and others, our environmental side of the business has Visit www.mibiz.com

potentially take market share from a competitor, and that can be a really challenging way to grow.

What’s one prediction for next year? CLAY: We could be looking at a renaissance in American manufacturing. If the tax rates go down, we will immediately put that money in capital, which will immediately create jobs, which will immediately create opportunity. That could legitimately create a renaissance in manufacturing in America. BRANDT: I think for the first time we’re going to see legitimate inflation as opposed to what we call the lack of any. I think it’s going to come back into the economic world and people are going to start talking about it. LAMBERT: The Lions are going to win two playoff games. STEVENS: In my space, craft beer will get to a 25 (percent) share. If craft goes to a 25 share, it’s a complete, whole change. Then it won’t end. n

“It’s challenging for me to run my business during a business model change. It’s also hugely opportunistic for us externally because all of our clients are struggling with it. And I hear it from almost every business I talk to. They’re thinking differently about revenue sources and how am I doing and how am I thinking about it differently.” — MEREDITH BRONK, OPEN SYSTEMS TECHNOLOGIES INC. PHOTO: KATY BATDORFF

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

GOVERNMENT

Q&A

U.S. REP. JUSTIN AMASH

If you approach Republican U.S. Rep. Justin Amash with requests for favors for projects in Michigan’s Third Congressional District, he wants you to know that you’re likely wasting your time. As a staunch supporter of limited government and defender of civil liberties begins his fourth term in the U.S. House of Representatives, Amash is more than happy with the economic growth happening in the district he represents. But that doesn’t mean he’s about to start earmarking federal dollars or doing one-off favors for the area’s business community. In an exclusive interview with MiBiz, Amash said his job is to defend the Constitution and fight for liberty for all citizens, a position he acknowledges could put him at odds with fellow Republicans and President-elect Donald Trump. A criticism about you that we’ve heard from local executives is that they expect their Congressman to help with regulatory issues or in earmarking federal dollars for local projects, but given your positions, they’re better off going to neighboring districts for help. Do you think the business community here has misconceptions about you? I’m sure some people misconstrue what I stand for. But the bottom line is I represent the entire district. I represent every person in the district. I represent Republicans, Democrats, Libertarians, Independents. Greens, too. My job is not to hand out favors to people who have lobbyists. My job is to represent everyone fairly, including businesses and business owners, but not to give any one person or group an advantage under the law.

How does that play out when people come to you looking for some sort of favor? Businesses should like a system where everyone is treated equally and your success or failure doesn’t depend on who you know in government.

… They may not like that I turn down specific requests for favors, but that’s not my job.

So what exactly are you trying to accomplish in D.C.? I think it’s important to improve the economic environment for everyone. When you do these special deals, you get a case of that which is seen versus that which is unseen. What you don’t see is the competitor businesses that are harmed or the other businesses that didn’t get a tax break that are now paying relatively higher taxes.

In your role as Congressman, do you have the ability to create that better environment for your district and for the broader country? There are people in both parties who prefer to make things difficult for everyone so that they can hand out these special deals later on. It’s not that appealing to a lot of people in Washington — or even in Lansing — to make the environment good for everyone and then have no one come beg for help. They like the ribbon cuttings.

A variety of projects in the Grand Rapids area such as the Grand River restoration or increased mass transit are seen as catalysts for economic development, but most people say they need federal assistance to get over the finish line. I don’t know if they require federal funds. Federal tax dollars should be spent on things that are national in scope. That’s how the framers of the Constitution designed the system. They didn’t expect the federal government to be involved in local projects. That’s for locals to be involved in. It’s really for the private sector, but it definitely should be at the local or state level. …

If local officials are coming to your office looking for help on projects that benefit the district, what’s your message to them? (Y)ou won’t see me pushing for earmarks for projects that are purely local. I don’t think that’s a good use of taxpayer dollars and I don’t think it’s fair to Americans across the country. I can

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

have to improve the environment for everyone, not just for a few. R-CASCADE

guarantee you that with every Congressman pushing projects like this, it’s not going to benefit my district to have that sort of system. We may get one project, and we wind up paying for hundreds of other projects. At the end of the day, my constituents actually lose in that system. A better system is if we want something here locally, we pay for it locally.

So is that where philanthropy and local taxes come into play? Sure, and we have an advantage here because we have a lot of very giving families and we’ve got a lot of charity in this community. And we have a fairly strong economy compared to a lot of places. So we have advantages that we should leverage to our own community, rather than getting the federal government involved in everything. As I said, if we get federal tax dollars, you can rest assured that other people are taking our federal tax dollars to pay for their projects.

What’s your general outlook for 2017 on the legislative policy side? I do think that with Republican control of the federal government, we’re likely to see some tax and regulatory reform that hopefully will bring some positive changes. In many ways, things are going pretty well right now economically. But I think we can do better.

The sentiment for a lot of West Michigan executives seems to be that there’s some pro-business policies on the way with the Trump administration. However, there’s lots of questions around their level of certainty. What would be your message to them given what you’ve seen? (Laughs.) With this incoming administration, I’m not sure what to expect. I’m hopeful we can see some positive reforms. But President-elect Trump is not predictable and that probably gives pause to some of the businesses out there. What I’d like to avoid under President-elect Trump is the sort of case-by-case approach where they just do deals with businesses. We

Do you see yourself being somewhat of a lone wolf in the GOP when it comes to criticizing Trump? I hope I’m not a lone wolf in the sense of criticizing him when he fails to live up to the principles that I think Republicans overwhelmingly believe in. I hope other Republicans will join me. But I’ll also praise him when he does the right thing. I’m not here just to criticize. I’m here to reinforce when I think he’s making the right judgment. But at the end of the day, Congress is an equal part of the government and we have a responsibility to do the right thing. President Trump either signs what we send him or he doesn’t.

Do you think Trump has the right judgment? Not always. (Laughs). He’s like any other person. He’s unusual for an incoming president in that he’s perhaps less cautious than most people when it comes to the kind of statements they make.

As you noted, President-elect Trump is fairly unpredictable. However, the cabinet is starting to take shape and other details have emerged. Looking in your crystal ball, what do you see happening in the first 100 days? I think there’s a good chance we move on tax reform and some regulatory reform. Those seem like the most likely areas because he won’t get much pushback from Congress, at least on the Republican side. Some of his other proposals, like his trillion dollar infrastructure proposal or even some of the outstanding health care proposals, they might have trouble because you’ll see more differences.

What worries you about the next year? The uncertainty. We don’t know what kind of president Trump will be. It’s one thing to run a campaign in the style he did. It’s another thing to be president. I’m hopeful that we can find some stability and bring people together. But I’m not totally confident. Interview conducted and condensed by Nick Manes with MiBiz Editor Joe Boomgaard. Photo by Jeff Hage. Visit www.mibiz.com

Q&A

U.S. REP. BILL HUIZENGA R-Zeeland

As coal-fired power plants in West Michigan harbor towns along Lake Michigan get decommissioned, cities like Holland and Muskegon have worried they’ll lose out on federal dredging support, the allocation of which is based on meeting a tonnage threshold for commercial freight at each harbor. That’s why Republican U.S. Rep. Bill Huizenga from Michigan’s Second Congressional District was happy to get funds to continue dredging as part of the most recent federal funding initiative. What’s top of mind as you head into 2017? Well, some of it is a continuation from 2016. Some of the stuff we’ve worked on in the past and are continuing to work on for this coming year has to do with water infrastructure, the Harbor Maintenance Trust Fund and the Great Lakes Navigation System. Just at the end of our Continuing Resolution into April, we had some funding descriptors — basically definitions of what can be funded — that’s going to be beneficial to the Great Lakes.

in a bipartisan manner. That’s an extremely important thing for us.

How much federal funding can the region expect to receive? There’s a sliding scale formula … but the Harbor Maintenance Trust Fund had been a formula based on a usage and tonnage requirement. It’s a tax paid on a per-ton basis per ship. Basically, none of that was geared toward the Great Lakes. Candice Miller and I first had to get the Great Lakes recognized as one waterway. They didn’t recognize it as one waterway, even though they did the Mississippi River. The (federal government) didn’t acknowledge the interconnectedness of the (Great Lakes).

Will that money be permanent? So it’s a new fight every year. Someone is saying, ‘Hey, we need this money over here.’ If we’re not diligent about it, it goes away. … Within that pot of money, we’ve had a fight about how much should be geared toward the Great Lakes. That’s another victory that happened in this last continuing resolution. We got acknowledgment that there will be a certain percentage geared for that.

What else are you looking to work on?

It’s basically designating money that hasn’t been specifically for the Great Lakes in the past into more of a Great Lakes-focused percentage.

I do have a specific piece of legislation that would require executive branch agencies to talk to each other about proposed regulations. That really stemmed from the work we did with Structural Concepts in Muskegon. (The company doing open-air refrigeration for Starbucks that was getting conflicting requirements from Department of Energy and the EPA). If you went through the EPA requirement, the DOE would say you’re out of compliance and shut you down and (vice versa).

What will that funding be used for in the region?

How will your proposed legislation help to fight this?

Dredging. All of our harbors, commercial harbors and those like Holland, with the shutting down of the coal-fired power plant, may fall below the threshold. (It’s) the exact same thing in Muskegon. That’s part of our ‘blue water’ pitch: How does West Michigan become a gateway into the blue water economy? We’re working on that and I’ve done that

It’s that predictability. It’s about the regulatory regime and the predictability of what’s going on. That’s something very specific we’re working on, and we’ll be introducing it in the new Congress.

How so?

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Interview conducted and condensed by Nick Manes. Courtesy photo

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

GOVERNMENT

Q&A

GOV. RICK SNYDER

2016 wasn’t an easy year for Gov. Rick Snyder. But even with Democrats’ neardaily calls for his resignation because of the ongoing Flint water crisis, the businessman-turned-politician still maintains his trademark “relentlessly positive” attitude. With about two years left in his second term, Snyder told MiBiz he remains focused on skilled trades training and tackling issues related to the state’s beleaguered infrastructure. The infrastructure commission you formed early this year recently issued its findings. What did you take away from that report? With respect to the infrastructure commission, what I’d say is that I appreciate their work. I think they did great work looking at the next 30 to 50 years in Michigan. There are so many steps that we can start in the next year or two. We’re not going to have the whole plan completed and we won’t have all the revenue coming in to pay for all the elements, but we can create a path to follow that roadmap. That’s exciting.

Given the findings of the infrastructure commission, what will you implement next year? One is creating the Michigan Infrastructure Council, which is really a coordinating organization. If you look at it, there’s probably 3,000 different jurisdictions that are involved in infrastructure in some fashion, plus many private companies. How do we coordinate all that? And

that gets to the second point, which is how do we do a pilot on asset management.

number and limited dollar amount. There are two bills in particular that I do support.

What do you mean by that?

Which are those?

Think about the street in front of your house or office and it gets torn up, either for road work or for utility work. The point is they can coordinate that. We can do it once rather than tearing it up multiple times. Once for the road people, once for the water and sewer and once for the fiber-optic cable.

One would be a proposal largely talking to business leaders about creating large-scale manufacturing opportunities, things involving more than 500 jobs, which don’t happen on a regular basis but you want tools to compete at that level. And those jobs would have above-average wages. There are some opportunities out there, and I’d like to have that in our toolkit.

President-elect Trump has called for significant infrastructure investment as part of his new administration. What do you think that looks like in practice? I’d like to share our report with them because I think it gives them a good roadmap on what are the issues. The report is Michigan-centric, but these issues are prevalent throughout the U.S. So I think we couldn’t have had the commission come out with the report in a more timely-fashion. And then to understand the magnitude of the problem and how do we look at the federal government playing an important partnership role in setting the course, but also the financing of all these things.

Shifting gears to economic development, a number of bills aimed at transformational projects didn’t ultimately get taken up in the lame duck session. What’s your analysis of how the state is doing when it comes to offering competitive incentives? Generally, I’m not a supporter of tax incentives as a general driver. But two things: There’s a pragmatic piece to this. You need some tools in your toolbox to be competitive with other places. The other is that there can be limitedpurpose items that can make sense to do for a limited amount of time for a limited project

What’s the other bill you support? The other is the transformational brownfield effort (a bill supported by Detroit billionaire Dan Gilbert). The discussions we’ve had with (Gilbert’s team) would significantly modify their initial proposal to put limits on it and make it effective and say there are some truly transformational, ‘going vertical’ projects that would help Detroit and other communities more in a national, market-rate environment. And we’ve worked with them to have a version of the bill that would be more limited, but also effective.

Also on the economic development front, President-elect Trump made headlines with his deal with Carrier Corp. to keep some jobs in Indiana. What’s your view of a president who directly engages in state-based economic development policies? I think we’ll have to wait and see. It’s good he’s focused on more and better jobs in our country. That’s a positive. Hopefully, he can appreciate the role of the federal government and the role of the states. We each have a role to play, and in Michigan, we’ve been successful in playing that role. I would hope the federal government would look to us as a model for how they should do things nationally.

You and President-elect Trump both entered politics with a business background and no previous government service. Given your experience over the last nearly six years, what advice would you offer Trump? I’d say that there are very high-quality people working in the public sector, so don’t bring prejudices from the private sector. Learn that you’ve got great experienced people and be a good leader for them. … You can bring people together and create an environment for success. In Michigan, my role is not to create jobs directly. At the state level, our role is to create an environment and let free enterprise work. Interview conducted and condensed by Nick Manes. Courtesy photo

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Q&A

ROSALYNN BLISS Mayor City of Grand Rapids

In wrapping up her first “whirlwind” year as mayor of Grand Rapids, Rosalynn Bliss aims to build off of the work she started as she looks ahead to 2017. In the new year, Bliss hopes to move the needle on initiatives related to affordable housing and addressing long-standing racial disparities in the city. Additionally, the mayor believes that 2017 will be the year where visible work commences on restoring the rapids to the Grand River. Would it be accurate to say your focus as mayor seems to be on the mixing of social issues and economic development? Yes, I think economic opportunity is the key to equity. It’s about empowerment, access to opportunity, access to resources and breaking down barriers, and then addressing structural and systemic racism. That’s more complicated, but if we’re going to get where we want to be and be more a diverse and inclusive community where we don’t have the racial disparities that exist today, we have to do that.

You’re also doing a lot of work around different and more affordable types of housing. How’s that shaping up in 2017? We formed a housing advisory committee. They’ve had two meetings so far and they’ll be coming forward with some recommendations around the affordable housing trust fund and some recommendations around zoning and how it could be done differently. And (there’s) the work we’ve done to implement the GR Forward plan. We’ve accomplished quite a bit and we still have quite a bit to accomplish. I feel like we’re on a good track as well.

What would be your ideal outcome with the affordable housing work? I would like to come up with a plan to utilize the funds in a way that has the greatest impact. I want to be thoughtful about how we do that and my belief is we won’t address the affordable housing crisis with one solution. It’s got to be a multitude of solutions in order to have impact. So we need rental property owners, developers, nonprofit organizations, banks all around the table to have a positive impact. I really believe we need a multi-faceted approach. That’s why I was so deliberate in the housing advisory committee, to make sure there was representation from different sectors. Then everyone can think about how they can be part of the solution.

Q&A

U.S. SEN. GARY PETERS D-Mich.

Moving into 2017, Democratic U.S. Sen. Gary Peters plans to focus his efforts on cultivating Michigan as a hub for autonomous vehicle technology. For Peters, the state’s future hinges on growing Michigan’s ability to attract investment in autonomous technology. On the other hand, Peters worries that the president-elect’s hands-on economic development policies could leave behind small businesses in the state and elsewhere in the country. Peters spoke with MiBiz about his views on the year ahead and the challenges 2017 may bring. What are some top policy initiatives you plan to champion in 2017? My main focus has been working on advancing the self-driving vehicle efforts here in Michigan. We are entering into probably the most transformational stage of the auto industry since the first car came off of the assembly line with the amount of computer power and technology going into the vehicles. It was described to me that the moonshot for artificial intelligence is self-driving vehicles and when that’s fully developed, you’re going to see the artificial intelligence industry Visit www.mibiz.com

At what point does the conversation shift from trying to make housing cost less to addressing wages for people? That’s part of the problem. It’s wages and access to good-paying jobs. Those are so critical to solving this problem. If you look at housing and wages, you have to recognize that the city can only do so much. We only have so much authority. Can we encourage people? Absolutely. Can we look at ways to incentivize and look at our own procurement to make sure we’re utilizing locally-owned businesses? We’re actually doing that right now. We’re looking at our own procurement. We can hire more people here. We have this Grow Your Own initiative.

What’s that all about? We hope to fill a lot of the openings that we have in the city with people who live in the city. But we can’t force private companies to pay a certain wage. In fact, there’s state laws that prohibit us.

Many cities around the country have sought to move the minimum wage to $15 per hour. I know the state prohibits it, but hypothetically, would you support an initiative like that? I think I’d have to go out and talk to people, and the people that would be most dramatically impacted, the small business owners. I would absolutely have the conversation with people in our community about it. … But honestly, I just haven’t put time and energy into it because under state law, we’re preempted from even doing that.

City-owned riverfront properties like 201 Market Ave. SW have been discussed as a site for private development. Will the city be off that site in the next year? I think it will take longer to move off of. But what I would say in my crystal ball is that it will be up for sale in 2017.

Where do you see the city going next year with its transportation and mobility initiatives? Josh Naramore (manager of Mobile GR) is really leading the way and transforming that department. I think you’ll see a lot more mobility options, but also looking at how we use technology to get in front of that.

used, especially if the bike lanes and streets are cleared. I think that’s part of the commitment. We need to make sure bike lanes are clear of snow. But great cities are places where you have multiple modes of transportation and where individuals can live, even if they don’t have a car.

If the mayor needed to attend an event in the East Hills neighborhood in December, do you you think you would get on a bike at City Hall and ride over there?

The city launched a $100,000 study to consider how best to implement bike share as one of those mobility options. What’s the return on investment for that, especially given the winter weather we get in Grand Rapids?

(Laughs.) I don’t know, that’s a good question. It would depend on what I have next. Depending on what I have through the day, I’ll often walk from City Hall to my next meeting and walk back. It depends on where things are, and in December, it depends on the weather. But, when I go to other cities and they have (bike share), I always use it. I rarely rent a car and I always use public transit. Even if we wind up doing bike share, it won’t just be for residents, it will be for visitors.

I would challenge you that other cities in the Midwest, they have them. Minneapolis, Ann Arbor — they have bike shares and they are used even in the winter. Obviously, not as much, but they get

Interview conducted and condensed by Nick Manes. Courtesy photo

just skyrocket. If we are the center for self-driving vehicles, we will be the center for machine learning and AI, which will also put us at the center for most of the future industries in this country. To me, this is absolutely critical for the future of Michigan that we are at the forefront of this technology and dominate it in the years ahead.

Most executives we’ve spoken with are bullish on the incoming administration’s pro-business policies. In your mind, what does that say about the state of the economy moving forward? Certainly, we are in a pretty good environment right now, but we have to make sure that everybody has the opportunity to participate in a more robust economy. That has been the problem over the last two decades. Most of the economic recovery has gone to the top 1 percent of folks in terms of wealth and income, and everyone else has been in more of a holding pattern. You can’t have a strong economy if everyone doesn’t have money in their pockets to spend. If those are the kinds of policies that President-elect Trump is putting forward, I will be trying to find ways that we can find common ground.

Are there policies where you and President-elect Trump overlap? I’m not sure because he’s not been very specific.

Economic developers have expressed concern over the president-elect’s dabbling in state-level economic development with Carrier Corp. in Indiana. Say

Trump went after a Michigan-based company. How would you react to that? I certainly don’t think that the president-elect should be picking winners and losers of individual companies. An economic policy should not be driven by photo ops. I think that’s what we saw with the Carrier case. In my mind, you have to have a policy that impacts every business, large and small, and creates an environment that all businesses can flourish under, particularly small businesses. The engine of growth for America are our small businesses.

During the election and in the postelection environment, there seems to be a high degree of heated rhetoric. Will Democrats and Republicans be able to find consensus in 2017? Of course, the Republicans have control of both the House and the Senate and the presidency. So it’s a completely different dynamic that we have. Certainly, my goal has always been to try to find ways that we can work in a bipartisan way. I feel that’s the best way to govern. Bipartisan means that we should have give and take, that no one party has a monopoly on ideas. My experience has been that both Republicans and Democrats have good ideas.

What needs have you been hearing from manufacturers and what policies do you think will be achievable next year? Manufacturers want to see an overall strong economy, but a focus on manufacturing means

you have trade laws that are fair. I’ve certainly been outspoken in my opposition to TPP (Trans Pacific Partnership) because of its lack of foreign currency manipulation enforcement. I’ve heard very loud and clear from manufacturers that if you sign trade deals that are not fair and that don’t allow us to enforce the rules, that puts our manufacturers at a competitive disadvantage. Interview conducted and condensed by John Wiegand. Courtesy photo

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

GOVERNMENT

Q&A

U.S. SEN. DEBBIE STABENOW D-Mich.

As Michigan’s senior U.S. Senator, Debbie Stabenow plans to continue focusing on issues pertaining to small businesses, manufacturing and agriculture. Going into 2017, Stabenow expects to work on legislation that would improve tax credits for small manufacturers, as well as prepare to draft the upcoming Farm Bill. Stabenow spoke with MiBiz about her priorities and outlook for the upcoming year. What key policies are you championing in 2017? For me, it’s all about jobs and the economy. My focus is on making things and growing things because I don’t think we have an economy unless we do that. Small business, manufacturing and agriculture are the things I’m focusing on. If you want to be encouraged and enthused, talk with small business owners who are working hard and providing terrific services and products to people in their local communities.

Your focus on jobs and the economy seems to put you right in line with the president-elect, whom you’ve been critical of in the past. Where might your views mesh with his? I’ve said since his election that if he wants to focus on fair trade and bringing jobs home from other countries, then I’m certainly willing

to work with him. I have legislation called the Bring Jobs Home Act that I have been trying to get passed for over six years. The Republicans have filibustered it every time. If we’re talking about bringing jobs home or fair trade, I think the new president will have more challenges on the Republican side than the Democrat side. For me, it’s about getting things done, grow the economy and help people in Michigan. Anybody who wants to do that in a sincere way, I’m willing to work with.

We’ve heard local economic developers express concern over Trump’s meddling in state-level affairs such as when he took on Carrier Corp. in Indiana. If he were to turn his attention to a Michigan company, what would your reaction be? First, let me say that there are many areas where I disagree with what the president-elect has said and done. But I am hopeful that he will be willing to do things in a more thoughtful way and focus on policies. I certainly want jobs to be in Michigan, but I think there is an effective way to do it and then there is an ineffective way to do it. I would encourage him to listen and to work with our businesses as well as our workers to do things in a way that really will be effective in the long run, not just something for show.

What have you been hearing from manufacturers as far as what they need going into 2017? One of the biggest challenges I hear is qualified workers. Workforce development, education, having the ability to hire people with the skills for the jobs available is a top priority for manufacturers. There are over 600,000 job openings across America right now, according to the National Association of Manufacturers, that aren’t being filled because of the inability to

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

match the right skills to the right jobs.

Do you think we can expect to see more funding on that front in 2017? I hope so. If the new Republican majority and the new president want to focus on something

that will make a real difference, focusing on education and job training is absolutely at the top of the list. Interview conducted and condensed by John Wiegand. Courtesy photo

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

ENERGIZING MICHIGAN’S

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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MANUFACTURING

Joining MiBiz for a manufacturing roundtable were (top left to right) Michael Davenport of Jireh Metal Products Inc., Jeff Dolbee of ADAC Automotive, Steve Dufon of Motion Dynamics Corp. and Tom Haas of Grand Valley State University (middle left to right) Omar Hall of NN Inc., Mark Kinsler of Trendway Corp., Marc Schupan of Schupan & Sons Inc. and Bill Small of The Right Place Inc. (bottom left to right) Simon Whitelocke of ITC Michigan and Tim Zajac of Mann + Hummel USA Inc. PHOTOS BY JEFF HAGE

— Manufacturing Roundtable —

DESPITE UNCERTAINTY, TALENT CONCERNS, MANUFACTURERS REMAIN BULLISH ON ECONOMY BY JOHN WIEGAND | MiBiz jwiegand@mibiz.com

ven with the underlying uncertainty caused by the presidential election, West Michigan manufacturers remain generally optimistic about the year ahead. Although proposed changes to international trade policies, health care regulations and a move toward isolationism have caused some concern, most executives believe the economy will continue to grow in 2017. While the theme of struggling to find qualified workers has pervaded the recent economic recovery, manufacturers now say they’re fighting to retain the people already on their payrolls. Increased competition for talent from other manufacturers and other industries means workers are more likely to leave a company for even a slight bump in wages, they said. For companies, that results in ever-increasing training costs stemming from employee turnover, costs executives worry will increase in the years ahead. To discuss the challenges and opportunities manufacturers face, MiBiz convened a group of executives for a roundtable discussion. Participants along with this reporter, MiBiz Publisher Brian Edwards and Editor Joe Boomgaard were: n Michael Davenport, president and CEO of Jireh Metal Products Inc., a Grand Rapids-based metal stamper n Jeff Dolbee, CFO of ADAC Automotive, a Grand Rapids-based automotive supplier of interior and exterior plastic components Visit www.mibiz.com

n Steve Dufon, vice president of sales and marketing at Fruitport-based Motion Dynamics Corp., a manufacturer of precision wire and springs for the medical device industry n Tom Haas, president of Grand Valley State University n Omar Hall, vice president of sales at NN Inc., a Tennesseebased automotive supplier that acquired Autocam Corp. in 2014 n Mark Kinsler, president of Trendway Corp., a Holland-based office furniture manufacturer n Marc Schupan, CEO of Kalamazoo-based Schupan & Sons Inc., an industrial recycling and manufacturing company n Bill Small, vice president of technical services for The Right Place Inc. and regional director of the Michigan Manufacturing Technology Center-West n Simon Whitelocke, president of ITC Michigan and vice president of ITC Holdings Corp., the Novi-based electric transmission company that sponsored this roundtable discussion n Tim Zajac, director of finance at Mann+Hummel USA Inc., a Kalamazoo-based automotive supplier of plastic injection molded air induction components. Here are some highlights from the discussion.

spend quite a bit of time on wellness programs, education and talking about financial literacy. Holland, Michigan has 3.5 percent unemployment. So beyond full employment, it’s a bear out there for talent as I’m sure everyone else in this room is having the same issue. SMALL: That’s probably where we’re helping people the most. Because they have a shortage of skilled workforce, (it’s) trying to figure out ways to help them improve their processes and sometimes automate. DOLBEE: We’re on a cycle where we are on the right programs and seeing pretty large growth. Our window out is one that says how do we fill what might be a gap in three or four years. Realistically, ours isn’t so much in skilled trades, because for every 10 unskilled, we need one or less on the skilled side. While they are hard to find on the skilled side, retaining unskilled is more critical. We’re experiencing upwards of 2 percent turnover a month. That’s 24 percent a year. The cost of continuous training is pretty high. We’ll hire 18 people today for the shop floor.

What’s one mission critical trend or strategy that your company is pursuing in 2017? KINSLER: One of the things that we’re really focused in on is

15 (new workers) a day. We use a third-party service, which to be honest with you, I’m questioning because our difference between switching those providers over the last couple has been nominal, yet expensive. To my knowledge, we’ve gotten virtually nothing out of it. See MANUFACTURING on page 22

(talent) attraction and retention. People will leave our plant for 25 cents an hour more unless they understand some of the other inherent benefits we have at the organization. We

Literally today? DOLBEE: Literally today. We are bringing in upwards of five to

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

MANUFACTURING “If you made business decisions, particularly with this administration, around what came through Twitter or what was spit out, then your decisions would be going all over the place. By 2020, 25 percent of the vehicles made in North America are going to be made in Mexico and that’s almost regardless of what Donald Trump does, realistically. The billions that are already being invested are not going to stop.”

MANUFACTURING Continued from page 19

I’ve heard similar criticism from manufacturers stemming from the fact that temp agencies are paid on placement, not retention. Is that the case here? DOLBEE: We’re changing how they get paid. What they get paid for is basically a premium on the rate they pay the employees. You’re paying them for effectively an all-in wage and benefit plus an add-on to that for their service. When I look at the numbers, I ask our HR virtually every day: Why aren’t we going and doing this? ZAJAC: We’ve typically had a fair pool of temporary people and we’re really discussing going to a direct-hire model because you just can’t keep those people. We’re really actively looking at that model. It’s a little more expensive, but if you don’t have 20-percent turnover, (the savings) adds up quickly. DAVENPORT: We’re having an issue with the temp side to a point where we need to figure out how to do this internally. If you look at the temp market, you’re anywhere from a 35-percent to 45-percent markup. I’m not retaining those folks for any longer period of time, I’m not getting a higher-quality person, so we need to make sure we’re trying to do that ourselves. We’ve taken that onus on ourselves to increase our referral program.

Is this aversion to temporary employment agencies a theme evolving here? Do you all use temps to some extent? DUFON: No, we hire direct. Our biggest issue, because of the nature of our business and the size of the products we make — we’re dealing with wires down to half a thousandth of an inch and coils that are four-thousandths of an inch in diameter. The skill level that you need for a person that can operate that equipment is high, and they need to have a fairly good mechanical working knowledge of what to do. WHITELOCKE: We’re not a manufacturer but we support manufacturers through electricity, obviously. We have more on the engineering side, that’s where our shortage is in our industry. It’s an aging workforce that’s quickly retiring and we can’t find enough electrical engineers or enough folks to work in some of our fields, so we have actually gone down the path of hiring interns and co-ops and it’s been very successful.

There’s a lot of discussion about talent needs and we have a university president in the room. Tom, what’s your reaction to this? HAAS: You represent a market that I’m particularly interested in. One of the areas that we can connect is through internships and co-ops. We have doubled down on our efforts to expand how we can support large and small industries. Particularly with advanced manufacturing here, we really want to provide you some good talent and in turn you’re helping me keep that talent

— JEFF DOLBEE, ADAC AUTOMOTIVE PHOTO: JEFF HAGE

right here in West Michigan. Internships, we’ve been talking about it with Talent 2025 (and) The Right Place for a number of years. Secondly, we’ve experimented with some folks, Autocam in particular, where we’re actually providing some space and opportunity for those who might be lower skilled but might have the desire to ratchet themselves up and we have those types of programs with the College of Engineering.

For the manufacturers here, are you getting what you want out of new engineers? Are there any gaps that universities might look to fill or different training that you need? DOLBEE: Work experience. Traditionally, internships are over the summer. We’ve come to the thinking that we’d rather do a six-month on, six-month off (schedule) because they can have a bigger impact. If you get them for three or four months, the first month, especially if they’ve never been with us before, is largely unproductive. By the time they’re getting into some things, they’re done with their internship for the summer. DUFON: Probably for selfish reasons, we’re proponents of the cooperative education. Our president graduated from GMI, our head of engineering graduated from GMI, I graduated from GMI. When we walked out, we had two and a half years of realworld experience. (If) you get someone from a fouryear school who either hasn’t done an internship or hasn’t had any practical (experience), you might as well start at ground zero with them. HALL: Not to interject personal experience, but I graduated from (the University of Michigan). I did semester after semester of internships, co-ops, and when I finished, I had an offer from Ford’s college graduate program. I decided to go a different direction, but that work experience, that co-op experience, the experience of making money — that’s huge.

What can universities do to promote the many so-called softer skills so that graduates are prepared for the working world?

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HAAS: We hear from the employers of our graduates in the engineering, I.T., health professions and the like (that) they’re ready to work. That’s because we have a strong foundation in the liberal arts. DOLBEE: I would say practical application of those soft skills is really important. That’s one of the things from my perspective that I’ve come to realize. The younger staff who have come in with some level of exposure in interacting with various functional groups in the business are much better off, simply because they’re not so nervous. KINSLER: I’d say there are other ways to do it, too, as opposed to the traditional internship program. We’re currently using students out of Hope College’s Center for Leadership. What I liked about that program is they’ve teamed up with some retired executives that sponsor a group of kids and then they tackled a project for us. We give them a specific thing and they work for a semester. I have to tell you what I thought might be a one-time deal to accommodate some of the things they were working on, we’re on our fourth project now with them because the deliverables they give us have been amazing and surprising.

Moving away from talent, we often hear from businesses that uncertainty is the death knell of investment. The country elected an administration that’s already proven to be unpredictable. What’s your view going forward for 2017 and how the political situation is going to impact your business? KINSLER: So far, so good. As far as what people’s perception of whether they’re willing to spend their capital dollars or not, the spigot went back on fairly fast. I think it would have went back on with Hillary. It was just the uncertainty of not knowing which industries were going to benefit from what policies. DUFON: We saw something similar with the Affordable Care Act. The majority of our customer base are medical device manufacturers, and things slowed down until people realized that that’s going to happen whether you want it to or not. Once you got past the angst of its going to happen, then people started spending again and actually things are extremely strong right now. Our number of projects that we are quoting is up. The number of orders is up. The interaction with customers is up. I just think you take away some of the uncertainty and the free market is going to take care of itself. HALL: I think from an automotive perspective, the industry was already projecting to be flat, and with the election, there hasn’t been much change to that. It’s still flat to less than 1 percent growth. DOLBEE: In terms of the new administration, the uncertainty has some relativity to us because we’re building a new plant in Mexico right now. That happened well before the rhetoric started. We actually had our board members ask if we should call time out. I was aghast. If you made business decisions, particularly with this administration around what came through Twitter or what was spit out, then your decisions would be going all over the place. By 2020, 25 percent of the vehicles made in North

America are going to be made in Mexico and that’s almost regardless of what Donald Trump does, realistically. The billions that are already being invested are not going to stop. SCHUPAN: The first half of this year, I think, is going to be a challenge because people are still going to say, I want to see what my taxes are before I spend money. Most everyone I’ve talked to, business people are much more optimistic right now than before, and I think the second half of this year we can have a real positive growth. The first half, I’m still a little nervous.

What about the administration’s potential effect on trade policy? DOLBEE: There are a lot of folks that are nervous about it. We’re putting $30 some million (in Mexico). In the end, the fundamental reasons of why we’re doing it are still there. Could that change? Could we go through some change to NAFTA that puts tariffs on goods coming across? But I guarantee you it will be a lot more than automotive that will be impacted by that. I just don’t see that as being realistic. Juxtaposed against a conservative Congress, I can’t see that happening realistically. SCHUPAN: I look at commodities and what’s our relationship going to be with China. … Whether we like it or not, they’re a helluva trading partner. There’s a difference between free trade and fair trade. I’m certainly for fair trade but we have to be really careful with what’s going on right now.

How are you managing health care costs given the uncertainty of the Affordable Care Act? WHITELOCKE: I think that most companies have tried to implement programs that really focus on prevention instead of treatment and reduction as opposed to increase. Putting things in like having incentives for wellness screening once a year, encouraging employees to do physical activity and some kind of contest with a prize or reward — whether or not it’s moving the needle is hard to tell sometimes, but it’s better to do something than nothing. DOLBEE: We’re moving to the pocket book, meaning you’re going to have differentiated premiums depending on whether you participate in the wellness program or not. If you’re a smoker, you’re going to pay more. If you have high blood pressure and you’ve not done anything about that, you’re going to pay more. HALL: We did something very similar to that and we also did something where if you enrolled on the internet and you actually filled out a health assessment and got a printout that you completed it, we gave you a discount on your health care. SCHUPAN: We started a wellness program a long time ago. You talk about retention and recruitment – having programs like the wellness program, it is important. For us, it’s a huge cost. I know right now we’re looking with another company to put in our own clinic. We’re experimenting with that. DOLBEE: That’s exactly what we’re doing in Muskegon because the availability of providers is one of the biggest issues we’re having. Visit www.mibiz.com

“Our number of projects that we are quoting is up. The number of orders is up. The interaction with customers is up. I just think you take away some of the uncertainty and the free market is going to take care of itself.” PHOTO: JEFF HAGE

— STEVE DUFON, MOTION DYNAMICS PHOTO: JEFF HAGE

KINSLER: It’s a lot to do with work-life balance. Our wellness program goes beyond the health portion. We’ve expanded it to mental, expanded it to the physical but also the financial piece of it. Trying to educate people about their different options and how they should be looking at and planning for their future.

On the commodity side, OPEC announced its intention to slash production, which has already driven up the price. How will that impact your business in 2017? ZAJAC: We’re primarily plastics, so changes in the oil prices can make significant changes in our resin prices. It’s hard to say what’s going to happen, but it could negatively affect things if prices of oil go high and stay higher. DOLBEE: Most long-term forecasts that I’ve seen, not any of them have showed substantial increases in the price of oil or natural gas over the next 10 years. It’s an abundance of supply. At the same time, you’ve had fuel economy going up. The demand side of the equation is going down at the same time the supply side is going up.

Q&A

What are your outlooks for manufacturing in the state moving ahead as most economists predict that the bulk of growth will come from the service industries? DUFON: I think we need to continue to diversify from an industry standpoint. I think there are a lot of other opportunities out there if we can figure out how we can bring those in. You don’t have the big dips because people can see the light. ‘OK, so the automotive industry is down, but some other industry is up.’ SMALL: The food processing industry, with this new Food Safety Modernization Act, they’re going to be really fighting for the employees as well. They’re getting more technically savvy in what they do, and I think that’s going to put a (talent) strain on all manufacturing. SCHUPAN: The key is workforce. It’s hard to attract a company because who are we going to get for employees. Are you going to steal employees from someone else because that’s where we’re at. We have such an untapped number of people that don’t have the skills, so I think a lot of money needs to be spent there. DAVENPORT: It’s really interesting to me that

MIKE WALL

Director of Automotive Analysis IHS Automotive

While some industry professionals have raised concerns over subprime lending, rising inventories, incentives and other trends pointing to a downturn in the automotive cycle, the industry should remain healthy in the coming years. That’s according to Mike Wall, director of automotive analysis at IHS Automotive in Grand Rapids, who forecasts North American light vehicle production to close at 17.8 million units this year. While 2017 production is projected to slide to 17.6 million units, he expects it will inch up to 18 million units in 2018 and peak at 18.7 million units in 2020 as new facilities in Mexico come online. Wall spoke with MiBiz about what automotive suppliers in West Michigan should expect in the new year. The big question is the North American cycle. There have been some concerns over subprime debt, rising inventories and other points. Do you think the industry is positioned for some degree of downturn? We are still more in the plateau camp. I think it’s indicative of a market that’s reaching its peak where there’s not nearly as much growth to be had. When that happens, you’ve got companies who are scrapping for share in some cases and trying to protect margin in other cases. All the automakers are having to key in on where their inventories are at. If they’re able to support a little higher inventory in some segments versus what they’re doing to dial back inventory levels in other areas, I think we’re going to see more of that.

How so? We have more foreign automakers who are building more plants here, primarily through Mexico, and bringing on more production capacity. In doing so, we don’t see as much production growth on Visit www.mibiz.com

“It’s really interesting to me that all of these things that we’re talking about are really interconnected. We talk about solving issues for our folks, making our cultures better, which ultimately impacts people staying. It has this domino effect. Some of these issues we should be dealing with as managers or leaders in organizations, making sure that our people are safe and secure and that they have upward mobility and opportunities, but we also have to deal with their families and their health and all of those things. I think time is just forcing you to, and if you don’t deal with it, you’ll die.” — MICHAEL DAVENPORT, JIREH METAL PRODUCTS

all of these things that we’re talking about are really interconnected. We talk about solving issues for our folks, making our cultures better, which ultimately impacts people staying. It has this domino effect. Some of these issues we should be dealing with as managers or leaders

in organizations, making sure that our people are safe and secure and that they have upward mobility and opportunities, but we also have to deal with their families and their health and all of those things. I think time is just forcing you to, and if you don’t deal with it, you’ll die. n

the part of the Detroit Three. GM says we’re going to pull a third shift at Lordstown and Grand River. What they’re doing is they’re protecting the inventory volume and margin more than anything. They’re not just simply throwing more incentives at the situation. There’s a little bit more of a disciplined approach on the part of particularly Ford and GM.

What does that mean for suppliers? When you look at the traditional Detroit Three, we’re not looking for any real market growth overall over the next several years. This is a market that we’re seeing more and more import substitution, where you have the import players coming into the market and producing here. It can be a positive for suppliers if they’re capacitized the right way. Competition is going to be rampant. Everyone will be scrapping for what is a limited pool. If the tide isn’t rising everyone’s ship, then everyone is gunning after share or gunning to protect volume.

What impact to the automotive industry are you expecting from the new administration? There’s a positive side in terms of the infrastructure and tax cuts. Then there’s the potentially negative side as it relates to trade. It’s balancing the two. From our planning scenarios, we do think there is some potential upside as it relates to infrastructure and tax cuts that may go on there.

Do you foresee the Trump Administration walking back the CAFE Standards? How should suppliers prepare for that uncertainty? That is the big question right now. The EPA came out here recently and it looks like they may be trying to lock in that mid-period review early, maybe by the end of the year. It’s not entirely clear what those next steps would be if that gets locked in. At the end of the day, we still see there is the potential for more off-cycle credit and maybe the potential to see those targets stretch a bit, in terms of the runway.

Is there anything on the horizon that’s keeping you up at night? There are two big themes. One is the U.S. cycle, of course. We’re

watching it very closely for any signs of deterioration, things like credit availability, subprime lending, incentives and inventory activity. We see engagement of the consumer remaining pretty robust. I think it’s too soon to say that it’s deteriorating materially, but we are at that peak.

And the second? When you look at the international landscape, a lot of eyes are on China right now in terms of will sales remain strong going into 2017. In order for that to happen, the government over there has a tax program that’s in place right now that’s very positive to vehicle sales. That ends at the end of the year. If they don’t extend it, the vehicle sales could be a little challenging in China. There are a lot of folks assuming they’ll extend it. Interview conducted and condensed by John Wiegand. Courtesy photo

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

MANUFACTURING

Q&A

GAVIN BROWN Executive Director Michigan Aerospace Manufacturers Association

Gavin Brown, the executive director of the Michigan Aerospace Manufacturers Association (MAMA), expects strong production of both commercial and military aircraft continuing into 2017. As demand for long-range aircraft like the Boeing 777 increases, large OEMs will be eying ways to cut costs through production. For West Michigan manufacturers, that presents an opportunity for companies that can adapt

to the latest technology and work cost-cutting measures into production, Brown said. However, uncertainty over the trade policies for the incoming presidential administration could cause pain for companies such as Boeing, which plans to sell more aircraft to countries including Iran and Russia. Brown spoke with MiBiz regarding the opportunities and challenges for aerospace suppliers going into 2017. Where do you see the economy going in 2017 and how will that influence the aerospace industry? You’re going to see further pressure on the large four-engine platforms. The 747 and the A380

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What impact does that have on Michigan suppliers? The industry is really trying to focus on what platforms will actually make money. In that, it’s going to be the ability of suppliers to take costs out. We’re seeing more attention to MAMA and Michigan. Our moniker is taking the cost out of components, subsystems and assemblies. You’re going to see some of the large suppliers have their mainstay products ship to different vendors because of cost structures.

Where’s the opportunity for West Michigan manufacturers?

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will continue to struggle with orders and production. Where the large platforms will probably have some legs in 2017 will be with the cargo delivery. As far as commercial passenger traffic, it’s going to be hard for the 747 to really continue in its legacy form. That means that programs like the 777 and the A350 will become the replacement to those models and you will see those grow.

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Their ability to understand the changing manufacturing processes and how to do it in a cost-saving way. Because West Michigan suppliers have supplied industries like automotive and office furniture that have asked them to wean out costs, their models are in place to do that. Now they’ll be asked to demonstrate their technology as well as their business models to step up and produce more than in the past.

How has Trump’s election affected sentiment in the aerospace industry? Take the commercial order Boeing recently got from Iran. To ramp up the supply chain for that, they have to make sure that programs like that are going to go forward. The headwinds would be if (the administration) doesn’t agree to export commercial goods to Iran, including

airplanes. There are some geopolitical issues at play. Boeing is shifting, as well as Airbus, to Russia and China. If there are political issues that create an animosity, it could affect the production and delivery. Interview conducted and condensed by John Wiegand. Courtesy photo

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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CHUCK HADDEN PRESIDENT AND CEO, MICHIGAN MANUFACTURERS ASSOCIATION Lansing

sk manufacturing executives about their biggest challenges and they’ll most likely sum it up in one word: talent. As Michigan’s unemployment rate continues to shrink, manufacturers have struggled to attract and retain people, espe-

cially the in-demand skilled workers they need to run their highly automated plants. The Lansing-based Michigan Manufacturers Association has heeded its members’ call by partnering with the SME Education Foundation and the Manufacturing Institute on a new talent solution, said MMA President and CEO Chuck Hadden. SME’s Partnership Response In Manufacturing Education (PRIME) initiative offers customizable curricula, while the Institute’s “Dream It Do It” program provides a framework for manufacturers to communicate more effectively with educators.

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Michigan’s economy is driven by a competitive manufacturing industry. Our state unemployment is the best it’s been in 15 years and is now below the national average. Michigan is leading the nation in manufacturing job growth, creating 148,000 new manufacturing jobs since 2009. This growth creates new challenges as Michigan manufacturers are hitting a wall when it comes to talent — they either can’t find it or the skills don’t match employer needs. For an industry as talent-reliant as manufacturing, fixing this problem must be a top priority. … Together, (the PRIME and Dream It Do It) programs offer employers and educators the tools they need to overcome existing image and pipeline challenges. Talent initiatives like these not only move Michigan’s economy forward, but move it forward at an accelerated pace. The manufacturing skills gap is real and impacts manufacturers large and small. The sooner employers and educators come together to find common-sense solutions with long-lasting results, the greater Michigan’s economy will be. This discussion must continue in 2017. It’s time to talk talent.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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PATRICK GREENE

PRESIDENT, CASCADE DIE CASTING GROUP INC. Grand Rapids

s any company involved in the automotive industry knows, the sector clearly follows a cyclical pattern over time. Patrick Greene, the president of Cascade Die Casting Group Inc. in Grand Rapids, believes that after six years of growth in

U.S. auto sales, the next downward cycle could occur “in the next couple years.” But Cascade Die Casting and other suppliers, for whom the pain of the 2008-2009 recession remains a very fresh memory, have already started taking action. “We are preparing by making sure our balance sheet is strong and our operations are highly productive and efficient going into the downturn,” Greene said.

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Our industry anticipates continued growth as auto lightweighting efforts use aluminum to replace heavier iron, steel and other materials. … We have benefitted from strong growth in the automotive segment since 2009. We are anticipating that levels off in 2017 and potentially even contracts slightly. We are preparing for the downturn by making sure our balance sheet is strong. Our capital investments are focused on automation and facilities improvements. Automation performs the mundane, repeatable tasks well, especially in a foundry environment. Our employees can work on process improvements, reducing waste and resolving issues proactively. This allows our employees to improve their skill levels and advance in the organization. … We need to treat our employees well and create an environment where they can be engaged and empowered. They want to feel valued and respected. We need to make sure they enjoy their work and feel like they are contributing to growing and improving themselves and the company. Their personal and professional growth is our focus going forward.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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DARYL ADAMS

PRESIDENT AND CEO, SPARTAN MOTORS INC. Charlotte

arlier this month, Spartan Motors Inc. struck a $36 million deal with fire truck manufacturer Smeal Fire Apparatus Co. The deal marks a turnaround for the company’s emergency response business, which has struggled financially in the past,

according to President and CEO Daryl Adams. For the first time since 2008, Charlotte-based Spartan Motors is on track to be profitable for all four quarters in 2016 and Adams believes the Smeal acquisition will better position the company in the coming year. Moreover, Adams noted that Spartan Motors’ fleet/delivery and specialty chassis divisions remain open to acquisitions if the right opportunities emerge.

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The progress our emergency response business has made over the last 12 months and the progress the other divisions have made pulled ahead to where we thought we’d be profitable with the ER business to a run rate of 2017. The acquisition is going to accelerate that. It will be accretive immediately and that also has to be part of the equation when you do M&A. What you’re acquiring needs to better the base company. … We still have two other divisions and I think things are moving quickly in all of our industries. We want to be opportunistic and keep our eyes wide open and see what’s out there. From a leadership standpoint, our goal isn’t that we go out and acquire a bunch of companies and get big. Our goal is to make sure with the turnaround plan that we become profitable, remain profitable and grow with solid returns to our shareholders year over year. That’s the ultimate goal.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

MANUFACTURING

Q&A

NELSON JACOBSON

Chairman, President and CEO JSJ Corp.

Given that JSJ Corp.’s diversified manufacturing operations span North America, Mexico and China, Nelson Jacobson and the company’s board of directors are bracing for a period of acute political uncertainty. However, the chairman, president and CEO of the Grand Haven-based company fully expects to see “very significant growth — 20 percent plus” in 2017. That growth is coming off a record year this year in which JSJ’s sales were “well over” $500 million across its portfolio that includes GHSP Inc., Izzy+ and Dake Corp. Jacobson spoke with MiBiz about his outlook for the new year and how the political volatility influences the company’s plans.

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What’s your outlook for 2017? We make complex engineered solutions for a wide range of industries. We do it globally. In that context, what we still see is steady growth, relatively slow growth. The most significant is that automotive, which has been on a very significant growth path, far in excess of the general economy since the recession, we certainly see what we’re describing as a plateauing. It’s not a drop in volume on the vehicles we’re involved in, which are primarily the U.S. and Japanese car companies. It’s more of a plateauing. That will be more of an adjustment to seeing significant growth year over year.

Given that plateauing in automotive, what are your prospects for growth? Overall, we still are optimistic about business in ’17. We’re having an all-time record year in ’16, we’ll have very significant growth — 20 percent plus — next year, but boy, it’s an uncertain journey. It never happens how we planned it. It’s in fits and starts. It just requires you to be nimble and focused. … The word we use most is that it’s very uncertain, but ultimately there is growth and opportunity there.

How do you handle that uncertainty that seems poised to ratchet up next year? It requires management to be nimble and very agile and keep a very wide perspective on things. We have to be watching what’s happening on a fairly broad basis across a lot of different markets and a lot of geography.

Does that uncertainty change your strategy for capital expenditures in the new year? We’re definitely being more thoughtful and judicious because we think there may be some additional variables out there. … We look hard at what are our commitment levels for capital and engineering. We’re a very engineering-intensive company. We looked at what was committed which will still provide us for growth, and what were our pursuits. I think we’re taking a more discerning look at what specifically are the programs, where are the programs, where are some of these risks with the threats of trade wars or rescinding trade agreements and how could that impact us.

With JSJ’s global reach, how are you thinking about Trump’s isolationism and anti-NAFTA rhetoric?

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(We’re asking) what will happen given the election with a lot of the noise about ripping up trade agreements. Is that rhetoric? How real is it and how significant is it?

What has NAFTA and global trade meant for JSJ? Certainly, there’s always an opportunity to refine

trade agreements. But inherently, our belief is that NAFTA has been very good for everybody. There was so much inefficiency before. … Today, you can go from Mexico City to Montreal, Quebec nonstop. I’m just a real strong believer in global trade, and ultimately there’s good work to be found and the right type of work to be found in all locations. Under this period, we’ve grown our employment dramatically right here in West Michigan — and for very high-paying jobs.

On the other hand, Trump seems to be taking a pro-business approach to policy and his cabinet. How will that influence the economy? I think it is going to be pro-business. If there is a draw-down on regulation, and getting some of the things that aren’t adding value out, that would be good. I really hope that we have an opportunity to redirect funds into education and training. We’re in desperate need of skilled workforces at the floor level, machinists and toolmakers and engineers.

With the duality of uncertainty and a pro-business administration, what does your crystal ball for the economy look like? I think it’s going to stay fairly strong. For a durable goods manufacturer and an engineered products company like ourselves, having 2- to 3- to 4-percent growth is actually really good. Really fast growth can be hard and overwhelming given the complexity of our supply chains and the needs and complexity of supplying the customers.

The Fed just raised interest rates by a quarter point and all signs seem to point to additional modest raises next year. How does that affect your decision making? It can go up a point or two points, and I don’t know that it would make one bit of difference in anything we do. That’s way down (the list of concerns). It’s the uncertainty, a trade war or other things. Interest rates are just not the constraint for us.

Looking ahead to 2017, what’s keeping you up at night? It’s the uncertainty. I’m looking out for thousands of employees and families globally and (wondering) how does that affect them. Is it rhetoric or is it real? How will it affect us? … We had a great November. We’re going to finish the year strong and already where we have some visibility, the first quarter looks good. The question is where do we invest. … We’re really thinking hard about how are we ensuring that we’re getting the correct vision and assessment on all the opportunities that are out there so we can be flexible and nimble in this world. As things will change pretty dramatically, (we want to) be able to take advantage of them. Interview conducted and condensed by Joe Boomgaard. Courtesy photo Visit www.mibiz.com

AARON ZEIGLER PRESIDENT, ZEIGLER AUTO GROUP Kalamazoo

o say Aaron Zeigler is optimistic may be an understatement. Zeigler Auto Group recently topped $1 billion in annual revenue and expects to add another $50 million in revenue before the close of this year. By March, the organization hopes to

finish construction on a motorsports dealership and “action park” — complete with a full restaurant, bar and several miles of test tracks — that will serve as a destination for enthusiasts, said Zeigler, the president of the dealership group. He projects growth by acquisition to continue to heat up in 2017. “We could add another three to four dealers next year pretty easily,” he said. Overall, Zeigler bets the economy will likely continue to grow, particularly if the incoming administration fulfills its promises to cut taxes.

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The last five years, the economy has gotten stronger and stronger and I think it’s going to continue to be really strong, maybe as good as we’ve seen it. Reason being, if you look at unemployment, it’s extremely low. Interest rates are extremely low right now. It seems like there’s a lot of pent-up demand in our industry and sales have been really strong. I don’t see anything right now that’s going to slow that down. We have a ton of tailwinds behind us and I think that’s going to continue not only into next year but into the next couple years. … I think the fundamentals of the economy are so good right now that there’s also a lot of exuberance out there in the market. If the government does some things like cut taxes like they’re talking about, I think that could really help drive the economy as well.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

REAL ESTATE & DEVELOPMENT

GRAND RAPIDS APARTMENT DEVELOPERS BALANCE DEMAND, COST AS 2017 LOOMS By NICK MANES | MiBiz nmanes@mibiz.com GRAND RAPIDS — If 2016 was the year of planning for myriad multi-family residential projects around West Michigan, 2017 seems to be the year for execution. The next 12 to 24 months could see as many as 2,000 apartments come online in downtown Grand Rapids, nearby neighborhoods and surrounding suburbs, according to an analysis by MiBiz. It’s an unprecedented number of units for a region more known for single-family homes instead of mixed-use, urban living. With the number of units proposed, commercial real estate sources are asking themselves three fundamental questions: n Is the demand there? n How quickly can the units fill up? n Will potential tenants pay the asking rents — around $2 per square, in many cases — needed to cover the rising cost of construction? While the sentiment surrounding the answers to those questions remains somewhat mixed, commercial real estate sources by and large said they absolutely believe the demand is present, noting that well-done products have been filling up quickly. But the third question about tenants’ willingness to pay escalating rents leads to more skeptical replies. “My opinion is that there’s plenty of demand for the units under construction,” said Ryan Kilpatrick, a member of the Michigan Economic Development Corp. community assistance team focused on Grand Rapids. “The question is whether they will fill at the rental rate the developers proposed on the front end.” Development sources agree that as more and more units come online, building owners will have to grant concessions on rent or run promotions such as free rent for the first month. “I think the market always adjusts, so yeah, there will be some of that,” said John Wheeler, president of Orion Real Estate Solutions LLC, the development arm of Grand Rapids-based Orion Construction Company Inc. Still, Wheeler said he’s unconcerned rent concessions will affect his company, which plans to open about 550 units next year. “I think the true threat (to the downtown rental market) comes from the near-neighborhoods being so much more financially attractive to the young renters, if you can save that extra 60

or 70 cents and get a free parking spot and you can still walk to work,” he said.

AVOIDING RENT CONCESSIONS The fundamental questions about demand and rental rates have been top of mind in recent months for Jeff Olsen, director of development at 616 Lofts LLC, a Grand Rapids-based development and property management firm. The company opened 241 units in 2016 between three properties, all in up-and-coming neighborhoods of the city. Olsen said that two of the properties — one at the corner of Michigan Street and Eastern Avenue NE and one on North Monroe Avenue — reached about 90 percent occupancy already. The firm’s Lofts on Alabama development off Bridge Street NW opened later in the year and stands at about 60-percent occupied, he said. “There’s a balance between price reduction, velocity and ramping up leasing,” Olsen said. “Developers typically aren’t going to build something and reduce rents. The cost of construction will hold the bottom-end price point. Then it becomes a timing issue to fill up the units.” The occupancy figures cited by Olsen generally align with what commercial lenders say they’re seeing in the market. Michael Hollander, senior vice president and Michigan market leader at Kansas City-based Commerce Bank, said his organization projects that the Grand Rapids market has a vacancy rate of about 5 percent. Additionally, developers are getting strong rent growth of about 2 percent annually, he added. Olsen said that so far, his firm has offered rent concessions on a handful of two-bedroom units, which he cites as part of an ongoing trend of younger professionals preferring to live alone in smaller units rather than have roommates.

PROJECTS BREAK GROUND While Olsen said 616 is pleased with its leasing performance in 2016, it continues to push forward with other ambitious projects where visible progress will take shape in the new year. Specifically, in October 2014 the firm announced plans for apartments and retail on two sites in Grand Rapids’ Creston neighborhood, but it has yet to start on any projects in that area. Olsen said that a “final deal structure” for the project took longer than expected and he anticipates a groundbreaking in the early part of next year.

Developers in and around Grand Rapids plan to bring online about 2,000 apartment units in the next 12-24 months. Stakeholders are confident the demand to fill those units exists, but questions remain over whether landlords will be able to hit their targets for rents. PHOTO BY NICK MANES Additionally, the company announced plans for its most high-profile project to date this past April, which calls for a movie theater, retail space, and 187 apartment units spread over two surface parking lots in downtown Grand Rapids south of the Van Andel Arena. Olsen conceded that 616 Lofts may scale back some of the residential components of the proposed $140 million development, but he quickly refuted rumors that the project was on its final legs. “I’m spending a lot of time working on it if it’s dead,” Olsen said. “It’s the most complex project Grand Rapids has seen in a long time.” The development company and its partners on the project have an option on the publicly-owned land until April 2017 and must get final approval from the Grand Rapids Planning Commission prior to that, according to its current agreement with the Grand Rapids Downtown Development Authority.

LOCAL SCRUTINY HEIGHTENS If the overall economy continues on an upward trajectory in 2017, developers seeking local approvals could also find themselves with an unforeseen obstacle: development fatigue. Municipalities around the state have scrutinized new projects much more in recent months, according to Patrick Lennon, a partner focused on real estate, zoning and land use law in the Kalamazoo office of Honigman Miller Schwartz & Cohn LLP. “I think we really experienced a unified desire to build and develop in 2012 and 2013 between local governments, developers, contractors and even communities,” Lennon said. “But in 2015 and 2016,

the pendulum seems to be swinging back.” Specifically, Lennon said he’s seeing not just local planning boards and city councils squaring off against new development, but also a growing number of residents. He said communities are placing more requirements on would-be developers and in some unspecified cases, scuttling projects altogether. “This is a big change from 2013 and 2014 when communities, developers and municipal governments were really — I believe — going to lengths to accommodate development to stimulate their local economies and grow their tax bases,” Lennon said. That sense of development fatigue remains one of many obstacles that developers of multifamily projects may face as they look ahead to 2017. Lenders like Commerce Bank’s Hollander say that macroeconomic factors also could present problems in the coming year. “We’re beginning to see signs of risk on the horizon, headwinds for borrowers from increasing interest rates, a credit cycle that’s likely in the later innings and the downtown market having a huge amount of supply coming online simultaneously — ‘simultaneously’ being the key word,” he said. While Commerce Bank and others are mitigating the risks stemming from the influx of new supply, Hollander said the market still has many positive attributes going for it. “The one thing that is really encouraging to me is that downtown Grand Rapids, in many ways, has hit a new critical mass for much more than we were historically positioned for,” he said. “It’s no longer a cart before the horse situation.” n

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TIM ENGEN PRESIDENT, VISION REAL ESTATE INVESTMENT INC. Grand Rapids

fairly new addition to the West Michigan commercial real estate scene, Grand Rapids-based Vision Real Estate Investment Inc. had a “banner year” in 2016. said President Tim Engen. With a mix of multi-tenant office buildings, indus-

trial facilities and mixed-use residential properties within its portfolio, the firm made headlines in mid 2016 when it paid more than $31 million to acquire 99 Monroe, the fully-leased and renovated downtown Grand Rapids Class A office building.

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As we approach the end of the calendar year and look to 2017, we anticipate stable occupancy rates in our industrial assets. We foresee continued lease demand for smaller multi-tenant buildings as companies make a move into and feel out our strong West Michigan market. We also expect an ongoing appetite in middle to large singletenant buildings if the industrial economy holds strong and these new and existing companies continue to experience growth. With respect to office and residential, we have mild reservations about the strength of rental and absorption rates. These rates have seen staggering growth throughout the recent addition of hundreds of new units. … It’s safe to say there is a presumption of increased interest rates within the next couple months or years. We are anxious to see the lag time that (capitalization) rates follow suit. … A market adjustment following a period of increased financing costs and cap rates will provide an opportunity for low-leveraged, high-cash investors.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

REAL ESTATE & DEVELOPMENT

Q&A

ANIRBAN BASU

adding streetscapes and maybe some light rail, … you can’t fix schools right away. It might suggest that in some of these cities, we’ll have overbuilt apartment markets because a lot of them are built to house millennials and now they move to the suburbs.

President & CEO Sage Policy Group Chief Economist Associated Builders & Contractors

Anirban Basu thinks West Michigan’s real estate and construction industry has a pretty solid outlook for 2017. The chief economist for the Washington, D.C.-based Associated Builders & Contractors (ABC) views the region as having a strong job market and plentiful access to capital. Basu — who is also president and CEO of Baltimore-based economic consulting firm Sage Policy Group Inc. — spoke with MiBiz following his annual presentation in early December to the Western Michigan chapter of ABC. You’ve mentioned that a Trump administration will bring a fair amount of economic stability. Can you expand on that? I think Trump has suggested that he wants to spend more money on infrastructure. But perhaps more importantly, for the 2017 economic outlook, (he wants to cut) taxes. It’s already a decent economy that he inherits. Many construction firms are busy, especially in West Michigan. And if anything, the Trump administration will add fuel to that fire. So I think the 2017 outlook has improved dramatically.

What downsides can you see? I would expect that the next recession — when it comes — will wind up being much deeper than it would have been (under Hillary Clinton). I’ve been expecting a mild recession in the future, maybe 2018 or 2019. I now believe that whenever the next recession occurs, it will be much deeper than it would have been.

How will development and construction growth in downtown areas and urban neighborhoods affect the surrounding suburbs? Once people have kids and start planning school districts — while you can make cities like Baltimore and Detroit shiny by

The Grand Rapids area has about 2,000 apartments expected to come online over the next year or so. Does that number give you any cause for concern? It should be some concern — I don’t think grave concern. As long as the Grand Rapids economy can continue to produce significant numbers of jobs — and it has over the last 12 months — then the apartments will be occupied. Everything works out if the apartments are occupied and (owners) don’t have to make too many concessions to try to fill those apartments.

Does anything indicate that the market might be overbuilt? I don’t think we’re necessarily to an overbuilt state. I think, ultimately, a place like Grand Rapids — and in many places around the country — we will wind up with too many apartments. But I’m not sure we’re there yet. The key is the job market.

What’s your overall outlook for the job market heading into the next year? I think there’s a fair amount of job creation, but I think what will be more profound will be the increases in wages and compensation. There’s just not that many people left to hire. The nation’s unemployment rate is about 4.6 percent. People have a lot of skepticism regarding the official unemployment rate — I understand that — but the fact of the matter is if you ask almost any business person, they’ll tell you it’s difficult to find good workers right now. It’s going to get more difficult over the next year. That, of course, pushes wages higher.

What’s keeping you up at night as you look ahead to next year? I think the same thing that’s kept me up at night for years, which is the national debt. Everyone loves a good tax cut, but we already have nearly a $20 trillion national debt and we’re facing insolvency in Medicare and Social Security within two decades. So it seems that some of the policies being put forth

by the new administration would tend to accelerate some of the national debt and, ultimately, we have to pay the piper. I don’t think it’s next year or 2018, but at some point, there’s going to be a lot of dislocation when that crisis comes. I think it will come in the next decade.

Interview conducted and condensed by Nick Manes. Courtesy photo

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DON SHOEMAKER I PARTNER, FRANKLIN PARTNERS Grand Rapids and Naperville, Ill.

n recent years, Franklin Partners LLC has been one of West Michigan’s most active developers when it comes to revitalizing under-utilized office and industrial space. Principal Don Shoemaker maintains a

bullish outlook for 2017 as his company plans to seek heavy indus-

trial tenants for the former General Motors stamping plant in Wyoming now known as the Site 36 Industrial Park. Franklin Partners also expects to finalize its decision in the first quarter about a redevelopment of the Display Pack site on North Monroe. Future uses there could include offices or residential — or a combination of both.

Compiled by Nick Manes. MiBiz File Photo

Visit www.mibiz.com

Our new project at Site 36 is perfectly positioned to take advantage of the lack of existing supply and continued demand for manufacturing. … At Site 36, we are looking to attract (advanced) manufacturing, bringing good jobs to Wyoming. We feel like the timing to be involved with a ‘shovel-ready’ site with rail and robust utilities that many users want will keep us busy in 2017. We also feel that low unemployment and the demand to hire and retain the millennial workers will continue to cause companies to consider either moving or opening new offices in downtown Grand Rapids. The trends we see in bigger cities of companies moving downtown into cool creative spaces to attract and retain the millennials has started in Grand Rapids with Spectrum Health moving its I.T. group into 25 Ottawa. (The Display Pack building at) 1340 Monroe is a great solution for companies that want to be downtown with public transportation and free parking in a cool space. We will continue to look for more opportunities downtown and new construction is not out of the picture.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

REAL ESTATE & DEVELOPMENT

Q&A

JOHN WHEELER & ROGER REHKOPF Orion Construction Co. Inc. & Orion Real Estate Solutions

Orion Real Estate Solutions, the development arm of Grand Rapids-based general contractor Orion Construction Co. Inc., remains one of the most active developers in the market. The firm plans to open about 550 market-rate apartments in early 2017. Orion Real Estate President John Wheeler and Orion Construction President Roger Rehkopf spoke with MiBiz about their outlooks for the industry in 2017. How do you see politics at the local level playing out in the coming year? Wheeler: I think at the city, you’ve got a freshman city commission that is really good. Rosalynn (Bliss) has been a commissioner for eight years and now she’s the mayor. We’ve got some great city commissioners. They don’t want business as usual.

What do you mean by that? Wheeler: They want neighborhood improvements. I think that opens up the scope for private developers to go in and do some things in neighborhoods — as long as they get neighborhood support. Things like small retail centers, maybe some small entertainment centers. Before, you had to go to just (one) neighborhood, like Eastown. Now Fulton Heights is saying we want some of that stuff. Same with the near west side. I think you’ll see a lot more collaboration in the 32 neighborhoods.

The recent Grand Action report called for the DeVos Place Convention Center to expand, but there seem to be few options to do so. How do you see that playing out? Wheeler: My crystal ball tells me that the city and the county are going to relocate off of Calder Plaza — certainly the county will. If they’re going to expand the convention center, the county has to move, because the post office ain’t moving — not yet. The county only has three stories there, and they have so much excess space.

What do you think Kent County will do? Wheeler: I’m saying they’ll flip the keys to that three-story building and say to the Convention Center Authority, ‘Put the

Q&A

MARK NETTLETON Municipal law, land use and zoning attorney Mika Meyers PLC

Municipalities and state and local units of government feel anxious for myriad reasons heading into the new year, according to Mark Nettleton, an attorney focused on municipal law, land use, zoning and real estate at Grand Rapids-based Mika Meyers PLC. With a new presidential administration, clients are unclear just what may be in store for 2017, according to Nettleton. The attorney thinks all manner of issues, from trade and tax policy to business incentives, could impact West Michigan’s municipalities. What’s top of mind for you in the areas of municipal law and land use heading into 2017? Anything that could potentially disrupt what I would characterize as people generally feeling more positive about the economy. I think that is driving a lot of issues at the local level in terms of real estate development.

120,000-square-foot addition here and put a sky bridge over to DeVos Place.’ Now the city isn’t in as bad a shape. They just reglazed (City Hall) and they’ve done some things to the building. They don’t own anything else except 201 Market and they’re trying to dump it. They’re not going to move down south. I’d say there will be some public-private partnerships stemming from the lack of available real estate downtown, and that’s going to be county properties.

Kent County has expressed interest in moving the Road Commission off its current riverfront site on Scribner Avenue NW. What kind of opportunities does that present? Wheeler: They gave me tour of that and asked what it was worth and I said, ‘Nothing to me.’ I’m not going that far up — I’m too old — but somebody will. The city and the county are getting along better than they ever have in my tenure here. There used to be quite a bit of polarization between the two. Not anymore. Now it’s like one vote. If you say, ‘We’re going to do this together,’ it’s OK. That’s a big plus for the future of our city.

Rehkopf: The sub-contractor market is actually pretty good. Some of the tension has gone away. Everyone was just so busy that they couldn’t figure out how to get all this done. I think things have calmed compared to six months or a year ago.

Is that because they’re less busy or they’re finding people to bring on?

What do you think are the major drivers of that? Wheeler: I don’t know if that’s the Metro Council … pulling everyone together now or if they’re just younger people. Twenty years ago, the average age was older than me. Now they’re in

Interview conducted and condensed by Nick Manes. Courtesy photos

on a state and local level too, assuming the economy continues on an upward trend, I think you’ll see increased residential and commercial development.

Why’s that? The state has created a climate where it’s trying to encourage job growth and manufacturing growth. But that will result in greater demand for not only new public infrastructure but upgrades to existing infrastructure. That will really be a focus for municipalities.

President-elect Trump has called for significant infrastructure investment. What are your thoughts on what that might look like? I don’t think anyone at local levels is thinking that there will be manna from heaven. I think they’ll look toward increased opportunities for financing, perhaps. Through lessening of federal regulations, that might broaden the ability of state and local governments to go to market and finance structured projects. It’s really hard to say what else at this point the new administration has in mind for that infrastructure.

Does it boil down to uncertainty? What I see is that it’s had a significant effect on interest rates as it relates to local government borrowing. In late August, if a municipality was going to the market with a 20-year general obligation bond, they’re looking at rates of 2.75 percent and now they’re looking 4 percent plus, probably.

We’re basically taking an approach of let’s get everything possible done that we can so that if it makes sense to hit the market, we can do that relatively quickly. So doing our homework, taking all the steps, dotting our i’s, crossing our t’s. Get everything ready so that when we need to move, we can.

What does that mean for local units of government at the moment?

Overall, what do you make of the variety of economic development bills at the state level that have recently been proposed but didn’t get through this legislative session?

What’s happening on the construction side?

Rehkopf: I think it’s a little bit of both. I think back in the recession times, people got lackadaisical. Then when things ramped up, they never got that energy back. Wheeler: Or the fear. The banks called all their lines of credit. It was scary as hell. Rehkopf: I’d say a lot of people who left when there was no work, now they’re coming back. We’re trying to hire in more supervision roles, quality assurance roles.

With municipal clients trying to lock in some low rates and given the uncertainty with a new administration, how are you advising clients in the short to mid term?

Timing is everything for municipalities right now in terms of getting the best interest rate possible and there’s an end-ofthe-year push for a couple deals that are trying to close to get in while the rates are good. It just impacts borrowing costs. But

their 30s, 40s and 50s. They think different. They think about getting things done. I like that a lot. I’m more optimistic about Grand Rapids than I ever have been. I feel like there’s no barrier to entry for good development.

It’s kind of a nuanced area. There are almost a dozen pieces of legislation floating around to restrict TIF entities in what they

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

can and cannot do. That’s been a hot-button topic for a few years. … It’s funny. On the one hand, you have the broadening of TIF legislation (to include various sales and use taxes). … On the other hand, you have the restriction on the ability to capture (revenue increases from millages) for the communities that do a nice job in terms of placemaking, which was a priority of the governor. It’s interesting, the duality of the approach. Interview conducted and condensed by Nick Manes. Courtesy photo Visit www.mibiz.com

RICK DEKAM

PRINCIPAL, MIDWEST REALTY GROUP LLC Portage

either the uncertainty of a new presidential administration nor possible interest rate hikes act as a deterrent for development, according to Rick DeKam. “It would take a much larger multiple percentage point increase to dramatically slow our economy,

which is not in the Fed’s best interests,” said DeKam, the principal at Portagebased Midwest Realty Group LLC. He believes it’s “smooth sailing” heading into 2017, particularly because of low inventory across commercial real estate sectors in West Michigan and continued high demand.

Compiled by Nick Manes. Courtesy Photo.

Visit www.mibiz.com

2017 should continue to be another banner growth year based upon pent-up market demand that still exists for new space and real estate investments; continued low interest rates expected for the entire upcoming year; and limited real estate supply, which will continue to push market values north and drive additional new construction. The only issue that I can see that may work to somewhat cool this expansion would be any affects on standard commercial real estate lending terms that could result from the new Dodd Frank bank reforms. For us as a landlord, our primary concern is the financial health of our tenants and wondering if they have gleaned the right lessons from the past downturn for a strong future. The continued consolidation of the lending industry may also be creating new future difficulties in securing financing, but that’s still to be seen.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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PRESIDENT, BAZZANI BUILDING CO. Grand Rapids eter Skornia, the newly-appointed president of Grand Rapidsbased construction and development firm Bazzani Building Co., hopes for a positive 2017. With favorable economic conditions for building and a new partnership aimed at further

business development, Skornia expects the company to grow by expanding its workforce and via enhanced marketing.

Compiled by Nick Manes. Photo by Katy Batdorff

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Grand Rapids is well poised for continued growth by a diverse economic engine driving local jobs. This is encouraging the trend of people wanting to move into cities. The upward spiral of job creation and people living in the city will pull in other services required for urban living, beyond housing and entertainment which are currently seeing tremendous growth. We have grown in 2016 and look to have a larger year in 2017. Bazzani Building Company, a ‘Best for the World’ B-Corp, applies the triple bottom line philosophy to our company and projects. This means a balance of economic viability, social responsibility and environmental integrity. My worry is the demand for increased productivity and efficiency. On the surface, these are positive and have been the driving force in stock market increases, but they have the negative impact of a loss of jobs. This is an unsustainable trend.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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SMALL BUSINESS

Joining MiBiz for a small business roundtable were (top left to right) Thomas Coke of Hubbub Ltd., Alan Hartline of Kingma’s Market and Scott Hill of Varnum LLP; (middle left to right) Rob McCarty of The Image Shoppe Ltd., Mike Morin of Start Garden LLC and Jon O’Connor of Long Road Distillers Inc.; (bottom left to right) Chris Reinbold of Six/Ten Ventures Inc. and The Funky Buddha Yoga Hothouse Co., Shelby Reno of CKO Kickboxing and XVentures and Kasie Smith of Serendipity Media LLC. PHOTOS BY JEFF HAGE

— Small Business Roundtable —

DIVERSITY, UNCERTAINTY TOP OF MIND FOR WEST MICHIGAN SMALL BIZ EXECUTIVES By NICK MANES and JOE BOOMGAARD | MiBiz nmanes@mibiz.com

rom craft distilling to artisan food to retailing to niche publishing firms, West Michigan’s small business executives are genuinely upbeat as they look to 2017. As the region’s economy continues to perform among the best in the state, business owners are finding consumers are willing to trade up for premium products and higher levels of service. But lurking beneath the surface is not just a sense of economic uncertainty, but also a genuine desire to right some of the wrongs associated with vast racial and economic disparities still found in the community. Joining MiBiz for a roundtable discussion on the state of West Michigan’s small businesses were: n Thomas Coke, vice president of North America at U.K.-based fundraising platform Hubbub Ltd. Visit www.mibiz.com

n Alan Hartline, president at Grand Rapids-based Kingma’s Market n Scott Hill, partner at Varnum LLP, the Grand Rapids-based law firm that sponsored the roundtable n Rob McCarty, partner at Grand Rapids-based The Image Shoppe Ltd. n Mike Morin, CEO at Grand Rapids-based Start Garden LLC n Jon O’Connor, co-owner at Long Road Distillers LLC and Grand Rapids 1st Ward City Commissioner n Chris Reinbold, owner at Six/Ten Ventures Inc. and The Funky Buddha Yoga Hothouse Co. who also helped launch the Grand Rapids chapter of Entrepreneurs’ Organization (EO) n Shelby Reno, owner at Grand Rapids-based CKO Kickboxing and associate at Grand Rapids commercial real estate brokerage X Ventures n Kasie Smith, president at Serendipity Media LLC, a Grand Rapids-based niche publisher of a range of local and national titles, including West Michigan Woman

Here are some highlights from the conversation.

What’s the outlook for 2017 for West Michigan’s small businesses? COKE: I have an extremely positive outlook for 2017. I think a lot of great things are going to happen here in West Michigan. We just won $1 million dollars in Venture Clash. I think that helps West Michigan because it shows that a little company from here can be a part of something that people in places like New York are taking a look at. I just see a lot of momentum going on, and a lot of positive things. All my friends that are investors and the people I regularly talk with are ramping up for a big year, expanding their efforts. In Chicago, they’re going to double the amount of investment they made last year, so that’s pretty exciting for the Midwest. HARTLINE: The good news is people will still be eating next year. (Laughter.) We’re bullish as well. I think with buying behaviors and See SMALL BUSINESS on page 44

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

SMALL BUSINESS “(I)f there are dynamic, interesting things happening, it will bring in dynamic, interesting people. Those will be people of all walks of life. And as that entrepreneurial community gets younger, those people are interested in having diverse people around them and having things that don’t look like they have in the past.”

SMALL BUSINESS Continued from page 43

the economy being so robust, people are choosing to eat healthier and buy organics, which can be 20 to 100 percent more. But it’s important to them and fortunately with the economy, they’re able to afford that. Even from a beer standpoint, there’s lots of customers in the neighborhood that are buying six-pack craft beers at $12.99. We’re seeing lots of folks trade up into indulgent categories — even in wine. I think the customer is feeling pretty good about things these days. MORIN: With the alignment we’re getting between small business, local business, the city, I feel like we’re in a good place to have some growth. Compared to six or seven years ago, the focus on entrepreneurship and private business ownership — promoting having your own business as an option — has just continued to be elevated. We’re just seeing more focus and emphasis on it. Whether that’s an economic development strategy for the southeast side or for high-tech, high-growth stuff or in the artisanal space, I just feel like there’s more attention. RENO: On the real estate side, we’ve never seen rates like they are. One of my veteran colleagues … said this is the first time he constantly hears $20 per square foot for office. And it just blows his mind. Part of that which I think we’re a little bit leery of is a slowdown — sort of a bubble — and then the issues with parking. There’s only so much we can pack into certain areas, including Bridge Street, because of the tight parking situation.

With the rising rates for offices and other real estate, what challenges do small businesses face? MORIN: I’d say for sure, we’re pricing startups out of downtown. I think that’s one of the challenges. We’re trying to create density (and) startup ecosystems. Our space at Start Garden downtown, when people move out of there, that next step is tough. I also think if you look at some of Downtown Grand Rapids Inc.’s plans … to create business diversity — (beyond) a bunch of ATM machines and law offices — (it’s tough for) markets or artisanal goods. Those are tough businesses to run at $20 per square foot.

Overall, would you consider West Michigan a good place for small businesses to be? How do we stack up nationally? MORIN: If you’re a white guy, yeah. If you’re an African-American, no. I think that’s a big deal for us and we’ve got to work hard to level that playing field. MCCARTY: If there’s one thing that’s not a radar item right now — and it needs to be — diversity in our business needs to be out there. From gender to race to income inequality gaps that exist inside of the city, they are major barriers. And frankly, if you’re on the ground and you listen enough,

— CHRIS REINBOLD, SIX/TEN VENTURES

PHOTO: JEFF HAGE

you hear that people are thinking about it. They’re thinking about where they’re going to be in five, 10 or 15 years, and Grand Rapids is a place where a lot of people don’t feel welcome right now. Get your stuff together. If we’re not taking that seriously as business owners and (determining) how to cross that divide, we may not see the hurt for two or three or five years, but there’s a point in time where we’ll have a reputation tied to us. I don’t think it goes down good for us if we ignore it. REINBOLD: I think that reputation is there already. Forbes named us the worst city in America for African-American professionals. MCCARTY: I would agree that it’s there, but I don’t know that it’s set in to the point that we can’t change the trend or change the stories that come out. You could also go on the other side and say there’s 100 stories that Grand Rapids is like Disneyland. But I think that’s a very serious issue that gets swept to the side a lot more than it should.

What can West Michigan business owners do to address these racial and economic disparities? HILL: One thing we’re doing with our diversity and inclusion council is thinking about it from a lateral hiring standpoint. Where we’ve fallen down in the past from a diversity recruiting standpoint is doing well at law schools and with entry-level hiring. Then they come to the firm and say there’s nobody that looks like me here. Where are my mentors in the community? There may be some, but not enough. So thinking laterally at a high level and not just entry level. When we think about the entrepreneurial opportunities here and a young person wants to come here and start their business, well, where are the mentors? REINBOLD: To me, a lot of this is that the entrepreneurial community and the ones making

things happen in the city are the ones that will lead the charge. And so if there are dynamic, interesting things happening, it will bring in dynamic, interesting people. Those will be people of all walks of life. And as that entrepreneurial community gets younger, those people are interested in having diverse people around them and having things that don’t look like they have in the past. In a lot of ways, the people sitting here are the ones responsible for this. MCCARTY: This isn’t just a Grand Rapids issue, it’s a national issue. … The reality is that if all people looked at it, of course they’d (be more inclusive). But the connection between ‘I should do this’ and doing it, you don’t have anybody giving you any metric to tell if you’re really making a difference.

From conversations with executives, 2016 seems like it was a year of planning for growth. Is next year the time to make new investments or to double down on what you’re already doing? HARTLINE: We’re building store two (in downtown Ada). We found the access to capital readily available and folks courting us. As we look at store three and lay the plans for 2018 — whether it’s downtown, lakeshore, etc. — there’s lots of interest and lots of capital available at pretty great rates. REINBOLD: My MBA friends tell me we’re not nearly leveraged enough. We carry zero debt, so it will be doubling down and organic growth. SMITH: We’re trying to do a bit of both. We don’t carry debt and we’re trying to make investments in new products. It’s doing both at the same time. O’CONNOR: We recently acquired a new warehouse and storage facility. We’ve outgrown what we had here already. We started with a little less production space than we probably needed and

“From gender to race to income inequality gaps that exist inside of the city, they are major barriers. And frankly, if you’re on the ground and you listen enough, you hear that people are thinking about it. They’re thinking about where they’re going to be in five, 10 or 15 years, and Grand Rapids is a place where a lot of people don’t feel welcome right now.” — ROB MCCARTY, THE IMAGE SHOPPE

PHOTO: JEFF HAGE

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

now we’re looking at the long-term prospects for this type of business. You have to put (spirits) away for awhile. We needed a much larger footprint. Unfortunately, it’s in Wyoming because access to warehouse space is pretty much dried up at this point. MORIN: I would say most of the venture capital in the region is going to be following on things it invested in three or four years ago. We had over $20 million in venture capital raised in the first quarter of 2016 by startups, but the majority was by five companies. They’re getting bigger and eating more capital, so I think that’s going to be the trend for the year as far as capital. HILL: We’re moving into more consistent secondstage growth. We started our (MiSpringboard) program in the entrepreneurial space but we’re finding repeat customers. Those clients are very bullish on 2017.

This perception that West Michigan is known for carrying little to no debt, is that a cultural thing that will change over time? COKE: I think new startups are getting smarter about not thinking that instantaneously their job needs to be building a pitch deck and go raise a million dollars, but let’s go build a business. That’s the good side of that, instead of focusing on whether we’re conservative Dutchmen that don’t take loans. There’s a lot of companies … that are understanding that it’s not about how much money you got to start your company. It’s about what you’re actually doing and that the investment should be down the road, not at the onset. I think that’s a great positive. HILL: Where we see interest rates going in 2017 — northward — that’s not going to help in terms of adding more debt load to our business. While Grand Rapids is getting a reputa-

tion as a bad place for African Americans, Detroit is getting its own reputation as a hub for startups and entrepreneurs. What does that cross-state dynamic look like going forward? Is there bridge-building happening or is the divide widening? REINBOLD: To me, I’d say it’s a threat to Grand Rapids. What does a resurgent Detroit mean? People are making buying decisions out of college on what city they want to live in. Is a resurgent Detroit good for Grand Rapids? Obviously, for the state as a whole, it is but we’re in a battle to attract talent and a resurgent Detroit in some ways makes it so we need to make sure we’re stepping up our game in that battle for talent and bringing people to the market and getting people to stay here rather than going to Detroit or Chicago. RENO: If we had to pick a market that comes here, it’s primarily Detroit — just the cold calls or agents calling from Detroit and looking to expand in West Michigan. … And we see those calls for all those markets from Detroit firms expanding. They’re looking to West Michigan as a solid expansion opportunity. REINBOLD: We’ll know we’re doing it right when Visit www.mibiz.com

PHOTO: JEFF HAGE

“Our business isn’t like beer. With beer, there’s the perception that big is bad and you have to be small to make something good. In distilling, it’s the opposite. Traditionally, the big companies make the best stuff. We’ve only been open 18 months so I don’t have eight-year-old products, so I have to make something that’s unique, different or authentic.”

Jan. 20–28, 2017

— JON O’CONNOR, LONG ROAD DISTILLERY

we hear that firms from Grand Rapids and West Michigan are starting to kick ass in Detroit. My friends at Gazelle Sports, they just opened a couple stores in the Detroit area. I’d love to hear the talk that Detroit is sending their things here and Grand Rapids is exporting to Detroit. O’CONNOR: We spend a lot of time in Detroit doing sales. Beer has been so big in West Michigan, the distillery business has taken a while to connect here. We go to Detroit multiple times per month to sell and their willingness to accept change in Detroit, it’s a whole other world over there. They want people who are authentic in what they do and they don’t want you to bullshit them. They know good from bad. Our business isn’t like beer. With beer, there’s the perception that big is bad and you have to be small to make something good. In distilling, it’s the opposite. Traditionally, the big companies make the best stuff. We’ve only been open 18 months so I don’t have eight-year-old products, so I have to make something that’s unique, different or authentic. Or I have to sell a story and not actually make anything. I would say a majority of the distilling market are people who don’t make anything. They’ve caught on to that in Detroit. So we spend an inordinate amount of time there and they appreciate it.

600 square feet outside of San Francisco, all of a sudden Grand Rapids starts to look attractive again. As we start to compete for that talent, I think that will take care of the wage thing. Because even with the startups, I’m not hearing that wages are the biggest issue in terms of them attracting talent. It’s being able to find the talent that’s interested and knows enough about the Midwest to be interested. The opportunity cost is killing them. They can’t grow without them. It will take care of itself if we do the work we need to recruit the talent. HARTLINE: Having lived in Chicago and Connecticut, cost of living plays a huge factor in that dynamic. We’re fortunate — food is fun. We’re able to attract some folks that love food and engaging in the environment. So retention is very, very high. When we announced the Ada location, the phone has been ringing off the hook with folks disenchanted by other chain stores.

h 4, 2017

What’s keeping you up at night? MCCARTY: There’s a lot to be seen over the next 12

Given the talk about talent, it seems that wages have to be part of that discussion. Grand Rapids businesses have historically paid low wages compared to many competitive places. What’s being done to address the wage problem? SMITH: I do think we have a wage problem. But

to 24 months and how things are going to shake out. Obviously, there’s a lot of pent-up dollars trying to hit the street right now and it’ll be interesting to see how that all rolls out between potentially changes in regulations, standards, tax code, whatever it may be. How does that play out over the 12, 24, 36 months? … Another recession, slowdown, or pinch — those are the things I think about. O’CONNOR: From someone that creates something that’s a premium priced product, it’s economic uncertainty. Is discretionary income going to be available to buy a $30 bottle of vodka or a $50 bottle of whiskey? They always say liquor is supposed to be recession proof. (Laughter.)

as a small business who started here, we’re kind of grandfathered into that wage problem in creating our business. We’ve tried to do anything we can. Yes, we’re going to accelerate wages, but what can we do from a culture perspective? We’ve migrated to an unlimited PTO policy for all employees other than part time and completely flexible workspace. Overall, it makes a difference but I still think we have a ways to go. MORIN: People who are tired of paying $3,000 for

the cannabis space, and there’s been some significant changes in what’s been voted in and what could happen here in Michigan and in other places. I’m kind of excited about that. I’m not really in that day-to-day anymore, but it’s exciting to see where it goes. And it’s not just a service industry. There are people growing stuff. n

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Feb. 17–Marc

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HEALTH BIZ

‘LIKE DEFUSING A BOMB’ Affordable Care Act likely to change, but extent and timing remain uncertain

By MARK SANCHEZ | MiBiz msanchez@mibiz.com

o matter whether you love or hate the Patient Protection and Affordable Care Act, what’s become clear is that 2017 will bring major changes to the federal health care reform law. President-elect Donald Tr ump and Republicans controlling Congress have made repealing the law a top priority early in the new year. Nobody knows for sure exactly what will happen, although there’s plenty of belief that popular aspects of the law may remain in place. That includes prohibiting insurers from rejecting coverage for people with pre-existing conditions and allowing adults to stay on their parents’ coverage until they are 26. In post-election interviews, the presidentelect said he favors keeping those parts of the law. Whatever path he and Congress take, the bottom line is there’s no status quo for the ACA. Rick Murdock, the retiring executive director of the Michigan Association of Health Plans, doubts that Congress will get rid of the law entirely. “I don’t think we’ll actually ever have a repeal, per se. I just think that through amendments or revisions, they’ll fundamentally change the ACA,” Murdock said. “At some point, there may be repeal, but it may be a non-issue if you do enough changes along the way.” One potential scenario is that Congress passes a repeal in early 2017 that won’t take effect until 2018 and then spends the year working to fashion some sort of replacement. For the immediate future, anybody who enrolled in coverage through the public health exchange at healthcare.gov during the recent open enrollment period — or in Medicaid under the ACA’s expanded coverage criteria — need not worry about immediately losing coverage early in the new year, Murdock said. “Those decisions are good, so people shouldn’t be concerned or worry about, ‘Well, I’m signing up now, but it’s going to be gone in January.’ That’s not going to happen,” he said.

the importation of drugs. He also said he’d support letting insurers sell policies across state lines. The most contentious parts of the law — such as the mandates that everybody buy coverage or pay an annual penalty, and the requirements for employers with 50 or more full-time equivalent employees to offer health insurance — are likely to get targeted. Repealing the purchase mandate on individuals and employers, however, could prove troublesome if Congress wants to keep the issue guarantee for coverage regardless of a person’s health status or pre-existing condition. An issue guarantee without a purchase mandate would create an insurance risk pool that is financially unsustainable. “They’re creating what people are calling a ‘death spiral,’” Murdock said.

REPEAL AND REPLACE? Outright repeal of the ACA requires 60 votes in the Senate, while budget authorizations for aspects that impact federal spending only require a majority vote. Aspects that could go away through the budget process include the individual and employer mandates, tax credits for individuals and small businesses, Medicaid expansion, an excise tax on medical devices, and the so-called “Cadillac tax” on high-value health plans. The complexity of the ACA makes repeal “extremely complex because the law is sweeping and includes many provisions that go beyond health insurance coverage issues,” according to the November briefing from Center for Healthcare Research and Transformation. Because of the law’s complexity, Small Business Association of Michigan President and CEO Rob Fowler believes Congress will repeal that law “and replace it with something that looks a little bit like it.” He urges the incoming president and Congress to take a methodical approach with well-defined goals to avoid unintended consequences. “This is going to be like defusing a bomb,” Fowler said. “There are certain things that if you don’t do in the right order, you make it a whole lot

worse. To say we’re going to keep the pre-existing conditions and get rid of the individual mandate sets up a disaster.” Fowler also worries that getting rid of subsidies for some people to buy coverage will result in the uninsured rate going up and more shifting of costs by care providers onto the insured to cover the cost of uncompensated care. Fowler hopes that action on the law goes beyond a mere “light show” of quickly getting rid of the unpopular aspects to keep campaign promises. Congress needs to look at the core issue of the cost of care and its impact on the cost of health coverage. “I hope that there is a real effort to look at the issues that drive costs and cost to whom, and in this case I mean the payer of the premium,” Fowler said.

“In my opinion, there are some great parts (of the law) with any time you can say we’re going to cover people with pre-existing conditions and those kinds of things. But any time you have 20,000 pages of rules, for anybody to follow that, it’s pretty difficult to do.”

—PHIL WEAVER CEO, Hope Network

HOPING FOR SIMPLICITY Phil Weaver, the CEO of Grand Rapids-based Hope Network, points to the taxes imposed by the law that have burdened employers. He hopes any changes at least simplify the ACA and the litany of rules and regulations created and enforced by an array of federal agencies. “In my opinion, there are some great parts (of the law) with any time you can say we’re going to cover people with pre-existing conditions and those kinds of things. But any time you have 20,000 pages of rules, for anybody to follow that, it’s pretty difficult to do. We made it almost too difficult to read and understand that it’s impossible — whether it’s an insurance company, or a hospital or a place like Hope Network — to really fully understand all of the implications that happen,” Weaver said. “I’m not an expert on writing law. I would hope we would keep in there that we want to find ways for more efficient services for more individuals in the country and lower the cost, but that’s easy to say and harder to do.” Murdock of the Michigan Association of Health Plans would like to see changes that give more flexibility in buying benefits.

The ACA mandates a list of essential minimum benefits a policy must provide, and the public exchange sells plans based on a tiered system of varying deductibles and co-pays that determined the premium. Murdock envisions providing greater flexibility on what kind of benefits people can purchase. “I could see a scenario where you might have a floor, if you will, and then people just buy up based upon their need,” he said. “Is there a way to develop a less-comprehensive package and provide flexibility for people to buy up for services that may be unique for their situation?” The association, which represents HMOs in the state, does not favor one particular approach to the ACA, Murdock said. Sticking with the MAHP’s long-held mantra, he said members would back “anything that can provide affordable coverage” and “anything that can improve the competitiveness” of insurance markets. “It has to add value to competitiveness and it has to add value to affordable pricing so it can be an attractive thing for consumers,” Murdock said. “When we look at it through those lenses, we have to wait and see what’s coming at us.” n

TARGETING PURCHASE MANDATES In the days following the Nov. 8 president election, the Ann Arbor-based Center for Healthcare Research and Transformation reviewed potential approaches the incoming president and GOP could take regarding the ACA. Among ideas from House Republicans is eliminating the expansion of Medicaid and the public health exchange, shifting Medicaid funding to the states through block grants — a step the incoming president also favors, and allowing greater use of health savings accounts. A House proposal would retain protections for people with preexisting conditions, allow young adults to stay on their parents’ coverage until 26, and prevent health insurers from dropping coverage for people when they get sick, according to the Center for Healthcare Research and Transformation. President-elect Trump has voiced support for making health premiums tax deductible, creating high-risk pools, reducing Medicaid funding while increasing block grants to states, and allowing Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

HEALTH BIZ

Q&A

KENT RIDDLE

upper Midwest right now, and even nationally. The tailwind is really the momentum that we have and the reputation of Mary Free Bed.

CEO Mary Free Bed Rehabilitation Hospital

What’s the biggest headwind you’re facing?

After completing most of a $66.4 million renovation and expansion in 2016, Mary Free Bed Rehabilitation Hospital looks to 2017 as a year to finish the project and to reach out further into new markets in Michigan. Mary Free Bed has five contracts with hospitals in Muskegon, Kalamazoo, Traverse City, Lansing and Pontiac to provide inpatient rehabilitative care. The Grand Rapids-based rehab hospital is “just thriving right now as an institution in every way you can measure” and presently is holding discussions with a half-dozen acute-care hospitals to join its care network, CEO Kent Riddle told MiBiz. What’s ahead for Mary Free Bed in 2017? A lot of things. We’re still expanding outward across the state with our network partners, so both adding network partnerships and also developing joint ventures with different systems around the state in order to lead rehabilitation care for them. That continues and we have a team that’s always on the road doing that. Right now, we have six that are in discussion for potential joint ventures in just inpatient units.

What emerged for you this year that will continue into 2017? We’re continuing the same strategic plan that we’ve had for the last five years. We continue to tweak it every year, but it is basically the same thrust: build up the main campus here as the hub of a rehabilitation system that is in multiple states. We’ve had two hospitals in northern Indiana come to us and ask if we’d be interested in leading rehabilitation care there. So we’re going to continue to move forward with that kind of thing.

What’s playing into your favor for next year? Quite a bit. Our brand is really getting attention all over the

Q&A

MIKE FAAS President and CEO Metro Health

Metro Health enters 2017 as a subsidiary of the University of Michigan Health System after the two closed on an affiliation agreement toward the end of 2016. The deal with the Ann Arbor-based U-M Health System gives Metro Health a partner to expand medical services ranging from primary care to specialties. It also allows Metro Health to better compete in the market. President and CEO Mike Faas told MiBiz he believes the deal is the biggest thing to happen in the local health care market since the 1997 merger of the former Butterworth Hospital and Blodgett Memorial Medical Center that created Spectrum Health, the largest care provider in the region. Now that the deal is closed, what are the top priorities? We’re really building off of what we’ve always been good at. We’re going to start with primary care. We’re going to fill all of the voids that we’ve seen in what we term out-migration. For whatever patients have to leave us for right now, they’re not going to have to. We’ve already identified specialty holes. We’re looking at those and we’re going to build out all of our service lines that we identified over the last two to three years, and some additional ones.

How will this change Metro? Metro will always be Metro, but we aren’t who we were. We’re about to become a major player in West Michigan.

That acute systems are forming around the state and the emphasis is on western medicine: surgery, anesthesia, pharmaceuticals. The headwind is showing them the evidence that a function-based approach like rehabilitation is really the best way to improve patient outcomes and reduce costs. It’s the educational heavy lifting that we’re doing around the state.

What do you see happening to the Affordable Care Act? My sources tell me that never in their lifetime would they have guessed that it would go away. But now they are all saying — and I’m talking about our Washington lawyers and lobbyists — that it is definitely going to go away. I think it’s going to get amended, and probably pretty soon and pretty dramatically.

What would you like to see happen to the law or changed? I’ve actually seen a picture of the law, and it’s about six feet tall. What I would like to see, and the organization would support, is that more people are insured than were before and that people are not cut out of coverage because of pre-existing conditions. The problem with the current act is that it’s become unaffordable. It’s not really an ‘affordable’ care act. It’s an unaffordable care act. If it can be made to become affordable and still carry out its original goals, then that will be a win for everybody.

What’s your advice for how to improve health care in America? There is an overutilization of interventional services in America. Pharmacy, anesthesia, too many surgeries, and good care management and care navigation needs to be put in place so that people can more efficiently and more effectively, outcome-wise, navigate through the health care system. That can dramatically change the equation of how much health care is costing Americans right now. Health care is a mess in the country. It’s too expensive and outcomes are not very good

compared to our peers overseas. It can be fixed with really good care navigation. Interview conducted and condensed by Mark Sanchez. Courtesy photo

What will be the biggest immediate difference in the marketplace? Perspective. Perception of the person on the street once this really hits and the understanding of what this is going to become.

Now that the deal closed, what’s 2017 going to be like for Metro Health? Lots of growth. Substantial change, but good change. And gaining an understanding of living up to the potential that we’ve always had and a wherewithal to make it happen. And more partnerships and more relationships and all of the stuff that has made us who were are. We’ll do even more. We’ll do more community interaction. We’ll be tied to more communities in West Michigan.

You’ve said you want to grow Metro’s physician base. Are you actively in the market to acquire physician practices or form new partnerships? We started two months ago to involve doctors that we haven’t talked with in the last two or three years. (We’re talking about) anything and everything. We don’t need to employ. We’d love to keep every physician independent. We think it’s in the community’s best interests that they can practice everywhere. If patients have a preference, we’re not jealous. We prefer not to get into forcing a patient to go to a certain location. We want to earn that decision by the patient and that family and that doctor. We’ll take our chances with that. We’re looking for doctors that want to align and now have real choice in West Michigan for the first time.

What does becoming part of U-M Health System and the brand it represents do for talent attraction? Will it help lure new specialists to Metro? That’s what I mean when I say we aren’t who we were. We’re about to become what no one thought was possible. The potential in this is what is unknown. All we know is it’s big. The question

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

is how big, and how can we grow this in a fashion that is based in sustainability in the long term because one of the things many organizations do is they grow so fast they can’t operate or implement after the fact.

Is it safe to say you’re looking at this partnership as a transformational change? We’re pretty good at this because we’re grown

and we’ve pushed ourselves for so long. But we never had a partner like this that opened doors. This affiliation with the University of Michigan took the entire exterior walls off of the building. It’s what is not possible is the bigger question. Interview conducted and condensed by Mark Sanchez. Courtesy photo Visit www.mibiz.com

Q&A

MARK EASTBURG

President and CEO Pine Rest Christian Mental Health Services

Pine Rest Christian Mental Health Services plans to pursue new partnerships around the state in 2017. CEO Mark Eastburg wants to create a network of hospitals and care providers that contract with the Grand Rapids-based Pine Rest to provide and manage their behavioral health care services. That strategy follows a model that Mary Free Bed Rehabilitation Hospital has used effectively to reach out from its home base. Pine Rest has 17 outpatient clinics — 15 in West Michigan and two in Iowa — plus inpatient and residential facilities. The nonprofit employs about 1,900 people and serves 45,000 clients annually. What’s your priority for 2017? We’re going to be all about access to care and solving the access problem in West Michigan and the larger Michigan community through partnerships. That is what we see as the best way to fulfill our mission. We’re looking at the news in health care about long waits for behavioral health services. The common theme in all of these headlines is the lack of access to really good behavioral health services. We’re going to be focused on that in the next several years and our intention is to do that through collaborative partnerships.

Who do you see as potential partners? Any organization that is open to that kind of partnership, especially the medical systems in our community. And we have a good relationship with all of them. Our goal is to help them fulfill their mission of providing outstanding care by us coming alongside and adding value to their services and their continuum. Behavioral health needs appear all over the West Michigan community. A lot of times they show up when people are in the medical system, so part of the fulfillment of our mission is to partner with medical systems.

What’s playing into your favor heading into the new year? We have a lot of momentum around our residency program.

We have about 1,200 applicants right now for about 12 slots that we have next year. There’s growing interest in these young professionals coming to West Michigan, training in West Michigan, hopefully living in West Michigan and building a career here. I also see that collaboration in the West Michigan medical system is alive and well, despite maybe conventional wisdom. We’re seeing all sorts of interest in collaboration. So that’s a wind in our sails.

What’s your biggest opportunity? The value-add of digital technology: tele-psychiatry, tele-therapy — access that can really enhance care in between sessions and visits. All of these things can help solve the access problem.

What causes you to worry these days? I lay awake at night worrying about people not getting behavioral health care, thinking about what the obstacles are and trying to solve them. That might mean finding the right kind of collaborative relationships. That might mean having enough clinicians. It might also mean insurance is a big part of that with the changes in the Affordable Care Act, and nobody knows what the implications of that are.

We’re seeing more attention to bringing together medical care and behavioral health. Do you see that accelerating and growing in 2017? That’s going to grow stronger for clinical reasons and financial reasons. When caregivers are talking to each other, when they’re working closely together, when you’re getting people from different specialties caring for people in an integrated way, the patient wins and the community wins. There are a lot of models out there on how to do that well, and we’ll be participating in many of those. There will be only growth on that front — integrating care.

What advice do you have for President-elect Trump and Congress on what to do with the Affordable Care Act? What’s important is to continue to look at behavioral health needs in parity with other medical conditions such as diabetes and heart disease. These needs are real and need to be part of any final solution around coverage that our leaders are developing.

What’s one prediction for 2017? We’re going to see a surge in the amount of care delivered through digital technologies. Increasingly, more and more health care will be digital. Interview conducted and condensed by Mark Sanchez. Courtesy photo

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

RICK BREON

PRESIDENT AND CEO, SPECTRUM HEALTH Grand Rapids

pectrum Health President and CEO Rick Breon expects West Michigan’s economy to stay strong in 2017, although the incoming Trump administration and the fate of the Affordable Care Act adds uncertainty to the year ahead for health care. Breon expects

the new presidential administration “will, on some level, follow through on its campaign promise to repeal and replace the Affordable Care Act.” The big question is when and how that occurs.

Compiled by Mark Sanchez. Courtesy photo

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

Over the past several years, West Michigan has experienced vibrant growth and development, coupled with an unemployment rate lower than the national average and an increase in investment and jobs creation. I believe the economy will continue to be strong in the coming year. But those of us in the health care industry know that forecasting is a complex proposition, certain to be heavily influenced by the new presidential administration and any possible regulatory changes. Additionally, there are many unknowns as we prepare for 2017. Issues that are top of mind for the new administration, legislators and the public are also top of mind for us: insuring our population, ensuring access to health care, providing transparency on pricing and meeting the demands of our consumers. Visit www.mibiz.com

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For trusted advice, Steve banks on one local bank. A busy manufacturer of protective metal finishings, Controlled Plating Technologies needed to automate their plating line to take their business to the next level. Thankfully, they found a banking partner who not only helped them with financing, but also gave them valuable insight for steady growth. “With big banks, your banker comes with a revolving door. It’s difficult to create a relationship,” Steve said. “Dustin at First National Bank of Michigan is a trusted advisor. He has a solid understanding of our people and our business, and I know I can count on him.”

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

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DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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LAURA APPEL

SENIOR VICE PRESIDENT AND CHIEF INNOVATION OFFICER, MICHIGAN HEALTH & HOSPITAL ASSOCIATION Lansing

ealth care moves into a period of uncertainty next year, with the Patient Protection and Affordable Care Act facing repeal or replacement under incoming President-elect Donald Trump, who takes office along with a Republican-controlled Congress.

Enactment of the ACA meant that starting in 2010, Michigan hospitals would forgo $7 billion over a decade in Medicaid and Medicare payments from the federal government in exchange for expanded coverage, said Laura Appel, senior vice president and chief innovation officer at the Michigan Health & Hospital Association. Appel expects the coming debate over the ACA to dominate health care in 2017.

Compiled by Mark Sanchez. MiBiz File Photo.

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The new threat to health care funding with the challenge of continuing the coverage expansion of the Affordable Care Act could significantly change the outlook for health care. The Healthy Michigan Plan (Michigan’s expanded Medicaid program) carries an appropriation of just over $4 billion annually. In addition, Michigan residents receive an estimated $769 million in annual tax credits for the purchase of health care benefits and insurance through Michigan’s federally-facilitated ACA marketplace. That has a sizable, positive economic impact. Ending or reducing these amounts is equally likely to have a sizable, negative economic impact. ACA changes won’t happen in the first few months of 2017, but as the uncertainty grows, health care systems will need to adjust their outlook to accommodate for a wide variety of potential scenarios. Our concern is expansion could be lost, yet hospitals will continue to pay for coverage that doesn’t exist. It is a financial risk that is not yet quantified.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

HEALTH BIZ

Q&A

PHIL WEAVER CEO Hope Network

and those people are performing exceptionally well. We’re all learning that individuals, no matter their background, sometimes when you give them a chance, they exceed your expectations.

What’s new for Hope Network in 2017? Hope Network CEO Phil Weaver expects a “great year” for the Michigan and U.S. economies in 2017, although he worries about uncertainty created by the likely repeal of the Affordable Care Act or significant changes that may occur to the program. The Grand Rapids-based Hope Network provides neuro-rehabilitation for people with brain injuries, behavioral health care, and services and housing for people with a developmental disability. Hope Network employs about 2,800 people statewide and has an annual operating budget of about $140 million. What do you see the economy doing next year? I’m actually very optimistic about next year for a lot of reasons. I do think the economy is going to continue to do well, and particularly West Michigan is going to continue to rise. I also think the whole state of Michigan is going to continue to tremendously rise. I’ve been in Detroit a couple times in the last few months with some business leaders, and I have to tell you, they’re turning around over there, too. The opportunities are going to be tremendous and we’re going to have a great year, not only for the state and West Michigan but for the country.

Presuming the outlooks are correct, how does the economy remaining in good shape play into your favor? My opinion has always been that the stronger the economy, the more people can work and the more opportunities for the people that we serve. As that continues, we’re getting a lot more traction, as an example, for our ex-offender (job training) programs and our immigrant programs. When you have an ex-offender, back in 2008 and 2009 when everything was falling apart, nobody wanted to look at anybody except for the perfect candidate. Now they’re giving people an opportunity

Three months ago I had a better idea. Since the presidential election, we don’t know where health care is going. I don’t think anybody can put their finger on that. We’re feeling the landscape very carefully because we want to know where health care is going. We really believe in integrated health care, where people — whatever their abilities are, whether they have a mental health issue or a developmental disability or other issue — need to get better health care and at lower cost. Integrating health care is a way to do that. So we think that’s the future of where we’re going to be expanding.

What emerged in 2016 that you’ll have to continue dealing with next year? In Michigan, there’s this language that was put in the (mental health) budget last year, which talked about how things are going to change. We don’t know where that’s going — in the same way we don’t know about the Affordable Care Act — but that’s made an impact with our decisions this last year. We didn’t know where some of the things were going, so we didn’t make some of the investments we potentially could have made.

How does that affect decision making for 2017? We’re still not making some investments in new programs and new things because we don’t know if they’re going to be needed or accepted in the future, so we’re trying to evaluate that. Any time financing models change for nonprofits and the services that we do, whether it’s mental health or whatever, that concerns us.

What keeps a nonprofit CEO up at night these days? The problem of finding qualified staff that can do the work that we do. We’re not the highest paying organization in West Michigan and we have staff in the nonprofit world we don’t pay as much, generally. That does impact our opportunity to grow and I worry about that. We worry about not finding the right staff and a staff that has a passion for this work. It’s not much different than any other CEO in any other organization. I worry about the same things they worry about.

What would surprise you in 2017? The biggest surprise is going to be what the Trump administration does or doesn’t do. Right now, a lot of people are excited about his economic policies. … ‘He’s going to cut tax rates and he’s going to do this and this and this.’ It all sounds great, and I understand what he’s trying to do — and, by the way, I’m encouraged by it — but it’s getting it through the people that are in Washington, D.C., that worries me. The surprise will be if he gets everything he wants to do.

Interview conducted and condensed by Mark Sanchez. Courtesy photo

Now Departing: 2016. From new construction and governance, to new airline routes and a new CEO. Thanks for taking the journey with us in 2016. Stay tuned as we keep spreading our wings with more exciting news to come in 2017! 54

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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FINANCE

Q&A

KELLY POTES

President and CEO ChoiceOne Financial Services Inc.

Kelly Potes took over in June as CEO at ChoiceOne Financial Services Inc., the parent company of ChoiceOne Bank, adding to his duties as president. During 2016, ChoiceOne Bank opened a lending office in downtown Grand Rapids and may follow up in the future with a full-service branch. The Sparta-based ChoiceOne has 12 offices in rural Kent, Ottawa, Muskegon and Newaygo counties with total assets of $598.6 million as of Sept. 30. How’s business holding up as we close out 2016 and look ahead to the new year? For the first three quarters of the year, it’s been very good for our bank. We had both loan and deposit growth over that time, and in the third quarter, we had record earnings. We’re seeing good loan demand, especially out of the Grand Rapids office we opened in March. It should be a solid year.

What are some of the issues that emerged this year that could continue in 2017? Just the general increase in business. The recovery that we’ve had since 2009 has been steady, but it’s been slow. I think that is something that looks like it will continue, just kind of that slow growth. Grand Rapids and the Grand Rapids area is one of the more highgrowth markets in Michigan and in the Midwest, and we would expect that to continue.

For your industry, do you expect to see changes in the regulatory environment with the new Trump administration?

If the president-elect were to call and ask for advice on how to make things better, what would you tell him? I would say anything he can do to help working families. Lower taxes for working-class families and some help on the regulatory front would be good, especially for community banks.

How’s business lending changing in terms of what borrowers need moving into next year? Very similar to what we’ve seen through 2016, it’s generally been throughout the economy. We’re seeing it in construction and expansion opportunities and in purchasing businesses. The industry’s looking for much of the same in ’17 and I think that’s what we’ll see going forward on the commercial side.

There are a lot of expectations that interest rates are going up next year. How will that affect your bank? We feel as though it shouldn’t change things too much because we think they’ll be measured increases. If the Fed decides to raise rates, it will be because there’s strength in the economy to handle a rate increase. We don’t really think that should affect demand too much.

What’s your biggest opportunity in 2017? To continue to grow in our markets that we serve, particularly the new office in Grand Rapids. There will be continued growth in that market.

What’s your biggest challenge? The regulatory environment is one of the biggest challenges. Other than that, it’s staying ahead of and moving along with the technological improvements and some of the things that are coming out in the baking space. You have to try to anticipate what is going to be the next thing that our clients want. There’s a lot to choose from out there so you have to pick and choose to see what do you think will have the most impact and will be the most beneficial to our clients.

When we talk again in a year, what do you think you’ll be telling me? We’ll still be wondering when the next rate increase will be. Interview conducted and condensed by Mark Sanchez. Courtesy photo

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At this point, it’s a wait-and-see approach. We’ll see as the president-elect picks the rest of his cabinet and who he may appoint to those regulatory posts if there’s a change. But I would say that the trend that we’ve been seeing is there’s a little bit more tiered regulation where community banks are sometimes not required to

meet some of the same requirements as some of the larger banks — that would be those banks of $10 billion and over — because they get involved in a lot of different types of banking at that level that community banks don’t. There’s been a trend that way and we hope to see that continue.

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

FINANCE

Q&A

MIKE MANICA President and CEO United Bank of Michigan

United Bank of Michigan President and CEO Michael Manica believes the economy was already on track for a good year in 2017. But the election of Donald Trump as president and his pro-business policies should boost the U.S. and the West Michigan economies higher, Manica said. A slowgrowth economy that continues “without any signs to become considerably more vibrant” would surprise Manica in 2017. The Grand Rapids-based United Bank has 12 offices in West Michigan — six in Kent County, four in Allegan County and one each in Ionia County and Ottawa County, where a Jenison branch opened earlier this year. The bank had total assets of $596.2 million as of Sept. 30, up 15.8 percent from a year earlier, and deposits totaling $444.4 million, a 10-percent increase. What do you see ahead in 2017 with the incoming presidential administration? I believe West Michigan is going to thrive. I believed it was going to thrive regardless of the political outcome. And I view these things in nuances of gray, rather than seismic shifts, that the nuance will be from regulation of business and dividing up a smaller economic pie to one that believes more in growth and dividing up a larger pie. By (enacting) tax reform and regulatory reform, at least in the banking industry, while I think ’17 was going to be pretty good, it has a chance of making it a very good year.

What policies would you expect to see change? We’ll see some, at least, political moves to try to lessen the impact of things like (the Dodd–Frank Wall Street Reform and Consumer Protection Act passed by Congress in 2010 following the 2008 financial crisis) and the CFPB (Consumer Financial Protection Bureau) and a lot of regulatory things in health care. I don’t view these things as ‘it was, and then it wasn’t,’ but there will be a bent toward probusiness, and I think essentially we’re going to put a sign out that the United States and Michigan in general are open for business.

What kind of momentum does your bank have as you close 2016 and prepare for 2017? We really started ’16 a little on the slow side, as far as growth would go, and then it started to build toward the end of the first quarter. Now our growth is outstanding, and we look for ’17 to continue that. I see no really dark clouds on the horizon.

Even if there are no dark clouds, what are some of the concerns you have? I suppose a couple of economists that are more astute than I might say is it possible we are running out of quality workers. Do we have enough on the sidelines or can we lower the amount of (people) not being part of the labor force (by getting them) to join in? I don’t think just the growth of our area is going to be enough to fill all of the jobs that are potentially going to be created.

Do you share the view that 2017 is finally the year for higher interest rates? I believe this slight trend toward more favorability to business has the potential over time — not right away, of course — to get us more up into that 2.5, 3.5 percent area (for GDP growth), and that will be a really good situation for us to be in in West Michigan. However, it will come along with a rising rate environment for sure. We’ve had a very flat environment for the last six years, and I think we will have a modestly increasing rate environment probably for the next couple of years. I really don’t think the Fed is going to go aggressive. They’ll want to see some growth first and see just what the economy’s doing. I don’t think they’re willing to move rates up dramatically just because Trump is going to be inaugurated as president. They’ll want to see the effect of his policies.

How will that impact your bank? I see a very modest effect in the short run. It depends how much our deposit costs would go up. I don’t think it’s going to slow the momentum, at least the first couple of increases, of the growth that’s out there. There’s still a fair amount of liquidity in banks across West Michigan, so it all is going to depend on when the deposit rates start to go up. That’s a real question mark at this point.

What advice would you have for the incoming president? I would like to see some movement on fixing some of the most egregious aspects of Dodd-Frank and some of the capital issues.

If you want banking to provide the blood to move the engine of growth, you have to loosen some of those restrictions. I think the CFPB has been generally bad for banking across the board, and we need to have something that has reasonable regulatory control there, not one with a czar in charge and answerable to essentially no one. That’s needs to be addressed.

What worries a bank CEO these days? One of the big ones — and it’s very hard to get your hands around — is cyber-security. It seems that almost regardless of the controls and the money in the technology that you spend there, there are some very, very smart people working 24 hours, seven days a week to try to get inside of our systems and steal. That is a very major concern.

What’s one bold prediction for 2017? A 3.5-percent growth rate. Interview conducted and condensed by Mark Sanchez. Courtesy photo

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JOHN IRWIN WEST MICHIGAN PRESIDENT, HUNTINGTON BANK Grand Rapids

untington National Bank’s West Michigan president, John Irwin, sees more certainty and confidence in the marketplace following the November presidential election. He expects West Michigan’s economy to continue rolling along in 2017.

According to Irwin, among business leaders he speaks with, “everyone’s hopeful about the future and what’s going to happen here with this administration” of President-elect Donald Trump and the potential for lower business taxes. They’re also bullish on the prospects to roll back federal regulations on business. Irwin also doubts that higher interest rates will alter the course of the economy.

Compiled by Mark Sanchez. MiBiz File Photo.

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I think we’re going to continue to see growth and expansion. You talk to the companies that are located here, they’re optimistic about next year and what that means. The real issue I hear from business owners is the talent pool. We have a 3 percent unemployment rate. Getting people to fill jobs, whether it’s in the skilled trades or manufacturing, that is a problem and that impacts companies’ ability to expand in the future, especially in West Michigan. … Everyone talks about the impact of rising rates on the economy, but the Fed raised it because they think the economy is going to be strong enough to sustain it, and the economists that I’ve read think there’s a lot of movement in rates upward without any stifling effect on the economy. Rates have been artificially low for years and years and years, and a 25-percent, 50-percent, even a 100-percent increase in rates isn’t going to detract at these low levels from the capital investments that people are going to make.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

ECONOMIC DEVELOPMENT

Q&A

BIRGIT KLOHS President and CEO The Right Place Inc.

In 2016, The Right Place Inc. attracted $240.6 million in new capital investment through 19 projects across West Michigan. Although the Grand Rapids-based economic development organization fell short of its three-year goals for jobs and payroll growth, President and CEO Birgit Klohs remains optimistic about Michigan’s economy. Klohs expects to attract more high-tech jobs and industries to the state while continuing to work with companies to find available talent in the region. Klohs discussed with MiBiz some of the issues that West Michigan employers and economic development professionals will face in the coming year. What’s your take on President-elect Trump getting involved in state-level economic development with Carrier Corp. in Indiana? One-off economic development is not a good idea. I appreciate his passion for attracting and retaining jobs, but we have never had in the United States an overarching industrial development policy. Personally, this is an editorial comment from Birgit Klohs: I don’t think in a country this large, with 50 very diverse states, that that would ever work. To me, economic development is a state (and) local policy issue.

What’s the concern with doing economic development on a case-by-case basis? Every time somebody wants a big pile of money for incentives, let’s just threaten we’re moving to China and we’ll give you a boatload of money. This is not the way to do economic development. There needs to be a strategy through state organizations like the MEDC and organizations like The Right Place at the local level.

Can companies in Michigan expect any new incentive programs from the Michigan Economic Development Corp. next year? The Business Leaders for Michigan, in a coalition with economic

development organizations, proposed a new incentive program for large projects, and unfortunately it died in lame duck. We’re all very upset, but the Speaker of the House would not let it come to a vote. That was beyond disappointing. We still have to compete and the same thing happened with brownfield tax credits that we tried to get reinstalled. The TIF reform died as well.

So businesses shouldn’t count on new incentives next year? We have all year to try, but until we know the stance of some of our newly elected officials, there is nothing I can comment on. Every time we do this, our competitors win and the people of Michigan lose.

The MEDC got its budget slashed last year. What happens if it gets cut further? Does it put more pressure on your organization? It does. We’ve been here for 31 years, Southwest Michigan First has been here for how many years, and Saginaw Futures has been there for 30 years. We carry our load. But the idea that because we exist negates the need for a statewide economic development organization is folly. Every state has an economic development organization, a statewide umbrella organization. This is a very symbiotic and very collaborative relationship. We need each other, and you can’t eliminate a state agency.

Looking ahead to 2017, what’s keeping you up at night? How do we compete against states like Mississippi, Louisiana, Arkansas, Texas and the Carolinas where there is never an argument over do we have economic development at a state or local level? We do have a much better business climate in Michigan than we did several years ago. However, when the state of Mississippi throws hundreds of millions of dollars at $6 billion of new investment, how do we compete? That’s the question. Yet, we have folks in the state who would like to unilaterally disarm (economic development). Some think it’s picking winners and losers. I call it competing.

West Michigan businesses are struggling with the availability of talent and a lack of buildings. When you’re courting companies to come here, how do you get around those two challenges? It all depends on the company and what they’re looking for. Not everyone looks for a building, but yes, building inventory across

the state is very low. However, we’ve managed our way through it. Some companies locally have built new facilities, which opens up an old facility. On the talent side … our unemployment rate is low, but we also have unemployment rates in some parts of our region that are fairly high where people need to be retrained. The DiCastal folks went up to Greenville because there’s a good community college and a labor force that was available. We’re still managing, but I would agree it’s very tight.

Most businesses seem to be in a wait-and-see mode with regards to the incoming administration. How does that impact your operations? We’re in the same boat. Until we know what the new rules are, we’re seeing people with the same wait-and-see-attitude. It makes our job tougher because we have a bunch of projects in the pipeline, which you hope to get through the pipeline, and then it’s like, ‘Let me wait.’ Interview conducted and condensed by John Wiegand. MiBiz file photo

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Q&A

RON KITCHENS

CEO Southwest Michigan First

Talent will continue to reign as the top issue Southwest Michigan First needs to tackle in 2017, according to CEO Ron Kitchens. He believes that the future of communities will depend on their ability to attract and retain Generation X and Millennial workers. To do that, his organization plans to integrate some of its employees into universities around the region, advocate for affordable downtown housing and promote an “open culture,” he said. Kitchens spoke with MiBiz about how economic developers’ jobs are shifting to focus on talent. What issues are top of mind for economic developers going into 2017? There is shortage of talent from an employer’s standpoint at every level. It’s not uncommon to see shortages of talent and people in certain key areas, but we’re seeing a shortage of management folks, on the assembly line, really every wage level. That’s not going to get better organically. The fact is we’re going to see a lot of people retire.

Is this problem particularly acute for Michigan? We in this state lost more than just jobs and economic viability in the (economic downturn), we lost a whole generation of people and they’re not here now to step into those promotable roles in organizations. Our dependency on Generation X and Y is far greater than other regions around the country. We have to develop strategies around

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holding ourselves accountable as a region to what it takes to accelerate the leadership, development, attraction and retention of Generation X and Millennials.

What are some of those strategies? It’s internships. We’re moving forward to actually put our staff people on campus on a daily basis (to) serve as mentors and concierges. Universities do a great job of preparing students for the workforce, but they don’t have the relationships we have in knowing how to connect them into the workforce. The data is pretty clear that the students who work in internships and have relationships with employers while in college have a far greater chance of staying in your community, and a far greater chance of having jobs immediately upon graduation.

How has that trend influenced economic development? We have to ensure that we are ‘sticky’ to college graduates and millennials. That means something much different for the previous generation than it does now. (It’s an) open culture that allows people to participate at all age levels. We’re committing a large cohort of millennials who are in the community and are active to partner with them on developing strategies for public infrastructure on what it takes to be sticky for those groups. It really is much more than ‘let’s go put up a factory on the edge of town and people will come to work.’ People have much more information and freedom of movement than they’ve ever had. The number one indicator of future success of places is their ability to grow and retain next-generation workers.

How big of a role will developing downtown living play in your strategy going forward? If you were to ask me five years ago what we’re doing for downtown urban growth, I’d say that’s not what

we do. (Now) we’re neck-deep in downtown and significant transformational projects, particularly around housing, because it’s that millennial issue. If we want to become sticky to next-generation residents, then we’ve got to create housing that’s market-rate but entry-level and affordable.

Some people have been talking about forming a medical device hub in Southwest Michigan. Is that on your radar and is that viable? Absolutely. We moved the Southwest Michigan Innovation Center to be managed by the Western Michigan University medical school so we could create stronger collaborations. Western’s new product design program is a collaboration of design, medicine, art, business and engineering with the idea of developing products that meet

the needs of the market and community. Where Kalamazoo and Southwest Michigan thrive on medical device is on those consumer, humanbased products.

Does having a president-elect that dabbles in economic development make your job harder? It’s already a hard job. I never get to make the rules of the game, I just get to play in it. I wish his rhetoric was kinder. I don’t like bullies and some days he’s clearly a bully. But I really love the fact that we have a president (elect) that says jobs are the most important thing. We’re going to find a way to adjust and win. Interview conducted and condensed by John Wiegand. Courtesy photo

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

ECONOMIC DEVELOPMENT

Q&A

DEAN WHITTAKER President Whittaker Associates Inc.

While Michigan economic developers have long focused on attracting businesses to the state, Dean Whittaker believes those organizations will increasingly need to focus instead on talent attraction. The president of Holland-based Whittaker Associates Inc. spoke to MiBiz about how a lack of available talent could affect companies and what’s being done to attract more workers to Michigan. What are some key issues that economic developers will face in 2017? What I see right now is a concern over the staffing of companies, specifically the attraction of talent and being able to fill the positions available. From an economic development point of view, it’s kind of an interesting quandary because normally they’re out trying to attract companies to move here, and now I think the strategy is going to be how do we attract people. One of the challenges with that is we need to have companies here rethink how they approach employees and talent. In the past, the company had the power. What’s happening with the talent shortage is the power has shifted over to the employee side of the table. Now, it’s ‘why would I want to work with your company’ not ‘do you have a job for me?’

What can economic developers do to address these talent issues? We’ve designed a system recently to help Start Garden be

Q&A

PAUL ISELY

Associate dean and professor of economics Seidman College of Business at Grand Valley State University

When it comes to the economy in 2017, Grand Valley State University’s Paul Isely largely expects business as usual. However, the associate dean and professor of economics at the Seidman College of Business notes that rising wage pressures on businesses may start pulling the economy into a recession in 2018. While he expects the economy to remain robust, Isely told MiBiz he worries what the incoming presidential administration’s trade and immigration policies could do to businesses in West Michigan in 2017 and beyond. What top trends are you tracking going into next year? We have a couple political things. Certainly, any amount of a trade war, trade restrictions or immigration restrictions would disproportionately affect West Michigan in a negative way. The other political thing that seems to be lined up is some rollback on regulation. To the extent that regulation might be stretched too far, that might be a good thing for growth. I think for me, (another) is going to be how we see changes in wages really start to affect (businesses) in the first half of the year. I’m already having businesses tell me that their employment growth projections for next year are below what they were for this year. That’s the first time they told me that at this time of year. Part of that is the increase in compensation costs.

Can you elaborate more on the effects of wage pressure, particularly as companies struggle to find talent? Wages are certainly going to continue to grow, and grow faster than productivity. There’s constraints there in getting people trained into

able to attract talent for their startup companies to fill some of the I.T. positions that have been difficult to fill. We’ve designed a system that will identify where the pockets of talent are and then start a social media marketing campaign that targets those geographic areas for people from West Michigan that have moved to those areas, such as California, and are at a stage in their life where it may be attractive to move back to West Michigan. For example, you’ve had your second child, you’re in a small apartment and found that you can’t afford a house in California, particularly Silicon Valley. You have to move farther out to find housing you can afford, so then you’re commuting an hour and a half each way. There’s just a quality of life issue.

Are there really that many Michigan expats living in California who are ready to move back? We don’t know yet. What we’re proposing right now is a pilot project to find out, and that’s the best way to learn. We won’t know until we try. It may turn out to be that there might not be that many people from West Michigan who live there, but there’s people out there who may find the Midwest lifestyle a preference to what they’re experiencing in the high-cost location in California.

Many companies are automating to resolve the talent issue. What impact could that have on workers? I’m concerned that we’re about to chop off the bottom four rungs of the employment ladder. It’s already been happening. As we automate more and more of our operations, there’s a lower and lower demand for low-skilled (workers). There will always be a demand at some level, but the question is at what cost. At what wage rate are you going to be able to work in order to earn a living?

Interview conducted and condensed by John Wiegand. Courtesy photo

jobs, and getting people experienced in jobs isn’t going to keep up with what’s happening. You’re paying much faster than inflation for the same skill level. That’s going to accelerate into next year and particularly in areas that are in higher competition.

How does that translate into hiring? When I talk to the firms here in West Michigan, they’re really looking at a substantially lower growth rate for employment next year compared to this year. They’re not seeing a drop off in sales. They’re seeing a drop off in employment, which means employees have gotten expensive enough that you’re going to start substituting capital — a machine, a computer, a robot — so that you have to use fewer workers.

We’ve talked for the last couple years about how the economic recovery is getting long in the tooth. Are there any indications that 2017 could yield some sort of downturn? Right now, the thing that seems like it’s going to pull us back is going to be wages, and it hasn’t accelerated enough yet to do that. Having said that, as we head into 2018, between the beginning of 2018 and the end of 2019, the probability for a recession will continue to increase and really start to get higher. I would really be surprised if something happened this year, unless it was induced by a substantial political shock, which I don’t think will happen but is possible. Or, a substantial commodity shock, which I don’t think is going to happen, but it could.

Do you have any insight into the commodities market moving into 2017? Again, this is the political question. To some extent, the strength of the U.S. dollar is helping our perception of the cost of commodities because it’s disguising some of the strength that’s there in commodities. We’re not seeing the increases in prices. They’re being offset by the increases in the dollar that we’re purchasing them with. As we look at the energy sector, we’re going to see an elevated trading band compared to last year, but not severely elevated. There’s nothing in the current modeling that would suggest greater than $60 (per

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

barrel of oil) for anything more than short stretches. When we look at metals and things like that, at this point we’re looking at sales growth well within what we’ve seen these last few years. Right now, at the pace that we’re seeing, I think for some of the base metals we may start to see some firmness.

What’s your take on how Trump’s administration is shaping up? Right now, short run, it’s going to be bad for business because of the level of uncertainty people have. People are really worried about what things will get changed and how things will get changed. When people are worried,

they cut back on investment and hold back on how they’re deploying their capital. The long run, that starts to be an issue of some of the possible permutations of tax changes, some of the regulatory changes they’re talking about. Some of those types of changes would be good for business. The harshness of the trade issues and some of the choices to try and maintain jobs, which may not be efficient here in the U.S., could lead to less growth. I don’t know which of those effects are bigger yet because I don’t know which one he’s going to push harder. Interview conducted and condensed by John Wiegand. Courtesy photo Visit www.mibiz.com

STEVE ARWOOD

CEO, MICHIGAN ECONOMIC DEVELOPMENT CORP. Lansing

teve Arwood hopes to double down on Michigan’s talent attraction and retention efforts in 2017. The CEO of Lansingbased Michigan Economic Development Corp. sees the demand for skilled workers all over the state and hopes that

his organization can help to create an effective talent pipeline. Moreover, the MEDC sees itself playing a large-scale role in the state’s development of high-technology transportation.

Compiled by Nick Manes. Courtesy photo

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Since December 2010, Michigan has added over 480,000 privatesector jobs. Because of the dynamic economic growth and private investment of the last five years, there is an ever-increasing demand for talent, including high-paying jobs and skilled-trades work. While there is a talent shortage, Michigan ranks first in the U.S. in the concentration of industrial designers and engineers. We will continue to deploy efforts to retain this talent in Michigan. 2017 will be a year where we give strong focus to our vocational education programs at the high school level and market to parents and students that great careers are available across the entire economy for those that wish to pursue high-value career-ready skills. … In late November, we held a formal groundbreaking at the American Center for Mobility (in Willow Run), which will serve as a state-of-the-art global center for testing, education and product development for connected and automated vehicles. All of these areas will see further advances in 2017. Our goal is to remain the clear global leader in this area.

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

JENNIFER OWENS PRESIDENT, LAKESHORE ADVANTAGE Zeeland

ike many economic development leaders, Jennifer Owens of Lakeshore Advantage says talent concerns remain a key issue for businesses in 2017. Aside from attracting outside businesses, the organization primarily will focus on training, recruiting and retaining talent next year,

she said. To do that, Lakeshore Advantage is pushing a campaign that promotes the region’s leisure opportunities as a way to attract workers. Owens told MiBiz to expect accelerated growth from manufacturers of automation equipment in the coming year and said she’s also “very bullish” on the food processing sector.

Compiled by John Wiegand. Courtesy photo

We are seeing a significant expansion in the food processing sector. … It really ties in well to our economy because we have a strong agriculture sector here locally. Not only can we process the product, but there’s access to a wide range of raw materials to make those products. … For our organization, we certainly respond to business attraction opportunities that come our way and do all we can to support and move those opportunities forward. But the resources we would have put into business attraction in past years when the economy was sluggish are now being redeployed to talent attraction. We recognize that having an unemployment rate of less than 3 percent is a great thing for our economy as a whole, but it also would make it very challenging for a major new employer to expand. We think that the most important thing we can do is to attract new workers here and help our existing companies continue to grow. 64

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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and having just started this, we don’t have a lot of history or data to have metrics on how much can they sell. So it will be an increase. I’d guess we’d add another 1,000 acres.

Byron Center-based Pilot Malt House LLC, a supplier of malted grains to the beer and distillery industry, has experienced only growth since its founding in 2012. In that time, the company has expanded from 10 acres to 3,000 acres of barley and could break the 4,000-acre mark in 2017. Earlier this year, Pilot Malt signed a deal with ingredient supplier Country Malt Group to have its products distributed nationwide, which could open new possibilities for continued growth, according to founder and President Erik May. He told MiBiz he’s bullish on the craft beer and distilling industries, even as some signs of weakness emerge.

You’ve talked previously about the difficulty Pilot had in signing up farmers to grow barley when you launched because you were new and couldn’t match the prices they were getting for other commodities. How has that situation changed?

What does 2017 look like for Pilot Malt?

We’re in the crossroads that I think all companies are as they move from one stage to the next. … The difficulty is knowing which category of money to go find. Private investment isn’t really geared for a company like us. We’ve grown thus far pretty organically. The negative of the way we operate is we buy all of our raw material once a year. That sucks in most ways, so I try to look at it in a positive in that it frees us up for the rest of the year to grow some cash. It is what it is — it’s just the nuance of our business.

I hope more of the same. As we sit down in the last few weeks and really try to project what our 2017 looks like, it’s such a roll of the dice. The game changer for us is the Country Malt deal. More than anything else, the logistical side of that is going to help us greatly. For us, it’s going to be finding more farmers and growing our supply chain and then growing the customer base.

What industry shifts have you noticed taking shape that could affect next year? What’s really been surprising is we built ourselves on being the local option, and what I’ve found in the last couple of years is the definition of local (has shifted) to mean that you just know who you’re buying from. Geography is secondary. For us, it’s been really cool. We’re selling all over the country now. That’s where Country Malt really helps us get our product to places that aren’t nearby.

With the new distribution, do you look to develop any new markets? We’re looking at doing some acreage in other states and selling it back to them. Northern Indiana is a good market and Wisconsin may be.

What are your plans for acreage in Michigan? We’ll do more. We haven’t nailed down our plans for next year. A lot of it hinges on how much throughput we get with Country Malt, Visit www.mibiz.com

Corn and soybean prices dove, which is bad for a lot of people, but good for us. It’s a lot easier sell (to get farmers to grow barley), and now there’s some traction, some history. Our first growing year was 2012 and we had one grower grow 10 acres for us. This year, we had over 3,000 acres. At this point, we’re sort of turning away farmers because we can’t afford it, really. That’s a big change.

February 3 - February 4, 2017 EPIC THEATRE • DOWNTOWN KALAMAZOO

This free event will feature new plays by local playwrights, performed and directed as staged readings by local actors and directors representing the member theatres of Theatre Kalamazoo.

P L AY I N G J A N U A R Y & F E B R U A R Y:

SYLVIA

January 13 - January 28

DETROIT 67

January 26 - January 29

WOMEN OF LOCKERBIE January 27 - February 12

How’s access to capital in your industry, given the track record for growth?

SIDE SHOW

January 27 - February 12

THE TOXIC AVENGER February 3 - February 19

SENIOR PERFORMANCE SERIES February 9 - February 12

WATER BY THE SPOONFUL February 10 - February 19

ANNIE

As you sit today, looking ahead, what are your concerns for 2017?

February 16

I think it seems like there’s a little bit of panic — and that maybe is not the right word because it seems extreme — with Stone (Brewing Co.) having laid off people and (the growth in) beer sales having dipped. I’ve been asked questions for years now about the bubble here in Michigan and beyond. The way I’ve always answered is that the weak swimmers are going to die off, but that doesn’t make sense when you have Stone laying people off. That’s a confusing move. I think there’s some level of panic on what is the cause of that. Are they just too overhead-heavy? Everybody hopes that.

Interview conducted and condensed by Joe Boomgaard. MiBiz file photo

A RAISIN IN THE SUN February 23 - February 26

GODSPELL

February 24 - February 26

Check out what’s happening on the many stages of Kalamazoo!

w w w .t h eat r ek al am azoo.c om

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

ANDY SIETSEMA OWNER, SIETSEMA CIDER LLC Ada

he expansion in the hard cider market cooled last year, with the industry growing just 10.8 percent — a far cry from the 71 percent reported in the prior period, according to market research firm Nielsen. But Andy Sietsema takes those national

market trends with a grain of salt, largely because they don’t count craft cideries like Sietsema Cider LLC in their research. “Sales out of our place were up 23.5 percent through this fall,” he said, noting that he also hopes to add two new distribution markets in 2017. According to Sietsema, “constant education” remains a key factor in the industry’s continued growth, even if it’s at a more sustainable rate.

Compiled by Joe Boomgaard. Photo by Katy Batdorff

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

Next year is going to be good. Nielsen says cider sales are down, but what’s off is Angry Orchard and the big boy’s sales, and they own 80 percent of the market. The reason the big boys are down, in my opinion, is because the consumer is getting educated and not drinking the sweet stuff. Everything craft is still up. Craft anything, and especially craft beer, is going to keep going up, especially because the economy’s looking great. People keep asking me if the market is going to get too saturated, but I don’t see anything stopping anytime soon. There’s a lot of new cideries that are still finding their way. It’s easy to go from zero to 1,000 gallons, but it’s really hard to go from 5,000 gallons to the 60,000-gallon mark. We’re right in the middle of the sweet spot. If we’re going full bore, we could do 55,000 to 60,000 gallons, but we’ll probably do 10,000 to 12,000 this year. I’ve got room to grow. I tell people not to let the national numbers scare them away. Things are going to slow down at some point. It’s still going up, but just will be slower growth. I’m very encouraged to see the consumers finally getting educated on what cider should be. Visit www.mibiz.com

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Q&A

WE PROVIDE FORWARD-LOOKING SOLUTIONS

DAVID RINGLER

Founder Cedar Springs Brewing Co.

With the first year under his belt, Cedar Springs Brewing Co. founder and Director of Happiness David Ringler says he’s pleased the company has surpassed its initial projections. The brewery should end the year having produced about 800 barrels of mostly traditional German-style beer, including Küsterer Original Weißbier, which won a bronze medal in the Great American Beer Fest earlier this year. Ringler hopes to add some new equipment to boost production and distribution in the coming year, “but we have no ambitions of growth at all cost.” A handful of new breweries opened this year. What kind of activity do you expect for 2017? I’m sure we’ll have more openings, but I also would not be surprised if we had a closure or two. This is kind of similar to the late ’90s when you had that first wave of people getting into the industry that were not necessarily as experienced or not necessarily as well-financed or prepared. In those days, the market was smaller, but it was a lot more forgiving as well. The public would tolerate some stubbed toes early on.

How has the market changed since then? It is a little less forgiving now, where if you screw up a couple of times, it may be tougher to recover. Those that are small and nimble are going to recover quicker. Those that have a high debt burden or are behind a little bit may have a tough time.

Are you saying even consumers who believe in buying local products are becoming less forgiving? People are used to good quality beer and good quality beer is available. … The days of just saying, ‘I’m local and I’m here’ and getting attention because of that are kind of over. It’s work now. There’s 58 breweries within 45 minutes of downtown Grand Rapids and that means that consumers have a ton of choices.

How will the craft beer industry in West Michigan continue to evolve? The days of going from zero to Founders in a generation are over. The future big picture is going to be a lot of small or regional guys that have a neighborhood or little pockets of influence and/ or a little bit of a style.

What are some of the main challenges for breweries in the next year? There are some that are trying to make a push to expand. That’s where some toes are going Visit www.mibiz.com

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to be stubbed. It’s one thing to have a taproom and your own neighborhood establishment and your following. That’s really the sweet spot. I think there are probably some people who are going to take on some expansions and may have some trouble, where the growth isn’t as strong as they anticipated.

How does the crowded retail market play into that difficulty? Distribution is hard. It’s very competitive. It’s a lot more expensive than people think. It’s hard to support a brand, the margins are a lot smaller. … That’s really where the challenge is going to be for a lot of folks, to manage their self-distribution or their wholesale partners or their retail partners. It’s a tougher task. … When you go to a taphouse now and they have 20 IPAs, which one are they going to take off to put yours on?

How do you see that intensifying competition affecting M&A in the industry? What (Anheuser-Busch and others have) done by acquisition is what they couldn’t do with their own marketing. The buy local thing: You can’t market that, but you can buy it, and that’s what they’ve done. What they will do is continue to approach their distribution and retail partners and say you really don’t need all these other breweries. We can supply you with your national, your regional and your local brand.

At that point, the question of ownership all becomes invisible for the consumer, right? Quite honestly, they don’t necessarily want the consumer to know. They’re trying to buy SERVICE that local integrity that they’ve been unable • Scheduled Maintenance to do on their own. They don’t mind that con• Breakdown Repairs sumers say, ‘It doesn’t matter who makes the & Models beer as long as •I All likeMakes it.’ Those dollars, quite honestly, are being used against local and independent producers.

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• Cabinets tal partners are just a part of business. Why is this such a bigbenches deal for the craft • Work beverage industry and in the com• Andnow Much More ing years? It’s like going to the farmer’s market and finding out that it’s Wal-Mart produce in the farmer’s market, and you’re paying a premium. The consumer feels ripped off. They made the conscious decision not to go to the convenient supermarket, but to go to a farmer’s market for their own reasons. … If people know it and they make that choice, fine. But I think there’s a segment of consumer that’s making a conscious decision to support something and they’re not happy to find out that they’re not supporting who they thought they were.

Interview conducted and condensed by Joe Boomgaard. Courtesy photos

Reach Higher!

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

NONPROFIT ORGANIZATIONS

PHILANTHROPY IN 2017: MASSIVE TRANSFER OF WEALTH BRINGS NEW ATTITUDES, BEHAVIORS By JANE SIMONS | MiBiz jsimons@mibiz.com GRAND RAPIDS — The growth of foundations and an unprecedented transfer of wealth are among trends the nonprofit sector will need to watch in the coming year. That’s according to a new white paper released by the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University that highlighted 11 important trends affecting philanthropy. “We wanted to talk about the growth of philanthropy, growth in the number of foundations, and the increased growth in donors,” said Kyle Caldwell, executive director of the Johnson Center. “We are still going through this large transfer of wealth, probably the largest transfer we’ve ever seen in our country.” The report cites a 2014 Boston College study that concluded $59 trillion in wealth will be transferred across generations between 2007 until 2061. The majority of this wealth transfer is happening within a relatively small group of high-net-worth families who are among the wealthiest 10 percent of Americans and own 75 percent of all of the wealth in the United States. As a result of this transfer, new donors crave increased engagement in philanthropy, social causes and volunteering, Caldwell said. “The way that the next generation wants to engage in philanthropy is different,” he said. “They’re not wedded to institutional giving. They’re far more hands-on and are willing to explore new vehicles of giving. How people want to engage may be different, and nonprofits will have to adapt to that.” The Michigan Nonprofit Association is addressing this issue from an internal organizational standpoint by making sure young talent is nurtured and mentored. “As the workforce continues to age, young talent is the most important asset that every nonprofit has,” said Donna MurrayBrown, the president and CEO of MNA. Murray-Brown said the MNA’s “Leadership with Purpose” program features nonprofit leaders presenting on key industry topics. The program helps participants identify their strengths and determine where they can plug into the nonprofit sector. The MNA also launched a new category of individual membership focused on career development to connect people drawn to nonprofit work.

DRIVING UNITY, SENSE OF PLACE Ensuring a pipeline of quality talent makes sense since fundraising efforts such as social media campaigns increasingly represent a way to engage and give that resonates with younger donors, according to the Johnson Center report. The report uses the example of the #IceBucketChallenge campaign that helped raise $118 million in unrestricted funds over eight weeks for ALS research and programming. These hashtags can drive broad conversations to help create social movement to support causes or raise awareness about issues, according to the report.

The report also highlighted the rapid spread of community-based philanthropy. Since the establishment in 1914 of the Cleveland Foundation, the nation’s first community foundation, there are now an estimated 1,834 place-based foundations worldwide based on the Community Foundation Atlas, which maps the identities, locations, assets, roles, and achievements of these foundations. These foundations, the majority of which are less than 25 years old, grant more than $5 billion annually. “That movement of having community foundations where there is essentially a community trust overseen by a local board has really grown,” Caldwell said. On a statewide level, the C.S. Mott and W.K. Kellogg foundations invested in challenge and development grants in the mid1980s, a move that created a large wave of growth in philanthropy in Michigan.

NONPROFIT SAFETY NET? Some of these Michigan-based philanthropic organizations have been called upon to help municipalities with issues in their communities. Caldwell said the C.S. Mott Foundation and other entities recently pledged $125 million to address Flint’s water crisis. “This was the largest investment made until the Water Response Bill,” Caldwell said. But, it begs the question: Where would that money have gone had it not been for the political failure in Flint? “If you think about state government in all of its functions and the resources available through the tax base and philanthropy in Michigan, there is no comparison,” Caldwell said. “If you took all of the money from foundations and gave it to the government to run, the money would be gone in six months.” In comparison to the Mott Foundation’s $125 million pledge, the U.S. Senate passed a $10.6 billion water projects authorization bill that included $220 million in loans and grants to help Flint deal with issues related to its lead-tainted drinking water system. There is a misperception that philanthropic organizations have the ability to step in and provide governmental services, a concept Caldwell describes as “unscalable.” Another example of the increasing confluence of government, philanthropy, and nonprofits is the $70.3 million donation to the city of Kalamazoo, driven by lead donors William Parfet and William Johnston, to stabilize the city’s finances over the next three years. Parfet and Johnston also are expected to begin a capital campaign and seek support from additional donors to raise $20.1 million for the city’s 2017 budget. Situations like this, Caldwell said, blur the lines between what the traditional roles of government and philanthropy are, especially because governments are involved in very political issues. “People are looking at big donors and giving them greater scrutiny,” he said. “Foundations need to be clear about the rules.”

“I support Grand Rapids Community Foundation because I want to be a part of a story that’s bigger than me.” Megan Sall New Philanthropist

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

11 TRENDS TO WATCH In a new white paper, the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University highlighted 11 trends that are affecting philanthropy. They were:

Growth in the number of foundations

Increased focus on place-based systems change, or working to serve people in a certain geography

Perceptions of the growth of nonprofits that don’t take into account their lack of capacity

Funders’ and nonprofits’ increased focus on data and measurable progress

Wealth concentration among fewer people

Generational transition of wealth and leadership driving industry change

Philanthropy’s beneficial use of social media campaigns

Philanthropy operating against a backdrop of political change and polarization

Global growth in community philanthropies as institutional forms of giving

Crowdfunding’s evolution as a tool for philanthropy

Threats from unsupportive public policy and a shift in funders’ priorities SOURCE: “11 Philanthropic Trends for 2017,” Dorothy A. Johnson Center for Philanthropy

A MATTER OF PRIORITY On the state and federal level, Murray-Brown said the MNA will be keeping a close watch on tax reform. “We will be working with our national partners, National Council of Nonprofits and Independent Sector, to ensure that charitable giving incentives are not negatively affected, because nonprofits rely heavily on charitable contributions,” Murray-Brown said. “We will also be very focused on the new budget priorities. If the cap on military spending is removed, we fear that funds for human services and other programs could be negatively affected.” MNA officials also will be working to get a state bill that addresses the rise in the number of cases of local tax assessors challenging the tax-exempt status of charitable nonprofit organizations. “We will also be working to ensure changes in budget and spending priorities at the state level don’t harm nonprofits,” Murray-Brown said. “Recognizing the challenges that are before us, any of the subsectors servicing a particular group of stakeholders could be impacted. If there are changes to charitable giving incentives in the tax code or large decreases in government contracts and grants, any number of nonprofit services could be deeply impacted.” n

For Megan, it’s more than the thought that counts. You don’t need a million dollars to be a philanthropist; you just need heart and an organization to help you move forward. Learn more by contacting Shaun Shira at 616.454.1751 or sshira@grfoundation.org.

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NONPROFIT ORGANIZATIONS

Q&A

DIANA SIEGER President Grand Rapids Community Foundation

With the year ahead being so difficult to predict, Diana Sieger’s advice to nonprofits is to stay focused and keep doing their work well. She believes organizations like KConnect, whose goal is to bring together groups to collectively solve problems, will be essential in both identifying and addressing issues in 2017. How do you feel about the new presidential administration? Every time a new president is elected, the question is what’s going to happen with the programs that organizations have become connected with at the federal level. I think from the standpoint of the nonprofit sector, it’s going to be a few months of testing the waters and a bit of uneasiness.

How is that going to impact local nonprofit work? It’s really going to highlight that a lot of what needs to be done for our greater Grand Rapids area is still pretty much based on the local funders and the causes in the areas that we all wish to address. … I would say it’s for organizations to just stay the course and work together solidly and my bet is that all things will work out. It may be difficult, but things will work out.

Is there anything in specific you’re concerned with, coming from the new administration?

international relations, I’m a little hard-pressed to know what that means in terms of funding for affordable housing or job training programs, etc. My bet is a lot of that isn’t going to be really revealed until the administration really hits its stride.

What will you be watching in 2017 then? We work really closely with the city, Kent County and the state of Michigan. So I’m watching more what the policies at those levels are going to be.

What are some issues to watch at the city level? Mayor Bliss is very concerned about housing. That is something we’re very concerned about too, in terms of making sure there’s access to safe and affordable housing. I know there was a study done by the city commission that came out at the end of last year. I think there’s been some real effort at trying to inform some people as to what are those types of things and how we can all band together in that.

Is it a struggle to fully inform the general public on these issues? When I think about the key thing that just came out with regards to the (Grand Rapids Destination Asset Study), people can wrap their heads around the need for hotel space and the river restoration project. When you get into things like affordable housing and people that are trying to find jobs that pay more than minimum wage or whatever, then it’s not as clear.

Do you expect the city to come together and address these problems? The thing I will say that’s in our favor as a community is that there’s a strong group of people … who have been working together. We may not always agree … but anytime I get into an intense discussion with folks, I don’t lose sight of the fact that

there isn’t a soul in that whole world that doesn’t want a better community. Now, we may each define what a ‘better community’ means, but the intentions are true and honorable, and we have a very collaborative nature in this community.

All that being said, do you have any predictions for 2017?

of nonprofits and foundations is going to be highlighted, because when you think about the innovation that needs to occur, none of that can happen without the philanthropic sector. The importance of philanthropy is going to remain strong, and I don’t need a crystal ball for that one.

Hello

So much has been made of the decisions that the president-elect is proposing, from his cabinet to

I do think that over the next year, the importance

Interview conducted and condensed by Josh Veal. Courtesy photo

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016 AM69 5/2/2016 9:38:12

KYLE CALDWELL

EXECUTIVE DIRECTOR, DOROTHY A. JOHNSON CENTER FOR PHILANTHROPY, GRAND VALLEY STATE UNIVERSITY Grand Rapids

ith the Affordable Care Act on the chopping block for Presidentelect Trump’s administration, Kyle Caldwell fears the “tremendous amount of investment by nonprofits and foundations into our health care system” could be all for naught in 2017 unless lawmakers find

a suitable replacement. Similarly, “there will be challenges to both foundations and nonprofits as the administration looks to … find efficiencies in government spending, and cuts to services to make way for tax cuts,” he said. On both the state and federal level, lawmakers’ decisions in 2017 have the opportunity to greatly impact nonprofits through bills like SB 960, which clarifies property tax policies.

Compiled by Josh Veal. Courtesy photo

(We’re) thinking about the challenges and the opportunities regarding comprehensive tax reform and what it could mean for charitable incentives and the charitable status of nonprofits. Like any enterprise, nonprofits thrive in a policy climate that provides support and certainty. Ensuring that philanthropy can be as strong and vibrant as possible during the deliberations on policy change will be an important goal for the sector. … Nonprofits and foundations must demonstrate their value as partners not by standing on the sidelines, but through engagement with policy makers as they implement a new agenda. … As Michigan’s economic history shows, there will be a recession and in that next recession, philanthropy will lean in, as it always has, to support those in need. Philanthropy will also be a strong partner with government and business to help grow opportunities for those who are most negatively impacted by economic downturns. 70

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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NONPROFIT ORGANIZATIONS

Q&A

ROB COLLIER President & CEO Council of Michigan Foundations

For 2017, Rob Collier at the Grand Havenbased Council of Michigan Foundations is keeping one eye on Washington and one on Lansing. Collier cited potentially detrimental proposals coming out of the federal level, with beneficial legislation under review at the state level. What are you concerned about at the federal level for 2017? Clearly, the big issue that we’re all watching and concerned about is tax reform. … And our goal is to make sure that the charitable giving incentives, which make our nonprofit sector in Michigan so robust, don’t get reduced or eliminated in the tax reform proposals. The charitable tax deduction is a very important tool for the nonprofit sector so we want to make sure that it’s preserved.

Is there anything else to watch out for on the federal level? We’ve been told there are proposed regulations that are going to be coming out from the Treasury on donor-advised funds (DAFs). This is the most popular giving tool for organized philanthropy in the U.S. right now.

What do those regulations look like? We’ve now been told they won’t be released until after the president has been inaugurated. … What we’ve been told, but haven’t seen yet, is that they would place regulatory burdens and reporting requirements on the holders. For anyone who manages a DAF, it means more work.

Zooming in, what are priorities for the state level? On the Lansing side, there are a couple of issues bubbling. One of them is that we have regulation that’s been introduced and it deals with the whole issue of nonprofit property tax exemption. This is really an important piece of legislation that we have to address in the new year. .

Why is this legislation so important?

One of the concerns is that right now there are about 2,000 local assessors that determine whether you’re a nonprofit organization and they have to rely on a Supreme Court case, the Wexford case. It’s a case that has six criteria that are quite broad and quite vague and can be interpreted in incredibly different ways depending on who the local assessor is. As a result of this lack of clarity, we have upwards of 100 nonprofits who are dealing with the tax tribunal and with the nonprofit property tax exemption in Michigan.

How would the legislation address this? The bill that’s been introduced by Senator (Jack) Brandenburg, the CMF and the Michigan Nonprofit Association, we feel that it will help provide clarity and consistency and help define what is a charitable activity, so that a local assessor or nonprofit will know what to do. It actually would require a common application form, which would be another tool we think would help.

What kind of support does the bill have?

Are you watching anything else in

There’s been bipartisan agreement that we Lansing? need to solve this problem. Nonprofits should The other issue we would obviously love to not be spending charitable dollars on lawyers advance — and we’re grateful there’s a package in the tax tribunal. They need to be spend- of bills that made it through the state Senate and ing it on providing their services. So that’s got stuck in the House — would be to restore the an important piece of legislation that we’re charitable tax credits for Michiganders who give. T:10.25” … The cost to the state is not huge, and the return keeping an eye on.

is huge, in terms of what nonprofits do for the state to relieve activities that the state would have to do. We’ve got bipartisan support in the state Senate for this, we just hope that we can get this into the next budget. Interview conducted and condensed by Josh Veal. Courtesy photo

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

MINDY YSASI M EXECUTIVE DIRECTOR, THE SOURCE Grand Rapids

indy Ysasi says she is hopeful as she watches employers begin to recognize what it actually takes to solve their talent struggles. Employers have to decide what will make them stand out, whether that means they’re helping people achieve certifications and degrees, focus-

ing on sustainability, hiring people who have a criminal background, or something else, she said. “Because of the market, employers are now saying, ‘What is the root cause?’ Some employers are recognizing that in some of our communities, we have 38 percent unemployment for men of color. I’m really very hopeful, because employers have immense power.” At the same time, Ysasi is concerned with the lack of support going to systems like child care and housing that help people enter the workforce.

Compiled by Josh Veal. Courtesy photo

When employers say, ‘We can’t find people to do the work,’ it’s not because people don’t want to do the work — it’s because there’s so many other barriers. … We want people to work, and yet we’re not investing in the systems that help them get to work. In what scenario do people choose work over their kids’ safety or security? … For the more professional worker, I think you’re going to see people who are opting out of traditional organization employment, either piecing together contracts or creating these social enterprises. The last statistic I saw on this said something like 41 percent of millennials would rather work for themselves. Here in West Michigan, we have a lot of efforts to try to bring people in and try to recruit people, but I really question if that’s the way people are going to be working in the future. … We’re going to have to be OK with that or figure out how we might use that as a strategy. 72

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

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75 YEARS OF COMMUNITY, PRACTICE, FAMILY & IMPACT As we reﬂect on the past year, we want to say thank you to our clients, partners and our most wonderful community for an incredible 75 years of business in the heart of Grand Rapids. We are excited as we look forward to 2017, and are thrilled to be serving you for another 75 years and beyond!

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Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

CARRIE PICKETT-ERWAY A PRESIDENT AND CEO, KALAMAZOO COMMUNITY FOUNDATION Kalamazoo

s the economy has recovered from the recession, philanthropic giving nation-

wide has slowly climbed to an all-time high, in 2015 reaching $373.25 billion,

according to a report from the Giving USA Foundation. However, nonprofits rely on funding from other sources as well, and leaders like Carrie Pickett-

Erway at Kalamazoo Community Foundation don’t know if those sources will remain secure

in the coming year. “We know many of our partners are concerned about major changes they anticipate in state and federal funding,” she said. “Our endowed funds provide a stable source of funding, but would not be able to fill that gap.”

Compiled by Josh Veal. Photo courtesy of Robert Neumann Photography

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

The connection between the economy and philanthropy’s impact in the community is on our minds year-round. And we know this weighs heavily on our partners, too — donors and nonprofits alike. On the donor side, ours is a very generous community and we are always looking for ways to increase the number of donors fueling this work, both large and small gifts. … The daunting gap between community needs in Kalamazoo County — both immediate and short-term needs — and the amount of available resources (worries me). Local philanthropy has a major role in addressing the underlying issues faced by our most vulnerable residents; it is that stewardship that drives our daily work. We’re always thinking of ways to help donors and nonprofits navigate these rough waters. Visit www.mibiz.com

MICHIGAN’S LARGEST INDUSTRIAL PARK • Fort Custer Industrial Park • Higher education and workforce training opportunities • 25+ established International companies • Transportation infrastructure • Foreign-Trade Zone 43 / U.S. Customs Port of Entry - Highway access • Diverse mix of businesses - Regional airport with 10,000+ foot runway • City and State incentive programs • Legacy of close corporate /government connections and projects

C O N TA C T U S !

2 6 9 .9 6 2.7526 BCUNLIMITED.ORG Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2017 | DECEMBER 26, 2016

ENERGIZING MICHIGAN’S

Future

Building the electric transmission infrastructure that will power the future. www.itc-holdings.com 76

DECEMBER 26, 2016 | Special Year-End Edition: MiBiz Crystal Ball 2017

Visit www.mibiz.com