MiBiz Crystal Ball 2019 by MiBiz

Crystal Ball Insights, economic sentiment and forward-looking strategies from West Michiganâ&#x20AC;&#x2122;s business leaders

FOR SALE

HELP WANTED

ROAD WOR AHEA K D

HELP WANTED

FOR SALE

Cover art by Rachel Harper

special year-end issue | december 24, 2018 | vol. 31 | no. 5 | $3.00 P

200+ Attorneys

Client-focused, proactive counsel for clients of all sizes.

Warnerâ&#x20AC;&#x2122;s structure is designed to build successful SDUWQHUVKLSV EHWZHHQ RXU Æ®UP DQG RXU FOLHQWV :H FRPSHQVDWH RXU DWWRUQH\V RQ WRWDO FRQWULEXWLRQ LQFOXGLQJ WHDP SOD\ DQG GHGLFDWLRQ WR FOLHQW VHUYLFH 7KLV PRGHO HQFRXUDJHV RXU DWWRUQH\V WR DFW LQ WKH EHVW LQWHUHVWV RI RXU FOLHQWV DQG HOLPLQDWHV SUHVVXUHV WKDW PLJKW FDXVH DQ DWWRUQH\ WR SODFH KLV RU KHU RZQ LQWHUHVWV DERYH WKRVH RI RXU FOLHQWV 7R OHDUQ PRUH DERXW ZKR ZH DUH DQG ZKDW ZH GR YLVLW ZQM FRP

Grand Rapids Southfield Midland Macomb Kalamazoo Muskegon Lansing Holland

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

Published since 1988 MiBiz® is a registered trademark of REVUE Holding Co., Inc.

2019 CRYSTAL BALL

CH-CH-CH-CH-CHANGES o borrow a line from the late David Bowie, it’s time for the West Michigan business community “to turn and face the strange” that’s ahead in 2019. Where to begin? In Washington, D.C., the U.S. House will swap leadership on the heels of a historic 40-seat takeover by the Democrats. It remains to be seen how exactly President Trump will work with a divided government on important issues like health care, infrastructure and terrorism, particularly if he keeps calling for the border wall he promised to get Mexico to fund. In the new year, the automotive supply chain and agribusiness sectors will be closely watching that new Congress, which will consider ratifying the United States Mexico Canada Agreement. Both industries remain hopeful for a quick approval for NAFTA 2.0, which they say will be key for their long-term sustainability. As well, the Federal Reserve has raised interest rates to their highest point in a decade, with promises to keep going higher in the new year. All of that adds to the cost of capital, even if most executives say a quarter-point here and there won’t break good deals or cause pain for well-run companies. Closer to home, every statewide office in Michigan turned over this year and flipped parties. For the first time in eight years, a Democrat will occupy the office of Governor, Attorney General, and Secretary of State, and members of the party made gains in each chamber of the state Legislature. Even so, don’t expect incoming Gov. Gretchen Whitmer to flip over the table in an attempt to undo Michigan’s economic progress under her predecessor, Rick Snyder. “[I]n the executive office, I’ve got the authority to rename, to change, to reorganize state government, and there will be some of that,” Whitmer told MiBiz in an exclusive interview. “I don’t think that there’ll be anything that is so dramatic it turns everything upside down, but we are going to make some changes to make government make more sense for people.” That kind of sensible talk in Lansing also would be welcome in Washington, D.C., where the current political environment may well pose the biggest threat to

our economy over the short term. More than four in 10 Americans (43 percent) agree with that notion, according to Bankrate.com’s latest Financial Security Index. It’s worth noting that the next highest threats among those surveyed are terrorism (9 percent), rising interest rates (8 percent) and a decline in the stock market (7 percent). But before we all whip ourselves into a frenzy over the changes and uncertainty, it’s important to reflect on the message Upjohn Institute economist Jim Robey delivered as part of The Right Place Inc.’s annual economic outlook. Robey acknowledges the economic headwinds with tariffs, trade, workforce and talent, and wages, among others. But he cites factors including low unemployment rates, labor force participation, the cost of capital and GDP growth as signs that the U.S. economic expansion still has some legs. “It’s really important to keep to the fundamentals. When people say ‘there’s a recession 12 months out,’ I don’t know anyone who thinks that,” he said, cautioning executives not to talk themselves into a recession. “Now, will we have a recession sometime? Of course we will. There’s a cycle to everything. But it isn’t, at least at this point, even on the horizon.” Here’s hoping he’s right.

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 care, life sciences) Staff Writers Sydney Smith / ssmith@mibiz.com (real estate, economic development) Jessica Young / jyoung@mibiz.com (manufacturing, agribusiness) Associate Editor Josh Veal / jveal@mibiz.com (nonprofits, web editor) Contributing Reporters Andy Balaskovitz, Nick Manes, Jane Simons Copy Editor Claire Boomgaard Photographers Katy Batdorff, Jeff Hage, Jeff Huyck VP of Production & Audience Development Kristi Kortman / kkortman@mibiz.com Senior Advertising Consultant Shelly Keel / skeel@mibiz.com Advertising Consultant Renee Looman / rlooman@mibiz.com Graphic Designer Kaylee Van Tuinen / graphics@mibiz.com

Brian Edwards Publisher

Joe Boomgaard Editor

Parting Note: Change has even spread into the MiBiz newsroom. In the adjacent staff box and on the pages ahead, you’ll notice new bylines for Sydney Smith and Jessica Young, two wildly talented journalists who joined our reporting staff in recent weeks. We can’t wait to introduce you to them and bring you more of their reporting in 2019 and beyond.

Circulation For address corrections or subscriptions, contact MiBiz at 1-877-443-1977 or subscribe@mibiz.com MiBiz ISSN 1085-4916 • USPS 017-099 Established 1988 MiBiz is published every other week by REVUE Holding Co., Inc., 1059 Wealthy St. SE, #202, Grand Rapids, MI 49506. Telephone (616) 608-6170. FAX (616) 608-6182. E-mail: info@mibiz.com. Subscription changes: subscribe@mibiz.com. Periodicals Postage is paid at Grand Rapids, MI. POSTMASTER: Send address changes to MiBiz, 1059 Wealthy St. SE, #202, Grand Rapids, MI 49506. 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.

-I"IZ RECENTLY launched its new digital operations — including a new website, improved e newsletters, expanded social media and a user-friendly mobile platform modeled after “best-in-breed” sites like WSJ.com and NYTimes.com.

HEADQUARTERS 1059 Wealthy St. SE, #202 Grand Rapids, MI 49506 616-608-6170 phone • 616-608-6182 fax NEWSROOM 1224 Plainfield Ave. NE Grand Rapids, MI 49505

Reproduction or use of any portion without permission of the publisher is prohibited.

WEST MICHIGAN’S UP-TO-THE-MINUTE BUSINESS NEWS IN THE PALM OF YOUR HAND. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

TALENT CONSTRAINTS

Regardless of the industry, companies across West Michigan say they’re struggling to fill open positions in all areas of their businesses. It’s beyond just a training issue, as the worker shortage has started to extend into professional positions, such as engineers. The situation has become so acute that it’s starting to affect firms’ ability to grow because they lack the proper staffing to produce and sell their products. “Almost consistently, every time we go to a client meeting that’s what we hear: ‘We could grow at a faster rate than we are now if we had more talent, but we’re just tapped out on talent. We can’t. We’re kind of limited based on getting the people.’” — Krista Flynn, regional president of Chemical Bank

TARIFFS/TRADE DEALS

CONCERNS FOR 2019

Tariffs on raw materials like steel and aluminum are driving up costs for a range of West Michigan industries, including automotive suppliers, office furniture makers and construction firms. As well, the new United States Mexico Canada Agreement (USMCA) brings new changes and challenges that manufacturers and agribusinesses will need to consider when they’re planning for 2019.

For this Crystal Ball edition of MiBiz, our team of journalists spoke with dozens of executives across West Michigan about their outlook for 2019. From those conversations, we’ve subjectively boiled down their concerns into this list. The first three issues certainly rank as their major concerns, while the rest of the list were their main worries that rose to the forefront.

“I just hope that the administration gets it figured out so that the farmers aren’t the ones that take a bullet for the team.” — Jim Sheppard, president of Tillerman Seeds LLC

UNCERTAINTY

Volatility — whether in the stock market, the geopolitical environment or certain sectors of the economy — has led to heightened uncertainty. And as the old adage goes, business leaders hate uncertainty. The volatile conditions could be one more factor that tips the decision-making process and causes executives to hold off on making major moves until some semblance of normalcy returns. “Uncertainty leads to people standing still. It’s really important that whatever uncertainty we’re pointing to, whether it’s interest rates or labor markets or the future growth possibilities for our state, that we stop and pause and we understand that uncertainty and we not overweight it.” — Renee Tabben, market president at Bank of America

AUTO INDUSTRY TURMOIL

FOR SALE

HELP WANTED

U.S. auto sales remain historically strong despite an expected dip this year, but a number of issues are starting to cloud the horizon. Among them are higher raw material costs and trade tensions, thanks to tariffs and the drafting of new international trade agreements. As well, higher interest rates are becoming more of an issue as consumers flock to higher-cost trucks, crossovers and SUVs. “If I’m an automaker or I’m a supplier, it’s making it hard to commit millions of dollars or hundreds of thousands of dollars, depending on the size of the company, into some sort of investment internationally or in other markets, if we don’t have a real good sense of what the trade landscape’s going to look like.” — Mike Wall, director of automotive analysis at IHS Markit

INTEREST RATES

ROAD WOR AHEA K D

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Most executives expect the Federal Reserve to institute two or three quarter-point rate hikes in 2019. The higher rates are expected to create another barrier for affordable housing and building projects in particular. While rate hikes aren’t expected to kill most business transactions, some executives expect the higher cost of capital to slow growth in an already plateauing economy. “In the real estate business, interest rates are the number one demand driver, other than supply and demand imbalances. If the rates get too high, you just can’t make any money. And why do it if you can’t make money?” — John Wheeler, director of business development at Orion Real Estate Services

THE LENGTH OF THE RECOVERY

All good things must come to an end eventually, the current U.S. economic expansion included. Many experts believe the next economic downturn is getting closer by the day, although the timeline keeps getting pushed back. The silver lining: Any dip is projected to be mild, especially compared to the Great Recession. “There’s no question that it’s been slowing down, and we see that continuing as we go into 2019 and 2020.” — Gabriel Ehrlich, director of University of Michigan Research Seminar in Quantitative Economics

POLITICAL CHANGEOVER

Democrats captured 40 seats in the U.S. House, as well as swept the races for statewide office in Michigan, scoring victories in the race for Governor, Attorney General and Secretary of State. The divided government in Washington, D.C. and in Lansing and all the fresh faces will lead to some additional uncertainty as lawmakers find their footing and put their own spin on policy that could affect the business community. “One thing we always talk about is the election happened, but all of this didn’t just get decided. It’s going to take us at the state level a few months to kind of get into the new groove. … You’ve got to get used to the new rhythm. I don’t mean that is to be a bad rhythm, but this could be different.” — Birgit Klohs, president and CEO of The Right Place Inc.

INFRASTRUCTURE

It’s no secret that Michigan needs to “fix the damn roads,” but actually making and funding the fix has proven to be elusive over the years. However, some strange partnerships — a Democratic governor and the Michigan Chamber of Commerce, for example — could be coalescing and finding common ground in the push for a solution. “Infrastructure is a very high priority. … The governorelect has said that she would prefer to take further steps to fix the roads and build and rebuild bridges, and has indicated the preference for user fees. We agree with Gretchen Whitmer on that.” — Rich Studley, CEO of the Michigan Chamber of Commerce

AFFORDABLE HOUSING

Companies need workers, and those workers need housing they can afford given the wages they’re paid. Despite all the new apartment units coming online in the last year around the region, people are still struggling to find affordable housing. It’s an issue exacerbated by slow wage growth, chronic disinvestment in a variety of housing types, and archaic zoning regulations that disincentivize housing diversity and density. “Each time one of our businesses grows, it’s likely that they’re going to have to look outside of the county for employees. The growth is great, but we’ve got to be able to keep up with them in terms of the amount of housing supply we provide.” — Ryan Kilpatrick, Housing Next

SELF-INFLICTED RECESSION?

Economists continue to point to the economy’s strong fundamentals as showing no signs of subsiding, but unease with the length of the recovery and the slowing growth curve seem to be weighing on executives’ minds. If business leaders keep fretting about the economy being headed for a recession and holding back, they could cause those worries to become true or accelerate the inevitable downturn. “The question I’m starting to ask is will we talk ourselves into a recession. Will a recession become a self-fulfilling prophecy?” — Jim Robey, director of regional economic planning services at Upjohn Institute

Visit www.mibiz.com

HASTINGS FIBERGLASS, HASTINGS, MI Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

Q+A

Gretchen Whitmer GOVERNOR-ELECT, MICHIGAN

On Jan. 1, Democrat Gretchen Whitmer will take the oath of office to become the 49th governor of Michigan, succeeding Republican Rick Snyder, who was term-limited after eight years in office. Whitmer spoke with MiBiz last week as the contentious lameduck legislative session came to a close. One of the things that we’ve been hearing from the business executives we’ve talked to for our annual Crystal Ball edition is just that there’s a level of uncertainty in Lansing with the changeover in leadership. If there’s one thing that businesses hate, it’s uncertainty. What advice would you offer them as to what kind of governor you’ll be and your leadership style? There are some good things that are happening here in Michigan. There are some glaring issues we’ve got to tackle as well. I am not the person currently in the White House. I’m not out to undo everything a predecessor did, just because they did it. I am a very thoughtful person, who is married to a small business owner, a person who wants to make sure that we are competitive and that the world knows we’re open for business, but also that we’re a place where small business can thrive. I think that some preconceived notions about parties and party members from the past, we need to put those aside and really work together to make sure that we’re making educated decisions that are forward focused and inclusive. I think when we do that, we might not agree on everything, but we’re going to find we have a lot more common ground than we expect.

Business leaders cite your legislative experience as being a differentiator compared to the past couple of governors in Michigan. How does that serve you when it comes time to broker deals with a GOP-controlled legislature? I think it’s important. The legislature, they are not employees of the governor. They’re a co-equal branch of government. While they have smaller constituencies, and the governor represents the whole state, they have to be viewed as a co-equal branch of government. Legislators have to take tough votes every day, all day long. They deserve the respect for doing that, but also the ability to weigh in and work together. Now it doesn’t mean we’ll agree on everything. I’m going to use my veto pen when I think it’s the right thing to do. I’ll work around them when they are impossible to work with. But I think if we start off from a

place where we really do start having quadrant meetings, where the leaders of the four caucuses and I sit down, in a regular way, that we’re going to find … we’ve got more common ground than we expect. You never know that if you’re not talking to one another. That’s why I think, what’s going to be my M.O. is to take that time to make it a priority, as I said, and meet and try to work things out with these legislative leaders.

Where do you see common ground emerging between you and some of the new leaders in the state Legislature? I’m very mindful of the fact that I just won a historic election. More people turned out. It was a big win, and we pulled a lot of people over the finish line with me. But I do have a Republican House and Senate to work with. It was interesting. I was meeting with the incoming Speaker of the House, and he pointed out that some of his members’ districts I won by double-digits. His members got re-elected, so people voted for individuals, and they voted for agendas. Those agendas, where they overlapped on things like infrastructure, on things like the skills gap, I know that these are issues business cares about. Their potholes are not Republican or Democratic. They’re ripping up all of our cars and endangering us and making us less competitive. We should be able to find our common ground around things like that.

During the campaign, you mentioned that you wanted to unleash the power of the Michigan Economic Development Corp. Can you offer some color around what you meant by that, and what that might look like in practice? I think there’s the resources there to go on a 52-week jobs blitz, to throw shovels in the ground in different parts of the state, and make the kind of thoughtful economic development investments that really give us results, give us employment opportunities, or rehabilitate a historic building or a brownfield. There are things that we can do, and get more aggressive about doing. It’s always got to be legitimate. It’s always got to be transparent, and accountable to the public. But I think

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

that there are a lot of things that we can do with the monies. We’re not going to just pack up all of our economic development tools, we’re going to put them to work.

Are you considering more programs specifically, or would you use the tools that are in place right now? I think using the tools that are in place. But when the governor came in, he got rid of the historic building credits. He didn’t embrace the brownfield redevelopment credits. … They serve an important public purpose, putting unusable property back into use, or keeping a historic building in a lot of our downtowns that need revitalization, making that a priority. Those are two obvious examples, in my mind, of ways that the public benefits from some of this economic development policy.

You received broad support from the business community for ‘fixing the damn roads.’ What do you think it’s going to take to get the revenue needed to make that plan work? What are the chances that the GOP-led legislature will go along with that? I think the chances are high. We’re putting together the final pieces of our plan that will be rolled out early next year. But, like I said, there are school buses full of kids that are going over bridges that have hundreds of temporary supports holding them up. I met a woman on the campaign trail who had an aneurysm and was being rushed to the hospital — life and death every minute — and yet the ambulance thought it was more prudent to take a longer route than the shorter one that had so many potholes in it. The state of our infrastructure really is endangering our people every day, but it’s also making us less competitive. You can’t tell the world we’re going to be at the center of mobility if we’ve got roads that look like they’re turning back to gravel, roads that aren’t supported by cutting-edge technology so that autonomous vehicles can traverse our roadways. This is an area that every one of us is paying a price. I’m hoping it doesn’t have to be catastrophic before we see real movement on my plan to actually fix

it. This is the kind of investment that is not sexy, but my goodness, it improves bottom lines for business and safety for our families.

so dramatic it turns everything upside down, but we are going to make some changes to make government make more sense for people.

In a recent interview with Crain’s Detroit Business, you mentioned you were considering breaking up the Department of Health and Human Services. Are there other areas of state government or other initiatives from the last eight years that you think to need to be rolled back, tweaked or evolved? What’s your hit list of priorities?

Do you see any of the existing cabinet members staying on in your cabinet as well, or are you going to look to bring in an entirely new slate of people?

This transition period is 55 days long, which is an extremely short amount of time to transition the state government, which is a $56 billion organization with 50,000 employees, and 10 million people counting on us to do it well. We’re working at a very quick pace — thoughtful, but speedy — because I’ve got to announce a cabinet, make sure that I’ve got directors in each of these departments that will do a great job, that is representative, and will carry forward my agenda. I’ve got to make sure that I build my executive office. I’m fending off a legislative power grab right now, and it’s from them trying to weaken the power of the executive office. We’re doing an incredible amount of work right now. But one of the things that was a priority for us was we sent in landing teams into each of the departments to ask questions, to understand what’s working, and to understand what’s not working, so that we’ve got a goal and set up priorities and an agenda where there’s real strategy behind it, walking in on day one, for each of these departments. I’m incredibly confident in that work that they’ve done. I’ve seen it, and we’re going to execute on day one. Now, in the executive office, I’ve got the authority to rename, to change, to reorganize state government, and there will be some of that. I don’t think that there’ll be anything that is

It’s a possibility. … We’ll have some announcements between now and the end of the year, but nothing that I’m going to announce right now.

One of your campaign pledges focused on bringing back transparency in Michigan government. Do you think that you can build a consensus around expanding the Freedom of Information Act to the Governor’s office and the Legislature? I do. We’re going to be aggressive about that. I will, of course, give my inaugural speech on the 1st. We’ll be doing a State of the State about a month later and then introducing the state budget. All of those are opportunities to really use my platform to encourage the legislature to follow suit, but we are going to be opening up the executive office in some real meaningful ways.

Will you veto any policy legislation that includes an appropriation intended to make it referendum-proof? Yeah, absolutely. That was a campaign pledge. When the legislature tries to do an end-run on the will of the people by making something referendum-proof, I think it’s undemocratic, and it’s something that I’ve always opposed. I will veto any legislation, no matter who’s written it, if they’re trying to undermine the ability of the public to have a referendum.

With the Mackinac Straits Corridor Authority being established, quickly taking public comment and trying to work out Visit www.mibiz.com

I believe Line 5 poses such an incredible risk to the quality of our drinking water, to our agriculture, to our tourism. Our economy would be devastated by a spill in the Straits of Mackinac. This hastily negotiated plan that’s come out of the state capital means that Line 5 would stay in the water for seven to 10 more years. That’s not acceptable. When the dust settles on this term, I’m going to explore every one of my options and work with the Attorney General to see what tools are available to us to get the oil out of the water.

Do you expect to work with Midwest or Great Lakes Governors on a joint climate action plan? Yes, I think that’s a great question. One of the interesting things that happens after you’ve been elected governor is you get invited to the National Governors Association for new governors school. It was two days. I did not learn everything I need to know (but) it was a good opportunity to actually build some relationships. We’ve got a number of new governors coming in here in the Midwest — J.B. Pritzker in Illinois, Tim Walz in Minnesota, Tony Evers in Wisconsin, Mike DeWine in Ohio — a bipartisan group that I pulled together when we were at that meeting. I suggested we need to really start working together and meeting and protecting the Great Lakes and having that climate conversation as Midwest governors. All of them said that they wanted to do that as well. I’m going to see that through, and make sure that where we have opportunities, whether it’s on the Asian carp front or it is in protecting the Great Lakes more generally from withdraws, that we are on the same page and we start doing the work together. I am very excited about that opportunity. There’s so many of us newly coming into office, I think there’s no playbook that we have to take from anyone else. We’re going to write it, and we’re going to get serious about doing it together.

What takeaways do you have from how the Department of Licensing and Regulatory Affairs developed regulations for medical marijuana that would be able to improve upon the process of licensing recreational marijuana businesses in the coming year?

and for people as individuals, to protect their rights in their workplaces and in their residences.

You mentioned you’re waiting for the dust to settle in the lame-duck session. Is this a good way to govern? If you could, how would you change this legislative practice? Transparency is very important. I think that gerrymandering has shown us that we can still have a legislature that does not reflect the will of the people and an abuse of power can come with that. I think that’s part of what we’re seeing here. The opportunity to go into redistricting and have actual fair line drawing of districts is going to be really important. I think we should outlaw lame duck. I’ve always said that. When I was a legislator I said that. When we had a Democratic governor I said that. Very little good happens when, hastily, policy is changed by people that are no longer accountable to the public that they’re supposed to be serving. Interview conducted by Joe Boomgaard. Courtesy photos.

Park Place Hotel - Traverse City

MORE THAN STEEL, CONCRETE AND WINDOWS.

www.triangle-inc.com

a deal with Enbridge before the end of the year, how will you approach this new Line 5 development as you come into office? What are your plans to make sure the state gets this right if this deal does go ahead?

Every building is a new beginning. It represents who you are and what you’re becoming. It’s a symbol of vitality and community growth.

We saw in 2008 when the people amended our constitution to embrace medical marijuana that we didn’t have the leadership in the executive branch (nor) an Attorney General that wanted to actually promulgate rules. That just didn’t happen, and it became a morass. It never worked. It was part of what fed into this initiative because the state didn’t get it right. We have an opportunity to get it right, but we have to take it very seriously and learn the lessons from other states, and make sure we promulgate rules to keep it out of the hands of our kids, and that we collect the taxes, and that they are expended the way that the people envisioned when they supported this measure on the ballot. It’s a very serious long-term undertaking, but it’s something that I want to make sure Michigan gets right, and perhaps people look to us as the example of a state that did it well.

One of the issues the business community has advocated for in recent years has been expanding the Elliott-Larsen Civil Rights Act to protect the LGBTQ community. Working with the GOP legislature, can you build a consensus that it’s time to make that change? I think it’s possible. I’ve not met every individual who won elections in November, but I’m going to get to know them well and quickly. The business community really were leaders on the initial discussion about expanding Elliott-Larsen, because they know that it’s had a chilling effect on our ability to recruit talent to Michigan. That’s a community that I’m going to try and stay very close to on a number of issues, but on this one in particular. I think this election shows that people understand how important it is for us in the state, Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

We Create Great Spaces where Businesses Thrive Buy, Build or Lease Options

Ground-up Construction

Renovation or Office Refresh

Professional Property Management

All of the Expertise You Need

Under One Roof YOUR SPACE, OUR BUSINESS Call us today to discuss your space needs.

CONSTRUCTION | REAL ESTATE | PROPERTY MANAGEMENT 4380 Brockton Drive Southeast, Suite 1, Grand Rapids, Michigan 49512 FirstCompanies.com | 616.698.5000

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

MANUFACTURING OUTLOOK

Headwinds, talent challenges tamp down forecast for manufacturing sector By JESSICA YOUNG | MiBiz jyoung@mibiz.com hether the West Michigan manufacturing industry continues on an ongoing growth trend in 2019 or veers into a contraction remains uncertain. Economist Paul Isely, associate dean for undergraduate programs in the Seidman College of Business at Grand Valley State University, uses automotive, furniture, agriculture, and “amazingly nowadays” aerospace manufacturing to find the pulse of where the region’s economy is headed in the coming months and years. “Those are some of the big, big chunks that move us around and can point the direction that we’re going to move as an economy,” Isely told MiBiz. While aerospace and medical manufacturing will continue to grow in 2019, Isely predicts headwinds that will bring automotive manufacturing flat to trending down. He also expects furniture manufacturing to come down Isely from a midyear-peak in 2018 fueled by tax law changes. “This year, we had a little bit of a sugar high from the tax cuts. And a lot of that was front-loaded into this first year. A lot of that is burnt off now,” he said. “Overall though, we’re really looking at that first part of ’19 to still be pretty strong.” Davenport According to Grand Rapids-based economic development firm The Right Place Inc., manufacturing currently accounts for 15 percent of all jobs in the West Michigan region. Since 2009, manufacturing job creation and investment have surpassed both state and national averages, and now many companies struggle to fill their open positions. Isely expects the lack of qualified job applicants for many skilled positions across all industries to slow overall growth in 2019. “We’re seeing a lot of constraints on the ability to grow. We can’t find workers, we need to pay workers a lot more, particularly bottom-end workers, where that floor is moving toward $15 an hour pretty fast,” he said. With slowed growth comes an increased chance of a recession, according to Isely. This year, he suggests businesses start thinking about — and saving cash for — the workers they could acquire in the case of an economic slowdown. “Right now, we can’t get the labor that we want, so we have to understand that if there’s a slowdown or even a downturn in the economy, that’s going to break some labor free that we could take advantage of,” he said. Michael Davenport, president and CEO of Grandville-based Jireh Metal Products Inc., told MiBiz his company is part of a movement among manufacturers who are turning to a “growing your own” plan to fill their employment gaps. “We’re trying to address it at the very core level,” Davenport said. Jireh also aims to cultivate a workplace culture that drives performance, affects employee satisfaction, and ultimately, retains the company’s existing workforce, according to Davenport. “We think that we can have a great place to work where people come in and feel very comfortable,” he said.

Visit www.mibiz.com

After nine consecutive years of job growth, economists at the University of Michigan Research Seminar for Quantitative Economics project manufacturing employment to still grow by 3,300 jobs next year. However, that’s nearly half of the 6,000 new manufacturing jobs added in the state in 2018. Still, Michigan continues to outperform expectations for talent acquisition and growth, according to economist Jim Robey, director of regional economic planning services at the W.E. Upjohn Institute for Employment Research. He attributed that stronger than expected performance to a diverse and productive economy, quality training programs, vertically integrated producers, well-managed locally-owned companies, and the enticing “amenity base” in and around Grand Rapids. The strong growth also has contributed to Grand Rapids leading the state and nation in continued economic recovery, he said. The Grand Rapids-metro area has the lowest unemployment rate of economically comparable regions in Robey’s forecast. Yet, despite the tight labor market, employment growth in the region is still comparably strong, Robey told more than 300 business and community leaders at this month’s 2019 Economic Outlook for West Michigan organized by The Right Place. “Where you all found these people, I don’t know,” Robey said. However, uncertainty stemming from several policy “risk factors,” including tax cuts and increases, federal deficits and debt, interest rate hikes, tariffs and elections, could derail U.S. manufacturers and lead to a recession, according to Robey. “All of those things individually or (together) conspire to make bad decisions on a macro basis that can lead us into a recession,” he said.

AUTO In the past year, the automotive supply chain has grappled with heightened uncertainty related to trade agreements and tariffs. Yet, the industry’s fundamentals remain in good shape heading into 2019, according to Mike Wall, director of automotive analysis in Grand Rapids at IHS Markit. The company currently forecasts North American vehicle production to increase from an expected 17 million units this year to 17.2 million units in 2019, particularly as a new BMW plant comes online in Mexico and as foreign automakers localize production for some vehicles rather than import them. “It’s 200,000 units. I don’t want to minimize it, but at the same time, we’re starting to see that plateau,” Wall told MiBiz. In part, the plateauing automotive environment stems from a dramatic shift away from passenger cars in recent years, as consumers instead flock to light trucks, crossovers, and SUVs, he said. As a result, OEMs have started to discontinue their car production. In late November, for example, General Motors announced that in 2019 it would close three assembly plants in Hamtramck, Mich., Lordstown, Ohio and Oshawa, Ontario — all of which produced sedans like the Chevrolet Volt, Cruze, and Impala. IHS Markit forecasts trucks, currently about 70 percent of the market, to become an even larger portion of overall vehicles sales in the coming years, perhaps approaching the 80 percent mark “in the intermediate to longer term.” As automakers adjust to the “new reality,” Wall expects more OEMs to take the cue from GM, “see the writing on the wall” and close car assembly plants. “GM, to their credit, is taking the Band-aid off very quickly all at once,” Wall said. “I think it’s a

manifestation of where things are at on the passenger car side, and where the money’s made or not made.” While the automotive production forecast calls for a slight increase, IHS Markit expects sales to continue a slow erosion next year. The firm expects light vehicle sales to reach 17.1 million units in 2018 and fall 300,000 units next year, “obviously barring a recession,” according to Wall. Most models he’s watching have put off the probability of a recession until sometime in 2020. Still, suppliers and OEMs need to take action now so they can have flexibility when the next downturn does occur, Wall said, adding that he thinks West Michigan-based manufacturers should be in good shape due to diversification. “It doesn’t mean there’s not going to be some pain points,” Wall said.

FURNITURE As office furniture manufacturers adjust to demand for nontraditional furniture alternatives from an increasingly transient workforce, a number of them went on a buying spree in 2018. That includes Grand Rapids-based Steelcase Inc. and Zeeland-based Herman Miller Inc., which focused their acquisitions on education furniture and smaller niche-product manufacturers to broaden their portfolios. “What drove the industry for 35 years was cubicles and high-price, high-function (equipment).

That’s where the growth was and the margin was,” Mark Kinsler, president of Holland-based Trendway Corp., told MiBiz. “That’s decreased significantly as the walls literally come down.” Kinsler expects the trends will continue to drive acquisitions in the industry, particularly in some of the growing adjacent markets. “In the office furniture business, the types of products are changing, so we can clearly see that ancillary furniture is something we need to spend more time and energy on. An acquisition there would be something that we’d look at,” he said. Kinsler remains “cautiously optimistic” for 2019, even if the contract furniture industry still has not yet returned to its pre-recession peak. Steelcase, which last week reported strong sales and earnings growth in its most recent quarter, is forecasting that momentum to continue into the beginning of the year. The company is projecting its sales will grow at a faster rate than the overall industry. Sales for the first nine months of its current 2019 fiscal year were up 10.9 percent. “Our fiscal 2019 earnings are on track to represent one of our strongest years in more than a decade, and we are targeting to grow revenue and earnings again in fiscal 2020,” President and CEO Jim Keane said in a statement. Other office furniture supplier executives said they expect more muted growth that tracks expansion in the national economy. Amy Sparks, president and CEO at Hollandbased Nuvar Inc., said the level of activity among customers has been “reassuring” her outlook for 2019. The contract manufacturer and developer of finished goods plans to find ways to grow despite the talent crunch, which has caused Sparks’ crystal ball to become “a little fuzzy sometimes.” “But overall, I would say I’m cautiously optimistic,” she said. MiBiz Editor Joe Boomgaard contributed to this report.

We believe the best ideas cause people to think, feel and act. They’re as smart as they are beautiful. The best ideas help tell the stories that engage audiences and build brands. Because, the best ideas inspire. All it takes is Wit & Craft.

witandcraft.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

IMAGINE...

THE POSSIBILITIES! AUTONOMOUS MOBILE ROBOTS

2D & 3D MACHINE VISION

COL BORATIVE ROBOTS

SER MARKERS

SINCE 1975, INDUSTRIAL CONTROL HAS BEEN INNOVATING FACTORY AUTOMATION... WE ARE NOT YOUR ORDINARY DISTRIBUTOR... THE FUTURE IS HERE.

͘ĐŽŵ

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

MANUFACTURING ROUNDTABLE

Manufacturing execs shift focus to internal operations, efﬁciencies in 2019 By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com est Michigan-based manufacturing executives think 2019 marks a good time to take a pause from the recent breakneck pace of capital investments and acquisitions to focus on operations. That’s the general consensus from local manufacturing leaders across a range of industries who participated in a forward-looking roundtable discussion with MiBiz earlier this month. The executives say the period of slower growth forecasted for next year — as well as declining sales projections in industries such as automotive — offers them the time to work on improving efficiencies, fully integrating past investments and honing their operational discipline to ensure they can weather the next economic cycle. Participating in the discussion were: ■ Dave Beemer, COO at Grand Rapids-based Terryberry Co. LLC, a maker of employee recognition products ■ Mark Ermatinger, CEO of Industrial Control Service Inc., a Zeelandbased supplier of industrial automation equipment and the sponsor of the roundtable ■ Mike Jorritsma, CFO at Grand Rapids-based Cascade Engineering Inc., a diversified manufacturer that supplies the heavy truck, automotive, contract furniture and waste industries ■ Mark Kinsler, president of Trendway Corp., a Holland-based contract furniture manufacturer ■ Jim Monterusso, president of Wyoming, Mich.-based HME Inc., a full-line fire truck manufacturer ■ Steve Moreland, president and CEO at Automatic Spring Products Corp., a Grand Haven-based supplier of automotive stampings ■ Adrienne Stevens, past president of Walker-based Plasan North America Inc., a defense contractor, metal fabricator and niche automotive supplier of carbon fiber panels Here are some highlights from the conversation.

From a 30,000-foot view, what’s your outlook for 2019? ERMATINGER: From our standpoint, we’re going into a little slump. We’re starting to feel that, although things have been busy in December, so I’ve been kind of shocked by that. Overall, the big thing we’re seeing is just a lot of disruptive technology emerging that’s (forcing) people to decide if they’re going to get in the game or not. But I think that’s going to accelerate exponentially going into the next 10 years. … We kind of look at this as a little rest year in 2019, but it’s a good year to prepare for the Roaring 20s. We’re hiring a lot more people, putting things in place, because we have time to do it. MONTERUSSO: We operate in two sectors. Our heavy truck parts division is on a cyclical high. That industry has been very busy now for a few years. We don’t see that going sideways; we don’t see a major pullback, at least in the short run. We made the decision a year ago to invest in that business, so they’re moving into a new purpose-built facility… just after the first of the year. On our fire truck business, that one’s a little cloudier to predict. The fire truck industry has still not returned to pre-recession levels

Visit www.mibiz.com

in terms of fire truck purchases. … Now we’re looking at the potential of another economic cycle, which makes it even more uncertain. If there’s anything we hate more than bad news, it’s uncertainty, and there is certainly some of that in the fire truck business for us. STEVENS: On the defense side … you recall that Trump increased the budget in the military. Well, everybody’s competing for what that budget is and it takes so long to release that budget. With all of the stress that’s occurring within the government, it just takes so long for things to get approved. Is the market really seeing the impact of that increased budget? Not necessarily, so there’s stress there. BEEMER: At Terryberry, we’re in the employee recognition, engagement and incentive market. We’re loosely tied to employment levels and our business is pretty strong because employment levels are pretty good. But the other part that really helps us tell the tale is in our incentive products, which are basically sales incentives and achievement-based programs. In those situations, back in ’08 and ’09, people weren’t hitting targets so we weren’t getting a lot of revenue generated from those things. Right

From top left: Mike Jorritsma, Cascade Engineering Inc.; Steve Moreland, Automatic Spring Products Corp.; Mark Kinsler, Trendway Corp.; Jim Monterusso, HME Inc.; Adrienne Stevens, formerly with Plasan North America; Dave Beemer, Terryberry Co. LLC; and Mark Ermatinger, Industrial Control Service Inc. PHOTOS: JEFF HUYCK GREEN FROG PHOTO

now, those things are pretty much off the charts for us. That anecdotally tells me that most of the companies are doing quite well. … All in all, I think the (sentiment) is pretty strong. KINSLER: In office furniture … we tend to be one of the leading industries to either an economic upturn or an economic downturn. Some of the things that have been impacting us is not just our labor issues but labor issues in the construction industries. Around the country, projects typically had delays because they haven’t been able to get the amount of labor they needed, so it’s put stress on the system. Right now, we’re cautiously optimistic going into ’19. … We know there’s going to be a bump in the road, and there’s enough uncertainty. People are hanging on to their capital expense dollars. We’ll see how cautious they actually are in the next few months. MOORELAND: Although our corporate sales are still very, very strong, all of the indicators that we track indicate 2019 will be the start of the automotive slowdown. I don’t think it’s going to be deep, I don’t necessarily think it will be all that long. … We’re planning for a bit of a softening in the auto side of the market. We’re fortunate to be on a lot

of truck and SUV platforms, so we’re less impacted, but I know some of the folks are more heavily involved in the (car) side and they’re just not selling. That hurts your sales, but then it hurts your margins because you price it being half million (units) a year and they’re selling 200,000 a year. JORRITSMA: For the next calendar year, we feel pretty good about what it looks like. However, we are cautious as well and need to make sure we are planning for an inevitable downturn. For us, the benefit of being in the various industries is you’ve got a bit of balance in your portfolio, so hopefully things are counter-cyclical and not all at the same time. But it also adds additional complexity, too, in terms of having to service all of those markets.

What are some strategies you’re deploying to mitigate the talent constraints?

KINSLER: We moved to a four-day, 10-hour shift about a year ago, primarily for recruiting purposes. It’s interesting. You find people who had to work two jobs, trying to balance two incomes in the house. You find people who are in hospitality and they want to work the weekends, and you can do that.

STEVENS: We have to adapt. We’ve got to have flexible work schedules and have competitive pay with benefits that make it easier and better for the employee. … There’s other things that can make a huge difference. Just for example, if you bring foodservice into your facilities, that stops people from having to leave to go out to lunch, which is just a huge time suck. BEEMER: Within Terryberry, we have made significant wage modifications, especially in key roles, but we’re also saying, ‘OK, there are a few roles within the company that we’re going to expect churn.’ If that’s going to be the case, if we’re going to accept churn in those roles, we need to make sure that we can train them very quickly, very easily and very standardized. JORRITSMA: We view culture as a competitive advantage as well. We try to market in terms of wages, and we offer great benefits in our opinion. But it’s really around that intention part, which we believe the culture helps drive that. It’s also making sure people understand the value. They can have a career, not just a job. MOORELAND: Our HR director did a great job in helping us put together some unique benefits and how you See ROUNDTABLE on page 12

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

ROUNDTABLE Continued from page 11 differentiate, because you can’t do it with wages. We’re in the automotive industry, I can’t pay the highest wage on the planet. We’re very competitive on wages, but we can’t use that as a lead. So then what we did is we put in our own health clinic that we share with a couple of other employers in town. Our employees love it. There’s no deductible. If they’ve got a sick kid, they can go in, get meds, see the doctor, and it doesn’t cost them a penny. And they can do it on their time. It’s just been a huge benefit. KINSLER: Right now, (the furniture industry is turning to automation) given the labor issues, and really the changes in the machines that we are able to buy. Right now, we make a twostep process or three-step process to mill and then turn out a work surface or a special wood

casegood or something like that. The machines today are allowing you to do that with one machine, so we’ll see that change us as well. As we go through the life cycle, maybe the ROI will require us to do it faster.

How has automation started to spread out of the automotive supply chain to other segments of manufacturing? ERMATINGER: It used to be just the robots were always in automotive for lifting heavy things and so forth. But with the advent of the collaborative robots, now you’re starting to see it all over the place. It could be in a nursery, just reading bar codes, just potting plants. We’re starting to see all these industries (turn to automation). The other thing that’s changing is the internet of things, with people that are trying to collect data. We’re currently starting to see a big push for people doing preventative maintenance. They’re starting to put temperature and vibration sensors on

a motor. They’re trending all that data out and they’re getting alarms on their phone when a motor’s going to blow. JORRITSMA: Cascade is starting to go down that path, getting away from reactive to preventative. Ultimately, we’d like to get to predictive (analytics). We’ve gone through a process of installing black boxes on our presses to get that information in real time. You can look on your phone and tap into the network where you can see what’s going on and react to it more quickly than with a down machine. Ultimately, I think where we are driving ourselves is to bringing this more up front on the design and development side — bring that into the virtual world for when a new product comes in. You can test it and verify it in the virtual space before ever getting it to the production floor. MONTERUSSO: Internally with automation, our processes don’t lend themselves particularly well to that. But it’s having an absolutely profound impact on our product

DOES DESIGN DOES INNOVATION OR DRIVE INNOVATION DRIVE DESIGN?

development, and the way we look at how our customers use our products as an automotive OEM. I told our national sales meeting earlier this year that we need to think about a world where there are driverless fire trucks without diesel engines dispatched to deploy robots at fire scenes. Now most of the folks in that room — and there were over a hundred of them — looked at me like I’d probably opened the bar early. But none of that is as far out as it sounds at the surface level.

With the advances in Industry 4.0 technologies, is it hard for employees to adopt a new vision for the future and to be thinking outside of the box? MONTERUSSO: There’s two answers to that. For us, it’s not difficult at all, internally, for our product development to get way out of the box. Sometimes we have to pack ourselves back in the box. It is very difficult at times among our customer base, if you’ve got firefighters who’ve been firefighters for decades, and they’re used to standing in front of that pump handle pulling levers. In a couple of cases, we actually had to add mechanical controls back to some of our products just so they can be accepted by the current generation of users. That’s just sort of the reality of the marketplace. ERMATINGER: That’s one of the things we’re facing with self-driving robots now. … It’s interesting to watch a company adopt it and try to leverage that technology. Every time I take it out, I just get a lot of people watching it all the way through the plant. Some fearful, some excited. It depends on their age, I think. The younger group are like, ‘Let me drive that thing!’ KINSLER: When you’re designing an office, typically the salesperson will come out and say, ‘OK, what are you thinking about?’ They’ll go back and draw something up and they come back out. So, it’s back and forth and back and forth. We had a small company come to us with an application of augmented reality, which you take your tablet and you walk into a space, you take a picture of the empty space, and then right on site, right at the first meeting, you’re pulling (products) in. They can make decisions a lot faster and it’s helping our sales people be more successful, because they can maybe make more sales calls and close things faster. But it also keeps the client engaged very quickly, and they like the idea they can do things a lot faster.

Given where the economy is in the current cycle, how are your companies approaching capital expenditures in the next year?

WE BELIEVE THE TWO SHOULD DRIVE EACH OTHER. Lacks Enterprises is a leading manufacturer of unique decorative trim of unprecedented durability and beauty for the automotive and appliance markets. The balance of art and science is the basis of every possibility we offer our design partners and every beautiful design and inspiring finish we create. Visit us at lacksenterprises.com.

FOURTH GENERATION FAMILY OWNED // PRIVATELY HELD // PROUDLY LOCATED IN GRAND RAPIDS, MICHIGAN

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

MOORELAND: From my perspective, because automotive has been on a tear and we’ve been on a tear, we have had record levels of capital investment for about the last four years. For 2019, we’re looking to start to better leverage all the stuff we’ve added. We clearly intend on significantly slowing our capex in 2019, just in anticipation of what we think might be a softening in the automotive market. KINSLER: I would say (capex) is going to stay moderate. We’ve been moderate for the last couple of years; we’ve been pretty cautious. JORRITSMA: I’d say we’re cautiously investing for the upcoming year as well. We’ll continue to focus on our core. As we refurbish machines, we are adding technology to make them smarter and give us more information. We’re in a capitalintensive business, so we’re not looking — unless it’s absolutely necessary and it’s got a great payback — to add capacity. It’s instead focusing on things that you can increase the capacity with the asset base that you have. That’s the sort of thing that we’re investing in, whether it be on the tooling side and technology or on the equipment. Monterusso: For 2019 … for us, this is more of a ‘sharpening the saw’ type of year. We have kicked off in recent years some pretty significant expansion plans. 2019 needs to be about optimizing around that, getting our foundation shored up to the next generation of products and into the investments that go with them. Visit www.mibiz.com

need to take a pause and bring all those things better in house. MOORELAND: We’re in the same place, too. We acquired a couple in the last decade and along with the capex, the assimilation of those into the organization always takes longer than you think. They’re doing well today, but it’s like: No, not for 2019. JORRITSMA: For 2019, I don’t really see it as a year for M&A for Cascade.

“(W)e’ve found ways to grow in a market that fundamentally hasn’t been growing over the last 10 years. That’s been largely on the back of new products and identifying segments where we feel like we can prevail, and we have. Now we need to become more effective at the manufacturing side and fulfilling those channels that we’ve created.”

What are a couple mission critical steps that you’re taking within your company that you think are really going to prepare you for next year?

— JIM MONTERUSSO, PRESIDENT OF HME INC.

PHOTO: JEFF HUYCK, GREEN FROG PHOTO

BEEMER: For 2019, we’re not looking at any brick and mortar. With the capex that we would (consider) doing … the hurdle is probably going up a little bit. It’s got to be a little big higher ROI right now if we’re going to move forward with it. But then again, it’s kind of the same type of prioritization. We’re landlocked where we’re at right now, so we’re pretty much at capacity. There are some things where if we can be better with less space, as well as get additional labor savings, those are some of the things we are moving towards. … We’re doing some investment, primarily I.T.-based, to automate more of the scalability and standardization of some of our front-office processes so we can get more efficient and scalable in how we service

our clients.

Do you expect to make any acquisitions in the new year? Do you see more consolidation ahead in your industries? KINSLER: In the office furniture business, the types of products are changing, so we can clearly see ancillary furniture as something we need to spend more time and energy on. An acquisition there would be something that we’d look at. … We’re more apt to look at somebody who’s got a product that has some life to it, that needs some help and some support, rather than somebody who’s already established. … We’ll be looking over the next couple of years for something like that. MONTERUSSO: For us, anytime you have a

market where demand stays stagnant for a long period of time and capital is abundant and cheap, you’re going to have a lot of consolidations. In the fire truck world, there’s already been a lot of consolidation. We’ve largely stayed out of that. However, we always keep a little dry powder for an opportunity if one should arise, but it’s definitely not central to our plans, in terms of M&A. BEEMER: We’ve had three relatively significant mergers and acquisitions in the last four years, so in 2019 we’re going to take a pause and digest. We need to do a better job of bringing some of those things in and integrating and consolidating some of those things. Mergers and acquisitions take a lot of energy and put a lot of strain on folks. We’re seeing a little bit of that, so we

KINSLER: Everyone was talking about the trade tensions, and we’re a primarily North American company. In our supply chain, unlike everyone in the furniture business, we’ve happened to stay away from mainland China sourcing because we sell a lot to the federal government. … We’re fortunate in that. We took a stand about six weeks ago, where we said we’re going to hold prices for 12 months. We felt like we could do that and it would put pressure on our competitors because they couldn’t (guarantee pricing). … Clients don’t like the uncertainty. If they have a project that’s way out there, they want to know what they’re going to pay. We’re trying to take advantage of that. MOORELAND: At Automatic, (we’re focused on) fully utilizing and leveraging the huge capex we’ve made recently. Secondly, we’re in the middle of implementing a brand new ERP business software across the entire organization, which we already know will dramatically improve our effectiveness and all that stuff. … It’s an aggressive timeline, but we can see how beautiful the world will be when we get there. Everybody’s willing to put up with it because of the pain they have lived for the last two years as we grew the See ROUNDTABLE on page 14

616.784.5833

COMMERCIAL • INSTITUTIONAL INDUSTRIAL • FOOD/AGRICULTURAL • FAITH/WORSHIP Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

“We’re very competitive on wages, but we can’t use that as a lead. So then what we did is we put in our own health clinic that we share with a couple of other employers in town. Our employees love it. There’s no deductible. If they’ve got a sick kid, they can go in, get meds, see the doctor, and it doesn’t cost them a penny. And they can do it on their time. It’s just been a huge benefit.” — STEVE MORELAND, PRESIDENT AND CEO AT AUTOMATIC SPRING PRODUCTS CORP.

PHOTO: JEFF HUYCK, GREEN FROG PHOTO

ROUNDTABLE Continued from page 13 business so dang fast that none of our systems were effective at the size we are today. JORRITSMA: For us, it’s continuing to focus on becoming more operationally excellent. We talked about the automation, making sure that we’re implementing that as we go along, as well as identifying cost opportunities within operations. We’re very-customer focused as well, so it’s ensuring that we are continuing to become more intimate with those customers, as well as offering them innovation in a partner kind of way. … And the third area revolves around being an employer of choice. It’s continuing to focus on employee acquisition, retention, up-skilling and becoming more relevant and becoming more flexible. ERMATINGER: The big challenge going into the next 10 years is going to be looking for new technologies. It used to be that we would wait for it to come to us, but now we’re going out to it. There’s a lot of new technology coming out of Europe, and also in South Korea and some of the other areas, so us traveling to the areas to seek it out and bring it to the U.S. is our goal. We’ve done it successfully with some new technology when it comes to deep learning and artificial intelligence. … There’s a lot of very, very exciting stuff. It’s just for us, we’ve got to stay on top of it, make sure it’s real, bring it to bear and market it — and be successful at deploying it. MONTERUSSO: For us, mission critical is definitely operations execution. In our case, we’ve found ways to grow in a market that fundamentally hasn’t been growing over the last 10 years. That’s been largely on the back of new products and identifying segments where we feel like we can prevail, and we have. Now we need to become more effective at the manufacturing side and fulfilling those channels that we’ve created. We need to do an ERP project, but we need to get our blocking and tackling in order a little better before we can really take that on for 2020. Just good old fashioned execution internally is where we’re at today. STEVENS: In 2019 especially, in automotive and defense both, it takes so long to implement the new product, so there’s new product launches that are occurring next year along with the OEM and the prime. It’s a matter of making sure that those projects are delivered on time to the customer’s expectation. Internally, it’s rolling into the new tooling and changing your plant floor to be able to accommodate those projects, so it’s an exciting time. But it’s keeping our focus on the customer first and foremost. BEEMER: We’re going to be consolidating and integrating the acquisitions we’ve previously done. That’s going to be our main focus. But we’ll continue to do a lot of work on standardization and scalability of some of our frontoffice functions, customer service, and sales through some integrations with Salesforce … just to make things more automated, scalable and standardized.

What’s keeping you up at night? What’s an outlier that, if it happens next year, could really throw a wrench into plans? MOORELAND: For anybody in the metalforming industry, the steel cost increase will be keeping us up next year until that gets resolved. A lot of our high-quality stuff does come from Japan, it comes from Germany and Korea, and they’re all tariffed, so those costs are all going up. Getting our automotive customers to accept those increases has been difficult to impossible, which really destroys margins in our industry right now. The American steel producers see this as a great advantage. I don’t blame them for what they’re doing, but they’ve all raised their costs so the cost of all of our steel is up 25 percent. What keeps me up at night is figuring out how to get recovery of those higher costs from our automotive customers, because that’s an unsustainable situation, frankly, for us and everybody in our industry that’s dealing with that. That’s the one thing

that keeps me up at night right now: How do we win that game? KINSLER: In the office furniture supply chain, it’s the same thing. Steel for us is up 26 percent, aluminum 16 percent. We’ve done a lot of index pricing with our suppliers where two years ago they were sending us checks, and now we’re writing them checks. So, it’s the good and bad. For our industry right now, I think there’s a movement where the channels are changing. Especially for the big guys, with less cubicles and less task chairs, they’re bringing in all these other suppliers to augment it, and there’s a lot of change going on. We actually view that as an advantage for us, and I think we’ll be able to take advantage of some non-traditional channel players that haven’t been in the industry that are going to come into the industry. BEEMER: With the U.K. operation we brought on, there’s a number of data privacy regulations with GDPR and some of those types of things, and some of the products that we supply are

“We’re in a capital-intensive business, so we’re not looking — unless it’s absolutely necessary and it’s got a great payback — to add capacity. It’s instead focusing on things that you can increase the capacity with the asset base that you have. That’s the sort of thing that we’re investing in, whether it be on the tooling side and technology or on the equipment.” — MIKE JORRITSMA, CFO AT CASCADE ENGINEERING INC.

also wellness incentive based, so we’re starting to get more data that’s in a HIPAA-protected type of scenario. Data security and data integrity is very, very important to us. There’s more and more hacking going on and so that would be just a worst-case scenario if something happened with that. That probably keeps me up at night more than about anything. STEVENS: For me, it’s been about generating new revenue and being able to recognize that there’s a very long selling cycle in the markets that we deal with. How do you supplement until you create the bridge, until new platforms come into play? For example, things that we’re winning this year don’t come to fruition until the 2021 timeframe. We opened up a commercial metal solutions business to be able to weather that. We had a huge capex investment over the last year. We’ve opened our facilities to new markets and new customers, and that will help to soften that. MONTERUSSO: I have to give you a two-part answer. The 2019 answer for what keeps me up at night is improving on the profitability of the business that we have recently gained, and that’s just fundamental, necessary. In the long term, what keeps me up at night is the opportunities and threats that are around technology. As the auto industry becomes the mobility industry, the price of admission for everyone, especially smaller companies like ours, is very intimidating when we look at the profound change going on. … It’s basic things like front airbags. If you’re willing to smash a few million dollars worth of fire trucks, you can make advances in that. Well, that’s a big deal for companies like us, so we’re picking our battles in technology. It’s crucial to our long-term survival in this space. ERMATINGER: I would say that the thing that is heavy on me would be just some of the opportunities we’ve got out there to disrupt the way things are done in manufacturing. Potentially, it could cause us to grow exponentially at a level that’s unsustainable. We’ve got some quotes out there right now that are ten times our current sales. That’s the scary part. It just scares you that there are so many things out there that are massive game-changers, and how you respond to that. JORRITSMA: I think in the near term it’s really being able to address all the demand from the truck OEMs. If they continue to maintain high levels, we’ve got to figure out ways that we’re not falling behind and keep ahead. It’s a focus on operational execution, being able to maintain the relationship with the customers and a lot of that is on-time delivery. We’re coming into a season in heavy truck where it’s crash season, so service parts are a large part of our business. You’re always making decisions on, ‘Am I doing production orders or am I doing service orders?’ So we got to make sure we’re ahead of both. And it’s the near-term things, like making sure the pipeline is active and we’re getting replacement business, we’re getting incremental business, in really all segments.

PHOTO: JEFF HUYCK, GREEN FROG PHOTO

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

Meet The Banking Team

*" /# -Ǽ - $-./ǻ

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

Corporate Training Institute

Call Today for Customized Training Solutions!

MTEC.ORG | 616.738.8935

:H SURYLGH FXVWRPL]HG WUDLQLQJ SURJUDPV WR Ã&#x20AC;W WKH QHHGV RI \RXU RUJDQL]DWLRQ ODUJH RU VPDOO DW \RXU IDFLOLW\ RU RXUV

A service of Ottawa Area ISD

â&#x20AC;¢ CNC Machine Technology and Programming â&#x20AC;¢ SOLIDWORKS and AutoCAD â&#x20AC;¢ Welding

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

â&#x20AC;¢ Electrical Systems â&#x20AC;¢ Robotics Programming and Repairs â&#x20AC;¢ Front Line Leadership and more

Visit www.mibiz.com

MANUFACTURING

JUSTINE BURDETTE REGIONAL DIRECTOR, MICHIGAN MANUFACTURING TECHNOLOGY CENTER-WEST // GRAND RAPIDS

West Michigan manufacturers are dealing with a host of issues, ranging from trade and tariffs to talent and technology. As they wade through those challenges, the Michigan Manufacturing Technology Center-West is there to help, according to Regional Director Justine Burdette. As MMTC seeks to “maintain that closeness and relationships with our manufacturers,” the organization is finding new ways to adapt and address their needs, she said. What are some of the issues you’re hearing from manufacturers as they’re thinking about next year? I think that there are a lot of larger headwinds that are happening. Who hasn’t been affected by the trade and tariffs? We just had an election. We are still trying to figure out who actually is going to be in charge in Lansing, who are our contacts, what are their agendas, what’s going to be accomplished in the next session. We have had some proposals pass. Right now, businesses are concerned. I think they understand that right now, there’s just a lot of uncertainty happening as we wait for additional things to shake out, between now and the first quarter of next year, before real pen hits paper and we actually start talking about how is this manifesting itself on a day-to-day basis. There is a general uncertainty right now and just some general caution.

On top of these challenges, companies are also facing change with Industry 4.0. How should West Michigan manufacturers be thinking about the next technological revolution? Industry 4.0, in my mind, is really the ‘what’s next’ of continuous improvement and lean. I love to see that parts of Industry 4.0 are actually tackling that decade-long integration between continuously improving and running a top-notch quality management system. … When you try to improve something, you have to change it. Well, you’re naturally now at odds with quality management systems. My personal philosophy is that those two things can actually coexist together. I think that some of our manufacturers are waking up to that reality and using some Industry 4.0 tools to do that.

Will this uncertainty put a damper on manufacturers’ plans?

What do you see as some of the smart investment strategies for companies?

I don’t think that people are making a lot of moves, just because we have no idea what’s coming down the pike or how it’s really going to manifest itself and really work down to the shop floor and the everyday.

Certainly, the front runners are manufacturers who are actually spending time and working from a high level down throughout their entire organization with C-suite support on their cyber security. They are not waiting

until an incident hits them and then just quietly resolving it. They are actively going out and talking to people in their I.T. department and whoever their external provider is. They also are looking at their entire business and for those vulnerabilities and developing a plan of how to shore up what we have right now.

It seems like Industry 4.0 can be overwhelming for executives. How should they start? I think it’s starting small. Industry 4.0 has this really bad rap for being this huge ubiquitous thing that’s hard for our small to medium sized manufacturers to tap into. And that’s not really true. It can be scalable. It can be manageable. Pick something, it doesn’t matter if it’s just one production cell, just one production line. Pick something that makes sense for you.

Do you see a model for adoption from other sectors? They’ve been using this in I.T. for years: Scale fast, scale cheap. Do the same thing in manufacturing. If it’s a vision system that will help you shave time off of your quality management on the back end, great, do that. See what kind of results that gets you. If it’s networking just a couple of your CNC machines

Patrick Greene PRESIDENT, CASCADE DIE CASTING GROUP INC. // GRAND RAPIDS

Cascade Die Casting Group Inc. is a manufacturer heavily concentrated in the automotive industry. Although the company recently lost business related to the closure of several General Motors plants, the industry shift from low price-point cars to higher-margin trucks and SUVs has President Patrick Greene cautiously optimistic about continued growth in 2019. With the automotive industry focusing more on SUVs, trucks, and crossovers with higher price points and higher barriers for customers, where is the ceiling? I think there are two things that are going to hurt the number of vehicles that are sold. Every vehicle now has more expensive safety equipment, sensors and features in it than it ever did before. All those things are adding up to a higher cost to the vehicle. And then on top of that, we also are facing higher interest rates. People that want to lease a vehicle or are borrowing money to buy a vehicle are getting sticker shock when they realize that if interest rates have doubled, then that cost of financing is double, and their cost to the vehicle, thus, is going up. That’s going to be a real Visit www.mibiz.com

challenge, a real headwind for us as we go forward. People are either going to continue to drive a car longer, or they’re going to look for a used car that has the features that they want and maybe not quite as high on the price.

And that is assuming that the price of oil is going to stay low as well. That’s true. That one, I’m more confident on. I look at the price of gas and the fact that the U.S. now has become an exporter of oil. Now, we’re in very good shape for that and I think that we’ve never been stronger from that standpoint. There is a level of abundance of oil that we’ve not seen produced in the U.S. in our lifetime that is going to at least take some of that risk away. When you

together, great. Decide a couple of data points that you want to pull off of it and see what your machines are telling you. Think about how you’d use that information to better inform some of your business decisions.

What are the best practices for implementing the technologies without disrupting the entire company? Firstly, you would start like with any other type of change: Be thoughtful about how you’re going to roll it out. I’m always an advocate for creating buy-in on the front end, as opposed to just pushing something out to your entire workforce and asking them to either get on board or get out. That doesn’t go over well in the 21st Century. Get some people from the shop floor, get someone from accounting, customer service. … Ask for their feedback and what they think the company should start with, and then go

talk about people buying cars, the cost of gas is a pretty significant cost for car ownership. If we can have lower gas prices, that allows them to potentially afford a car that they otherwise wouldn’t be able to. In terms of the economy as a whole, I think the oil and gas prices are a plus for consumers, even though we’ve got interest rates and some other things going the other direction.

So it’s a balancing act, right? That’s for sure. There are pluses and minuses in the economy, but I’ve gone to a lot of economic updates and talked to some analysts over the last three or four months, and I think that the pluses actually outweigh the minuses in the economy right now. From my perspective, and it doesn’t mean we’re going to grow fast, but I don’t see any significant risk right now of a sharp falloff in demand that looks like a recession. But the challenge of any recession is it’s always the things you don’t expect that cause it. If we anticipated them all, we’d be in good shape. Even though a lot of indicators are all positives, it’s going to be the thing we don’t expect that starts the next recession. And it’s not if it happens, it’s when it happens.

When a recession happens and people don’t have as much disposable income, will they go back to those cars with the lower price points? That’s true. Some of the automakers right now are offering the opportunity to still buy things at a lower price point like the way that Chrysler has dealt with the minivan. They’ve got the highend one, but then they’ve left the old Caravan

from there. Talk about what’s possible.

How should manufacturers be thinking about ROI with these technologies? Certainly, anytime you have these conversations, ROI always comes up. I would say those are really individual type things. For your particular business, you’ve got to decide what’s the best payback for you and then what time frame. Decide what you’re going to do, decide how you’re going to measure it, and for how long. And then do it, get back together and talk about the results. I would advocate that kind of process. Plan, do, check, act, and adapt. We’ve been doing that in manufacturing for 50 years. There is no reason we should deviate from that proven process for this. Interview conducted and condensed by Joe Boomgaard. Photo by Katy Batdorff.

minivan as an offering that is a much lower price. It’s dated, it’s got old tools. We continue to get orders on that product years after they thought they were going to cancel it. They’ve decided to continue to produce those vehicles and really the intention there is to be able to offer two different minivans. An old model that’s much cheaper and a new model that’s better. That is the kind of thing that may help offset some of the risks of driving up the price of automobiles.

How is pulling out of NAFTA and the likely adoption of the USMCA affecting your corporate decision-making? NAFTA and the new USMCA is critical to the automotive industry because so many vehicles’ part supplies cross over those borders. And then the vehicles cross over the border. Getting that right is going to be very important. I’m pleased that at least we have gotten some level of movement toward a resolution with the new USMCA, because that one is critical to have in place and we need to get that done for the sake of all three countries involved. Ideally, it won’t impact us much. We do ship from the U.S. to our customers who are in Mexico and in Canada. That does impact us if that doesn’t come together. Especially in the automotive industry, and us being neighbors with Canada here in Michigan, it’s pretty darn important that we have a good trade agreement in place, something that can stand the test of time as we go forward. Interview conducted and condensed by Jessica Young. MiBiz file photo: Katy Batdorff.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

MANUFACTURING

KELLY SPRINGER CEO, METAL FLOW CORPORATION // HOLLAND

Women are critical to addressing the serious shortage of qualified applicants for skilled production positions, according to Kelly Springer, CEO of Metal Flow Corp., a Holland-based automotive supplier. Yet, relatively few women choose manufacturing careers. As chair of Inforum’s ManufacturingNext steering committee, Springer is helping to strengthen the talent pipeline of women who thrive in manufacturing professions. Historically, why haven’t more women in our region looked to manufacturing as a career path? I think there are some negative stereotypes that have existed in manufacturing, whether that be the opportunity for advancement, cleanliness of the work environment, or not using the most updated technology. All of those things are

stereotypes that have existed, and maybe in the past, they have made manufacturing less attractive as a career choice.

true in any organization that’s growing. There’s a whole variety of opportunities. .

Are the stereotypes wrong?

What gaps in training or education do you most often face these days?

I think that the stereotypes are definitely wrong, but we’re going to have to break through those stereotypes. There’s got to be some PR. I’ve never really heard of manufacturers that really tell their story to share what their work environment is like. For our organization, we have a very clean work environment. We created opportunities and career paths that demonstrate the opportunity for advancement of our team members. And, when we look at the dollars that get invested in new technologies, automation, robotics, sensors, cameras, and all the latest and greatest from a true technology perspective, it really does combat those stereotypes very effectively.

How can ManufacturingNext help women lead and succeed in manufacturing? In a way, it’s self-serving for manufacturing when you look at the opportunities and the number of manufacturing jobs that are going to be needed. We need to fill those gaps. Women play a critical long-term role for the business of manufacturing to meet those skills gaps. For all the reasons we talked about, there’s sometimes relatively few who choose those from a career perspective. Sharing the success stories and providing a camaraderie that ManufacturingNext provides by getting a group together really does go a long way to break down those stereotypes and demonstrate where a career path in manufacturing can actually go.

In 2019, what types of careers and opportunities are available for women in manufacturing? It’s across the board. We have opportunities in our quality team — obviously quality and safety are critical components of what we do. We have opportunities for skilled trades tool makers on the floor working in our production environment. Shipping and receiving. Then, we have more traditional roles in accounting and human resources, our purchase team and procurement team. We really try and look at all the competencies that individuals have and try and apply those. I think it’s

Some of the basic mechanical inclination. High school shop classes and things like that aren’t as readily available. I think the career-line tech centers have done a nice job of really adding that type of trade, but I would say that’s a gap. We’ve chosen to fill that gap by providing that type of training to our team members through a training academy.

As you’re willing to take on the investment of training people through the academy, what are you looking for in somebody who joins that program? We are looking for someone who has a great attitude and a lot of excitement about learning a new trade and skill. They can join us if they have a great work ethic, have a strong desire to learn, and have some mechanical aptitude, someone who wants to have career advancement. I think when you put all of those together and we can complement all of those softer skills with a hands-on technical skill, the outcome is very positive. It’s a program that will give them not only the basic skills but also training that will allow them to hit the ground running in our culture. And it’ll help us fill some of those gaps. We feel it’s a good opportunity for us, versus just running ads and trying to recruit in the more traditional manner.

What’s the outlook for 2019? Are more women coming to manufacturing? Given the audience of ManufacturingNext, the attendance, and the topics that have been discussed, I think it’s gaining momentum. From a PR perspective, it will hopefully keep the folks who are in manufacturing today engaged in the manufacturing space. Going forward, it will be a great tool to recruit younger women, middle school and high school ages who have certain skills and aptitudes, to their possibility within manufacturing. Interview conducted and condensed by Jessica Young. Courtesy photo.

Steve Johandes FOUNDER, 100X LLC // ROCKFORD

This year, unemployment rates have dropped to an 18-year low and local manufacturers are scrambling to find new and innovative ways to grow without gaps. As founder of the advisory firm 100X LLC and chair of Vistage Executive Peer Group, an executive coaching organization, former manufacturing exec Steve Johandes helps dozens of local organizations and companies position themselves for “what’s next” in the market.

How do you think manufacturers should be preparing for new investments in technologies? I’ve seen a very interesting spin in the way people justify technology and automation projects. When I used to look at technology projects, it would be all about the ROI. How many people are we going to reduce as a result of this? The best-case scenario was that you would be able to grow with the same amount of people. We knew that this project was going to save us 20 people, and that was going to cost-justify that project. We knew that if we grew, we could keep those 20 people. But if we didn’t grow, those 20 people were going away.

And now? The difference is now those same manufacturers are saying, ‘Look, let’s say we’re 10 percent of our workforce short. So what we’re justifying now is how much can this shortage be made up by the technology?’ It becomes a zero-sum game. That’s probably been the biggest trend that I’ve seen this year. It’s been people starting to acknowledge technology investment not as being a cost reducer but making up for those employment gaps, those unfilled position gaps. And I see that trend continuing. I believe that a lot of the companies that aren’t thinking about it that way should be.

Visit www.mibiz.com

How much time do you think they have to get there? I think they’re there right now. The ones that are on top have made the connection. But for those that haven’t made the connection, particularly someone smaller — and when I say smaller I mean under $25 million — if they haven’t made the connection, they need to, because the bigger guys are making the connection.

Do you see any quick wins for this talent acquisition problem? There are a lot of interesting initiatives that I see going on in the community. I see businesses actually working together and recruiting together. There are some progressive folks that are doing some really interesting things. Some of the furniture manufacturers are going with weekend shifts, three 12-hour shifts. And that’s for the person who wants a second job. They can work Friday night to Sunday night, and then during the week, they can do whatever they want. I’m seeing these 9 to 3 shifts. They’re targeting the stay-at-home moms or stay-at-home dads.

How can the region do a better job of encouraging entrepreneurs within manufacturing? We’ve always done great at producing things.

The big opportunity that exists is to produce what I’ll call a supplemental resource to manufacturers. How do they create that innovative environment among themselves? Let’s say that I’m a $50 million manufacturer in town, a decent size — I’ve got 200, 300, 400 employees. I can guarantee you there’s a lot of stuff in there that is not my wheelhouse. So the question becomes, how do we reach out into a community of these hungry entrepreneurs and say, ‘Hey, look: You could have a really nice company on my crumbs.’ There needs to be more of those partnerships because we have a lot of this young talent that’s coming up that we’re not being super intentional about.

What do you think could happen in the next year that people need to pay more attention to? I believe they’re not paying as much attention to the ethnic makeup of our community. Go look at the freshmen class of Kentwood High School right now. Those are our future workers. How are we prepared for that? We have the leading indicator. This is business’ responsibility, to look ahead. My fear is that we’re so focused on filling these positions and capacity that we forget about the long-term community impact. Interview conducted and condensed by Jessica Young. Photo: Katy Batdorff.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

MANUFACTURING

AMY SPARKS

Mike Wall

PRESIDENT AND CEO, NUVAR INC. // HOLLAND

After acquiring Nuvar Inc. in May from its long-time owner, Amy Sparks is executing on growth plans for the Holland-based manufacturer and developer of finished goods primarily for the contract furniture industry. While she’s mindful of some softening in the broader market, Sparks remains “cautiously optimistic” for the economy in 2019.

The 2019 forecast for the automotive industry remains steady, although sales are expected to experience “a little bit of a step down” to 16.8 million units compared to an expected 17.1 million units this year, according to Mike Wall, director of automotive analysis at IHS Markit. The big cloud over the industry currently hinges on tariffs and trade deals, specifically the United States Mexico Canada Agreement. Wall expects the USMCA to get enacted in some form, even though he does expect to see “some adjustments on the margins.”

What’s your outlook for 2019 for West Michigan and the manufacturing industry?

Will the USMCA be a good deal for West Michigan-based automotive suppliers?

Overall, confidence is still fairly strong and optimistic in our outlook. Most of us are feeling there’s going to be a little bit of softening, and it’s just a little bit of a gut feel. Hopefully it’s not going to be anything close to what we saw in ’08 and ’09, but we’re seeing just a little bit of slowing throughout the year in different sectors. As I look into 2019, I’m looking at more of the same, with the impetus on us to really look at how we can grow our market share in order to grow into the coming year and the future years.

What indicators are you watching and using to gauge your plans for the future? (With) automotive and contract furniture, you’re kind of the first into a recession and the last one out because you’re more of a discretionary spend. I’ve tended to watch those to give me earlier signals on where we’re headed. I feel like there’s a little bit of softening going on. I’m not feeling it’s catastrophic. I’m not feeling that there’s this huge readjustment, but there might be a little bit of one coming on the automotive side.

How is the office furniture industry shaping up for next year? We’re still hearing a lot of activity from our customers and a lot of opportunity that’s out there. So I would call that on the reassuring side. There’s been so much change and consolidation within the industry, and a lot of our great OEMs are purchasing some smaller companies and specialty companies to add to their portfolios. It’s going to be interesting in this next couple years to see how that transformation impacts the market as they’re evolving.

For Nuvar, is that consolidation a threat or an opportunity? We hope that that’s going to bring additional opportunities with us with some great partners that we have and partners we’re looking to add on as well, where they are constrained for capacity or capability maybe, or just … need a partner that’s qualified to come alongside of them and help make their phenomenal products and be able to get those into market quickly. That’s where we would come into play.

How does the talent shortage shape growth plans for Nuvar? Definitely, we are in growth mode and the support that we’re going to need, the fantastic talent, is a scarce resource. We’re looking at ways we can automate where we can, and it’s not to get rid of any employee or any job. We still fill those positions that we can, and then provide a probably higher-skilled position for the phenomenal employees that we do have, adding to their growth and trajectory.

The devil’s in the details in this thing. First of all, the concepts and the construct around USMCA versus NAFTA are not all that dissimilar. We see things like local content, regional local content, and all that. Now, those numbers are going up, and there’s this labor content component now too. All of those are setting the stage that it wouldn’t surprise me to see some opportunities for suppliers such as West Michigan suppliers to potentially benefit in terms of maybe getting sourced on new business, owing to the fact that they’re building in the U.S., for example. I do think there’s going to be some contenting opportunities.

Does that translate into more jobs in the supply chain locally? The challenge to that is there’s a difference between seeing some content shifting to the U.S. and seeing jobs shift to the U.S. Even with pre-USMCA, frankly, we were seeing local suppliers and suppliers in the Midwest and the U.S. expanding. You’ll see these expansions, you’ll see these add-ons to different buildings and definitely we’re seeing investment, but it’s not necessarily adding a bunch of new jobs. It’s solidifying the jobs that are here, and I’m not trying to diminish that. But this direct correlation to an influx of jobs, I think more realistically what we’re going to see is a greater use of automation. That’s an ongoing progression there.

How might the new agreement affect where suppliers invest?

For a lot of what we need to do, I would say the easier answer is if there were 300 people available, fantastic, let’s get them in here and get them working. But the fact of the matter is they’re not available. So now we have to ask the question: How do we get this done? How do we grow and continue to serve our customers if the talent isn’t there? You’ve got to find a way to automate some portion of the process to fill those roles that we can’t fill with qualified labor.

There was a period of time coming out of the recession where suppliers were starting to grow, and suppliers were increasingly being told or being certainly strongly encouraged to go to Mexico or go international. I wouldn’t say there’s always a compelling reason, but I tell you what: If you’re a high fixed-cost supplier with significant equipment and maybe a relatively lower labor cost component, we’re going to see more compelling rationale to be doing that assembly work in the U.S. It’s really supported by these trends that we’re seeing with the USMCA.

What implications does the talent crunch have for efforts to lure new businesses to the region?

What is an example of how that might play out?

Does automation become a long-term solution to the challenge of finding skilled labor?

As we hear a new big company come in, and if they were going to put in 1,000 jobs, all of the great businesses around here are going, ‘Oh, goodness’ because they’re going to pull from their workforce. It’s just balancing that, and trying not to take any opportunities away. It’s just how do we continue to grow.

Should economic development shift from company attraction to talent attraction? A lot of the discussions we’re having at CEO roundtables and with the economic development groups in Grand Rapids and here on the lakeshore is changing that focus a little bit from attracting businesses. We’ve done such a great job of that. It’s now how do we attract talent and families to move and stay within the West Michigan areas. We’ve got such a wonderful community from Grand Rapids to the lakeshore. Now how do we get more people to come to our area? Interview conducted and condensed by Joe Boomgaard. Courtesy photo.

DIRECTOR OF AUTOMOTIVE ANALYSIS, IHS MARKIT // GRAND RAPIDS

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

If you’ve got a stamping situation where you’ve got a facility in Mexico or you’ve invested down there, you’re not going to necessarily pull that back here, per se. But if … you may have been inclined to move that to Mexico, and you’ve got that fixed investment here and maybe you’ve automated the line or maybe you do have some value-added assembly to it, it can make you think twice or at least run that cost analysis again. I think that’s what you’re going to see. Frankly, I think we’re going to have to see automakers and suppliers alike really taking a close look at their cost, their building materials and their costing. This process of increasing labor content is not going to happen overnight. This is obviously a phase-in process of three years, so we’ve got a runway to work with. But if we have that runway,

more and more eyeballs are going to be looking at things like where are we going to be getting these parts from and what is that labor content cost.

What happens if Congress doesn’t approve the USMCA and we go back to pre-NAFTA rules? Let’s hope it doesn’t go down that road. If the administration tries to call the Congress’ bluff and says, ‘Here’s USMCA, approve it, and by the way I’ve already alerted you that we’re stepping out of NAFTA,’ then it’s in Congress’ hands. Do they continue to negotiate or try to push it along further?

Who wins in that case? Well, it’s more cost. Eventually, that’s the challenge with all this trade ‘sturm und drang.’ The fact that we’ve gotten some semblance of potentially an agreement on (the replacement to) NAFTA is huge — that was a big overhang. But any of this, it just adds additional costs, and eventually that’s going to have to trickle down to the consumer. Things like the steel and aluminum tariffs, I think you can make an argument that’s something that is not necessarily transmitted down to the customer yet. In fact, much of it probably hasn’t. But we’re going to get to a point where … it’s going to have to start trickling down.

If raw materials and all these inputs are getting more expensive, are the OEMS still asking for price concessions as aggressively as they had been? Oh, yeah. Absolutely. It never went away. I will say there seems to be a little bit more rationality to it. I don’t want to say this is a case of we’re going back to the bad old days or anything like that. In fact, some suppliers are getting better and more adept at maybe saying no, or maybe offering other options or collaborating a bit more, too. But (they’re) kind of all in the same boat to an extent. As you start to see more of these tariff impacts, and some of these Section 232 type of impacts, if they go down the rabbit hole and we levy it on all nations, everybody kind of gets touched in some way, shape or form. I don’t know if there’s anybody that’s completely immune to it.

As Congress works on USMCA and the administration keeps upping the pressure on China, how is that affecting how the automotive industry approaches 2019? If I’m an automaker or I’m a supplier, it’s making it hard to commit millions of dollars or hundreds of thousands of dollars, depending on the size of the company, into some sort of investment internationally or in other markets, if we don’t have a real good sense of what the trade landscape’s going to look like. If you think about it, prior to this administration, that was one thing we didn’t really have as much on the radar in terms of a high degree of risk or a high degree of uncertainty. That is something that really everyone’s having to wrestle with right now. Interview conducted and condensed by Joe Boomgaard. Courtesy photo. Visit www.mibiz.com

Count on us for your CISCO technology needs.

Precision Data Products Inc. 1-800-968-2468 â&#x20AC;¢ www.precision.com

5036 FALCON VIEW AVE. SE, GRAND RAPIDS, MI 49512

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

BLESSED TO BE PART OF A GENEROUS COMMUNITY

We are grateful, especially during this Christmas season, for the individuals and businesses that make Grand Rapids the very best place to work and live. Wishing all of our clients, friends, and family a safe and Merry Christmas.

VISIT OUR WEST MICHIGAN BLOG AT: MEDIUM.COM/@COLLIERSWESTMICHIGAN

COLLIERS.COM/WESTMICHIGAN GRAND RAPIDS +1 616 774 3500 LANSING HOLLAND KALAMAZOO

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

+1 517 512 7400 +1 616 394 4500 +1 269 978 0245

Visit www.mibiz.com

REAL ESTATE & DEVELOPMENT OUTLOOK

Despite talent crunch for contractors, development ﬁrms expect strong 2019 By SYDNEY SMITH | MiBiz ssmith@mibiz.com ven with a number of large-scale projects being built, West Michigan developers say they’re still thinking big for 2019. Multiple real estate and construction executives say they see no sign of the industry slowing down in the new year, although many believe companies’ focus could shift away from market-rate housing in downtown Grand Rapids. That’s particularly as 300 housing units downtown have come online in 2018, according to Downtown Grand Rapids Inc. Developers have about 622 more units in the pipeline. At the same time, concerns over rising interest rates, higher construction costs and an escalating talent shortage still remain. “We’re in an environment Wheeler where the interest rates have risen substantially in the last 18 months, so that’s starting to put pressure on returns,” said John Wheeler, director of business development at Orion Real Estate Services. “It seems like the supply and the demand of most of the market segments of real Brady estate are starting to balance out. It seems like there’s plenty of apartments now, when three years ago there wasn’t.” Orion is in the process of concluding several large projects, including its Warner Building office and hotel project in the middle of Grand Rapids’ central business district. With a large backlog of projects, large-scale development will continue in 2019 and could make for another busy year, said Norm Brady, president and CEO of the Associated Builders and Contractors (ABC) Western Michigan chapter. “We already know what we have in the pipeline, we already know what the backlog is,” he said. “I can say with confidence we’re going to have more of the same in 2019.” The American Institute of Architects reported growth in its Architectural Billings Index for October, although expansion this year has ebbed and flowed. However, the organization reported a positive outlook, as “inquiries into new work remain strong, and the value of new signed design contracts remains relatively strong.”

STILL SHORT ON TALENT According to Brady, the top challenge for contractors has remained their inability to find talent, particularly amid a very low 3.9 percent statewide unemployment rate, according to October data. In Kent County, unemployment stood at 2.6 percent. “(ABC members) have to be more careful about what they bid and how much they bid in order to meet the schedules and commitments,” he said. “I think members are going to have to be realistic about the amount of talent in the pipeline, and only bite off as much as they can chew.” Rising interest rates also remain a concern, as do construction costs because of tariffs on Visit www.mibiz.com

imported material, labor costs and increased costs to comply with energy-efficiency requirements for HVAC and other items. Regarding the legalization of marijuana, multiple industry sources told MiBiz weed has no place in the construction industry, but it could provide some unique development opportunities. “(ABC) did not support legalization, but it is a reality that we have,” Brady said. “While it’s bad for employers, there’s a little bit of a silver lining for contractors. There will be a number of opportunities for our members to build grow houses and other things that might come.”

FOCUSING AWAY FROM DOWNTOWN At Franklin Partners LLC, a Grand Rapids- and Oak Brook, Ill.-based real estate development and property management firm that primarily focuses on office and industrial properties, a shortage of buildings poses some challenges for 2019, said Don Shoemaker, partner at the firm. “With the right buildings in this healthy market in Grand Rapids, I’d be very bullish if I just had more buildings to fill up,” Shoemaker said. “We just don’t have a lot of buildings.” In October, Franklin Partners cited low demand as it backed away from plans to build a 100,000-square-foot office project downtown as part of the Studio Park development. The plans for the site didn’t follow the trend of large suburban companies in areas like Chicago seeking out urban office space, Shoemaker said. In 2019, Franklin Partners will focus on its partnership with the city of Wyoming to develop the former General Motors site on 36th Street, as well as the former site of Sunshine Community Church on the East Beltline Avenue. The 72-acre property was rezoned for multi-family development, and Franklin Partners is looking to partner with residential developers on the site. Meanwhile, Orion’s focus in 2019 will be on four suburban townhome projects, mostly outside of Grand Rapids in Caledonia, Ada Township and Spring Lake. Wheeler said demand for housing is still high in those areas. “As long as you can build them affordable, as long as interest rates stay there, it’s a segment that still has some room and some demand,” Wheeler said. As focus shifts from downtown, Mitch Watt, senior vice president and partner at Triangle Associates Inc., said office building projects in the urban core also could slow down for the next couple years. The slowing of the market could spur more focus on publicly-funded projects, which typically do not see slowdowns until a “real significant” impact hits the broader economy, Watt added. A bulk of Triangle’s work is in the K-12 and higher education sectors. “The minute (privately-funded) projects slow, then other people start to focus on publicly-funded projects, and then you have more competition and less work,” he said.

“The supply has definitely caught up with the demand in most of the market segments around Grand Rapids,” Wheeler said. “There will still be some developments in industrial, some small pocket markets, neighborhood developments.” The restoration of the city’s namesake rapids will kick off in 2019 as well, according to Matt Chapman, director and project coordinator for Grand Rapids Whitewater, with the first phase focusing on the area of I-196 to Fulton Street as long as the organization can secure the needed permits. The aim is to create more recreational opportunities and ecological restoration of the Grand River. Along with that came the “River for All” project, revealed in November by the city of Grand Rapids, the main idea of which is to connect the river to the city’s neighborhoods via a river trail system. In 2019, the city will refine costs and identify sources of funding for the six opportunity sites revealed with the project, said Jay Steffen, assistant planning director for the city of Grand Rapids.

BEYOND 2019 While next year looks to be stable for the real estate and construction industry, executives

are already turning their attention to 2020 and beyond. In part, that’s because the West Michigan region continues to grow. Kent County was among the fastest-growing counties in Michigan with a 7.63 percent growth rate in 2017, according to the U.S. Census Bureau. Grand Rapids was number two on real estate listing website Trulia’s top 10 markets to watch in 2019, based on job growth in the last year, vacancy rates, starter-home affordability and inbound versus outbound searches on the site, as well as a large share of the adult population being under age 35. Watt said rising interest rates could cause a slowdown in certain sectors of the economy, possibly prompting a “small recession” later in 2019. “I think it will only be a continuation of the slowdown we’ve seen in the commercial and retail markets,” he said. For Wheeler, interest rates also will be critical to watch. “In the real estate business, interest rates are the number one demand driver, other than supply and demand imbalances,” he said. “If the rates get too high, you just can’t make any money. And why do it if you can’t make money?”

With commercial banking we’re in our element. At Chemical Bank we understand that numbers matter. That’s why we have 212 banking centers and over 100 years of service. Whether you need greater lending power or more efficient banking solutions, let us sum it up for you. To learn more visit ChemicalBank.com. Contact Krista Flynn, West Michigan Regional President, at 616.588.7424 for more information.

RIVER RESTORATION PICKS UP Downtown, the total number of homes (apartments and condos) stands at about 4,700. The goal from DGRI was to hit the 10,000-home mark while maintaining 30 percent of the total for low-wage earners. Still, some developers say the need for more market-rate housing downtown is slowing.

Member FDIC

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

REAL ESTATE & DEVELOPMENT

Rex Bell PRESIDENT, MILLER-DAVIS CO. // KALAMAZOO

Rex Bell has served as president of MillerDavis Co. for the last 22 years and has never seen a worker shortage like the company faces today. It’s a problem he expects to continue throughout 2019. With a busy year ahead for the Kalamazoo-based general contracting firm that focuses on higher education, K-12, nonprofit and industrial projects, he hopes for a renewed focus on training by companies and encouraging high school students to go into skilled trades.

EXECUTIVE DIRECTOR, HOUSING NEXT // HOLLAND

For Housing Next Executive Director Ryan Kilpatrick, 2018 has been about laying the groundwork to get more affordable housing online in Ottawa County. Next year is “where the rubber hits the road,” when more than 600 new housing units will come online, with more yet in the pipeline, Kilpatrick said. Since January, Kilpatrick has worked with multiple municipalities to increase the amount of affordable housing in the county. He expects more tangible results to emerge in 2019.

What will be interesting to watch in 2019?

Has the affordable housing shortage in Ottawa County gotten better or worse since you started in January?

More P3 projects (public-private partnerships). We’re seeing quite a few of those, and those tend to be very large projects. We have done some projects like that, but we’re starting to see more, so that’ll be a trend we’ll be watching. Even though it doesn’t have a direct tie to what goes on in Southwest Michigan, the national political scene — it’s just not very stable and that tends to affect the financial markets. If people get nervous enough, it can affect their decisions to expand. We always worry about things we can’t control. I don’t see any impact right now, but you always get a little concerned that that can have an impact on your business at some point.

Technically worse. We’ve got businesses that are still growing. We’ve had some housing supply come online, but not as much growth as we’ve had in our business sector. The gap between the amount of demand and the amount of supply is growing, so technically we have less housing availability now than we did a year ago. Each time one of our businesses grows, it’s likely that they’re going to have to look outside of the county for employees. The growth is great, but we’ve got to be able to keep up with them in terms of the amount of housing supply we provide.

What issues are you hearing about from subcontractors in the region?

What tangible progress do you expect to see in 2019?

Most of the issues we have, the root is the lack of qualified workers. It’s still a very big issue for us as we still perform general trade work, concrete, structural steel. We get firsthand experience with issues going on with qualified workers. It’s gotten to the point now where it goes beyond skilled trades; it’s crossed over into professional areas as well. I’ve never seen anything quite like this. Beyond that, there’s an impact that the shortage of workers has had on schedules, quality and costs of construction. There aren’t enough folks to do the work, and we sometimes can’t schedule the way we would want to. With a lack of experience, there’s a quality issue that has to be monitored much more closely.

We should have at least 600 new units coming online. We’ll probably start construction on those in mid to late summer. And that’s just projects we have direct involvement with. We’ve got lots of folks in the market that are earning 60 to 80 percent and up to 100 percent of the area median income who are still priced out of the market. But I think there are ways to build housing that meets demand for those market segments without needing to go after a lot of state and federal subsidies just by putting together creative projects, partnering with local employers, doing some scrappy stuff.

How do you adjust to that shortage with a busy year planned for projects in 2019?

What can Housing Next do to break down barriers for affordable housing?

I expect things to continue to be very busy. I think there is now, and continues to be, a renewed focus on training by the companies. I think that’s another thing we’ll see more of next year. Another thing we’re seeing is educators starting to expand the focus on vocational training and skilled trades. We’re seeing a lot of that down here and in other parts of the state. We’re active in that with our contractors association, (the Associated General Contractors of Michigan). Creativity is a big, big part of (adjusting to the shortage). We’re trying to work with each subcontractor that may have challenges and find ways to supplement their crews. We’ve seen an unprecedented amount of overtime, shift work and sometimes it extends schedules on projects as well.

First is working with municipalities. We’ve got six communities across the county that are working on zoning updates. Three communities are working on master plan updates. That’s really the critical first step, for local municipalities to unpack the regulations they have on the books and really begin to understand how minimum lot area, minimum setbacks, minimum working requirements, minimum floor area requirements all impact affordability because they impact size and design and density. Those are the key leverage points that allow us to shave 10 or 15 percent off construction costs. What we’ve got to do is stop using metrics that are based on market demand in the 1980s and start using metrics that are based on market demand in 2018.

What challenges and opportunities does the legalization of marijuana present for your industry?

Aside from outdated local regulations, what other barriers are you seeing?

For us, it’s status quo in terms of our drug policy in the company. Several clients we work for have drug testing programs and require us as a contractor to participate in those. It’s to be determined how this plays out. Right now, it hasn’t had an impact on us, but potentially it could be troublesome if we see an increased usage. Right now, we’ve chosen not to pursue that work, not to actively go after that market. It’s just our judgment at this point in time. At this point, we really have adequate work in the market sectors we operate in, so we haven’t had to go look for additional work in that market.

One of them is thinking through local incentive policies. Right now, the cost of construction is high. In our cities, as we all know, taxes are higher than they are in townships. But that’s where a lot of this segment that wants walkable urban places wants to be, close to downtowns. So it’s thinking through what are the best ways to utilize the economic development incentives to spur the kind of growth that’s necessary, but still produces net positive tax gains for the municipality. We’re working on this for Holland to really understand and unpack how we ensure that net revenue is positive to the city, while not saddling the project with such a high tax burden in the first couple of years before stabilization that the project never gets off the ground.

Interview conducted and condensed by Sydney Smith. Courtesy photo.

RYAN KILPATRICK

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Are you seeing developers take new approaches to fund projects? There’s a lot of talk at the state level right now about creating some innovative financing packages. (Michigan State Housing Development Authority) and the (Michigan Economic Development Corp.) are working together to try to leverage their 4 percent loans from that housing tax credit program with traditional MEDC tools like brownfield TIF (tax increment financing) and CRP (Community Revitalization Program). And then we’ve got Michigan Community Capital that’s investing in workforce housing with equity investments. The Michigan Land Bank is doing a lot to support local land banks and municipalities.

What municipalities are responding most to Housing Next’s work? One of the biggest bright spots is in Grand Haven Township. They’re working right now on a zoning overlay that is called a ‘missing middle overlay zone.’ They want to allow for more two-family and four-family and small apartment buildings to occur in established neighborhoods in and along key corridors. That’s what we’ve been missing for 30 years. Had we allowed those types of buildings to be constructed where they made sense in a lot of our urban neighborhoods, we’d have significantly more supply available in those highdemand markets than we do now. Having a township do that first is really exciting.

What should the newly-elected administration know about barriers to affordable housing? The MEDC would probably give you the two examples of Coldwater and Grayling where they’ve created this new problem: They incentivized these big manufacturing deals to occur in locations which didn’t have any housing. By giving a manufacturer a big economic development incentive to create a lot of jobs, they solved one problem, but didn’t recognize ‘now we need to build a bunch of housing to satisfy the demand that we’ve induced.’ We’ve got to think about all of those problems on the front end. Before we execute on big economic development incentives, we’ve got to also have a plan for housing in place, so that we can execute on those things simultaneously and not build the factory, add the jobs, and suddenly realize, well we can’t attract the talent because nobody can live here.

This year, you laid a lot of groundwork. What is 2019 about for Housing Next? Next year is really going to be where the rubber hits the road. We’ve got several projects in the pipeline now. We’ve got several ordinances in the process of being updated. Getting those things right is going to be important, because from a zoning perspective, those policies are going to be in place for decades. From the development side, we want to be really intentional about building mixed-income neighborhoods with a diversity of housing choice so that we’re not building more apartment complexes that are concentrated pockets of poverty, but we’re building neighborhoods that have a multitude of choices embedded within them. Interview conducted and condensed by Sydney Smith. Courtesy photo. Visit www.mibiz.com

MIKE FRANZAK PLANNING DIRECTOR, CITY OF MUSKEGON // MUSKEGON

Ask Planning Director Mike Franzak what’s going on in Muskegon right now, and he can rattle off a long list of projects either under construction or well into the planning stages. There’s so much activity, in fact, that the lakeshore city has started to think about issues like parking facilities after the many vacant former Muskegon Mall parcels downtown have been developed. People around the region are really starting to point to what’s going on in Muskegon as a positive growth story. Given the struggle with the Muskegon Mall over the last few decades, what’s it like to have the wind at your back finally? People are really eating up the momentum and we’re starting to see some outside investors look here more often than we used to. It’s still full steam ahead, and it feels good to be on the radar.

selling them, or we’ve been buying up some of the homes in the downtown area and converting them back to single family and putting money into them and selling them. But a lot of that’s driven by the city. We’re trying to come up with a program where maybe we can incentivize infill development.

As these blank spaces downtown get filled in, what’s next?

Does Muskegon look at this as a long-term investment in vitality?

Obviously, the mall property left a pretty big vacancy in our downtown and slowly but surely we’ve been selling them off. But eventually these larger lots are not going to be available downtown, so we’ve got to make sure that we develop these last few properties appropriately and to the appropriate scale so we can build that critical mass that we need to. That’s one of the reasons why we got rid of the parking minimums. We don’t want all these parking lots downtown. We want productive pieces of taxable land that are creating entertainment and housing options.

We’re kind of losing money in some of these projects, but in the long run, we’re getting the tax base and all the infrastructure laid. It’s just infill development, so we feel it’s probably good to invest a little bit of money into incentives to get those things on the tax roll.

just been great. We’ve been winning awards for it. That’s really super small-scale commercial space, but what we need is for them to have a place to graduate to. We’ve seen a couple that have made their businesses succeed and then they go find a smaller building in the downtown to graduate to. But we’re running out of storefronts for them to go to that are appropriate size. The city’s actually been looking into possible public-private partnerships to do some almost incubator-type storefronts somewhere right downtown. With the new buildings, a lot of them are priced right out of it. Some of the older buildings, they either need too much work or there’s nothing ready to go and move into.

it took a few years to finally get people to start moving down here. Some of the things we talked about with developers is maybe a lack of foot traffic, so I think this is really going to help fill in some of those slower weekends or weekdays, if there’s stuff just to bring that critical mass down here.

Outside of housing, what are some of the areas of focus coming up next year for the city?

What does the new downtown convention center do to help encourage more people to come downtown?

That may force us to start thinking about parking and parking ramps. Parking ramps are things we’re talking about now. We still have so much surface parking but we’ve changed our zoning to have parking maximums instead of minimums downtown. We actually are getting rid of some of this excess dead land that’s not even on the tax rolls or being used. As more and more of that happens, we’re going to have to start thinking about some parking ramps … in the next couple of years.

The next thing that we need to really focus on, which we’re starting to, is more of the retail and the things to do downtown. Our chalets … have

It’s the critical mass and it’s the foot traffic and I think that’s really going to help attract more retail, just as special events brought eyes onto us and

Interview conducted and condensed by Joe Boomgaard. Photo: Katy Batdorff.

What happens if and when that critical mass comes downtown?

What are your expectations for development in the city for 2019? There is still demand for more market-rate apartments, which is great. … We’re still working with more developers around new projects for market-rate housing. We’re just trying to keep that momentum going and do whatever we can do by offering tax incentives. We’re very good about that and getting creative with ways of layering incentives for mixed-use development, whether that’s a Neighborhood Enterprise Zone for the residential portion and commercial tax abatements for commercial space. We’ve been willing to layer those incentives on which is a requirement through the state for CRP funding as well.

Is the city directly involved with any housing? We’re working on about 30 units of house-type condos at Hartshorn Marina, which would be a public-private partnership. That could extend out into several phases, going up to 50, 75 units of waterfront development. We’re seeing a lot more demand for not just apartments downtown, but also waterfront living, which we have no shortage of opportunity here.

By jumping in itself, Muskegon seems to be taking a different approach to housing. It is. It’s nothing like Grand Rapids. As far as the housing market, no one’s knocking down any doors to build off of the waterfront here. We’re doing these projects where we’re either building homes and Visit www.mibiz.com

DOES YOUR WEBSITE WORK? What worked before doesn’t work today. Take advantage of our SEO* Audit which reveals existing problems along with innovative solutions.

Offices in Grand Rapids & Gladwin, MI 616.241.5650 Contact Mitch Kahn | Mitch@MiddleCoast.Net *SEARCH ENGINE OPTIMIZ(TION

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

REAL ESTATE & DEVELOPMENT

What’s been pivotal in the major growth of Grand Rapids in 2018?

ANIRBAN BASU CHAIRMAN & CEO OF SAGE POLICY GROUP INC. CHIEF ECONOMIST, ASSOCIATED BUILDERS AND CONTRACTORS

More so than many other areas of the country, West Michigan has experienced tremendous growth in 2018, according to Anirban Basu, who serves as the chief economist of the Associated Builders and Contractors, a national trade group. His outlook is less rosy for 2019, which could be a transitional year for the U.S. economy. Meanwhile, he thinks 2020 could be the beginnings of the next economic downturn.

At the heart is the performance of local real estate. People like this part of the state; it has a very high quality of life. It’s one of the reasons college graduates stay here at much higher rates than other Midwest areas. Also, the economy here has become very much diversified over time. It’s been called the office furniture capital of the world. Over time, it was not particularly well diversified. It’s changed because of a large nonprofit sector, because there still is an office furniture manufacturing component to this economy, because of the larger financial services industry and health care industry. All of these components contribute to shared economic prosperity and a vibrancy of economy.

Do you think the rate of growth and development will continue in 2019? Not at the same pace, necessarily. Developers and their financiers have identified underserved markets. Developers have become comfortable with the performance of the economy and realized there was unmet demand. But now a fair amount of that demand has been met. I think at this point of the cycle, people are becoming more concerned about possibly the next downturn and because people are more concerned, the presumption is the pace of investment and projects — including riskier projects, and real estate is often risky — will slow. I think most signals are suggesting 2019 might be a decent year for the U.S. economy. It won’t be a period of as rapid growth as we observed in 2018.

Aside from a talent shortage, what other challenges does 2019 present? The talent shortage is first and foremost. But from a macroeconomic perspective, people are probably going to be dealing with more inflation and higher interest rates. It seems like a strange thing to say,

because in recent days, interest rates have been falling, but that’s, I think, a short-term phenomenon. One of the distinguishing characteristics of this economy is that inflation prices are building. Manufactured goods are becoming more expensive from China — we’re paying more for things. Ultimately, those inflation pressures translate into higher borrowing costs and that has all kinds of implications for people who owe money, for asset prices and for the broader economy. That’s one of the reasons I’m nervous about 2020 for the broader economy, because I think 2019 will be a transitional year to a much sharper slowdown in 2020 or 2021.

As an economist, what are you planning to watch closely for next year? As an economist, it’s the inflation data. If one is a more typical observer of the economy, it’s Federal Reserve policy making. There’s been a lot of conversation recently about whether the Federal Reserve will tighten market policy aggressively in 2019. There’s been some comments recently suggesting that it will not, and the markets loved hearing that news, initially. But my very strong feeling is that because inflation pressures will become more apparent, the Federal Reserve will be forced into raising interest rates, perhaps beyond a level that is desirable from their perspective, and that will set the stage for the 2020 downturn.

What if that doesn’t happen? If I’m wrong about that, if for whatever reason, whether (through) low oil prices or falling commodity prices, inflation does not manifest itself in 2019, if inflation doesn’t translate into rapid growth in interest rates in 2019, I could be dead wrong in my forecast, and this recovery could persist into 2020 and beyond. Interview conducted and condensed by Sydney Smith. Courtesy photo.

LOOK AHEAD AND LEAVE A LEGACY BEHIND Your project is about more than constructing or renovating a building. It’s about developing your property in the smartest way possible, with future uses and future owners in mind. Work with a company that strives to understand your long-term vision as well as you do. Contact us today to start the conversation.

• Site Procurement • Feasibility Studies • Master Planning • Design/Build • Build to Suit • Facility Renovation/Remodel • General Contracting • Construction Management

Let’s Get Started: www.westwind.build Grand Haven 616-842-2030

Kalamazoo 269-366-4678

Traverse City 231-778-4545

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

REAL ESTATE & DEVELOPMENT

Mike Novakoski PRESIDENT AND CEO, ELZINGA & VOLKERS INC. // HOLLAND

As the construction industry continues to expand, companies with the best culture will find the most success. So says Mike Novakoski, the president and CEO of Holland-based general contractor Elzinga & Volkers Inc. Like many of the region’s construction managers, the company finds itself with a strong backlog heading into the New Year and few signs of a slowdown.

What’s on your mind as you look toward 2019? We’re finding the draw of our resources outside of our area. … Nationally, we seem to have opportunities that we didn’t have before. Post recession, but (especially) in the last couple of years, our firm has been identified as someone who does great work here in the Midwest. Now we’re doing work in many, many states for clients who have pretty broad, aggressive construction expansion plans.

Is there anything in particular that’s driving that national expansion? A lot of these have to do with regulation changes, with different laws that have come into place, with markets that continue to develop. I think people’s fear of using capital to exercise these expansions plans that they’ve been holding onto for many years — let’s say from 2010 on — has now really come to fruition. The rush to get things done, maybe before interest rates go up, could be part of the concern. Capturing the labor market when it’s available and taking advantage of that … is something we’re seeing.

What impact are rising construction costs having on your business? There’s a little bit of a panic from owners who see prices continue to rise and wanting to lock in the lowest construction cost on a project as possible. They know that labor rates are going up. They’re seeing that expense side going up. Materials have gone up in some cases. You’re sitting here with projects that used to cost $200 a foot, now they’re maybe going to go at $215 or $220 in the next year or two. So they are jumping at the opportunity to build sooner than later.

What markets do you expect to be the most active next year? Health care continues to expand. The senior living industry, for us, continues to expand based on need. They research the markets and we keep getting hired to build out these sprawling needs. So, yes, it feels good. We were just talking about our backlog of going into 2019, and it’s very robust. We’re probably 70 percent sold already for 2019, and that’s based on current employment. We have more capacity than that as we continue to hire and develop and expand nationally.

Do you see the combination of rising costs and limited labor pool leading to a significant pinch point for the local construction sector next year? I think there is some restriction to that. The companies who have the ability to attract the talent are the ones that win. We’ve been blessed as a company to have zero voluntary turnover last year. We have a waiting room of people

based on the draws to our culture. That gives us a big advantage to take on work that others maybe can’t. But there’s this whole law of supply and demand, and a reduction in available labor will drive costs up because people can get a premium.

What are some examples of that? I think that the market’s going to decide when they can’t afford to be doing projects because of the labor, and then … there’ll be that slowdown. There’s that tendency to go back and forth. We see certain clients like that. We have some retail clients that … during the recession, they were getting really advantageous pricing from the contractors who were desperate to keep their people employed. Now the shoe’s on the other foot. These same retailers are saying we can’t afford to build now. Well, they just got spoiled for the low cost of construction before. Now we’re back into the reality of the market where people are, deservingly so, making money at their efforts.

Does the West Michigan community need to accept these higher costs as a new normal and just a cost of doing business? We’re dealing with an abundance economy, and people like the public sector, sometimes they’re the ones who are going to suffer, because as contractors look at their available opportunities, they’re literally making the decision that best suits them, their bottom line, and their people. The public sector demands high competitive bid, endless numbers of people going for the same work, and usually it’s driven by a low cost. If trade contractors, general contractors, construction managers have a choice to work in private industry, and private industry can decide to negotiate, or maybe only invite two or three people, the opportunities go up for the contractor. So that market — say the public school market, with some of the bond votes that just came through — those things can end up costing more, just theoretically, because contractors can pick and choose what it is they want to apply their limited resources toward.

What’s something unexpected you could see playing out in 2019? A positive impact on some of the tariffs and some of the trade deficit between China and all that. If we can work through that, it will create additional comfort that we can get what we deserve in the U.S. economy, that we can have a stronger position in the world that will create even more comfort with our manufacturing base and create more opportunities for the manufacturers. Interview conducted and condensed by Nick Manes. Courtesy photo.

ANDREW HAAN PRESIDENT, KALAMAZOO DOWNTOWN PARTNERSHIP // KALAMAZOO

A new year means a fresh start for the Kalamazoo Downtown Partnership. Andrew Haan, president of the nonprofit organization, said with the beginning of the Downtown Economic Growth Authority and the rebranding of the Kalamazoo Downtown Partnership, formerly known as Downtown Kalamazoo Inc., there’s a more stable future moving forward as the city continues to grow. The Kalamazoo City Commission recently approved creating the new Downtown Economic Growth Authority. How does that position you for next year? It’s going to be a big year. We’ve done a lot of changes not only with the funding side of things with establishing this new authority, but for the last 29 years, we were known as Downtown Kalamazoo Incorporated, and have, I think, a really strong and impactful legacy. But we really wanted to reset the table and start fresh, so we have a new brand. We’re now the Kalamazoo Downtown Partnership. We think that name and brand is really indicative of how we do our work, in partnership with the city, downtown businesses, residents and institutions, and the community in general.

Aside from the name change, what are the organization’s goals for 2019? We’ve really committed to broadening and diversifying our leadership network, and now have four citizen coalitions that we have created that we’re in the process of populating, which will really help inform and guide our work across our four areas of impact: people, place, experience and growth. We feel very supported by the community in this and are really bullish on 2019 economically for downtown, and what we’re going to be able to do at the organizational level too.

While you’re working on internal changes, downtown Kalamazoo also is undergoing plenty of change. What are some of the projects you’re tracking? In the 2019 calendar year, you’re going to see close to 300 residential units come online. We’re very optimistic that those will be absorbed into the market quickly, and there’s a couple hundred more in the pipeline behind that. With that many new rooftops in downtown, there’s going to be additional need for services and additional retail, restaurants, other options. The Exchange building, that’ll be open this year. That’s going to bring a couple hundred new residents, a number of businesses and a lot of activity to one of the four corners at our main intersection downtown — at Rose and Michigan — that had been a surface parking lot for 50-plus years.

How do you keep the momentum of downtown Kalamazoo going? Some of that is certainly market forces, but we want to be resilient to those bigger swings and make sure we’re curating and cultivating a place where people and investment want to come to, that is unique and authentic. We think we’ve got that. This is one of many cycles of this work, and this work has been underway for 30-plus years. It’s never done. The work you did 30 years ago has to get redone again, whether that’s fixing your sidewalks or rehabbing a building. It’s really a matter of keeping your eyes on the prize and your foot on the gas, and continuing to reinvest and not get complacent.

After all the internal change, what’s being looked at next? We’ve committed to starting a conversation around a business improvement district for downtown, and that is something that has been employed in Grand Rapids, Muskegon, Detroit, other cities across the state and across the nation. It really gives property owners and businesses an opportunity to think about what they need to be successful as businesses downtown, whether that’s additional sanitation work downtown, or a downtown ambassador program, beautification efforts. We’re really there to shepherd that conversation along, but it’s something that the businesses and the property owners would have to petition the city to create.

How else might the downtown change in 2019? The city is in negotiations with Michigan Department of Transportation on transferring ownership of the four state highways that run through downtown back to local control, so that the decisions on how those roads are designed and how they’re operated and really the character of them is in local hands. We’re really excited about the opportunity to bring those back under local control and be able to think about how we make those work more like main streets and downtown streets than highways. That really has potential to absolutely transform downtown. Interview conducted and condensed by Sydney Smith. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

MITCH WATT SENIOR VICE PRESIDENT AND PARTNER, TRIANGLE ASSOCIATES INC. // WALKER

After a busy year on K-12 school projects, Triangle Associates Inc. is expecting more of the same in 2019 with the passage of multiple school bonds in the November midterm election. According to Senior Vice President and Partner Mitch Watt, these longterm school projects will carry the general contractor in the event of a slowdown in the construction market. What’s your outlook for 2019? What we saw this year will be a continuation into next year. A lot of our work is focused on K-12 public education in West Michigan. We work with some private educators that build projects outside of the West Michigan area and that’s been fairly strong. We’ve also seen an expansion over the last couple of years — and we think that will continue — in the higher ed market, especially state-funded schools. Western Michigan University, Ferris State, Michigan State University are all implementing a number of projects that signify continued advancement and improvement in the state funding mechanisms, the tax dollars coming into the coffers and being able to fund those public projects.

What kind of work are you seeing in higher ed? The bigger universities are doing all sorts of projects from research and development to general classroom space. Our focus has been very driven

around dining hall experience and housing, simply because that’s a real strength that our firm has. A lot of it is growing campuses, but also keeping students on campus and not seeing them leave the campus and go live in off-campus housing. It eliminates some of the older dorms that were there and just the crummy living experiences. Kids today want to have a nice (place), they want their own bathroom or they want nicer environments and so most of the universities are trying to keep up with that.

three- or four-year projects that will be good, sustainable work for our firm in the coming year or so. I think we have three bond issues in May. We have several clients that are considering bond issues for next year or we’re already working with them on bond issues for 2020.

Since voters approved many school bonds this year, is that where your focus shifts next year?

How are you dealing with the labor shortage and other challenges?

The one strong point of K-12 schools is once they do get their funding through the electorate, the constituents vote on it, those typically are several-year projects. They’re not real short projects; they tend to drag on and that’s good for our backlog. We do have a number of those projects that are

We’re doing fine as far as staffing, but we do still see certain sectors in our subcontractors that we hire that are struggling to find manpower, especially those subcontractors that are broader than West Michigan. Our staff is pretty strong right now and we feel we have enough to cover the workload

Patti Owens MANAGING DIRECTOR AND VICE PRESIDENT, CATALYST DEVELOPMENT CO. LLC // KALAMAZOO

Catalyst Development Co. LCC’s latest project in Kalamazoo, located at the southwest corner of North Edwards Street and Water Street, will bring more housing, offices and parking spaces to the growing downtown, which could spark some more retail development in the area. That’s according to Managing Director and Vice President Patti Owens, who said she does not see a slowdown in development coming any time soon for the Kalamazoo area. What areas are you seeing demand when it comes to downtown development? We’ve only ever had 11 residential units in two of our mixed-use buildings. Both of them are situated right on the Kalamazoo Mall, which is the nation’s first pedestrian mall that was created way back in the day. We’ve never had any problems filling them, but they are true marketrate apartments. We’re getting the top per square foot rates for these apartments. We could have rented I want to say 50 more apartments over the past decade, if we had had something that was affordable. That is what we have seen and what we are seeing, that there is not anyplace affordable for folks that work downtown to actually live downtown. Visit www.mibiz.com

What projects are in the works for 2019? We’re not speculative developers. We are going to develop when we know that there is an actual purpose. This (Catalyst 12) project that we’re doing, obviously is meaningful because it’s creating space for the Kalamazoo Promise to expand by 20 employees and expand their programming so that every young person that is Promise-eligible is afforded the same opportunity to take advantage of that promise. That’s the meaningful part of this building. We’re not just going around developing. We need to have a reason and so that’s the reason. You won’t see us breaking ground on anything else next year or even the year after in Kalamazoo.

Interest rates seem to be a concern and could slow certain sectors down. Some of the early forecasting I’m seeing is that the markets will slow, there might be a small recession later next year, which certainly wouldn’t be as strong as it was a few years ago, but just something that will slow the workload down. I think that will only be a continuation of the slowdown we’ve seen in the commercial and retail markets.

The public funding projects typically don’t slow down until there’s a real significant impact on the economy. We don’t see publicly-funded projects like higher education or K-12 being significantly affected in the next two or three years. I think we’re starting to hear buzzwords that are concerning, that the economy is going to take a little bit of a hit and that will certainly slow those privately-funded projects. The minute those projects slow, then other people start to focus on public projects and then you have more competition and less work. There could be some potential for slowdown in our practice over the next year or two years.

Where does the focus shift if you do see that slowdown?

Interview conducted and condensed by Sydney Smith. Courtesy photo.

for next year, but if you land one or two big projects that you weren’t expecting, then that can create a challenge.

What could drag down the construction market next year?

With projects under construction, how are you bracing for a labor shortage and other cost challenges? We know that our construction costs are 20-percent higher than they were when we first envisioned this project a couple of years ago. We’ve done our post-bid interviews and it’s the new reality. There is a shortage of labor. We saw this coming, and our construction manager had the forethought to suggest that we engage with some of the major trades at that point. We took the largest (bid) packages, which would be the foundations and the excavation and the exterior envelope of the building and the electrical and the mechanical, and we started talking with our preferred trades partners in those specific packages: ‘Would you join our team early on and help us design this building using your in-house expertise? We will agree that you will be the trade, you will be the company, you will be the mechanical contractor, you will be the electrical contractor that gets awarded this work.’

How will that position you during construction? It’s the first time we’ve ever done it, but I can see it’s really going to pay off. They’re in it from the very beginning, and they knew 18 months to 24 months ago that they needed to have the necessary labor to start this project when we started it in August. We assured ourselves that we were going to have the labor necessary to build this building in accordance with the projected timeframe that we have. It’s going to help to make this project really successful.

When do you see the demand for these developments slowing down? A few years ago, I think we all predicted what’s

happening today. I have such a positive attitude about this community, which I think most people that live and work here do because for some reason, Kalamazoo really gets to the heart of you. I don’t see things necessarily slowing down. This kind of large development necessarily will because we’re a small city. There’s not a whole lot of space. We’re buying out public parking lots to develop on, and there’s a shortage of that as well. The new large development within the city center, within the urban core, that will definitely slow down. I don’t see people scraping old buildings to build new ones because we’ve got such a great stock of really lovely, old, historic structures here.

What will the next focus be after more people are living downtown? We’ve got a great concentration of food and entertainment downtown, but what we don’t have are a lot of the retail that would support people that actually live downtown. I lived downtown for five years and the only time I had to really get in my car was to go get groceries. But I envision that as we get a concentration of these downtown residents, somebody’s going to open a grocery store that’s within walking distance — I hope, anyway. Other services that support people who actually live downtown, I think you might start to see spring up. I’m not really sure if that’s going to happen next year or 2020. I feel like 2020 is going to be the year that we approach an equilibrium between people that live down here and the services that are really necessary to support those folks. Interview conducted and condensed by Sydney Smith. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

Is your business warm and welcoming? Upgrade your heating system and save!

Upgrading to an energy efďŹ cient HVAC system can save your business up to $50,000*, reduce workplace illnesses with improved indoor air quality and boost employee morale. Save money and create a healthier work environment.** Learn how at ConsumersEnergy.com/hvacprogram. * May vary by facilities square footage **Based on a 2017 DNV GL study

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

ENERGY OUTLOOK

Michigan’s 2019 energy future still ﬁrmly rooted in 2016 By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com t’s been two years since the Legislature passed sweeping energy reform bills, yet the laws remain front and center for those working behind the scenes on energy policy. In addition to boosting the state’s renewable energy portfolio to 15 percent by 2021, Public Acts 341 and 342 of 2016 (which took effect in April 2017) established a series of benchmarks for how the Michigan Public Service Commission would set policies on issues including energy efficiency, long-term utility planning, opt-in green power programs and market purchases. For more than a year, state utility regulators have sought input from utilities and various interest groups on how these policies should be designed. The state and utilities are now putting the policies in action. Groups involved in the details of this planning expect to see utility proposals materialize this year that will shape the course of energy policy and generation for years to come as coal plants across the state are retired and replaced with natural gas and renewable energy. “Our primary focus continues to surround the 2016 energy laws,” said Jason Geer, director of energy and environmental policy with the Michigan Chamber of Commerce. “There’s still a lot more that has to happen.” Outside of these key regulatory proceedings, though, are an incoming Democratic administration that could bring an even greater emphasis on renewable energy, legal uncertainty with

the fate of the Line 5 pipeline in the Straits of Mackinac, and the build out of Michigan’s electric vehicle infrastructure. Here are some key energy issues coming in 2019:

early 2017 because of widespread criticism, the MPSC launched a series of stakeholder meetings to sort out questions involving who should pay for charging stations and where they should be located. While the state doesn’t have definitive answers to these questions, it’s making progress. Advocates hope the MPSC and the Whitmer administration keep up the focus on EVs. “We think about it in terms of different venues,” Laura Sherman, vice president of policy development for the Michigan Energy Innovation Business Council, said of the MPSC and the administration. MEIBC also led a series of meetings in 2018 around EV deployment. “There’s definitely lots of legislative ideas being kicked around,” Sherman said. “We’re in those discussions.”

LINE 5 Perhaps the most widely covered energy story right now centers on the future of Enbridge’s Line 5 pipeline in the Straits of Mackinac. Gov. Rick Snyder looked to cement his plan before leaving office to build a tunnel for the pipeline and potentially transmission cables. Supporters say if oil is going to continue traveling the Straits — as a shortcut from Superior, Wis. to Sarnia, Ontario — then a tunnel 100 feet beneath the Great Lakes floor is the safest way to do so. However, critics say the move is unconstitutional for giving away public property for the benefit of a private corporation while avoiding key environmental permitting processes. With multiple agreements between the state and Enbridge in place, as well as legislation passed during lame duck to help secure the deal, opponents now turn to Gov.-elect Gretchen Whitmer and Attorney General-elect Dana Nessel to block the plan in court. Any type of legal challenge could last for years.

ELECTRIC VEHICLES Jackson-based Consumers Energy proposed the first utility spending plan on electric vehicle charging stations in March 2016. It was not well-received. After the company withdrew the plan in

LONG-TERM PLANS AND INDEPENDENT PRODUCERS In June, Consumers also was the first regulated utility to propose its long-term Integrated Resource Plan required under the 2016 laws. The plan calls for a 43 percent renewable energy portfolio by 2040 while eliminating coal in that time. Consumers President and CEO Patti Poppe told MiBiz earlier this month that the company will focus on executing the plan in 2019. Meanwhile, DTE Energy’s plan is expected in March, and the Detroit-based company has already signaled a similar shift to renewables and carbon reductions. While IRPs provide a roadmap, they are still subject to MPSC approval and input from interested parties. Shortly after Consumers’ proposal, independent power producers raised concerns over their ability to sell generation under the federal Public Utilities Regulatory Policy Act of 1978, which guarantees them utility contracts at certain rates if they can build the capacity at the same cost as or cheaper than utilities. In October, independent power producers called MPSC rulings on Consumers’ proposal a “mixed bag” for allowing near-term development opportunities while creating longer-term uncertainty over

rates they would be paid. A similar argument will likely play out over DTE’s proposal.

CONNECTING DISTRIBUTED GENERATION As utilities face increasing obstacles for wind energy development, solar’s more modular nature and declining costs are making it more attractive to meet Michigan’s renewable portfolio standard and utilities’ clean energy goals. While utilities favor larger-scale projects, the contention this year will likely focus on residents’ and businesses’ ability to generate their own power and sell it back to the grid. Also included in the 2016 energy rewrite was a requirement for utilities to come up with replacement programs for net metering, which has allowed customers with solar to sell excess generation back to the grid for a bill credit. While utilities and advocates still disagree over the value of that power, the MPSC requires utilities in their next rate request to propose replacement programs. So far, DTE Energy is the only downstate utility to have proposed a replacement that, unsurprisingly, is criticized for undervaluing rooftop solar’s value. “We’ll continue to support legislation that fully values the contribution of distributed generation to the grid,” Sherman said. The MPSC also is considering replacing 2009 rules for interconnecting utility customers’ selfgeneration projects. “Everything that has to do with solar and wind build out is going to be affected by these interconnection rules,” said Ed Rivet, executive director of the Michigan Conservative Energy Forum. A common theme among each of these issues is how Michigan prepares for the energy transition — namely retiring coal plants — while keeping electric prices low for customers and allowing parties other than utilities to access the market. “We have to prudently make decisions about how we continue to shut down coal and meet energy demands,” Rivet said. “We’re all about balancing the portfolio while we move to a clean energy future.”

RE AP THE BENEFITS OF THE REL ATIONSHIPS WE HAVE ES TABLISHED FOR OVER 130 YE AR S.

NEW BENEFIT FOR OUR MEMBERS!

THE

I S SUE

RENEW YOUR MEMBERSHIP OR JOIN TODAY!

678 Front Ave NW #330, Grand Rapids, MI 49504 / P: 616.949.8650 / grbx.com/membership Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

ENERGY

farm in six to 12 months. You can turn it around fast so it’s actually a lower risk. We call this our clean and lean energy strategy. It’s lean because you only build to demand as opposed to building a 70-year asset that you hope you’re going to need. The modular nature of renewables is just so important. People want to compare the unit cost of a combined cycle gas plant with the unit cost of a solar farm. Well, it’s a bad comparison. Unit cost is not the variable. Total cash outlay and operating cost thereafter — the levelized cost of that energy — is a much better comparison. So if you have to build a 1,000 megawatt gas plant, that’s $1 billion. I can build 22 megawatts of solar for a lot less.

PATTI POPPE CEO, CMS ENERGY CORP. // JACKSON

U.S. power companies are in the middle of a major shift that includes an increased focus on smaller, modular renewable energy projects and less on centralized fossil fuel plants. Jackson-based CMS Energy Corp., the parent company of Consumers Energy, is no different. Following the closure of its “classic seven” coal plants in 2016, Consumers released its long-term energy vision in June that spans the next two decades. It includes a 43 percent renewable energy portfolio by 2040 that relies heavily on solar power, as well as an 80-percent reduction in carbon emissions. The company also plans to eliminate its coal portfolio in this time while building no new natural gas plants. Another key component of the utility’s strategy is managing the demand side of its business. For decades, utilities have focused solely on managing their supply to match demand. Now, energy efficiency and increasingly demand response — which relies on customers to reduce energy usage during peak demand times — have emerged as valuable energy resources. Meanwhile, Consumers is in the middle of a multi-billion-dollar capital investment plan that includes infrastructure upgrades for its natural gas and electric businesses. These clean energy and infrastructure investments are Consumers’ key priorities for the future, says President and CEO Patti Poppe, who has led the company since 2016.

2018 was a big year for Consumers with the release of its long-term Integrated Resource Plan. What’s the outlook for 2019 and putting that plan in action? It’s all about execution and backing up the promise. We’ll have the (Michigan Public Service Commission) order on the IRP, which will be important so we can remain aligned with the commission’s ambitions as well as our own. The first phase of the (statewide) renewable portfolio standard will start to get built out with additional wind and solar — 150 megawatts of new solar

and 350 megawatts of wind. This will not complete construction next year, but we’ll finalize the plans of when, where and how that will be built. The other thing that is very important in 2019 is continuing to enable this demand response capability, the idea that for the first time ever we’re going to optimize both supply and demand. For 130 years, we’ve only optimized supply. Demand is what it is and we build stuff to serve it. Now we’re going to optimize demand, shave the peak and create an energy supply that matches it. That’s a big difference.

CLEVER. CREATIVE. INTELLIGENTLY-DESIGNED. we’re here to help you tell your story and elevate your brand.

Do you foresee stranded assets in Michigan with large gas plants being or planned to be built? What kind of response are you getting from commercial and industrial customers on the shift to renewables? They care about a couple of things: Obviously, reliability is very important to them, as is price. But many of them have strong environmental commitments and the fact that we can deliver cost-effective renewable energy to serve them is really important. That’s a conversation we’re having with our industrial customers. I’ll tell you, I can’t go to a customer meeting without them saying, ‘Hey, I’d like to do solar here on my property, can we do that?’ Four years ago that never happened. That’s a big demand. If our customers want renewable energy on their property, we’ve got to figure out how to make that happen.

What are they saying about participating in demand response plans? Commercial customers … have a huge economic incentive to participate in demand response because they act a lot more like residential customers. If we can help them be smarter about how they use their energy and can optimize their load and save them money, that’s a big deal.

Can you elaborate on Consumers’ big bet on solar over the next few decades? It’s not a big bet, per se. A big bet is a 1,000 megawatt natural gas power plant. What I like about renewables is you don’t have to make that big bet. You can gradually add. I can turn on a solar

OUR SERVICES INCLUDE:

BAUER

Commercial Printing & Labels • Packaging • POP Displays Promotional Materials • Websites • Warehouse/Distribution/Assembly

EST. 1932

I’m not going to speak for the state, but I’ll say that we built a plan that optimized and accelerated retirements so that we don’t have large stranded assets. Other people are in different situations. Some haven’t retired any coal yet. We’ve retired a gigawatt of coal already.

Consumers and DTE Energy are both making major investments in the electric grid and natural gas distribution. Where do those plans stand and what comes next? We filed a five-year electric distribution plan. About two-thirds of it is blocking and tackling investments: poles, conductors, substations. The other third is new technologies in the latter half of the five years. You can’t put a smart communicating switching device on a pole that’s falling over. We have a large physical distribution system in Michigan. Therefore the technology is backended in the five-year plan. On the gas side, there has never been a better time to make our gas system safer. It is old and invisible to people, and it is our job to ensure the public is able to count on a safe gas distribution system. The next opportunity is just doing it in a way that customers can afford, but they have the lowest prices they’ve had in 15 years. Our bills are the lowest in the Midwest and Michigan. Now is the time to then make the system safer. Interview conducted and condensed by Andy Balaskovitz. Courtesy photo.

sheet metal & fabricating

86 YEARS OF SHEET METAL AND INDUSTRIAL STEEL FABRICATION EXPERTISE Proudly serving West Michigan and several businesses throughout the United States and Canada since 1999

Malt making equipment for the beer industry

833 Kenmoor Ave, SE Grand Rapids, MI 49546 | www.rcigr.com | 616.233.0779

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

bauersheetmetal.com | (231) 773-3244 73 3244 Visit www.mibiz.com

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

UMB.com | ćāćċăĆĀċĀăĀā UMB has been a dependable provider of corporate trust services for more than 70 years. With our dedicated team and suite of solutions, we can provide the services you need now and in the future. • Trustee/Paying Agent • Escrow Services • Default/Workout Services • Custody Services

Corporate Trust Services and Default Administration

Get to know UMB Corporate Trust & Escrow Services: Jason Fry SVP/CT National Sales Manager Cell: 616.350.0301 Office: 816.860.5148 Jason.Fry@umb.com

Member FDIC

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

FINANCE OUTLOOK

More interest rate hikes expected for 2019 By MARK SANCHEZ | MiBiz msanchez@mibiz.com nterest rates likely will rise again in 2019. How much and how often remains the question following the latest quarter-point increase in the federal funds rate last week by the Federal Open Market Committee (FOMC), which for two years has been raising interest rates from historic lows reached a decade ago during the Great Recession. Citing “realized and expected labor market conditions and inflation,” the Fed raised interest rates for the fourth time in 2018 and signaled the potential for further increases in 2019. “The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objecConley tive over the medium term. The Committee judges that risks to the economic outlook are roughly balanced, but will continue to monitor global economic and financial developments and assess their implications for the economic outlook,” the FOMC said in its statement Dec. 19 after two days of Koning meetings. “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.” The Federal Reserve governors offered a median expectation for Real GDP growth of 3 percent for 2018, followed by slower growth of 2.3 percent for 2019, 2 percent in 2020 and 1.8 percent in 2021. The FOMC’s move had been widely expected. While many economists still see further quarter-point increases in 2019, perhaps two or three during the year, they anticipated that the FOMC would tie any further increase to their effects on economic performance. The Fed is now at the point of wanting to pause somewhat to see the results of two years of a rising rate environment, said Jeff Korzenik, chief investment strategist at Fifth Third Bank. “They want to make sure they don’t essentially drive the economy off a cliff and inflation pressures are under control,” Korzenik said. Economists offering outlooks for 2019 see higher interest rates as a potential drag on U.S. economic growth that adds to the pressure of the tight labor market and higher labor costs. Despite remaining comparatively low historically, higher rates also could contribute to an easing of auto and home sales. “Borrowing continues to be fairly good for business and for consumers, although certainly the price of vehicles have gone up and the price of houses have gone up based on these interest rates,”

Visit www.mibiz.com

Jim Robey, director of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for Employment Research, said during an economic outlook this month in Grand Rapids. Higher interest rates will make it a little more costly to borrow or access capital, pinching margins or even affecting some business expansion plans, said Steve Conley, managing director at the Grand Rapids office for turnaround firm Conway MacKenzie Inc. Businesses already should have been planning ahead for rising interest rates, Conley said. “It’ll be intriguing to see how they perform through that environment,” he said. “There’s definitely going to be some stress on these businesses that have been working really hard to bring in new business and grow their businesses while they had the opportunity. That’s required initial capital and initial financing. Have they prepared for the rising rates? That’s to be seen on how that will ultimately impact their business.” Higher rates could steer more companies next year to take a look at alternative or nonbank financing to support capital equipment purchases or expansion, or pursue equipment leases rather than purchases, Conley said. Despite the steady rise in rates since late 2016, Conley does not hear a lot of worry from clients. The tight labor market that limits their growth has been a greater topic of conversation than higher interest rates, he said. “I sense that most people aren’t real concerned about it yet because it really hasn’t had a significant impact, but I’m concerned that people underestimate here in the medium term how impactful it’s going to be to their business and their ability to grow and maintain margins,” Conley said. Likewise, Hudsonville-based West Michigan Community Bank “has not heard a significant amount of chatter,” President and CEO Phil Koning told MiBiz. He expects from zero to two rate increases in 2019, “depending on how the economy plays out.” The higher rates will create more pressure on banks in 2019 as depositors expect a higher return on their money, Koning said. “They’re not willing to take 0.1 anymore. They want to earn bit more on their deposits,” Koning said. Koning and other bankers who offered their views to MiBiz on what’s ahead in 2019 say that even with the latest increase by the FOMC and those of the last few months, interest rates remain relatively low. “Rates are higher than where they were, but historically they’re still very attractive,” said Don VanDine, regional vice president for middle market banking at Wells Fargo Bank in Grand Rapids. VanDine doubts that higher interest rates will have much of an impact on areas such as the M&A market in 2019. “Right now, the people that are coming in are very liquid and financing may not be at the top of their concerns list. They’re looking for good fits and strategic fits and they’re looking to take big swings at it,” he said, noting quarter-point or half-point raises will not “move the needle much” for customers. “If the difference in financing a deal is the difference between four percent or five percent on your financing and it crashes your deal, it’s probably on pretty unstable footing to begin with.”

UPCOMING ISSUES 1.7.2019 West Michigan Deals Contract Deadline: 12.26.18

1.21.2019 Tax Update Contract Deadline: 1.9.19

2.4.2019 Automotive Industry Forecast Contract Deadline: 1.23.19

2.18.2019 Education & Talent Development Contract Deadline: 2.6.19

3.4.2019 West Michigan’s Tribal Economy Contract Deadline: 2.20.19

3.18.2019 Deep Dive: PFAS/The Business Impact Contract Deadline: 3.6.19

4.1.2019 Transition/Succession Planning Contract Deadline: 3.20.19

4.15.2019 Automation Contract Deadline: 4.3.19

4.29.2019 Craft Beer Contract Deadline: 4.17.19

5.13.2019 Tool & Die Industry Report Contract Deadline: 5.1.19

5.28.2019 Education & Talent Development Contract Deadline: 5.15.19

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

FINANCE

TODD HARVEY DIRECTOR, FIFTH THIRD PRIVATE BANK // GRAND RAPIDS

Volatility came back to the stock market in 2018 and Todd Harvey doesn’t see it going away in 2019. The director of Fifth Third Private Bank since 2012 and a wealth management professional for 16 years, Harvey believes the market next year will have to cope with rising interest rates amid a U.S. economy that will continue growing, although at a slower rate.

I think we’ll see more of what we’ve seen this year. We saw volatility return back to the market and we saw a strong U.S. economy, and we see more of really the same going into next year. As we met with clients early in the year, there was little bit more of a reaction to the return of the volatility, but now we’ve gone through it throughout the year. Things are still good. Portfolios are in good shape. People are on track for their goals, and that’s really where we try to keep them focused.

quite some time. When does it end?’ But I think the sentiment of most of our clients is they’re used to it now. We work with them and talk with them about the strength of the U.S. economy. There are a lot of positive things if you’re looking at unemployment, if you’re looking at how businesses are performing. While we’ve been long in the cycle, that’s really the biggest indication that’s something’s going to be different — because of the length of time, and not most of the economic indicators. Clients are used to it at this point because they’ve seen this show before.

Will 2019 bring more volatility or maybe some stability?

How will rising interest rates play into what occurs in the market next year?

Economists continue to think more of the same. If we look back on volatility, this year is really more of a fairly normal year compared to the history of the market. Volatility is normal within the markets. There will be continued volatility, we think, on through 2019 and really going forward past that.

There’s been some recent news, or at least sentiment, from the Federal Reserve chairman who gave some indication there was going to be maybe more increases in 2019 than what the market originally planned in. He came back and kind of stepped back those sentiments. We know where interest rates are going and as long as they’re in line with what the market thinks, it really should have minimal affect overall.

What’s the general market mood as 2018 winds down and we go into 2019?

We’re awfully long in the present U.S. economic expansion. How is that affecting the decisions and the mood of investors? We work with some of our economists and we follow closely what’s going on in the economy. The mood, I think, is really more of the same right now. We certainly deal with the question on a very regular basis. ‘This has been going good for

How else? We’ve been (telling) people for years that interest rates are going to increase, so we definitely worked with clients to prepare them for that as it relates to their fixed-income portfolios, shortening durations and doing other things along the way. They’ve been prepared and we’ll look for opportunities to start lengthening those out, maybe, as interest rates begin to normalize and we don’t see them going up as much in the future.

There are two areas that I do think that continued interest rates rising will affect specifically our clients. We have clients that have had debt over time. Many of our clients don’t need to, but they do for various reasons. Large clients are starting

MARKET PRESIDENT, BANK OF AMERICA // GRAND RAPIDS

Bank of America’s West Michigan operations had a record year in 2018 in terms of the number of new business clients. The year came on top of similar results in 2017, when the bank consolidated local operations into a single office in downtown Grand Rapids, a move that better organized and generated greater collaboration among staff in pursuing new business. Echoing the sentiment of other local executives, Tabben said business clients are working to cope with the region’s tight labor market. What’s the biggest opportunity for Bank of America in 2019? Our biggest opportunity is to continue the conversation with new relationships, whether they are individuals or companies or the larger institutions. The business banking space is alive and well and thriving, and I think that continued conversation about what does it mean to your business, what does it mean to you personally, what does it mean to your employees will continue to drive more client acquisition. We’re so optimistic about that, and we continue to hire locally to fuel that effort.

What would surprise you in 2019?

As we head toward the new year, what are clients asking about most these days? The biggest things on many people’s minds are tariffs, and we’re in Michigan so tariffs continue to be a question mark that’s out there and that’s

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

What do you see the economy doing next year? Our global research team … is thinking about GDP growth of about 2.9 percent when it’s all said and done in 2018, and slightly slower growth for 2019, but very close on the heels of 2018 at 2.7 (percent). U.S. consumer sentiment continues to be extremely strong, we have low unemployment, people’s wages are growing — and we’re hearing that from local business owners as well — and there’s reasonable levels of debt. The confidence among our small businesses is at record highs and we expect that to continue going into the new year with capital expenditures or other investments that they might make in people and technology to continue to drive that economic growth.

What do your business clients tell you about how they see 2019? The skilled workforce continues to be a demand. I’m starting to hear more and more about the need for diversity locally. And I mean diversity in terms of experience and professional skills. How are we going to address and not lose ground with the changing leadership? The movers and shakers in West Michigan are all reaching a certain point in their life where they’re starting to go, ‘Who’s going to follow me? Who’s going to carry that torch?’ The immediate concern that I hear businesses talking about is things like skilled workforce. ‘We need skilled workers, I need more visibility, more certainty in terms of the ability to meet my obligations in terms of things I’m taking on.’ But long term, people are starting to ask about ‘what’s the leadership of 2020? What’s the leadership of 2025? And what does that mean both to my business and the legacy I want to leave?’

How’s the tight labor market affecting business for clients? Locally, we are so fortunate to have a low unemployment rate, but because of a tight labor market, some business owners may pause to increase their inventory, they may pause to take on new contracts, they may pause to continue to expand at

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

getting a lot of attention. We’ve worked with some of our economists who really focus on the fact that there will continue to be compromise on that front, which is positive. But that is one thing that’s on everybody’s mind pretty much every meeting.

It would surprise me if the market went up or down in a straight line. It would surprise me if we don’t have continued pressure on interest rates increasing. It would surprise me if we all of a sudden have a truce with China and everything’s worked out. Many of these things are just going to take a long time and they’re more complex problems than we can solve in a short amount of time.

How are rising rates affecting clients?

Renee Tabben

to make some decisions on (whether) they want to continue to carry some of that debt or pay it off. Same with large businesses.

the pace that they are because they just don’t know if they can manufacture as much product with the amount of personnel that they have. It’s a double-edge sword.

What’s the effect of rising interest rates? All things being equal, the cost of capital for both corporations and individuals may weaken demand for credit, but what we’re seeing on the commercial side is that the difference between paying for a loan today and paying for a loan a year from now, it’s really not materially enough to change demand. Where we anticipate there may be more hesitation or a little slowing down is a little bit on the individual side with the home equity loans, the home loans, the credit cards. But on the commercial side, it’s really not affecting decision-making at this time.

Anything specific that you’d like to see the incoming governor do in 2019? I simply would say that like any partnership, the more frequent and thoughtful the conversation and the relationship, the better. West Michigan has very specific interests and needs for its business community, and the more that Gov. Whitmer can spend time with us, understand what we need, and continue to build upon what’s working, the better.

What’s a concern you have going into the new year? Uncertainty leads to people standing still. It’s really important that whatever uncertainty we’re pointing to, whether it’s interest rates or labor markets or the future growth possibilities for our state, that we stop and pause and we understand that uncertainty and we not overweight it. We can’t stop moving forward and making progress. There’s a lot of noise, whether you want to say politically or societally, and my concern is people will give more weight to the noise than to what’s real. We are very fortunate to work in an economy here that is growing and thriving. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Visit www.mibiz.com

KRISTA FLYNN

Kit Snyder

REGIONAL PRESIDENT, CHEMICAL BANK // GRAND RAPIDS

PRESIDENT AND CEO, CONSUMERS CREDIT UNION // KALAMAZOO

Krista Flynn joined Chemical Bank in July as regional president for West Michigan, leading a market that includes Grand Rapids and Holland. She previously spent seven years in corporate banking at PNC Bank and 15 years at JPMorgan before going to work at Chemical, the largest bank based in Michigan. Chemical Bank, with more than $20.9 billion in total assets, has been building its commercial banking and wealth management staff, and is presently building out a new regional headquarters in downtown Grand Rapids. Parent company Chemical Financial Corp. also plans to develop a new corporate headquarters in downtown Detroit. What’s going to drive growth for the bank in 2019? The thing that jumps off the page at me is our strong talent attraction. We have just done a phenomenal job in the last 12 to 15 months of attracting really strong talent. The team that we’re building right now is really going to show results over the next two to three years.

What do you see the economy doing next year and how will that affect your business? I think there’s going to be continued growth, just at a slower pace. There’s certainly more uncertainty, probably some volatility and mixed results in different sectors, but I still think the fundamentals are good. We’re starting to see a little bit of an impact from the tariffs. I don’t know what that means long term, but I do see it causing a little bit of concern for our clients that are holding back a little bit.

Holding back how? They’re just a little bit uncertain. They’re not willing to invest quite as much. They have the money to invest and the rates are still good, but they’re worried. ‘Do we go all in right now? Or are the tariffs going to impact my bottom line and I need to prepare for that?’

As you look at those dynamics for 2019, what advice are you offering your commercial clients? There is, in spite of tariffs and the trade discussions, a strong opportunity to take advantage of historically low rates. I know interest rates are rising and they’ll continue to rise throughout next year, but historically, they are still at a very low level. You can take advantage of that. You can still borrow at low rates and continue to invest in your business without over-leveraging your business. Companies that can maintain a strong balance sheet will really weather any storms possibly coming.

How will rising interest rates affect businesses and your lending? Visit www.mibiz.com

For businesses, rising rates just make people a little more nervous, and that makes them think M&A activity maybe should slow down and it will decline a little bit. I think the housing market will slow a little bit because of it. But again, people have to keep it in perspective that it’s not crazy high interest rates. A little bit of the talk about recession and ‘is the economy going to start declining’ will self-fulfill if we keep talking like that. You really have to look at the fundamentals. Right now, the fundamentals are still really good.

If Gov.-elect Whitmer were to call and ask for advice, what would you tell her? I would just say, ‘Can we all get along?’ I really just feel that the parties have to forget if they’re Republican or Democrat and try to work together and do what’s right for Michigan. Whoever is in office, whether it’s a Republican or Democrat, we all have to live within that business environment. I don’t care what party they’re part of. I would like to see progress over stalemate. Getting some things done is more important to me than who wins.

What would you like to see the new governor and legislature work on? Early childhood education in Michigan really needs to pick up here. This is a 20- to 30-year issue. If we can’t fix that, we’re not going to be able to have the talent pool in the future to sustain and grow Michigan.

A lot of businesses leaders now talk about the tight labor market and difficulty finding people. How does that issue play into the bank’s business? From our clients’ standpoint, obviously, it’s an incredibly tight labor market. What we’re seeing is those that can figure out how to retain and attract talent — and there isn’t a silver bullet — have a humongous competitive advantage within their industry. It doesn’t matter what industry it is. We’re finding that

Kalamazoo-based Consumers Credit Union surpassed a key milestone when it hit $1 billion in assets back in May 2018. By the end of the third quarter, the 92,000-member credit union had grown assets further to $1.07 billion, and President and CEO Kit Snyder expects assets to close the year at $1.1 billion. The growth during 2018 came as Consumers Credit Union settled into a new headquarters in The Groves Engineering Business Technology Park in Kalamazoo. What are the top issues for Consumers Credit Union and for your industry in 2019?

from a banking industry standpoint. There’s a lot of movement lately, and you have to have a differentiating feature. What is it about your bank or your organization to say ‘I want to work there and I’m excited about it?’

Is the talent issue affecting growth projections of your clients? Absolutely. Almost consistently, every time we go to a client meeting that’s what we hear: ‘We could grow at a faster rate than we are now if we had more talent, but we’re just tapped out on talent. We can’t. We’re kind of limited based on getting the people.’ Or they can’t produce enough. Or they can’t sell enough. They don’t have sales people out there. Whatever it may be, they just don’t have the talent to get the product or service out there, so they’re topped out on their top line.

What worries you going into next year? From an economic standpoint, probably global worries. There’s less of an impact for us here at Chemical because we’re more of a regional bank, but the impact that global discourse can have on our economy now is so often out of our control, and you just can’t predict things anymore. It’s kind of the black swan that’s out there that you just don’t know about.

What gives you optimism? The business environment is just still very positive. People see there could be a downturn, but if there’s a recession coming, they think it’s in 2020 and they think it’s going to be kind of mild. We can weather that. This economy can weather a mild downturn of some sort. For next year, I think it’s still growth, and for Chemical Bank we are going to take market share and grow faster than the rest of the banks, which is exciting and fun. I just don’t see a lot of negatives for next year, but it will be a little slower for the economy. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Changing consumer expectations, especially as Millennials and Gen Z members expect friction-free banking. It is a challenge for all retailers. People want to bank and do business with retailers anytime and anywhere; they don’t want to be forced to come to an office or in some cases even make a phone call. Members of credit unions and customers of banks don’t want to deal with the ‘pain points’ of teller lines, transfer delays, waiting or hold periods for their funds. They also want real-time, instant, peer-to-peer payments. Most financial institutions don’t have seamless software for members and customers to open their initial account online, including checking and debit cards.

What does surpassing the $1 billion mark in 2018 mean for you going into next year? Bigger is better. This success is about economies of scale. Our workforce has not increased in 18 months, yet we have grown 23 percent and expect to continue at that rate in the year ahead. This is because we’re working smarter, more efficiently and utilizing more and more technology. And we need to continue to be intentional about our work culture as we continue to grow. A positive culture isn’t something that is created overnight. It must be worked on every day. Transparent communication is the key to success.

How does Consumers Credit Union maintain that momentum in 2019? We’ll continue to grow our market penetration in Grand Rapids, where we just opened our fifth office in Breton Village (in November). We’ll open another office on 54th Street. We have a parcel we’ve prepared and it’s ready. We’ll break ground later in 2019. We’ll continue to grow in our existing markets, but Grand Rapids will have our biggest percentage growth. We started in Kalamazoo in 1951 and our household penetration is over 20 percent in this market. Grand Rapids is a significantly larger market and our penetration there is quite small. It’s just the best opportunity.

How will digital investments be part of the growth plan? We’ll continue to invest in new technologies and partner with those who will help us with our digital banking expansion with an emphasis on research and nimble innovation. In fact, we have partnered with Lumin Digital and will deliver next-generation mobile banking in the fall of 2019. Our ‘fail fast’ mentality helps us in this. Our online account opening means no office is necessary for everyone to become a member in the Lower Peninsula of Michigan. Credit unions must invest in new technologies and not be afraid to partner with startups. New technologies arrive every day, and credit unions that continue to update and innovate with the focus on ease and friction-free banking will win.

What do you see the economy doing next year and how might that affect your business? We’ll continue to see upward interest rate pressure. Fed rate hikes will likely slow the economy. This could lead to possible negative effects on 401(k)s and lending, but consumer outlook will stay high. We estimate car sales will remain high and homes sales will stay as good as inventory allows, but refinancing will be down. All that said, we expect double-digit growth in all our lines of business, including SBA loans, and loan demand will continue to outgrow deposits. Our net income will be somewhat higher because of interest rate increases and improved operational efficiency.

Do you see the regulatory environment changing in 2019 for credit unions? Yes, with new leadership at the state level — governor, banking regulators and commissioners — there will likely be changes that only time will tell.

What worries you? With an increased demand for fast technology and instant responsiveness, fraud and cyber security are always top of mind. Credit unions’ loan-to-(deposit) share ratio is at its highest level since May of 1980. That good news comes with a caveat: Economists noted loan-to-savings ratios peak right before recessions.

Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

EXPERTISE

FOR EVERY LEVEL OF CARE metrohealth.net 616.252.7200

RECORD GRRowth Ford Airport Flies by the 3 Million Passenger Mark With nonstop ﬂights to 27 destinations around the country, including an additional ﬂight to Florida coming in April, it’s no wonder we’re setting passenger records. Also, to help streamline the experience, we’re transforming our ticketing, baggage screening, and baggage claim areas. Which means 2019 will be better than ever.

ﬂyford.org

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

HEALTH CARE OUTLOOK

Transparency, escalating drug costs among top issues for 2019 By MARK SANCHEZ | MiBiz msanchez@mibiz.com ealth care goes into 2019 facing many of the same issues and trends that have been driving industry change in recent years: the movement to value-based contracting, more use of telemedicine, growing concerns about cybersecurity, and greater price and cost transparency for consumers. A recent report by Deloitte LLP cited greater collaboration by health systems and health plans on patient care, increased focus on keeping people well rather than just treating illnesses, and the further emergence of medical technology in providing clinical care and accessing care providers as key trends in 2019. “For the U.S. health care system, as we move toward a financial model that is based on value rather than volume, keeping people healthy and out of the hospital will be key. Rather than seeing people as patients, health systems should treat them more like members — something health plans already do (to varying degrees),” Steve Burrill, vice chairman and U.S. health care leader for Deloitte, wrote in a recent perspective on the coming year.

PRICE TRANSPARENCY Many health insurance carriers and plans such as Grand Peters Ra p i d s - b a s e d Pr ior ity Health have web-based tools that allow enrollees to look up the estimated cost for a procedure and get some idea of what they can expect to pay out of pocket. Brian Peters, president and CEO of the Michigan Health & Hospital Association, sees the drive Pallone for cost transparency as only growing in 2019 and beyond. Hospitals need to do more in that area, although data nationally indicate the use of cost estimators remains relatively low in the low single digits, Peters said. Priority Health’s cost estimator has been somewhat of an exception. MiBiz reported at midyear that the health plan’s cost calculator was getting used by about 10 percent of members. “The general public views this price transparency issue as, ‘Hey, I want to know what am I going to pay if I go to hospital A for this procedure.’ The answer is obviously quite complex, but we have to do a better job of cracking that nut and conveying to our patients, ‘Here’s actually your exposure on these health care options,’” he said. “We haven’t done a very good job in that regard and we need to get our arms around that.” Peters envisions “disruptors entering the industry to provide more ways for consumers to look up pricing and costs,” and potentially doing for health care what websites such as TripAdvisor and Yelp have done for lodging, restaurants and hospitality. “I can see some new entrants in this space,” Peters said. “Right now, we’re at the very early stages of this revolution, and those very low usage rates are driven by a number of factors. But if you project out a few years, those numbers will continue to go up as the technology improves and the awareness improves. And, quite frankly, you Visit www.mibiz.com

have a whole younger generation who are not the high utilizers of health care. It’s the 65 and older population that uses the majority of health care. “They aren’t wired to think the same way as this new generation of ‘I’m going to go on online and research everything at my fingertips.’ They’re demanding that, so it’s easy to project out over time that that’s going to become more of an ingrained feature of the health care system.” Peters as well expects to see state and federal legislation next year on price transparency in health care, as well as more private-sector action.

Michigan Association of Health Plans, a trade group that represents HMOs in Michigan. “Right now, it’s really a best guess,” Pallone said. The individual insurance market also experienced rate moderation for 2019, although that came after major average increases of 26 percent in 2017 and 16 percent for 2018, Pallone notes. He’d like to see the new governor and state Legislature look at ways to maintain rate stability for the individual insurance market. “All sides are interested in rate stabilization,” Pallone said.

HIGH DRUG COSTS

ACA UNCERTAINTY

The rising cost of prescription drug prices — particularly specialty medications that treat complex diseases — will continue to weigh on the health care industry and get more attention in 2019. At Grand Valley State University’s recent monthly West Michigan Health Forum, speakers described the complex process of how drug prices are set, a process that involves pharmaceutical companies, pharmacy benefit managers that distribute to retailers, and health insurers. While price increases for some drugs “cannot be justified,” there is no single solution for curtailing the trend, said Eric Roath, clinical care coordinator for Grand Rapids-based SpartanNash Co. (Nasdaq: SPTN). “Drug prices are already high and they look like they’re going to keep getting higher,” Roath said. “Generally speaking, this is not an easy issue. You’re going to have to decide philosophically how we want to address this.” Speakers at the GVSU event noted that despite the high cost of a drug such as Harvoni — a medication that treats Hepatitis C — specialty medications are now curing previously incurable diseases. The ability to cure diseases and a particular drug’s value must be considered when addressing high drug costs. “Now you’re talking about offsets,” said Atheer Kaddis, vice president of pharmacy services at Blue Cross Blue Shield of Michigan. “If you’re curing disease, that’s a tradeoff.” Lawmakers on both the state and federal level have offered legislation that would create greater transparency on what goes into setting drug prices. Congress also has considered legislation that would allow the federal Centers for Medicare and Medicaid Services to negotiate drug prices with pharmaceutical companies.

As the health care industry headed toward the end of 2018, a federal judge in Texas created even greater uncertainty over the ACA and Medicaid expansion. On Dec. 14, Judge Reed O’Connor ruled the individual mandate unconstitutional, making the entire law invalid, although he did not issue an injunction. Supporters of the ACA vowed to appeal the ruling, which will likely end up before the U.S. Supreme Court. As that case plays out, there are fewer worries at the state level about legislative rollbacks for Michigan’s Medicaid expansion and the Healthy Michigan Plan. Gov.-elect Gretchen Whitmer was Senate Minority Leader in 2013 when the state

“Right now, we’re at the very early stages of this revolution, and those very low usage rates are driven by a number of factors. But if you project out a few years, those numbers will continue to go up as the technology improves and the awareness improves.” — BRIAN PETERS CEO of the Michigan Health & Hospital Association

Legislature created Healthy Michigan, working with Republican Gov. Rick Snyder to secure passage. In 2018, the legislature enacted work requirements for Medicaid recipients to meet to maintain coverage eligibility, which Gov. Snyder signed. Pallone views that move as Republicans in the legislature “taking some ownership of the program themselves.” “They put their own thumbprint on it,” Pallone said.

“They helped us when we needed it most.” Dr. John Monticello Grand Ridge Orthodontics

RATES MODERATE Small employers in Michigan enter 2019 with relative stabilization in health insurance rates. Under proposals approved in October by state regulators, 2019 rates for the small group market declined an average of 0.3 percent across 17 carriers. Priority Health on average lowered rates 2.6 percent for HMO and point-of-service plans that begin Jan. 1, and posted a 0.8-percent decrease in rates for PPO plans sold by subsidiary Priority Health Insurance Co. for employers with 50 or fewer employees. Blue Cross Blue Shield of Michigan dropped small group rates an average of 0.1 percent statewide. The insurer’s HMO subsidiary, Blue Care Network, reduced rates 2.7 percent for 2019. The small group rates for 2019 continued a period of stabilization over the last few years for the market. Whether that rate stabilization can continue for the small group market remains the unknown, said Dominick Pallone, executive director of the

Dr. John Monticello and wife, Carol, worked hard to fulfill their dream of building an professional officeand space to house their orthodontic as well as Workextraordinary days are full of necessary trials challenges. That’s why we providepractice real solutions. Flexibility. other businesses. But when the 2008 financial crisis hit, their successful venture was Prompt answers. Customization. Creativity. What’s your real solution? threatened. That’s when United Bank stepped in. The community bank knew the local area, the local businesses and the local economy well, so it got creative and customized a plan of action to support the Monticellos until their business started to ﬂourish again. Now that’s a real solution.

UnitedBankofMichigan.com UnitedBank4U.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

HEALTH BIZ

Joan Budden PRESIDENT AND CEO, PRIORITY HEALTH // GRAND RAPIDS

Joan Budden looks at 2019 as a year to keep pushing for greater affordability and accessibility in health care. The president and CEO of Grand Rapids-based health plan Priority Health welcomes the greater attention and scrutiny that arose in 2018 for prescription drug costs that are becoming a major cost burden for health insurers and employers. She expects the trend to greater price transparency and consumerism to further take hold for the industry in 2019. What’s at the top of Priority Health’s agenda for 2019? We always need to, and we continue to focus on, making health care more affordable for people, and therefore more accessible. We are moving on three things on that: Continuing to try to lift the cloak of secrecy around the cost of care; continuing to work with our provider partners to change the way care is delivered so it can be done in a lower cost, more convenient, but equal quality setting; and we focus on keeping our own administrative costs low.

What big issues in the industry will health plans have to deal with next year? Nationally and here in Michigan, employers are beleaguered with the cost of health care, and the contribution that escalating pharmaceutical costs are adding to that seems to be a huge issue. We’re coming up with wonderful advances in technology and medicine, but many of those are at a very high cost. What we have to do is focus on how we can offer these services to people, but still keep the overall cost of care affordable. The (Affordable Care Act) will be less in flux. I think it will settle in a little, but there probably will still be issues in policy (and) proposed changes in that space. Finally, we need to make sure we’re focusing on the health of our community. This isn’t just about making sure people get care when they get sick, but keeping them healthy.

What did you start seeing in 2018 that will gain traction in 2019? I was pleased the see that we are at least talking about pharmaceutical costs on the national and the state level. As a society, this kind of groundswell of support emerged that we want to make sure that everybody has access to care, and so there was a heightened support of a Medicaid expansion in a very positive way. We began to talk a little bit more openly and honestly about costs and what drives those and how do we do a better job of keeping people healthy.

What do you make of the greater interest private equity has in the health care sector? It does surprise me how much private equity there is in health care because there is such large dollars that flow through. What will be interesting to watch is will private equity actually increase competition or just drive up prices because they have shareholders they are mandated to give returns to. Will they actually be a solution or will they be adding to the problem?

We saw continued rate stabilization this year and for 2019 in premiums for the small group market with a slight average decline next year among carriers. Is that trend sustainable? I do think it can be because we are changing. Behind the scenes, what’s driving that lower rate is changing some of the options and the way care is delivered. We’re really working with the provider community to change the structure of cost in the health care environment. Small businesses are also more willing to look at choices in terms of the cost of providers (and) more limited networks. You see that particularly in Southeast Michigan where there are a lot of different health systems and they’re competing for patients, and so narrower networks have begun to take hold a little bit more there.

What would you like to see the new governor and Legislature work on in Lansing in 2019 in terms of health care issues? I hope that they all remain committed to retaining the Medicaid expansion and that they are focused on maintaining a competitive health care market in Michigan. They should always look at changes or suggestions with what’s best for the consumer and what would create more competition. Whenever we narrow that, it will not be in the best interests of the people we are trying to serve.

What are some of the biggest changes employers made in their employee health coverage for 2019? (There’s) probably not as much dramatic change in coverage as there is in their approach to health care. Many more employers are going to HSAs, we all know that, and higher deductible plans. Consumers, the people they’re covering, are actually getting more actively involved in taking accountability for their health and their costs. They are shopping and they love our cost-estimating tool. That’s really becoming an increasing trend. They are becoming more tech savvy, more digitally engaged, more involved in the cost of their care and the quality of their care. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

KENT RIDDLE PRESIDENT AND CEO, MARY FREE BED REHABILITATION HOSPITAL // GRAND RAPIDS

Mary Free Bed Rehabilitation Hospital goes into 2019 with a new partner after signing a collaboration agreement in November with Spectrum Health to work together on research and coordinating patient care. The Grand Rapids rehabilitation hospital also formalized a research partnership with the University of Michigan Health System, and toward year’s end acquired the in-home skilled nursing services unit from Sunset Retirement Communities and Services. Looking ahead to 2019, President and CEO Kent Riddle sees a continuation of the high growth that Mary Free Bed has experienced in recent years since forming a statewide care network. What are your top priorities for 2019? We have more of everything. More patients will be served, more employees will be employed, more joint ventures, more network affiliates, and more programs. It’s really more and more and more. We’re on an acceleration curve that’s becoming more like hockey-stick kind of growth now. We’ve grown a lot over the years and we’re 300 percent bigger than seven years ago, but the acceleration of that is faster now than at any time in our history, but it’s more vertical. This year, we served 20 percent more patients than we did the year before. You think it would flatten out after seven years but it didn’t. We had more growth at a faster rate.

What can we expect to see in the coming year from the new agreement with Spectrum Health? Hopefully some joint clinical programs that we’d like to start together. There’s already discussion about that and more joint research around kids. There’s a lot of opportunity in our world of rehabilitation where we can provide a more specialized service to Spectrum patients in their whole service area, which includes all of their hospitals.

What’s one thing you would like to see Gov.elect Whitmer work on regarding Michigan’s health care industry in 2019? I would like to see the whole no-fault (auto insurance) question be settled. I’d like it obviously to be more similar to what the taxpayers have voted for over the years than what some insurance companies and others would like it to become, but I do think it needs to be settled. I hope that she is a strong advocate for making sure that we don’t totally disrupt our homegrown system in the state.

What health care topics do you think will get more attention in 2019? There’s no question that opioid use has got to fall. Our opinion is that starts as over-prescription then becomes an addiction, and then becomes a street drug, and that’s a real problem in society. In Michigan we’re pretty obese and obesity is a huge epidemic and a huge problem today and in the future. Then mental health.

What do you think led to the opioid crisis getting to where it is today? We have a society in America that has really gravitated to over-drugging and over-utilization of intervention to fix the problem instead of trying to get to the root cause. In rehab, we have a medical philosophy which is really more about getting to the root cause and fixing it first with either physical therapy or occupational therapy, psychology or medical (care). We wean more patients off drugs than give them drugs, and so our philosophy in a value-based world is really important in health care.

What’s a headwind for you going into next year? Educating the rest of health care that there are really better, lower-cost and better-outcome solutions to chronic conditions. Mary Free Bed’s in a position to make that happen.

What are the tailwinds? Certainly momentum, and then we also have a number of hospital systems we’re working with, some are current network members and also new ones we’re really close to signing agreements with. That’s going to be an accelerating curve. We’re going to be in a lot more cities next year with outpatient programs and some with inpatient.

What’s one prediction you have for 2019? What do you mean by that? As a state, we don’t have many for-profit hospitals, so all of us that are not-for-profit hospitals that make up most of the state, we started from scratch here in the state and serve pretty much everybody. The balance of reimbursement in everything is such that major disruption in no-fault would grossly disrupt the number of patients that would have to go on the state Medicaid rolls.

By the end of 2019, Mary Free Bed will be serving more patients than any nonprofit rehabilitation hospital in the world. We will have come from 39th in the country eight years ago to number one in terms of the number of patients served in our entire system. It’s a 50-50 proposition that it’ll happen in 2019. Interview conducted and condensed by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

DR. RAKESH PAI MEDICAL GROUP PRESIDENT AND CHIEF POPULATION HEALTH OFFICER, METRO HEALTH – UNIVERSITY OF MICHIGAN HEALTH SYSTEM // WYOMING

Dr. Rakesh Pai joined Metro Health – University of Michigan Health System in October as medical group president and chief population health officer. He came to the health system with experience in two major drivers in health care today: value-based contracts between insurers and care providers and population health. Dr. Pai, a cardiologist, previously served as associate chief medical officer for two years at Cambia Health Solutions in Portland, Ore., where he ran Regence Blue Cross Blue Shield of Oregon. Dr. Pai looks at 2019 as a year for Metro Health to further build on the two-year-old affiliation with U-M Health System. As you’ve settled into the new position, what do you need to work on at Metro Health in 2019?

How aggressive will you be and what clinical areas are important to you?

Number one, how do we continue to innovate, differentiate and grow? We’re not going to ever be Spectrum. They’re many billions of dollars down the road compared to us. Nor do we really want to become that. What we’re really talking about is how do we maintain that unique culture that historically has been very primary-care focused?

The aggressiveness is a little bit predicated on actual space to put people into practice. We have about 20 or so neighborhood operating clinics where you can have a family practice, a pediatrician, maybe an internal medicine physician and some specialists rotating in and out of those. We really are to the point where most of our clinics are staffed up pretty considerably, and in order to bring on new physicians, we might need a new number of sites. We’re actively working through the process of where will the next phase of sites be deployed. Where does it make sense geographically? Where does it make sense to shore up our base down in the southern part of Grand Rapids? Recruiting is huge, but space and capacity planning are important so they will need to be in step.

Metro has brought on many new physicians since the affiliation began two years ago. Are you still in that recruitment mode? Along with innovate, differentiate and grow, this is my co-number one – physician recruitment. We really want to grow our medical group. We think there’s a huge primary-care access issue in West Michigan. Grand Rapids is just growing and we just really anticipate a rather significant population increase over the next decade or so. We think preparing for that next 10 years, or five to seven years, is really important, and we do think recruiting and affiliating with the University of Michigan is a differentiator for us.

What’s your biggest opportunity next year? Continuing to leverage the affiliation, and continuing to bring services that historically haven’t been as commonly performed here in West Michigan to Metro and to the system in West

Dr. Hal Jenson FOUNDING DEAN, WESTERN MICHIGAN UNIVERSITY HOMER STRYKER M.D. SCHOOL OF MEDICINE // KALAMAZOO

The Western Michigan University Homer Stryker M.D. School of Medicine achieved significant milestones in 2019. Among them: Receiving full accreditations from The Higher Learning Commission and the Liaison Committee of Medical Education, plus graduating its inaugural class of 48 medical students in May, all of whom were placed in residencies across the country. Since opening in 2014, the medical school — commonly known as WMed — has ramped up to peak capacity of 84 students per incoming class. After “quite a great year” in 2018, founding Dean Hal Jenson said WMed is now focused on improving and building on the foundation that’s been established. Visit www.mibiz.com

Michigan. Things like epilepsy surgery. We have a neurosurgeon coming over from the University of Michigan who’s kicking off our functional neurosurgery program. Growing service lines that are pretty much in high demand, such as endocrinology and rheumatology and neurology, will be really important areas of growth for us. We have some of those types of docs now, but after we got a few of them, it became pretty clear that we have demand for much more, so we want to grow to meet that demand.

What are the biggest trends in health care that will affect Metro Health in 2019? Transparency is going to be a very important trend. We need to do a better job of providing price discovery and transparency to patients. In health care, there is just so much surprise billing that is aggravating. We need to evolve to being able to put sort of what an average knee replacement cost is. It could be subject to different payers having different rates which could affect your personal pricing as a patient or a consumer, but at least some ballpark that’s something and that’s transparent.

What in health care will gain traction in 2019 and be a bigger issue a year from now? What’s to get the biggest traction is more and more patient-generated data. How do physicians use it better? The Apple Watch and this new EKG app are really phenomenal for patients and doctors. We have to have the ability to intake this data from your FitBit or your Apple Watch, from your diabetes glucose sensor, or whatever. We need to be able to take this data that’s more real-time in patients and be able

How do you view WMed today after graduating your first class during the past year? When that first class graduated, we have done everything once and gone through the complete cycle. Obviously there are classes behind them, and we have done some things three and four and five times, but we have done everything once. When that first class graduated, I like to say we graduated from being a new medical school to being a newer medical school. We’ve been around the block already. Now instead of looking to do things the first time, we’re looking to do things even better the second, third and fourth time.

What’s your focus for 2019? When I came here (in 2011), we had a strategic plan that got us through 2014, but our first real strategic plan was for 2014 to 2018, and that has served us really well in both accreditation and maturation as a medical school. Over the past year, we’ve gone through a process of a new strategic plan that carries us forward from 2018 to 2022. The focus is really to do things better and continue to be even better.

Where will that new strategic plan take you? We are still on the same trajectory. It’s not like the medical school is changing direction, but it’s what we have to do over the next four years to get there. So our strategic plan over the next four years is really on what I call operational excellence, to do what we do and do it even better. We have a great foundation and we want to emphasize improvement, efficiency and delivering even better programs and services to our learners and to our patients.

What’s coming up that’s new for the medical school? We have a new residency program this year in obstetrics and gynecology. They took their first four residents and that will take four years to ramp up to a full 16 residents. We have another residency program that’s beginning next July in family medicine in Battle

leverage it to get them better outcomes. The Apple Watch and other devices are really going to be game changers.

What’s one prediction you have for 2019? I see probably more and more unusual partnerships like CVS-Aetna (and) delivery systems and insurance companies coming together. I see more of that consolidation. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Creek. We are looking at the opportunities to create additional training programs for residents and fellows in Kalamazoo. The growth will be coming in some of the graduate medical education programs.

Where else are you continuing to build? We are continuing to grow our basic science research programs. We recruited new faculty this year in medical engineering to work in collaboration with the College of Engineering and Applied Sciences at Western to develop research and graduate programs in medical engineering. Also, the faculty we have recruited will help Western develop its undergraduate programs in medical engineering and, hopefully someday, a Ph.D. program in medical engineering at Western. Those faculty are just here in the past couple of months. We are working to recruit faculty in our Center for Immunobiology. We have three principal investigators now, one of whom is new this year. We are recruiting for two additional researchers, and it’s all about fit and getting the right people. Another area that we’re focusing on is the operational excellence in our clinical services we provide on Oakland Drive. Many of our faculty also participate in clinical services with AscensionBorgess and with Bronson Healthcare. We are working through our faculty to help the hospitals provide even better clinical care and at our Oakland Drive site.

As you look ahead to 2019, are you where you wanted to be at this point in time? We are. We are as good as we could possibly have hoped for in terms of our accreditation. We are in a really great place and we’re on a great trajectory, so I’m very optimistic for the next five to 10 years and beyond. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

HEALTH BIZ

Toni Sperlbaum VICE PRESIDENT OF WELLNESS, HEALTH PLAN ADVOCATE // GRAND RAPIDS

The past year confirmed to Toni Sperlbaum that workplace wellness is beginning to move in a new direction. Rather than focus on diet, exercise, and financial incentives for increasing participation and progress toward health goals, some employer wellness programs locally now take a broader approach. They encompass mental health, financial well-being and intrinsic motivation to encourage employees to maintain or improve their health, said Sperlbaum, the vice president of wellness at Health Plan Advocate in Grand Rapids. She expects that trend to pick up, albeit slowly, in West Michigan during the next year. Where do you see the wellness movement going in 2019? Wellness on a more national trend that I’ve been seeing for years, and that I haven’t seen start to enter here until the last six months or so, is moving away from financial incentives and more toward intrinsic motivation, or really helping employees see the benefits of being healthier. They have more energy, they’re sick (less), they’re feeling stronger, and letting that serve as the reward. Studies show intrinsic motivation has better long-term results for health-risk reduction and lifestyle changes than even financial gains or tangible gains.

What are the challenges of doing that? While this sounds great, and as an employer, ‘Oh, good. I don’t have to give out financial incentives,’ it’s a really tough stone to move. The big problem with it is it takes a lot of buy-in as an organization to really integrate into their culture versus what we’re seeing now, which is a once-a-year testing period, slap on a surcharge, and ‘get better next year.’ They really have to train their leaders, and they have to have grassroots efforts of wellness campaigns and to run programming that includes spouses and families to cover all of the bases for that to happen effectively. It’s a slow-moving process.

Why has West Michigan not picked up on this trend as fast as the rest of the nation? I really think it’s just the development of the industry and there are just stronger, more national leaders out there who are making their way across the country and more people are getting out to a lot of different conferences. It’s just learning from each other.

We heard so much in 2018 about the tight labor market and how creating a great culture within a company helps to attract and retain talent. Is that playing into this at all? It’s just being seen as an additional benefit. Employees more and more are looking for all of the extras and all of the additives, and wellness is going beyond insurance costs. It’s being used as a retention tool. It’s being used as a benefit to flaunt. We’re kind of seeing that employers are trying to implement wellness for those reasons, and for the reasons that it’s the right thing to do. Employees spend as much time at work (as they do at home), and it’s almost (employers’) responsibility to ensure they are happy and healthy and that the savings will follow.

As the labor market remains tight in 2019, do you see wellness gaining traction? The traditional wellness programs of screenings and diet and exercise, they’re still there, but more holistic well-being is really catching on and people are seeing, especially with mental health being as prevalent as it is, those aspects as all tied together. With the labor market being so competitive, with wellness being seen as an additional benefit and with all of the mental health issues, it’s really expanding beyond those typical wellness programs.

How fast will it catch on? It’s going to take a while for that kind of change to occur in a lot of our clients and a lot of our workforces here in West Michigan. There’s a lot of research behind it, but buy-in is a big deal and it’s hard for companies to bite that off. I would be surprised to see that catch on quickly, although I do think it’s moving slowly and it’s here. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

TINA FREESE DECKER PRESIDENT AND CEO, SPECTRUM HEALTH // GRAND RAPIDS

Tina Freese Decker became president and CEO at Spectrum Health on Sept. 1 following the retirement of Rick Breon. She leads West Michigan’s largest health system as the industry adapts to a combination of forces driving change, including greater consumerism and personalizing care to individual patients. As well, the industry has shifted to focus on keeping people healthy rather than treating them when they’re ill or injured, an economic model that rewards quality and pays care providers for outcomes rather than volume. Spectrum Health in 2018 moved into the Southwestern Michigan market with the merger of Lakeland Health in St. Joseph, and this fall formed a new partnership with Mary Free Bed Rehabilitation Hospital.

What do you see as the path ahead for Spectrum Health in 2019? We are really trying to think differently and trying to reimagine what health and health care will look like in 2019 and beyond. I believe it needs to be focused more on the person and personalized health, and so what we’re talking about is how do we be more simple, affordable and personal. How do we make the complex simple, not only for the people that we serve but also for team members? How do we become more affordable? That’s reducing cost and really thinking through how we do this and do it in a more cost-effective and efficient manner. And then there’s whole-person care from a personal perspective. Not just precision medicine, which is a component of it, but the personal approach to the entire experience and really making sure that we’re thinking about you and your health and to do that in the most effective and personal way for you.

What’s something new that may emerge for Spectrum Health next year? We’re continuing to refine the services that we offer and to really make sure that we create services that are geared toward the consumer. I know we’ll continue to expand our virtual services to provide care where it’s more convenient and cost effective. That’s one area that I think you’ll see trend for us, as well as for other health systems.

What’s going on in the national health care scene that you’ll have to deal with next year? We’ll continue to see new entrants enter health care. They are already coming at a staggering pace, and some are traditional health care consolidation but some are completely

new disruptions. That’s where we’re having conversations about how do we reimagine (care) because we know these disruptions are coming. How do we be even better than those that may be entering the market? Then there are new advances in science and technology. It’s amazing to see science and what’s happened over the last few years, as well as the technology and the ability to use data to drive better health outcomes.

What’s the biggest potential disruptor out there? Consumers expect the same from health care as they do from every other industry, which is the personal approach, and they’re looking at cost and they’re looking at convenience. Some of the non-health care companies understand that piece and the use of data and technology to provide a seamless experience, even if it’s just one component. That’s a big disruptor. So for us we’re thinking about how do we do that but at a broader scale when we continue to offer the breadth and depth of all the services and sites that we have. That’s where we need to think about how do we think more agile and nimbly and more effectively, and how do we try some things with that innovation to make a difference here.

What advice do you have for the incoming governor? For Spectrum Health, we believe everyone should have access to health care, and so Medicaid expansion is still important, as is Healthy Michigan. I believe we need to have more focus on behavioral health. It’s helping us, in a collaborative process, address and provide exceptional behavioral health services to each of our communities. This is a concern — and I’m including substance abuse in behavioral health — across the entire

state. So we need to work together to find the solutions that address both the access and funding. That would be a big area of success if we did it well.

What in the health care industry might surprise people in 2019? We’re going to see more and more innovation and disruption, and it’s going to make it so it’s easier from a consumer and personal perspective, but it’s going to challenge us to think differently from a business and traditional perspective. Depending on your point of view, that could be a challenge or a surprise. I don’t think the status quo will exist and the pace of change is just going to get more exponential, and we’re going to need more and better communications to manage the change that’s coming.

After closing the deal in 2018 for Lakeland Health and partnering with Mary Free Bed, does Spectrum Health remain open to further deals? We’re always open to further possibilities and partnerships or collaborations. It’s been a wonderful integration with Lakeland so far. What we want to do is really prove that we can deliver value back to the community in terms of reduced costs and greater quality and value. We think that’s a great model to implement and then to highlight what can be accomplished. As you’ve seen in other announcements, we’re really trying to partner because I believe we cannot do everything alone. We really need to work together and collaborate and find solutions where we share in some of our expertise and help each other create the new competencies that are needed for the future. Interview conducted and condensed by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

MICHIGAN ECONOMIC OUTLOOK

Forecasts show continued but slower growth as Michigan nears record period of expansion By MARK SANCHEZ | MiBiz msanchez@mibiz.com ichigan’s economy will see slower economic and employment growth in 2019 amid the ongoing tight labor market and less U.S. economic growth, economists say. In West Michigan, the W.E. Upjohn Institute for Employment Research expects job growth of 1.2 percent next year and then a “sort of flat” year in 2020, according to Jim Robey, director of regional economic planning services. Job growth in the region is on pace to grow 2.2 percent in 2018. The Upjohn Institute’s outlook for job growth in the region in part reflects the tight labor market and years of strong employment and economic growth, Robey said during a recent economic outlook in Grand Rapids sponsored by The Right Place Inc. “We just don’t know if there are workers and there is capacity,” he said. “We’re really expecting people to do more with fewer people but probably more technology (and) more capital investment.” As U.S. economic growth slows, the Upjohn Institute also projects gross regional product expansion of 2.8 percent in 2019 for the Grand Rapids metropolitan statistical area that includes Kent, Ottawa, Barry and Montcalm counties. That’s down from an expected GRP growth of 3.2 percent for 2018. Michigan and the region’s economy may also feel the effects of an easing automotive sales forecast for 2019, although volumes are “nearing back to trend,” Robey said. Statewide, economists at the University of Michigan expect that job growth will continue in the state through 2019, tying and exceeding a record for its longest period of employment gains. However, growth will occur at a slower rate than in the past several years as employers have fewer people to hire. U-M predicts the state will add 35,800 jobs in 2019 and 39,300 in 2020. That compares with projected employment growth of 55,200 jobs this year and the 53,000 jobs that were added in 2017.

“There’s no question that it’s been slowing down, and we see that continuing as we go into 2019 and 2020,” said Gabriel Ehrlich, director of U-M’s Research Seminar in Quantitative Economics. “It’s muted but steady job growth in a tight labor market environment,” Ehrlich said. “To us, that’s actually a pretty good picture.” Among the top growth sectors for Michigan so far in 2018 are construction and professional and business services, which collectively added 11,000 jobs through the third quarter. Health care added another 7,400 jobs and manufacturing grew by 6,900 positions. U-M projects the construction industry will add another 8,300 jobs over the next two years, and professional and business services will add 13,500 jobs by 2020. From the fall of 2009, when the state’s economy bottomed out during the Great Recession, to the end of 2020, Michigan will have added more than 683,000 jobs, recouping four out of five positions lost during the mid-2000s, according to U-M. As the Michigan economy recovered and grew jobs since late 2009, the labor market steadily tightened. Difficulty finding qualified workers ranks among the top concerns of employers today. The worker shortage now affects projected growth rates in employment, Ehrlich said. He regularly hears the question: “Where are people going to find workers to fill these jobs?” “Part of the story is there just is not much slack left in the labor market. In an environment like that, it’s just natural the growth is going to slow down just because there’s not a lot of workers on the sidelines who want a job and don’t have one already,” Ehrlich said. As the economy moved toward the end of 2018, economist Brian Long’s monthly industrial activity index for West Michigan registered the best month of the year in November. Most of the indexes improved slightly from October, including the short- and long-term business outlooks by industrial purchasing managers in Grand Rapids and Kalamazoo, according to Long, the director of supply chain management at the Grand Valley State University Seidman College of Business.

MICHIGAN POLICY OUTLOOK

Amid new political dynamic, business groups focus on talent, road funding By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com ichigan business groups say a transition of executive power from a Republican to a Democrat brings policy uncertainty, but they expect a continued focus from Gov.-elect Gretchen Whitmer on at least two topics: road funding and talent. After all, Whitmer spent much of her campaign promising to “fix the damn roads.” Yet business groups also say they’re optimistic about working with the Whitmer administration based on her experience in the state House and Senate. “We’ve dealt with her experience before, that’s a plus,” said Charlie Owens, state director for the National Federation of Independent Businesses. Whitmer spent 14 years in the House and Senate, most recently serving as Senate Minority Leader while Democrats were at a major disadvantage. “I think there are areas where we can find common ground,” Owens said. Overall, business advocates remain unsure about the extent to which they’ll play offense or defense on their issues. Here’s a few policy issues they’ll be watching in 2019.

ROAD FUNDING Despite a road funding plan under Gov. Rick Snyder that brought in $800 million this year under new registration fees, gas taxes and a

$175 million capital infusion, Whitmer and others agree more needs to be done. During the campaign, Whitmer floated plans for $2 billion annually for infrastructure funding that could be matched with $1 billion in federal funding. In the lead-up to the election, her campaign said that could come partly from user fees as well as bonds while creating up to 72,000 jobs. For now, though, it’s uncertain what deals Whitmer may strike with the Legislature, which will also have more Democrats next year. Wendy Block, vice president of business advocacy with the Michigan Chamber of Commerce, told MiBiz last month that “we can agree with (Whitmer) on the roads issue, especially when it comes to legislation. We might have some areas of disagreement, but we’re staying focused on the positives now.”

UPJOHN INSTITUTE OUTLOOK Here’s the forecast for employment growth and gross regional product for the Grand Rapids area for 2019 and 2020, plus the expected growth rate for 2018, according to the Kalamazoo-based W.E. Upjohn Institute for Employment Research:

EMPLOYMENT GROWTH Year

Total

Goodsproducing

Serviceproviding

2018

2.2%

2.9%

1.8%

2019

1.2%

0.7%

1.3%

2020

0.2%

0.0%

0.3%

GROSS REGIONAL PRODUCT Year

Total

Goodsproducing

Serviceproviding

2018

3.2%

3.9%

3.1%

2019

2.8%

3.0%

2020

2.2%

2.4%

2.3%

However, Long noted in his December report that an index for the short-term business outlook was sharply down from nine months earlier, an indication of emerging questions about how much further the U.S. economic expansion can go. “Most of our survey participants have been through at least one recession, and are beginning to worry about how long the current expansion can continue to run,” Long wrote in his December report. “Most of our local firms remain cautiously optimistic, although others continue to cite uncertainty about the impact of the Chinese trade war and the gradual easing of auto sales.” While several respondents raised concerns about the potential impact of trade tariffs and China, “almost no one is forecasting any type of impending doom,” Long wrote.

provide school systems that address the long-term needs of students,” she said. “We want to be sure everyone has the opportunity to have a good education in our state — we really don’t have that now.” While business groups back an A-F grading system for schools, a plan that narrowly cleared the state Legislature on Dec. 18 and has Snyder’s support, Jacobs said public school funding “needs a re-tuning.” “We really do need to step back and ask what we are doing wrong,” she said. Even before that, Jacobs said there needs to be an increased focus on providing quality child care. “We look at health and human services and education as cradle-to-career,” Jacobs said. Andy Johnston, vice president of government and corporate affairs with the Grand Rapids Area Chamber of Commerce, said recently that “talent is a must” in working with the Whitmer administration. He hopes the Launch Michigan campaign — a broad coalition of business, labor, advocates and education experts — plays a “big role in how education policy is shaped” in the next session. “We need to continue to address the failing of our educational outcomes,” he said. “We need a long-term strategy for Michigan.”

TAX REFORM TALENT AND EDUCATION Business and public policy advocates agree that Michigan’s educational outcomes and talent pool are lagging. Although the Snyder administration has built up skilled trades funding for people who don’t seek a college degree, most policy advocates say more could be done. “Our members are screaming about not being able to find qualified people,” Owens said. Gilda Jacobs, president and CEO of the Michigan League for Public Policy, says the talent issue begins in early childhood. “If we’re going to bring people into our state and they want to start families, we need to be able to

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Jacobs said one of the Michigan League for Public Policy’s top priorities is rebuilding the earned income tax credit that was scaled back under Snyder. “That tax credit helps working families keep more money that they pour back into local economies,” Jacobs said. “We see this as a win-win.” Owens, meanwhile, is concerned about the potential revival of discussions from the campaign trail and years past around the corporate income tax and “businesses paying their fair share of taxes.” “Whether it morphs into a policy discussion remains to be seen,” he said.

PAID SICK LEAVE, MINIMUM WAGE NOT OVER Perhaps Snyder’s most controversial action during lame duck (as of press time) was his decision to sign bills that drastically scale back paid sick leave and minimum wage laws. After campaigns collected the necessary signatures to include the proposal on November ballots, the legislature adopted the plans as law with the intent to amend them and drastically alter them. The move was praised by business groups. However, opponents have vowed to challenge the legislature’s actions in court, saying they can’t adopt a law and amend it in the same session. Additionally, the group backing the paid sick leave initiative has vowed another initiative for 2020. “We’ll try and take a defensive position on activity in that regard,” Owens said of efforts to revive paid sick leave or minimum wage. Jacobs said she was “very disappointed both bills were gutted from the ballot proposal,” particularly because both issues polled well with the public. Under lawmakers’ changes, the minimum wage won’t increase to $12.05 an hour until 2030. “Even if you have two minimum wage family members working, that’s still not enough to raise a family today,” Jacobs said. “Imagine another 12 years from now. I think they were short-sighted and anti-worker.” Despite a combative lame-duck session that critics contend is a power grab by the GOP, the start of Whitmer’s term brings a sense of optimism. “I’m very optimistic. (Whitmer) has a history of bridge building and working across the aisle,” said Jacobs, who served for 12 years in the state House and Senate. “Having their names on bills feeds legislators’ egos. They don’t want to be in a system where the governor is just vetoing bills all the time because the wrong party is sponsoring them. I think it’s a great opportunity to roll up their sleeves and get something done.” Visit www.mibiz.com

Merger and Acquisitions Experience

In Your Corner.

West Michigan Team

Seth W. Ashby

Scott J. Hill

Eric R. Post

Kimberly A. Baber

Elliott M. Berlin

Scott A. Huizenga

Dean F. Reisner

Jacob A. Droppers

Jeffrey W. Beswick

Harvey Koning

Peter G. Roth

Joseph B. Levan

Fred L. Schubkegel

James M. Eardley

Zachary J. Meyer

Kurt G. Yost

Michael G. Wooldridge

Some recent Representative Matters include: Ŷ Varnum Represents PE Firm Blackford Capital in Acquisition of Kingsport Book

Ŷ Varnum Represents Fabco Holdings, Inc. in Sale to Meritor

Ŷ Adtegrity, Media Place Partners Create Midwest’s Largest Independent Media Buying Platform

Ŷ Varnum Represents Granger in Sale of Energy Division to Australian Company

First Tier Ranking in Corporate Law, Commercial Litigation and Mergers & Acquisitions Litigation

Legal Experience In Your Corner.

www.varnumlaw.com

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

NATIONAL ECONOMIC OUTLOOK

REAL GDP FORECAST

COOLING AHEAD

National economy enters late stages of expansion, economists say

By M ARK SANCHEZ | MiBiz

expecting by the end of the year slower growth and I’m expecting this to feel like a more vulnerable economy going into 2020,” he said. obert Dye views 2019 as a “transi“We have to think probabilistically about how tional year” for the U.S. economy headwinds are lining up and it looks like the as a trio of forces align to moderate probabilities of hitting headwinds are increasgrowth during the year. ing and we can identify some areas that might While the Comerica Inc. chief be happening.” economist isn’t yet predicting a recession for As a result, Dye’s latest economic forecast next year and “most U.S. economic data right lowered the outlook for Real GDP growth for now is looking pretty good,” the combination of the U.S. economy to 2.5 percent for all of 2019. higher interest rates, rising wages from a tight He previously predicted 2.9 percent Real GDP growth for next year. As the lengthy economic expansion that’s now the second-longest in U.S. history extends toward record territory by mid 2019, the U.S. economy will begin to slow, according to Dye. “2019’s going to be a transitional year for the U.S. economy. We start the year with good momentum, and looking at the end of 2018, the bulk of U.S. Dye Korzenik Robey economic indicators are in very good shape,” Dye said. “The transition we see labor market, and lower economic growth globthrough the year is cooler growth by the end of ally will make the economy more vulnerable a the year.” year from now, Dye said. Comerica’s updated economic outlook issued “I would characterize it as the probabilithis month projects slower Real GDP growth ties of a recession by 2020 are going up. I’m throughout 2019, starting with 2.6 percent in the

msanchez@mibiz.com

A Grand Rapids, Michigan-based publisher of regional business and economic news has acquired A new website: mibiz.com The undersigned served as exclusive web development adviser to MiBiz

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

2019

2.8%

2.5%

2020 --

University of Michigan

2.9%

2.7%

1.9%

Federal Reserve Bank of Chicago

3.1%

2.4%

first quarter, 2.3 percent and 2.5 percent in the secAUTO SALES PROJECTIONS (in units) ond and third quarters, respectively, and 2.4 per2018 2019 2020 cent for the fourth quarter. Real GDP growth would then dip to 2.1 percent in the first three months of 17.2 16.8 -Comerica 2020, according to Comerica’s latest outlook. million million Economic data — a low unemployment rate, University of 17.1 16.9 16.9 rising interest rates, and “interest-rate sensitive Michigan million million million parts of the economy that are starting to show their sensitivity,” such as housing — point to an Federal 17.1 16.8 -economy in the late stages of growth, according Reserve Bank million million to Dye. of Chicago Still, the fundamentals of the U.S. economy “are very, very good,” Jim Robey, director U.S. UNEMPLOYMENT PROJECTIONS of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for 2018 2018 2019 2020 Employment Research, said during a presenta3.9% 3.6% -Comerica tion in Grand Rapids this month as part of The University of 3.9% 3.5% 3.4% Right Place Inc.’s annual outlook. Michigan Robey noted that consumer confidence remains at an all-time high, although it continFederal 3.7% 3.7% -ues “to bounce around a little bit.” Reserve Bank “As long as people are buying things and of Chicago doing things, it’s good, and that certainly sends a signal to the economy that things are going CONSUMER PRICE INDEX FORECAST well,” he said. Robey does not see a recession within the 2018 2019 2020 next 24 to 36 months, although he joins many 2.3% 1.8% -Comerica other economists in expecting slower growth. University of 2.1% 2.1% 2.4% Indicators such as auto sales and housing Michigan prices are “really just moving back to trend,” he said. Federal 2.4% 2.3% -“The question I’m starting to ask is will we Reserve Bank talk ourselves into a recession?” Robey said. “Will of Chicago a recession become a self-fulfilling prophecy?” The Federal Reserve Bank of Chicago, based on the consensus of three-dozen attendees at an economic symposium in late November, projects Other factors leading to slower economic 2.4 percent Real GDP growth next year. growth are the lessening effects from the federal Jeff Korzenik, chief investment strategist at tax cuts enacted at the end of 2017 and higher Fifth Third Bank, expects Real GDP growth of government spending. Both provided stimulus 2.5 percent to 2.75 percent for 2019. to the economy this year, Ehrlich said. Capital investments by busi“The bump we got in the tax nesses following the 2017 fedcuts is basically going to be baked eral tax cut will lead to higher into the cake in 2019 and 2020,” productivity, contributing to he said. continued economic growth, Government spending “will Korzenik said. Business confikeep pushing growth next year,” dence and corporate earnings but start to abate in the second remain high as well, “and you half, Ehrlich said. He notes that just don’t get a recession when among key economic indicators earnings are growing,” he said. of a future recession, such as “There’s evidence that we cooling housing starts and sales, still have time to go in this “some of them are flashing yelexpansion,” Korzenik said. low. None of them are flashing If capital investments conred quite yet.” tinue to stay strong, any future Although they are projected economic downturn is not likely to ease in 2019, auto sales should — JIM ROBEY remain in “pretty good shape,” to occur until 2021, he said. Director of regional In a 2019 U.S. outlook issued Ehrlich said. U-M projects North economic planning services in mid-November, economists American light vehicle sales of 16.9 at Upjohn Institute at the University of Michigan million units in 2019 and in 2020,

“The question I’m starting to ask is will we talk ourselves into a recession. Will a recession become a self-fulfilling prophecy?”

forecast 2.7 percent Real GDP growth in 2019, followed by 1.9 percent in 2020. That’s after expected 2018 Real GDP growth of 2.9 percent, “which is pretty good by recent standards,” said Gabriel Ehrlich, director of U-M’s Research Seminar in Quantitative Economics. U-M also sees slower growth ahead for the U.S. economy, although no recession just yet. “This expansion is getting long in the tooth. A few sectors are slowing down naturally,” Ehrlich said. “We see growth being pretty decent next year also. We expect it to keep on growing. 2019 should be a pretty good year; 2020 we see it slowing down — not stopping to grow, but just the growth is slowing.”

2018 Comerica

both lower than the expected 17.1 million units this year. Comerica projects 2019 light vehicle sales of 16.8 million units, as does the Federal Reserve Bank of Chicago. The effects of trade tariffs remain one unknown for the U.S. economy. While the U.S. has signed a new trade agreement with Mexico and Canada that awaits ratification, executives continue to have lingering worries about a trade war with China. Ehrlich at the U-M said he’s “worried” about a potential trade war with China “but not panicked.” “There’s still an off ramp to the trade war with China,” he said. Visit www.mibiz.com

ECONOMIC DEVELOPMENT

BIRGIT KLOHS PRESIDENT AND CEO, THE RIGHT PLACE INC. // GRAND RAPIDS

Change is inevitable in government and in business. Just ask The Right Place President and CEO Birgit Klohs, who next year will have worked in economic development during the terms of five different Michigan governors. Still, with all the uncertainty surrounding international trade and politics, now is not the time to wreak havoc on the state’s economic development policies, she said. What’s your outlook for West Michigan in 2019? I’m not sure that it is as clear as it was a year ago, because there is some murkiness regarding taxes, new government, tariffs and so on. I think the region as whole is on pretty good footing. I’m cautiously optimistic, but it’s not as clear as it was a year ago. … We’re all going to have to roll with it. One thing we always talk about is the election happened, but all of this didn’t just get decided. It’s going to take us at the state level a few months to kind of get into the new groove. That means when we have a project, do we have the same rules? You’ve got to get used to the new rhythm. I don’t mean that is to be a bad rhythm, but this could be different.

Given that changeover in Lansing after the election, what’s your advice for policymakers? We certainly are encouraging that if it ain’t broke, don’t fix it. I’m never saying that things don’t need tweaking. In Michigan, we’ve all been on a train

going in a certain direction, so if we change direction and go another direction, we will lose our place in line. … Businesses hate uncertainty, so if you insert uncertainty in our economic development process and our regulatory process, then site consultants and companies are going to say, ‘OK, I’m going to sit this out.’ Then our pipeline will slow down and we really don’t want that, if there’s already enough uncertainty coming from the feds.

Governor-elect Gretchen Whitmer has said that she wants to unleash the power of the Michigan Economic Development Corp. What does signal to you? I don’t exactly know what that means yet. Obviously, the MEDC has been a good organization to make sure that companies at the top level receive the help that they need in coordination with the help of our local partners. This is a partnership. Sometimes, we bring them deals, sometimes they bring us deals, but at the end of the day we’re partners. … The MEDC is doing a good

Al Vanderberg COUNTY ADMINISTRATOR, OTTAWA COUNTY // WEST OLIVE

Multiple initiatives and projects in Ottawa County next year will focus on retention and attraction of people to the area, according to County Administrator Al Vanderberg. With the lowest unemployment rate in Michigan (2.5 percent in December), the talent shortage is affecting companies on the lakeshore. Most projects Vanderberg is watching have some tie to the future prosperity of the county. What are the big projects coming up next year? We are implementing a public defender office. Basically, that’s like adding an almost 20-person law firm with 15 attorneys and some administrative staff to represent indigent folks with legal services. It’s a result of a state mandate, and they’re paying the cost for us to add this extra office, yet it’s a big undertaking. We’re in the early stages of that implementation. We’re also working hard on our groundwater issues. Within the past year, Michigan State University completed a half million dollar study of groundwater in Ottawa County. Visit www.mibiz.com

job. Could there be tweaks? Sure, but every organization goes through some.

What’s your pitch to policymakers around the importance of investing in economic development? It’s incumbent upon all of us in the economic development business to make sure that our new legislators understand the importance not just of the MEDC as an organization, but of economic development in general, because (some people think) this all just happens by itself. We have 28 projects this year that we finished, and that doesn’t happen by happenstance. There’s a plan behind this; it’s very deliberate.

What are some of the tweaks or improvements that you’d like to see with the MEDC? What The Right Place does is we compare ourselves to our competitor organizations at least once a year, and say, ‘How is Oklahoma City doing this?’ Or Charleston, Indianapolis, Columbus

— cities that are close to our size and that have really, really good economic development programs. Are we staying relevant? What are they doing that we are not doing and can we learn from them? Just like we’re going to go through a strategic planning process, I think it would probably be a good idea for the MEDC to do that and to really hone their skills. The other one is this whole idea that transparency is good, reporting is good, but over-auditing and over-reporting is (counterproductive). What the MEDC is having to go through (shows) they’re over-regulated, in my opinion. They have to spend more time on reporting than they do on actual dealmaking. I’m all for transparency. Can you stay transparent, but without overloading the agency and making a bureaucracy out of it, if you want to unleash the MEDC?

have the same number of kids graduating from high school that we did 10, 15 years ago. You have to kind of figure out what do you do to ameliorate that.

Most executives we interview talk about their companies’ struggles to find qualified people. What’s your take on this persistent problem?

How is West Michigan positioned to weather the next inevitable economic downturn?

Over the next 10 years, the United States will have 2.4 million jobs that are going to go unfilled. Now, there is still talent out there that’s not trained, needs to be retrained, needs to be re-engaged, but I think to me that’s a national question that we need to somehow answer. The number of men between the ages of 45 and 55 who are not participating in the labor force is the highest that it’s been in 50 years. My question is: How do we as a country struggle with this or as a state at least take a look at it? Who’s sitting on the sidelines? … Right now, everybody is talking about talent, and that problem will not go away, because we no longer

Most people wouldn’t think groundwater is an issue in West Michigan. How did the study come about? It was sparked early on by a township that called because residents in two newer subdivisions went to take showers, and the water wouldn’t go on. What we found is that there’s been a 40-foot drop in static water level since 1975. In some parts of the county, we have the worst geology in the state for water. There will be a major effort that’s developed throughout the next year, both to see areas where we might be able to remediate, or at least equalize what comes out and what goes back into the ground, and probably will also feature a water conservation type of program.

What are the next steps for diversity and inclusion initiatives in Ottawa County? It would involve hiring two people. A number of our largest employers have indicated that West Michigan and Ottawa County are not as welcoming as we could be to people who are different than the cultural norm. Ultimately, they’re having retention issues, some companies. They believe that their presence here could well be determined by how welcoming we are in the future. I think at first blush, people see this as a little controversial because they think of old quota programs and affirmative action, and a number of other things that really a lot of people in West Michigan, especially in Ottawa County, have a bad taste in their mouth for. This isn’t like that at all. We’re trying to be forward thinking as an organization and make sure that we remove potential blocks to our future prosperity as early as we can.

How will the county be involved in regional affordable housing conversations? (Housing Next has) interviewed most of the major housing developers. The goal is to try to eliminate the gap that exists for developers when they can build a $500,000 home versus building an affordable home. It’s about a 35-percent gap in profit they can make. There’s people now who would like to buy smaller houses, so 800 square feet to 1,200 square feet on smaller lots, or maybe as part of developments. Currently, most of the land use and zoning plans don’t allow for that.

What are some of the other issues on the periphery that companies should be paying attention to in the upcoming year? I think one of the things that we are trying to make them pay attention to is automation, robotics, Industry 4.0. How are you getting ready for change in the car industry and what does that really mean to you? If you’re making drivetrains and it’s going to be electrification, then how does that impact you? In our strategic plan, we want to look at where do we need to position ourselves to help our companies down that journey around thought leadership about what’s next.

I’m looking at it this way: I think what had stood us in good stead in the last 10-plus years is diversification. Everybody talks about it, but if you look at our projects, half of them are still manufacturing. It’s still our strength, obviously. We make things here, which is great, and we make it across many different products. If you look at the rest of that, you have food processing, you have medical devices, you have life science projects. When you look at the four key sectors that The Right Place is focusing on, it’s given us a much broader, steadier base to kind of ride it out. Interview conducted and condensed by Joe Boomgaard. Courtesy photo.

It’s a change in our culture that’s happening right now to see to what extent can cities and townships meet that growing demand in the future. Our major employers have told us that talent is their lifeline to the future. Talent resides in all different kinds of people. That’s why some of the diversity work is important for their future to keep providing jobs, hopefully for our kids and grandkids in the future as well.

How do you see the legalization of marijuana affecting the county? The county doesn’t have a role to opt in or opt out, but the county sheriff has been a source of information. He was firmly opposed to the law passing. A majority of Ottawa County residents did vote against the marijuana law. Our position is mostly from concern about the likely impacts on society, on safety, on cost of government. Our sheriff has done a lot of study and has actually been to Colorado and looked at how that went down. Then also the ability to hold people personally responsible in traffic stops and all that type of thing isn’t there yet. There’s just a lot of concern about how it will impact operations, and what that could mean in terms of cost to our residents.

How does Ottawa County plan to address the ongoing talent shortage? Thirty-five percent of our sheriff’s department could retire in four years, and other areas of the county and our department heads and our leadership all have that same kind of metric. That is a concern. When we look at the greater Ottawa County, we have a significant shortage of both skilled and unskilled labor. Diversity can play into it. Affordable housing can play into it. Transportation can play into it. Ultimately, groundwater — if we don’t approach this seriously and figure out some solutions, then we would be able to build less places for people to move to. All those things tie together with the shortage of labor county-wide. Lakeshore Advantage has been working on that, working with the Smart Coast summer intern program and Talent 2025. Interview conducted and condensed by Sydney Smith. Courtesy photo.

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

We manufacture for manufacturers. (Websites, that is.) <engine/> would like to thank these clients and others in the manufacturing sector that have entrusted us to build their websites.

Hansen/Balk

Alpha Metal Finishing Company

AutoDie

Specialty Tooling Systems

Damar Machinery

Raspberry Med

Elite Lubrication

Jain America

Modern Machinery of Beaverton, INC.

For more information about our web development, digital marketing and SEO services, contact Jesper Dinesen at 616/457-0300 or jesper@runengine.com.

Affordable, common sense websites for the commercial manufacturing industry.

<engine/> | Grand Rapids, MI | runengine.com 48

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

ECONOMIC DEVELOPMENT

Justin Winslow PRESIDENT AND CEO, MICHIGAN RESTAURANT & LODGING ASSOCIATION // LANSING

Justin Winslow leads the newly formed Michigan Restaurant & Lodging Association created through the merger of the Michigan Restaurant Association and Check In Michigan, formerly known as the Michigan Lodging & Tourism Association. Winslow previously led the MRA. The merger created one of the largest trade groups in Lansing that represents businesses statewide that collectively employ more than 595,000 people and generate $40 billion in annual sales. That’s 12.5 percent of the state’s total workforce and nearly 10 percent of Michigan’s GDP, respectively. What are the big issues in 2019 for your industry? There’s going to be a new political environment, and that’s going to be unique not just for us but for everyone with a new governor coming in. That’s going to provide some new opportunities. Some would say challenges, but I think there’s going to be some new opportunities as well out there.

What are a few of those opportunities? The Governor-elect has been very focused on education and in providing the requisite skills and training necessary to meet job demand that is currently far outpacing supply. The MRLA has dedicated a lot of time and effort to this space, creating unique partnerships to provide a pipeline for the hospitality industry of individuals capable of not just securing a job, but sustaining a meaningful career with opportunities for advancement. I think there is space to partner in this capacity.

If Gov.-elect Whitmer were to call and ask for your advice on what she could do to help your industry, what would you tell her? I would take that call seven days a week. I would tell her of the extent that we can partner on workforce development. She has a real passion for education and we are in K-12 schools now, and to the extent that we can take that and make that a full ladder of training and opportunity in this industry to start early on and provide a career ladder of opportunity, that is an interesting conversation we would like to have with the incoming governor.

What’s something in your industry that will get more attention during 2019? The labor crunch and wage growth is manifesting a lot of change in the restaurant and lodging industries. I think you will hear more about the increased role that technology generally, and automation specifically, will play in these industries going forward.

How do you think the economy in 2019 will affect your industry? We saw the University of Michigan weigh in that it isn’t necessarily imminent that a recession is coming, but a lot of people believe it is coming — if not in ’19 then in 2020. So we’re watching closely because the restaurant industry and the tourism industry, or the hospitality industry, sometimes end up being the front runner of those things. You can see some of the indicators in this industry before you see it in the overall economy.

What are the signs saying now? We just finished getting some information in our Q3 trends report that suggests some of the sales and traffic are slowing a bit. That has us cautious. We want to see if that is an anomaly or if that is a foretelling of a trend going forward. We’re going to be watching that closely in 2019 to see where those numbers are and how that works in partnership and in tandem with the workforce challenges we have. Is one causing the other, frankly?

What else is the data telling you as 2018 comes to a close? We saw sales growth of 0.7 percent and that’s the first time we’ve seen sales growth be lower than 1 percent since we started doing this at the beginning of 2017.

What’s one prediction you have for 2019? To me, I think it’s still going to be continued growth for the hospitality industry overall. We’re seeing the tourism numbers come in in record numbers. People are staying longer, they’re spending more money, and that overall is going to positively impact this industry in 2019. If something’s coming negatively with the economy, we believe it’s more likely it’s held off into 2020.

TAMI VANDENBERG BOARD MEMBER, MI LEGALIZE // GRAND RAPIDS

Years of mobilization around the movement to legalize marijuana in Michigan bore fruit in 2018. Now, Tami VandenBerg, a board member of the organization that helped bring the legalization initiative to voters, predicts the ways the ‘green rush’ will start to reshape the region’s economy. Now that recreational marijuana is legal in Michigan, what’s coming in 2019? It is going to be a fascinating year. Many moving parts. Many moving policies. We finally have a little bit of clarity, in terms of what Grand Rapids is going to allow. They will begin taking applications for some medical businesses in January and some in March. That’s going to be a big deal. We’re going to see, for the first time this century, legal businesses with cannabis in Grand Rapids. There are a lot of people from out of town coming in, which is great, and also more competition for the locals. The zoning is still extremely limited in terms of where you can open. That’s driving up the cost of getting into the business. The mayor and city commission and the community wanted to see a lot of locals be able to get into the marijuana business. With the current zoning, they may have done the opposite. They may have restricted it to a point where you’re going to need to have pretty large sums of cash to even apply for a license.

for what strain works for what condition. It really is the ‘green rush.’ I don’t know how much people realize this. This is a once in a lifetime thing. It’s like the tech boom. It’s like ending alcohol prohibition. There are only so many times in your life where you’re going to see this giant new industry take root.

Both the governor-elect and the incoming attorney general were favorable toward legalizing marijuana. Does that make a difference in the process? Yes, especially the governor. I think that’s going to help a lot. The state has a year to put together all of the rules. One of the reasons that medical marijuana facilities have been such a mess, in terms of getting licenses and the backlog and so many people getting denied, is there’s the medical marijuana board that has to approve every single application. That’s been a group that’s appointed by the governor. That group has not been terribly friendly to anybody who was in the business before it was legal. Our hope is that we’re going to see this whole process go much more smoothly.

Because of the cost of the property? Yes. The zoning is so small. It’s very basic supply and demand. I understand they want limited licenses, but when you have the zoning so restricted, the price is going to go three times what it would have been. It’s giving a very serious advantage to people who have liquid cash, who don’t need to get any kind of financing or to locate investors. I was talking to a gentleman who actually has a building randomly in the zone. He said it’s like hitting the lottery. His building just tripled in value overnight. Lucky him, right?

Does he want to get into the weed business? He has a functioning business there that is doing well. He’s probably going to move that. I will say I’m glad we’re starting somewhere. They’re allowing licenses. That’s what we fought for. That’s what we wanted. We wanted more access. We will fight for that. At the end of the day, it’s about business. It’s also about access for patients.

In addition to raising capital, what can people who are interested do to get in at the ground floor of this industry? We’re forming a guild, West Michigan Cannabis Guild, for anyone in the business or looking to get into the business or ancillary businesses. You have people that are going to open up provisioning centers and grow facilities. Then you have the marketing people. You have Growco and your greenhouse people. This is not just going to benefit people directly in the business. There are all kinds of ancillary businesses that are already popping up — websites, tech. There are people working on apps

Is there anything that people aren’t paying attention to that could happen next year and make a big difference in the industry? I see in 2019, every city or county individual who’s up for election is going to be forced to talk about cannabis in the state of Michigan. In Grand Rapids, we’ve got a mayor that’s up for re-election. I don’t know who all is going to jump in that race. Three city commission seats. We’re going to be right there. We’re going to be talking to every single one of them. We also want to keep an eye on how many people are moving into town for this or moving into the state for this. Michigan has been losing population for many years. This going to start bringing people back, which is great, except that’s going to drive up costs.

Grand Rapids has been gaining people already. I think Grand Rapids is one of the only cities that’s been gaining. That’s going to be another interesting piece. People are worried about housing prices. They have been very high. Most states that have legalized have seen about a 7 percent increase in property values. Is the city going to be able to use some of the tax money they get in to help with the housing stuff? How strategic are they going to be? How in front of this are they going to be? That’s the stuff I’m going to be watching. That’s the stuff I’m going to be involved with. Interview conducted and condensed by Jessica Young. File photo.

Interview conducted and condensed by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

ECONOMIC DEVELOPMENT

Doug Rothwell PRESIDENT AND CEO, BUSINESS LEADERS FOR MICHIGAN // DETROIT

Infrastructure and education remain at the top of the policy agenda for 2019 for Business Leaders for Michigan, a statewide roundtable of top business and higher education executives. Led by President and CEO Doug Rothwell, the group this year created a broad coalition of business, labor, philanthropy and civic leaders across the state that in 2019 will look at ways to improve K-12 education. The organization will continue to advocate as well for state investments in infrastructure. What do you look forward to from the new administration in 2019? I’m very optimistic. I think that we have a very unique opportunity, actually, to address the two issues — infrastructure and education — because the Governorelect, Gretchen Whitmer, has said those are important issues to her. She deserves a lot of credit putting herself up there to say that we’re going to need to raise more revenue to fix the roads. That is the only solution to that problem.

How about in the state Legislature? My hope is that we have also in (House Speaker) Lee Chatfield and (Senate Majority Leader) Mike Shirkey some very practical leaders over in the legislature. If the right solution can be developed, my hope is infrastructure, for one, is an issue that can get bipartisan support and we can put this issue behind us once and for all.

Do you have the same hopes for the challenges around education? Education may be a little more difficult to deal with. There’s broad consensus that we’re not getting the results we need. The coalition that I’m helping lead with the MEA (Michigan Education Association) and the Skillman Foundation, Launch Michigan, is a unique opportunity because you have this broad nonpartisan coalition that is going to come up with some recommendations over the next three to six months. My hope is we’re going to give air cover to the parties to really get behind these and begin to tackle this problem, too.

How should Gov.-elect Whitmer view your organization? We’re a policy group. Our goal is to come up with ideas and strategies and solutions based on best practices that will make Michigan a top 10 state. That’s all we care about. We always want to be thought of as a resource to a governor and to legislative leaders to help them navigate the right solutions that are really going to move the needle for the state.

How does your organization view her? Very optimistically. We think she is somebody that brings a lot of experience to the job. She’s been in a variety of different positions in the public sector, but her legislative experience in particular is going to be a real asset. That is something that neither Rick Snyder nor Jennifer Granholm had, and I think that we see that some of the issues that couldn’t be solved during the last 16 years really came down to politics. Somebody that has her experience with navigating the road funding issue or things like that is going to be an asset when it comes to actually getting something done. We’re looking forward to working with her, and with Mike Shirkey and Lee Chatfield. We can’t overlook the fact that we have new legislative leaders and very practical ones.

Do you see a sense of pragmatism and practicality breaking out in Lansing in 2019? I really do. First of all, Lee and Mike are not running for anything. They’re just focused right now on their own jobs. You have a brand-new governor that has a four-year window. So for now, at least, there’s a window of opportunity for people to focus on the work that needs to be done, rather than what they want to run for. That’s the time you need to strike and actually accomplish something. It’s in everybody’s best interests that we accomplish something, right? At the end of the day, they’re still going to have to run for something in the future, and it’s always best to run on a positive track record than just opposing for the sake of opposing them.

What’s your advice to Gov.-elect Whitmer? Let’s not throw out the baby with the bath water. Gov.-elect Whitmer understands this. Just because Rick Snyder and the Republican Legislature did it, doesn’t make it automatically bad … particularly as it comes back to budget and fiscal policy. We have a good tax structure in place. We have a good set of budget policies and practices in place. Let’s keep those going because that has helped us get back in the game again. Let’s not tear down and build up. Let’s build on to what’s already there.

How will her background in the Legislature help? She has a learning curve as well, but I think that she still has an understanding at least of how the process works and how it is about personalities and building trust. There are going to be tradeoffs that you have to make, and it is a bargaining process and you don’t get everything you want but you want something to get done. You don’t let perfection stand in the way of progress. Those are attributes that in the long run will benefit her. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

MAYOR ROSALYNN BLISS GRAND RAPIDS

As the top city official in Michigan’s second-largest city, Grand Rapids Mayor Rosalynn Bliss is hopeful to continue the momentum heading into 2019. Bliss, who is entering the last year of her first term in office, says encouraging collaboration to tackle complex community issues remains one of her top concerns. What are your top priorities of 2019? My hope is that next year we will receive our permit for our river restoration project. That’s really a key component of moving forward, and so we’re hopeful to have the permits approved and to be in the water next year by the end of the year. Also, we recently had our police chief announce his retirement. Next year, a big issue is going to be identifying and hiring a new police chief. That’s a key role in our community, like every community. We’ll have several affordable housing projects that will break ground next year, which is very good considering that continues to be a core issue that we’re wrestling with. And, next year, we’ll start accepting applications for medical marijuana, so I predict that we’ll have one or more medical marijuana facilities opening next year in the city.

You have been one of the first municipal leaders in the region to announce you will not opt out of allowing recreational marijuana business. Are you preparing for growth from the passage of Proposal 1? I personally don’t anticipate that anything is going to happen, because the state has a good twelve months to formulate the rules and regulations related to recreational marijuana. I personally have no intent to opt out. We’ll see the ordinance that we put in place for medical marijuana facilities as being the foundation for whatever we decide to do with allowing recreational marijuana facilities. My hope is that by the end of next year, we’ll have had some time to assess the rules that we put in place and we’ll assess what’s working well and what’s not. I’m always willing to go back and amend decisions I make if I realize that we missed something or that maybe we went too far. Next year will be a learning experience for us as we have facilities open up and then we’ll use that information as we look to allowing recreational marijuana facilities in the city.

How is the city approaching economic development? Economic development continues to be a priority in the city, but we don’t do that alone. I see us needing to continue to have strong relationships and then really look to what are the needs

of the businesses to make sure that the city is a business-friendly city. I want to make sure that when there are problems, we are able to address them quickly, whether it’s through the planning department to get approval for building something to our design center to the fire department that goes in and does inspection for fire safety, to the license people get from the clerk’s office. One of my priorities is that when there’s a problem, we come alongside a business and walk with them to resolve that problem. A really strong commitment to customer service is key.

As MiBiz reported in April, you were awarded by the U.S. Conference of Mayors for your focus on small business investment. Are you hoping to continue that work? We’ve invested a lot of time in supporting Corridor Improvement Districts throughout the city and our Small Business Districts, and those local resources are able to have a huge impact on those neighborhood business districts. We need to continue to support that work because we know that small businesses are really at the heart of our local economy. We want them to be successful because the neighborhood business district has a direct impact on the vibrancy of neighborhoods.

Where will the city be making investments? Infrastructure is a big one. Our commitment as a city is to making sure that we are investing in infrastructure, which we fortunately are able to do with the income tax extension. We have funds that we’re putting toward infrastructure every year, but it really requires us to partner with the state to make sure that we’re getting funds from the state and the federal government to come back and build the infrastructure that we know is critical for businesses to be successful.

Any other challenges or opportunities? I consistently hear that our buses don’t run during times that allow second- and third-shift workers to use transit. What we’ve heard loud and clear from businesses is that their employees need access and ways to get to work. We have to make sure that we’re constantly looking at public transit and making sure that public transit is getting people from where they live to

where they need to work. And we have some struggles with that.

People seem to be talking about and coming together around taking action on community-wide issues. As a leader of the city, how are you putting energy into creating buy in for collaboration? I think one of the wonderful things about our city, and I believe it’s been built into our DNA really over several generations, is a commitment to collaboration. We’ve seen the success when we work together around a common issue, whether it is something very physical like building an arena or a convention center or more complex issues. Especially in the work that we’re seeing around workforce development and talent attraction, collaboration I think is key. I don’t think it happens in other cities as well or even as effectively as it happens here. We’re going to see a lot of the fruits of that labor and that commitment to collaboration.

What do you think is something that could happen in the next year that maybe people aren’t really paying attention to yet? I think there is a lot of excellent work being done around racial equity in our community. I think in organizations, leaders of companies, nonprofit foundations, the city, the county, there’s a real commitment to taking concrete action steps to address issues related to racial equity and to reduce the disparities that we see in our city, especially in several of our neighborhoods. It’s a very complex issue, and it takes all of us working together to truly drive change, but I’m very, very hopeful that we’re going to start to see some significant reductions in disparities next year and the year after.

You’re coming into the last year of your first four-year term as mayor. At this time next year, what do you think that you’ll be looking at to measure your success? I hope I look back and I see a community that is stronger, that is more connected, that is more equitable and inclusive, and that is economically strong. And I hope I see more cranes in the air. Interview conducted and condensed by Jessica Young. Courtesy photo. Visit www.mibiz.com

F I S H B E C K , T H O M P S O N , C A R R & H U B E R | engineers | scientists | architects | constructors

CONNECTION TO

THE FUTURE Every project is a path to stronger, smarter, healthier communities. To us, itâ&#x20AC;&#x2122;s all connected.

800.456.3824 | ftch.com PROUD WINNER OF THE 2018 ACEC/MICHIGAN FIRM OF THE YEAR AWARD

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

ECONOMIC DEVELOPMENT

Rich Studley CEO, MICHIGAN CHAMBER OF COMMERCE // LANSING

The Michigan Chamber of Commerce, with more than 6,000 members that collectively employ 1 million people, stands as one of the more influential advocacy organizations in Lansing. As Democratic Gov.elect Gretchen Whitmer prepares to take office in January with a legislature remaining in control of the Republicans, Michigan Chamber CEO Rich Studley says it’s unfair to prejudge her as a friend or foe of business. Although the new governor and her party historically have been on the other side of business issues from the Michigan Chamber, Studley believes “she has the potential to keep our state moving forward with a different view than the current administration.”

What’s at the top of the Michigan Chamber’s agenda for 2019? Infrastructure is a very high priority. We did make progress during the Snyder administration and I think Gov. Snyder and Republican legislative leaders deserve credit for making progress. A $1.2 billion plan is in place. About half of the revenue in the current plan comes from user fees, which we think is very appropriate. The governor-elect has said that she would prefer to take further steps to fix the roads and build and rebuild bridges, and has indicated the preference for user fees. We agree with Gretchen Whitmer on that. The real key here will be: Does our next governor look for opportunities to work together on issues where we can find common ground? Education, energy, transportation, and telecommunications are all historically bipartisan issues where we can keep Michigan moving forward and making progress.

How do you view the November election results in Michigan? We actually think that’s not a bad outcome at all. One of the exciting things about a new administration is that next year, especially, we will have a lot of new people at the state level, both in the state House and in the Senate, and in the executive branch, with fresh perspectives and new ideas. That can be a healthy thing. Just because you have people from different views and different parties doesn’t mean we can’t work together and do great things. The message we’re getting from our members, the message that we’ve been asked to share with new and returning leaders in state government, is the election is over and we need to switch from campaigning to governing; we need to look for opportunities to work together.

Do you see Gov.-elect Gretchen Whitmer as a friend or foe to business? Most Michiganders, and certainly members of the Michigan Chamber, want every Michigan governor to be successful. If the governor is successful, that’s a good thing for our state. If the governor-elect chooses to look for areas of agreement and opportunities to work together with the business community, we’ll be there to help. If she focuses on transportation, on job creation, on economic growth, on infrastructure, there are lots of opportunities to work together. We want to be encouraging and supportive and welcome the opportunity to work with Gretchen Whitmer and her team.

How should she view the Michigan Chamber? I would hope that she would view us as open-minded and willing to listen, because we are, and I hope that she would view us on many key economic issues as a potential ally. One thing I’ve learned over the years is that people of goodwill can look at a lot of these complicated and very important public policy issues and reach honest differences of opinion. Gretchen Whitmer is smart and tough and very knowledgeable about state government. She’s a good communicator and I think on the occasions where we’re not in agreement, we will listen and try to understand and offer constructive alternatives. There may be some issues that she feels strongly about or we feel strongly about where there’s not a way to bridge that gap, and then we will agree to disagree, but will do that in a business-like and professional manner.

What’s out there that gives you pause or concern for 2019? There’s a great concern in the business community about national and international events that are largely outside of the control of state government — questions about foreign policy and about trade policy. The very strong message that we’re receiving from our members is that prudent business people really don’t believe that anyone wins a trade war. One way for us to counter that is to redouble our efforts to make sure we’re doing everything we can to make sure Michigan is strong and competitive. When we look at our three leading industries, Michigan is still a manufacturing state. That means we’re an exporting state. That means what happens or doesn’t happen nationally and internationally on tariffs can be critically important. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

ROGER MARTIN PARTNER, MARTIN WAYMIRE INC. // LANSING

As a new governor and state Legislature prepare to take office in January, Roger Martin, a partner at the advocacy firm Martin Waymire Inc., is among the people who remain hopeful for a new spirit of bipartisanship in Lansing to address some of the major issues facing Michigan. That includes deteriorating infrastructure across the state that goes beyond the roads. How well Democratic Gov.-elect Gretchen Whitmer and the Republican-controlled legislature work together remains the big unknown, although Martin sees her experience as a legislative leader as a big plus coming into office that predecessors Rick Snyder and Jennifer Granholm lacked. What’s the general mood these days at the state Capitol going into 2019? The big question mark looking into 2019 and 2020 is what’s going to play out and win out here: The politics of solutions or the politics of stalemate? To the extent that it’s the politics of solutions, there are certain issues out there looming that I think — and a lot of people around town believe — could end up getting solved. And I say that with some degree of reluctance because we just don’t see a lot of solutions anymore. We just see a lot of stalemates and a lot of ‘no, no, no.’ Is the Legislature going to be one of obstruction? Or are they going to let the new governor try to advance an agenda that they can both work with? I don’t know, and that’s the great unanswered question here.

Is infrastructure the obvious top issue? It is three years running the top issue of concern to voters across the state. I can show you five to seven polls where that’s been the case. And it’s roads and other infrastructure. People understand increasingly we have more than problems with our roads and bridges. We have problems with our aging drinking water systems. We have problems with stormwater and wastewater systems, some of which are 75 to 100 years old. We have a couple thousand dams in this state, and nearly 80 percent of them are at or will be at their design lives. There is no plan in the state budget to fix any of that, other than roads and bridges, and that, as we all know, is inadequate.

What are the chances Whitmer can deliver on her promises to do something about it?

headquarters there. It’s because they can find the talent in those states to fill those jobs. What are Republicans and Democrats going to do to come together to figure out how we are going to increase the level of collegeeducated people in this state?

What kind of legislature will the incoming governor face? Right now, everybody’s saying the right thing. ‘We need to work together. We need to reach across the aisle.’ She understands how the legislature works. She understands how individual legislators have to work and function to protect their own re-election ambitions. There’s some value in that moving forward here, and that certainly gives more hope. I believe sincerely that her level of knowledge — not just of the political process, but the policy problems facing the state — are certainly deeper than Rick Snyder or Jennifer Granholm. She has more experience than both of them combined in dealing with the most pressing policy issues facing this state. Not even close.

What does she have in her favor? She has an electorate in Michigan that coalesced around her message, and that’s probably not going away. That coalition that elected her is not going away, at least not for the next two years. Or to the extent that the Republicans want to poke the beehive here, I think it’s to their own peril to a large degree. We haven’t had someone who can talk the talk of the legislature for some time. She’s able to do that.

What’s a headwind that’s going to frustrate her?

The Governor-elect ran pretty boldly on a ‘fix the damn roads’ campaign slogan. So again, politics of solutions or stalemate? Is the legislature actually going to agree on a solution that is actually going to solve a massive problem created by literally decades of failure in Lansing? Are they going to be able to come together and solve this? If they do, the Republicans will have ceded to her a huge political victory.

A legislature that’s going to say ‘no’ simply for the sake of a political victory. So she needs to be really bold. I would suggest that being bold is the right course of action here, however she wants to define that. But you just can’t sit back and accept ‘no’ as an answer to everything on your agenda.

What other issues are out there legislatively for 2019?

PFAS contamination. No one really quite knows how big a problem this is, and it’s a question that’s haunting a lot of folks, from West Michigan to Wurtsmith Air Force Base to Walloon Lake. This is a big problem and I’m anxious to see, as are a lot of people, how big it becomes and what the Governor-elect and members of the state Legislature are going to have to try to do to address it. The paths are leading right to their desks right now, that’s for sure.

Protecting and increasing access to affordable health care. Health care was a key issue for the Governor-elect, too, as it was for Gov. Snyder. Gov. Snyder, like Gov. Kasich in Ohio, pushed hard to get Medicaid expansion in their states and they’re proving to be very successful. There are certainly things that can be done policy-wise to further increase access to health care and lower costs in Michigan. We’ll see how they come together on that.

What else? Next is tax cuts. They didn’t play really well, obviously, in the 2018 midterms if you look across the country, but the Governor-elect has promised to eliminate the pension tax, and she’d obviously like to find support in the legislature to do that, too. But will this become a game of ‘I’ll see your pension tax cut and I’ll raise you an income tax cut?’ Will this just become one tax cut in exchange for a bigger tax cut? If that happens, how is the state going to pay for all of that? To some degree, tax cuts are coming, one or more.

One has to presume talent ranks highly as well, right? There’s a reason why Amazon selected Virginia and New York City for 25,000 jobs that are going in the new

What do you see coming to the forefront in 2019 that’s not getting great attention now?

What would surprise you in Lansing in 2019? Maybe it’s my too many years in politics and following politics and doing what I do. I like to look on the bright side but always expect the dark side to prevail. I would be really surprised, pleasantly so, if the governor and the legislature can come together on a policy solution that actually solves the state’s massive infrastructure problem. It would create thousands of jobs, it would make our roads and our infrastructure safer, and it would be a signal to employers across the state and elsewhere that this is a state that’s willing to invest in an infrastructure that’s critical to the success of any industry. Right now, it is hard to even see what that solution is and what it could be and what they could agree on. Interview conducted and condensed by Mark Sanchez. Courtesy photo. Visit www.mibiz.com

Aiming High Since 1962. West Michiganâ&#x20AC;&#x2122;s Commercial Real Estate Experts 517 351-2200 / martincommercial.com

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

NONPROFIT ORGANIZATIONS

Carrie Pickett-Erway

DEANNA ROLFFS

PRESIDENT AND CEO, KALAMAZOO COMMUNITY FOUNDATION // KALAMAZOO

VICE PRESIDENT OF HOUSING AND FAMILY SERVICES, INNER CITY CHRISTIAN FEDERATION // GRAND RAPIDS

Since 2011, median home prices have increased by nearly 70 percent while per capita income went up by only 11 percent. Now, Deanna Rolffs, vice president of housing and family services at ICCF, has a waitlist of more than 700 families who are in need of safe, affordable housing. Going into 2019, she thinks community leadership and collaboration could be the key to solving the region’s housing crisis. What’s happening to decrease the number of families who are waiting for housing? One of the keys to affordable housing is increased density. I firmly believe that a very large percentage of the homeless crisis and of families finding themselves homeless is due to a lack of affordable housing. It’s not chronic homelessness. It’s not other very long-term factors at play. Most of the families that we support that are experiencing homelessness are working at least one or two full-time jobs. They’re working at Spectrum Health. They’re working in factories. They’re earning above minimum wage or right around minimum wage, but they cannot afford the housing prices.

Do you see that changing anytime soon? Some of my biggest hopes for 2019 are around affordable housing. We need brave solutions and we need cross-sector solutions. I don’t think we’re there yet. I’m excited about United Way’s leadership in this. I’m optimistic about the group that KConnect is bringing together around a broader, community-wide affordable housing strategy. Bringing in health care providers, bringing in businesses, bringing in many other voices. There are many large businesses that are really dedicated to supporting their employees to have safe and affordable housing, because safe and affordable housing for employees allows businesses to increase their bottom line and meet their goals.

Do you see some of those community-wide strategies becoming more defined in 2019? Yes. I’m really optimistic that we can come to a place of true collaboration rather than in-fighting or true communication knowing that we all bring different things. I believe we all don’t want families to sleep outside, or singles, or individuals, or anybody. 2019 will be a telling year for us to say, ‘Can we work together better? Can we break down some of the misunderstandings and the silos?’ We don’t all have to be cookie-cutter. We don’t need to be the same. In fact, our differences are beautiful. But we all want to provide low-barrier, high-access shelter. We all want to not discriminate against LGBTQ+ youth and individuals and families. We all want our children to not experience the trauma of living on the street or being without a home. We can do that by facing some of those hard things collaboratively.

through this hoop that’s been defined outside of our community. We each need to see how we can play in the system. If we could move toward that, which I believe we can in 2019, it will be a great year for our community, not for the agencies that offer support, but for neighbors in our community — both neighbors that want to buy a home and want a safe, affordable place to live, and neighbors who have experienced sleeping on the street or in parks or in their cars.

How can businesses help? First of all, providing living wages. You can balance a budget, but if you only make minimum wage, you literally cannot afford a rental unit. You cannot afford a stable unit and that will affect your employment. There are so many employers in West Michigan that truly care about that and really want to look at supporting the whole employee and not just when they show up for eight hours. I think businesses can invest in supporting their employees in adaptive ways. Maybe it’s information sessions about how to buy a home, how they can access down payment assistance opportunities, how they can get their credit ready.

Are there any more gaps in training or education that you’re looking to fill in the future? One of the things I’m really excited about growing is our education and housing counseling offered in languages other than English. Last year, we offered both our Financial Capabilities and Introduction to Home Ownership classes in dozens of languages with translation support from Bethany Christian Services. It’s a huge investment on our part, but we’re dedicated to that. In Spanish, we translate all the materials. We are working on marketing with the Hispanic Center and the Hispanic Chamber. I’m really excited to see where that will go in 2019.

Going into next year, is there anything keeping you up at night? What keeps me up at night, and it should, is the 100ish families every night that are sleeping in their cars. It’s not all static, it’s not the same people. We have to come up with a solution for this. Ninety-nine percent of the families just want to get in their own place, but they can’t. We find it is critical when someone is in a family shelter to provide some support services, to increase their income, to access landlords, to just regroup. The hope is we can make that available to anywhere between 20 and 100 families in 2019.

What are the first steps? We need to know our data. We need to know what we’re doing well or not doing well so that we don’t all just jump

Interview conducted and condensed by Jessica Young. Courtesy photo.

The nonprofit sector must be focused on serving needs in their communities, even if that means taking big steps and thinking outside of the box, according to Carrie Pickett-Erway, the president and CEO of the Kalamazoo Community Foundation. How does the new administration and changeover at the state government level affect the nonprofit industry? In Kalamazoo County, millions of dollars come through state and federal funding, so when changes happen at the state level, it can really help or hurt a nonprofit’s ability to help our most vulnerable residents. We’re really focused on strengthening relationships with policymakers, regardless of their political affiliation. Our job is really to educate them about the impact of any changes. We’ll focus on strengthening those relationships and really lifting up the impact of how what happens at the state levels affects us.

Will we see more examples like Kalamazoo Foundation for Excellence in which municipalities rely on the backing of philanthropy to expand services? Smaller local cities, counties and townships were really finding it really hard to create a funding scenario to respond to the infrastructure needs of the community. Most cities are really struggling and this requires some radical thinking to make that model work. The Foundation for Excellence was one bold and creative solution, but it’s not realistic for most communities because the fundraising can be a huge effort. I don’t know that we would see it replicated widely, but I think it has inspired lot of communities to think differently.

Is the practice of relying on philanthropy to fund government healthy in the long run? It has and always will be the role of nonprofits to pay very close attention to the needs of the community as ideas and common practices start to shift in one direction or another. Nonprofits have always been looked to to fill gaps in areas such as workforce development, early childhood education, or the need for food and clothing. Donors who live in our community have made their fortunes here and raised their families here and know they have to fill those gaps. Sometimes it’s financial and sometimes it’s their time. We have to work to make sure donors see the impact of their investing, so they know their giving is worthy and meaningful, but we have to hold our elected officials accountable to do their fair share. It’s always a touchy balance.

What’s the outlook for consolidation in the nonprofit sector? We are thrilled when we see our local nonprofits turn to one another and try to find even greater efficiencies in an underfunded process. In some ways, the only way for them to do this is when they hear that they only got partial funding and the only way they will make a little bit go a long way is through collaboration. The more efficient the sector itself can be through collaboration, the further our funds can go.

Will we see more nonprofit mergers in 2019? I think in every sector, it’s a requirement for agencies to be watching for how the market is changing. Whether you’re talking about retail clothing or early childhood agencies, they need to adapt. I think that we’ll see agencies that are failing to adapt or lacking diversity in their board or staff becoming less and merging with one another. I don’t think it’s going to be a common occurrence or big deal in 2019. Interview conducted and condensed by Jane Simons. Courtesy photo.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

C E L E B R AT I N G 2 0 1 8 P R O F E S S I O N A L A D V I S O R S

VĳP\S ũP^ŨSŲ R][ŀc\Ũbg U]c\SPbŨ]\

CTP[e]ĳY

CYNTHIA WELTON

MICHAEL ROSLONIEC CIMA, CFA, CFP, CAIA

LAURIE MURPHY

ERIC FISCHER

Vice President Wealth & Asset Management Division Fifth Third Bank

Family Wealth Director & Institutional Consulting Director Graystone Consulting, a division of Morgan Stanley

Estate Planning Practice Chair Miller Johnson, Attorneys

Tax Senior Manager BDO USA, LLP

At Grand Rapids Community Foundation, we partner with the area’s brightest professional advisors. They use their knowledge and experience to act as a team of resources, helping donors connect their passion and their philanthropy. Our collaboration helps make Grand Rapids Community Foundation and the area we serve more vibrant and ready for whatever the future holds. Find out more about how our team can assist you in connecting across perspectives to create a magnetic and interconnected West Michigan community at grfoundation.org/advisors.

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

NONPROFIT ORGANIZATIONS

TERI BEHRENS

should be in these situations. It’s a question of how you balance that commitment to supporting a community and using those resources wisely. There are some precedents that have been set and that has led to a lot of thoughtful conversations.

EXECUTIVE DIRECTOR, DOROTHY A. JOHNSON CENTER FOR PHILANTHROPY AT GVSU // GRAND RAPIDS

Is this trend healthy? The role that philanthropy should play in society is providing risk capital for society and being able to fund innovative approaches to social problems and being able to flexibly respond. Health care and pensions are among the areas that we have agreed are the role of employers, including government, and they should take care of it. Taking funds from other social programs when they have to be used to fund basic services is an additional drain on already financially challenging circumstances.

Teri Behrens took over as executive director of the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University on Oct. 22. She previously served as the director of strategy and programs at the Johnson Center and worked to integrate an applied research mission with the needs of the changing nonprofit sector. Will philanthropy continue to play a larger role in filling needs once handled by local governments?

We’re hearing good things about our lawmakers’ understanding and commitment to the nonprofit sector. We talked with both gubernatorial candidates, Bill Schuette and Gretchen Whitmer, prior to the election. While it was too soon to say what kind of legislative initiatives they may advance, they did have a good understanding of the nonprofit sector. They seemed to appreciate the role of philanthropy based on our conversations.

We have several examples in Michigan where philanthropy has stepped in, including Kalamazoo, Flint and Detroit. We know there are a lot of cities at risk with underfunded pensions and health care liabilities. There are questions from philanthropists about what roles they should play and if there will be pressure to fill those gaps. Most people on the giving side have concerns about what the role of philanthropy

The things it takes to make a good marriage are the same things it takes to make a good collaboration or merger among nonprofits. How can we make a change in the world and making the business case for that is sort of the easy part. I think that foundations have learned that forced collaborations and mergers are unsuccessful. In addition to providing money for staff time so they can spend time in conversations about those collaborations, bringing someone in who is a seasoned professional to see what a deeper collaboration or merger might look like makes sense.

What else is on your mind for 2019?

Ongoing discussions are certainly going to continue into the New Year about how areas such as back office functions, human resources or bookkeeping could be consolidated. These are the sort of perennial issues that I don’t see going way.

It’s nice to see an emphasis on diversity, equity and inclusion in the sector. Baby boomers are starting to retire and I think that’s going to make space for more diverse leaders to move in behind them. There are a number of things that are starting to converge right now. We’re going to see people this year trying to figure out the long-term impact of the tax reform act. We’re going to have data on that early next year and that’s going to be something that we’ll be looking at closely.

Could nonprofit mergers help to better solve some large, systemic issues?

What other trends are you seeing in philanthropy?

Housing is one (with) a compelling business case to be made for the big issues everybody is facing. I think there might be some interesting developments in the lack of affordable housing. We’re hearing a lot more conversations about that and how we can get more collaborations and creativity using economic development resources to address it. I think partnering where the values and mission and theory align is something we may see ahead.

Two trends that almost seem to be colliding are the emphasis on data and using good data to make decisions, both of which continue. As part of that, there’s the emphasis on trust and relationship building. I think what’s happening is that we’re starting to see a better understanding of what data are important and for who.

Do you see 2019 as being a year of consolidation in the nonprofit sector?

What does the new administration in Lansing mean for the state’s nonprofit sector?

What makes for a successful nonprofit merger?

Interview conducted and condensed by Jane Simons. Courtesy photo.

We’ve been helping small businesses for 35 years. Let our business advisors assist you with: • • • •

Business Valuations Tax Planning & Preparation Succession Planning Controller & CFO Services

• Business Consulting • Retirement Planning • IT Consulting & more!

See what being an H&S client is all about.

hscompanies.com • 616.453.8551 4575 Lake Michigan Drive NW, Grand Rapids, MI 49534 Call, click or stop by a location near you today! 56

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

A full-service marketing machine that offers integrated, budget-sensitive, and actionable strategies for highly technical product industries.

Innovative Marketing Results 1851 R.W. Berends Dr. SW, STE B Wyoming, MI 49519

Visit www.mibiz.com

info@innovative-mr.com P: 616.608.9995 F: 1.866.710.0218

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

NONPROFIT ORGANIZATIONS

Todd Jacobs

How do you see that playing out in Muskegon?

INCOMING CEO, COMMUNITY FOUNDATION FOR MUSKEGON COUNTY // MUSKEGON

Todd Jacobs becomes president and CEO of the Community Foundation for Muskegon County on Jan. 1. The Muskegon native succeeds Chris McGuigan, who has run the foundation since 1999 and plans to retire. Jacobs moves to the Community Foundation for Muskegon County from the Fremont Area Community Foundation, where he’s worked as vice president and chief philanthropy officer. He previously served as vice president of community investment in Fremont and was director of planned giving for Ferris State University, executive director of the Holland Hospital Foundation, and development officer at Hackley Hospital in Muskegon. What attracted you to the position in Muskegon?

How might the economy affect philanthropy in 2019?

I felt it was a wonderful opportunity to give back. Having grown up in Muskegon I certainly have an appreciation for the community and I’m very familiar with the Community Foundation and its work. I thought, what a wonderful time to be part of that resurgence of Muskegon and return to my roots. I’ve been involved in the Community Foundation since the early ’80s. I actually received a scholarship from the Community Foundation that was very helpful in my going on to school, and currently I’m a fund holder in the foundation (through an endowed fund created in his mother’s memory.) The opportunity to take that to the next level was very appealing to me.

From a dollar and cents standpoint, if the market’s doing well, will people be giving more? That’s a possibility, but as we’ve seen (as of late November) all of the gains from 2018 are now down to the market levels at the beginning of 2018. That certainly can cause folks to step back. I do think the bigger part of a thriving economy is the energy and the motivation that it can spur. When individuals are feeling good about themselves and their situations, they are more apt to give. When they see where there are opportunities where they can make a difference, they’re more apt to give. It’s really more of a mindset.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

One of the things that I think becomes a bit contagious is when communities see growth and they see a resurgence economically. Certainly regionally and in Muskegon, there’s a lot of positive economic signs. The planned renovation of the convention center and the revitalization of downtown, I believe that helps spur public and private sector investment. I personally believe for individuals it helps them to think creatively about how, perhaps, they can become involved and what they may be able to do in their communities. When they see things going on in downtown Muskegon, how might that be applied in other communities? That energy really starts to manifest itself and can be a tipping point for the greater community and greater philanthropy.

What’s a top priority for next year? One of the things that I think is vital is that we continue to grow our presence in the greater Muskegon County community. I’m really interested in building what I consider opportunity for all. A big part of this will be the board and staff will be undertaking a new strategic plan in 2019. I really look forward to being part of those discussions and looking for those opportunities.

Do you see any large changes for the Community Foundation coming out of that process? We will build upon the great work that’s taken place. The role the Community Foundation has played in the revitalization of downtown is something that is very important. The foundation remains the owner of the Frauenthal Center and that is a truly cornerstone institution to the downtown community. That kind of thing, from my perspective, will continue. Where I feel there is opportunity is how we can take that energy and momentum and how

does it find itself benefiting communities like Fruitport, Ravenna, Muskegon Heights, New Era, Montague and the entire Muskegon community. Downtown is starting to thrive. How do we help celebrate Muskegon in a much broader way? That’s where I see there being a change: the opportunity to serve the greater community.

What’s the biggest force affecting philanthropy today? There continues to be some discussion of what may be the impact of some of the more recent tax legislation, charitable giving in particular, and that with the standard deduction being doubled how might that impact the annual gifts many individuals make in a given year. From my perspective, if organizations focus on what’s best for community and engage individuals that are interested in helping to strengthen organizations and communities — whether it’s around education, economic development or helping people become more self-sufficient — and if you appeal to an individual’s passions, I don’t know that it’ll be as devastating as some individuals feel that these tax law changes may be. In West Michigan, people are altruistic. I personally don’t believe that we will see some of the reductions that some folks in the field think may occur nationally.

What’s one prediction you have for 2019? I believe that with the leadership of the Community Foundation and board in 2019, the community will see where the Community Foundation for Muskegon County will play a greater role in strengthening and being engaged in all of Muskegon County. My more humorous side will say I think the Detroit Tigers will make the playoffs. Interview conducted and condensed by Mark Sanchez. Courtesy photo.

Visit www.mibiz.com

You see it every day. West Michigan is at the center of the Laker Effect. Here, youâ&#x20AC;&#x2122;ll find Lakers contributing their skills and drive to its considerable growth â&#x20AC;&#x201D; as analysts and engineers, biochemists and health professionals, leaders of business and community. Every day your support for Grand Valley demonstrates the power of what can be.

gvsu.edu/OurLakerEffect

Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

NOMINATE A BRILLIANT WOM AN IN YOUR LIFE! NOMINATIONS OPEN JANUARY 4TH! w w w.we stmichiganwoman.com / brilliance - a wards

WEST M I CH I GA N WO M A N

JOIN US APRIL 25, 2019 AT AMWAY GR AND PL AZA HOTEL

BRILL ANCE A A W A R D S

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com

FOOD/AGRICULTURE

EDWIN COLLAZO CO-FOUNDER, CITY BUILT BREWING CO. // GRAND RAPIDS

In 2019, City Built Brewing Co. hopes to add a rooftop bar and a street parklet so it can offer outdoor seating during the warmer months at its location in Grand Rapids’ Monroe North neighborhood, according to cofounder Edwin Collazo. “We’re right on the river. We’re going to take advantage of those things that bring people to this area anyways.” Collazo also is betting the company’s distribution strategy will help lure more people into the taproom.

Are you planning any major investments for City Built in the new year? We’re making arrangements now to accommodate equipment with the help of a local canning equipment maker, Microcanner. They’re going to use us as a test for some of their equipment, and we’re going to use it as a test for how does this fit in our space. We’re excited that we just recently started canning, and so we’ll definitely start to push toward canning more brands. What Microcanner allows us to do is to can more because (the equipment is) going to be onsite. It just gives us a little more flexibility.

With the new equipment, does that accelerate plans to focus on distribution? Likely, we’ll be in a position where we’ll have to sign with a distribution partner, so we’ve been meeting with different distributors who call on us, asking if they can rep our brand. We did 600 barrels our first year from when we opened, from May to May. This year, January to December, we expect close to 700 barrels. We think now that we’re packaging and sending a significant amount more beer through distribution that we’ll hit that 1,000-barrel mark sooner.

serve a neighborhood, and opening with a 20-barrel system may not be the smartest thing. The other side is I think we’ll probably see some shrinkage, but I don’t think it’s because our population won’t support it or beer drinkers won’t support it. Consumers are smarter about what to look for … and because they’re smarter, they’re going to make better decisions. If I’m going to spend six bucks on a beer, I want to make sure it’s good. Breweries that have been making good beer will continue to make good beer, and probably be in business. The breweries that were suspect, that would be their demise — not because we’re saturated.

Do you see any threat to the craft beer industry from recreational marijuana legalization in Michigan?

What happens to the craft beer industry if the economy experiences some sort of correction?

I don’t see how we’d be affected. I don’t know that someone is going to say, ‘Am I going to get super stoned right now or go have a beer?’ Likely, they’ll say both. From our perspective, it will be like, ‘This person is acting funny. Are they inebriated or what am I seeing?’ There might be some training that comes with that, but I don’t see how legalization affects what we’re doing. I think it’s a good thing. Hopefully, they’ll let us start brewing with it.

There seems to be this cultural push to buy things as close to you as you can. Those dollars stay in your area, and so we feel like if we we’re serving our neighborhood when we’re flush, likely we’ll have an opportunity to serve our neighborhood when it’s hard. I would like to think beer is recession proof because that’s what helps you sleep at night. But I tend to be positive, sunny, glass is half-full type of guy. Interview conducted and condensed by Joe Boomgaard. Photo by Katy Batdorff.

Why is it important for a brewery of your size to be in distribution? We’re looking to put beers in cans that fit where people are at with craft, and that’s ‘what’s the next new thing.’ People are always reaching for the next new thing, and if we can just keep providing that, at least as we start, I think it’s a good way to get it to the market, and get people to start pulling. City Built is just another brewery until we get people to try our beer. Then I think our brewers make us stand out.

Do you hope that distribution becomes a significant part of the business for City Built? Honestly, right now, we are not trying to win distribution. We’re not trying to lose either, but distribution is a means to get people interested into coming to our space.

As more breweries continue to open in West Michigan, do you have any concerns that the market is reaching some sort of saturation point? I think there’s room for what we have. Any new breweries, they’re going to have to come in to Visit www.mibiz.com

WEST MICHIGAN’S LEADING COMMERCIAL ROOFING AND SHEET METAL CONTRACTOR A SUBSIDIARY OF EAST MUSKEGON ROOFING AND SHEET METAL • EASTMUSKEGON.COM • 231.744.2461 Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

FOOD/AGRICULTURE

Mark Guzniczak

JIM SHEPPARD

GENERAL MANAGER, STRATA BUSINESS SERVICES LLC // NEWAYGO

PRESIDENT, TILLERMAN SEEDS LLC // GREENVILLE

After completing the acquisition of Legacy Seeds Inc. in August 2018, Tillerman Seeds LLC aims to continue executing on its growth strategy and supporting its portfolio of seed companies. President Jim Sheppard said the goal is to find the right fit when acquiring new companies. “My biggest fear is that we’re going to go in and think we know something that we don’t, and get screwed up and go backwards.” Looking ahead to 2019, Sheppard believes trade issues continue to weigh heavily on the agricultural industry. How important was the passage of the recent Farm Bill for the industry? The Farm Bill … is huge. We really needed the Farm Bill to be approved to give stability to producers in the U.S. That’s a very positive thing.

What’s weighing on your mind as we head into 2019? Michigan has the second most diverse ag product commodity offerings behind California. We’ve got over 300 different crops or ag product lines, which include milk and beef and hogs and so on. And right now it contributes over $100 billion to our state economy. Very important to us is the export market. About 33 percent of our production goes to export. And guess what? Number one is Canada. About 40 percent of our stuff goes to Canada. And number two is Mexico, third is Japan, and fourth is China. When we have trade issues like we have right now, it impacts our state tremendously. That is a big concern. Hopefully we can get through these trade issues with Mexico and Canada and China, and it’ll help the whole ag economy. But particularly with Michigan because of the amount of exporting that we do to Canada and Mexico, NAFTA was very important to us.

In a perfect scenario, what would you like to see happen in the upcoming year? We need to get back to free trade agreements as quickly as possible. China is our biggest soybean customer. You’ve got issues with what’s going on with Canada and Mexico, and tensions there. We just need to get back to where we’re trading and not fighting with our biggest customers. The scary thing for me is what our competition in South America is doing to ramp up and take our business. We’ve made our trading partners angry, they have dollars, and those dollars vote, and they’re setting up production contracts in other areas of the world that we have traditionally had. So even though it’s impacting our business today, potentially it’s impacting our business for the next five, 10 years — if their new relationships hold. To me, that’s the scary part. We did the same sort of thing with the soybean embargo under Carter’s guidance, and when we did that, we opened up South America to start planting soybeans and exporting. Now they raise more than we do.

Is this a case of history repeating itself? Yes, it is. When you talk to farmers, they don’t want a government handout, they just want free trade. Different parts of the country are going to get hit in different ways.

With declining farm incomes, rising debt and low commodity prices, how does this added trade challenge set up average farmers in the year ahead? There’s a tremendous amount of uncertainty. I think credit is going to be a huge thing for farms. The farm credit system is very robust, especially if you’re in Michigan. They do an incredible job supporting that, and I know that their portfolio, they’re watching very closely and trying to work with guys and making sure they’re going to cash flow. But farmers will cut back where they have to or where they can. They might put less fertilizer on there and try to mine the soil for a while, if they can. They might go with non-GMO seed because it costs less versus the genetically modified. They’ll have to manage for pests accordingly, so there’ll be challenges there.

Is there any silver lining to the current situation? The one good thing about low prices is that it challenges people to be a better manager, and usually what happens is the management practices that they put in place under low prices, they continue to keep those in place when prices get better, and it ends up increasing their profitability down the road.

How else are the current trade issues and tariffs affecting the industry? The other side would be machinery. Because of the steel tariffs, things have gone up, there’s a lot of uncertainty there. I know we were working on a project that we had priced out before the tariffs went into effect, and the piece of equipment we were going to have built almost doubled in price, and the price quotes that we got were only good for 48 hours because of the uncertainty. You can’t blame them. They didn’t want to order a bunch of inventory in to take care of our needs and then the tariffs go away and then they’re left with high-priced inventory that they’re going to lose money on. It’s impacted a lot of pieces of our business.

With all the uncertainty you mentioned, what’s your overall sense for next year? I’m optimistic that the farmers will figure it out. They’ll know what they need to do to weather this storm. I just hope that the administration gets it figured out so that the farmers aren’t the ones that take a bullet for the team. Interview conducted and condensed by Joe Boomgaard. Photo by Katy Batdorff.

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Strata Business Services LLC is a “specialized small business solutions company” that focuses on investments in the medical marijuana sector in Michigan and other states. As of Dec. 6, adult-use recreational marijuana became legal in Michigan after voters approved Proposal 1 during the midterm election. General Manager Mark Guzniczak thinks the state should learn from its slow process of unveiling regulations around medical marijuana businesses and apply that scheme to recreational marijuana. What opportunities are there for companies that have started working in the medical cannabis sector to expand with recreational marijuana? Obviously, medical is progressing slowly. We’re really 18 months out before rules are promulgated and applications are accepted for recreational. There are still a lot of questions and unknowns on how the regulatory structure will look around recreational marijuana, and there will be an opportunity for coexistence between the medical side and the recreational side, but obviously, the purchase intent is different. Recreational marijuana is more like alcohol. I think there’s space for both. I think there may be some operators who look for a combination of that, although without knowing what the rules and regulations are, it’s a tough one for anyone to predict.

What would help address some of the challenges for the industry? For (the Michigan Department of Licensing & Regulatory Affairs) and the state licensing board, this was very new ground for everyone as they started into this process with accepting applications, creating emergency rules, creating the permanent rules that went into effect late last month. It’s been a slow progression and it’s been a learning curve, as it is completely new ground for the regulators. The issue has become that facilities have been licensed, and all the different license types have been issued; however, with the regulations in place there’s a shortage of product. Even growers that had licenses approved mid to late summer or early fall will not have crops ready to be part of the licensed, regulated system for several months. I think LARA is looking into that.

Do you see any lessons that could be learned when regulating recreational marijuana? Absolutely. Sort of going back and examining where (medical marijuana regulation) started, the steps in the process, maybe where that could have been improved, where things could be … streamlined. I think it just needs some good study as to ‘OK, here’s what we went through, how can we do this better the second time?’

What do you think would help the industry grow in the next year? Obviously, based on the ballot proposal passing, there’s a high citizen interest in the recreational side. Good solid business operators operating in the regulated system, being good business citizens and good business neighbors in the communities where they are able to operate, will show that this can be a good welcome business. It can be very straightforward, and an open business that follows the rules. If I was to give you a crystal ball prediction, five years from now, I would probably say that if all goes well with the regulatory process and the system works, it would look very much like a liquor store.

How do you think the state’s new administration is going to approach the industry? I think the new administration is going to approach the industry from a standpoint of looking at opportunities for revenue. That’s a component of it, but it’s not the only component of it. I think they’ll look at the medical side, as far as how they can help to strengthen the supply chain so registered patients can get the medicine they need. I think they will probably help in that educational process when they go back and look at, ‘OK what did we do over the last 18 to 24 months with this process, what can we improve on here?’ It’s still keeping it a highly-regulated industry, and then (asking) what can we learn as we take that on to the recreational side. Interview conducted and condensed by Sydney Smith. Courtesy photo.

Visit www.mibiz.com

cameron mackintosh ’s spectacular new production of

andrew lloyd webber ’s

Feb. 6–17, 2019 For more information visit us online at millerauditorium.com or call (269) 387-2300 | (800) 228-9858 Visit www.mibiz.com

Special Year-End Edition: MiBiz Crystal Ball 2019 / DECEMBER 24, 2018

ENERGIZING MICHIGAN’S

Future

Energy is essential to the way we live, work and play. ITC operates, builds and maintains the region’s electric transmission infrastructure. We’re a Michigan-based company working hard to improve electric reliability, increase electric transmission capacity, and keep efﬁcient, reliable energy ﬂowing to homes and businesses across the state.

Building the electric transmission infrastructure that will power the future. www.itc-holdings.com 64

DECEMBER 24, 2018 / MiBiz Crystal Ball 2019: Special Year-End Edition

Visit www.mibiz.com