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New industries reshape Northeast Ohio’s identity as the region strives to compete in a global marketplace. We explore some of these markets in our
here just might be a brighter tomorrow on the horizon. Just ask those working in clean energy, exports, medical devices, flexible electronics or any of the other emerging fields that are expected by some to be the building blocks of the region’s future. Despite the deepest recession in recent history, there’s
been an undercurrent of innovation and progress taking place in Northeast Ohio. And now, many hope those efforts and opportunities will rise to the surface in 2011 and beyond. To read more about Northeast Ohio’s emerging sectors and their short- and long-term outlooks, see Page 13.
INSIDE Year in review From American Greetings’ announcement that it is considering a headquarters move from Brooklyn, to Cleveland casino plans and The Decision, we look back at the stories, deals and people who mattered in 2010. See the review on Page 9.
Cities brace for impact as budget cuts loom Local governments fear state may whack key cash streams By JAY MILLER firstname.lastname@example.org
Like a driver sliding out of control on an icy road, county and municipal officials across the region are girding for a collision with the new governor and General Assembly. Gov.-elect John Kasich and the Legislature are expected to curtail or kill two key sources of local revenue as they grapple with a state budget gap estimated to total $8 billion to $10 billion. The two revenue streams — the state local government fund and the state estate tax — account for more than 10% of many municipal budgets. Mr. Kasich has made it clear he will not raise taxes to help close the budget breach and that no expenditure — including money to support local governments — in the $50 billion state budget is likely to avoid cuts. In addition, the new governor has talked about eliminating the state estate tax, a significant source of income for some communities, to make the state more attractive for business investment. “His intent is to make it a less burdensome tax state,” said Cleveland Mayor Frank Jackson. “All this (budget cutting) is being pushed down from the federal government See BUDGET Page 18
Ohio’s jobs numbers likely to be sobering
STEVE BENNETT ILLUSTRATION
Reporting model altered for accuracy
By DAN SHINGLER email@example.com
Entire contents © 2011 by Crain Communications Inc. Vol. 32, No. 1
Ohio is about to find out it doesn’t have as many jobs as it has been reporting — by a factor that will dwarf the state’s meager job gains in 2010, says economist George Zeller. Mr. Zeller, who tracks job and tax data for Cuyahoga County and other local entities, said the hit will come when the federal government revises its national jobs data next month. The nation will lose 366,000 jobs from its total count, the feds have said — but Ohio alone will lose about 100,000 from its count of 5.01 million in See JOBS Page 6
ON THE OFFENSE 2
CRAIN’S CLEVELAND BUSINESS
JANUARY 3 - 9, 2011
THE WAGES OF WIND
COMING NEXT WEEK
Developing a wind farm — a group of wind turbines used to produce electricity from wind power — usually takes several years and requires workers in many different occupations. Northeast Ohio and other regions are counting on such projects to boost their economies in the future. Here are the federal government’s estimated median annual wages for key wind energy-related occupations:
Hear them roar Being in the toy business can be a good time, but it’s not always fun and games. We explore in our Small Business section how Northeast Ohio entrepreneurs have built businesses based on toys and the challenges they face in trying to grow.
Median annual wage
Crane and tower operator
Best of the Blogs .........19 Big Issue .......................8 Classified ....................18 Editorial ........................8 From the Editor .............8
Quality control inspector
Going Places ...............12 Reporters’ Notebook....19 The Week ....................19 What’s New..................19 Year in Review ...............9
SOURCE: U.S. BUREAU OF LABOR STATISTICS; HTTP://DATA.BLS.GOV
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Hospitals expect franchise fee encore Providers believe unwelcome assessment again will help state plug giant budget gap By TIMOTHY MAGAW firstname.lastname@example.org
Everyone will need to pony up to help the state dig itself out of an $8 billion budget hole, and hospitals are no exception as they expect once again to pay an unpopular
franchise fee that took a bite out of some of their coffers over the last two years. The franchise fee was sold during the last round of budget negotiations as a temporary fix that would sunset at the end of the current budget. However, hospital leaders
and advocates expect the fee in some form to make an appearance in Gov.-elect John Kasich’s first budget, which he must present to the Legislature in March. “All it takes is a photocopy machine to put in the next budget,” said Bill Ryan, president and CEO of the Center for Health Affairs, a group representing local hospitals. “Given the circumstances we will see in the next budget, I can’t imagine how they can walk away from the
revenue it generates.” The fee is an assessment in Ohio’s current biennial budget, which ends June 30, that’s equal to around 1.5% of a hospital’s operating expenses. The fee will raise an estimated $577.4 million over the biennium, according to the governor’s office. Lawmakers are using that money to help cover the state’s share of Medicaid dollars, which will allow Ohio to receive $1.7 billion in federal Medicaid support
over the biennium to prop up the state’s ailing budget. The state’s hospitals in the aggregate received back what they paid in franchise fees through higher Medicaid reimbursement rates and other adjustments. However, hospitals with low Medicaid populations couldn’t recoup what they paid in fees — something that needs to be addressed during coming budget talks, according to Tiffany Himmelreich, a See FEES Page 7
THE WEEK IN QUOTES “The budget cutting will definitely impact the municipalities. We know that the local government fund is on the table. We just don’t know what that means, and I think they don’t really know yet.” — Bay Village Mayor Deborah Sutherland. Page One
Dr. Michael Roizen, chairman of the Cleveland Clinic’s Wellness Institute, warns if the health of U.S. citizens does not improve, the nation will lose jobs to healthier countries. Dr. Roizen does his part by walking while working at his treadmill desk.
HEALTH RISKS RISK WEALTH Cleveland Clinic wellness chief urges Americans to take care of their bodies or risk economic ills
By DAN SHINGLER email@example.com
— Charlie Crowley, managing director, Paragon Capital Group LLC. Page 4
ey, America, here’s a new year’s resolution for you: Get healthier soon — or risk losing what’s left of your manufacturing base and economic might. That was the pre-holiday message delivered to the City Club of Cleveland by the Cleveland Clinic’s wellness chief, Dr. Michael Roizen. The economic angle is the latest twist on the doc’s gospel of wellness as he continues his quest to convince Americans that they’re giving up their own well-being by giving in to bad foods, cigarettes and immobilizing couches. See HEALTH Page 10
N.Y. environmental law may stymie Great Lakes shipping By JAY MILLER firstname.lastname@example.org
Implementation is more than a year away, but the maritime industry is beginning to worry that a New York state environmental regulation could close the Great Lakes to international shipping and even curtail some intra-lake shipping. “We’ll have to stop doing business in New York,” said Mark Barker, president of Interlake Steamship Co., whose nine ships carry cargo, principally grain, to New York ports such
as Buffalo. “That (regulation) will affect my customers. They probably won’t be able to get low-cost marine transportation.” Mr. Barker is referring to a rule promulgated by New York’s Department of Environmental Conservation that sets what many in the maritime industry consider an impossibly high standard for the purity of the ballast water carried by ships. The goal of the regulation is to curtail the introduction of harmful non-native fish and other organisms that disrupt the ecological
balance of the Great Lakes. Interlake’s ships stay in the Great Lakes, but enforcement of the regulation would prevent passage into and out of the Great Lakes by any ship that doesn’t meet the standard, labor leaders, port directors and shippers say. Failure to meet the standard would prevent ships from entering New York waters; that includes locks that oceangoing vessels must transit on their way to and from the Great Lakes. “It would just shut down shipping if it is enforced,” said William
“I think that Lorain National (Bank) and others are recognizing that the economy is inching along and that some companies are actually doing very well and would be good banking candidates.”
Friedman, president and CEO of the Cleveland-Cuyahoga County Port Authority, who hopes New York will postpone enforcement or grant waivers to ships until they can meet the new standard. “I don’t think we’ll see the rule as written enforced, but it has a chilling effect when we’re marketing the (Great Lakes) system to shippers,” Mr. Friedman said. Mr. Barker said he is talking now to customers because they need considerable lead time if they must See SHIPPING Page 7
“We are poised to become a place like no other. … Few places in the country have all the peas in the pod lined up like we do — policies, practices and politics — to become a self-sustaining city.” — Cleveland City Councilman Joe Cimperman. Page 14
“It seems like there is some alignment of the stars in favor of exporting, and that’s good for Northeast Ohio.” — Will Friedman, CEO, Cleveland-Cuyahoga County Port Authority. Page 13
CRAIN’S CLEVELAND BUSINESS
JANUARY 3 - 9, 2011
LNB spots economic opportunity Lorain National Bank adds staff as business conditions improve By MICHELLE PARK email@example.com
Lorain National Bank wants to mobilize the troops as the economy recovers, not after. To that end, the community bank has done more hiring in the past six months than it has in recent years — and may do more. “Although the economy is still sluggish, there appear to be some
signs of improvement,” president and CEO Daniel E. Klimas said, citing, for one, the improved performance of some business customers. “We want to make sure we’re positioning the company to capitalize.” Lorain National, with $1.15 billion in total assets and 20 full-service branches, has filled eight new positions — most of them during the fourth quarter — with the goal of increasing lending. The bank currently counts 291 employees, a number that has stayed relatively the same in recent quarters because of attrition, Mr. Klimas said. “For a company of our size, these (new jobs) are significant investments,” Mr. Klimas said.
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The jobs are positions that drive business, not back-room staff, Mr. Klimas noted. Already hired are two business bankers and three commercial bankers, tasked with increasing small business activity, and a market executive whose given role is growing the business in Summit County, where the bank’s division, Morgan Bank, operates. Lorain National also hired a mortgage originator and a professional to expand its indirect auto lending business into North Carolina. Over the next year, the bank may hire additional staffers to drive business banking and mortgage originations, provided the right candidates are found, Mr. Klimas said. “We believe (in) investing now in anticipation of that continued improvement as opposed to waiting for everything to be golden,” he said. “You’ll miss the opportunity.” More banks appear to be hiring, although selectively, said Charlie Crowley, managing director of Paragon Capital Group LLC., an investment banking firm in Mayfield Heights. In contrast, a year ago, many banks weren’t replacing people who left, he noted. “Banks are coming out of their shells a little bit,” Mr. Crowley said. “I think that Lorain National and others are recognizing that the economy is inching along and that some companies are actually doing very well and would be good banking candidates.” Umberto Fedeli, the single largest shareholder in Lorain National’s parent, LNB Bancorp Inc., said he applauds the bank’s aggressive growth but wants it to focus more on cutting costs. Mr. Fedeli had urged the bank to improve and grow in recent filings to the Securities and Exchange Commission. “I agree with the strategy,” Mr. Fedeli said, noting that now’s the time to hire because there’s a lot of talent available. “Saying that, it all depends on whether you hired the right people and whether you’ve done a good job executing the plan.” Mr. Klimas has navigated “rather decently in a tough environment,” Mr. Fedeli said, but the question remains: “Can he take the bank to another level of profitability?” The recent investments are probably a break-even proposition in the short term, Mr. Klimas acknowledged. But, he predicted, in two to three years, the investments made now will improve Lorain National’s efficiency ratio, a measure of what it costs the bank to generate revenue. According to the bank’s most recent quarterly performance report to the SEC, its efficiency ratio worsened to 71.10% in the third quarter of 2010 from 68.06% a year earlier. Simply stated, the figure means it costs the bank 71 cents to generate $1 of revenue. Prior to that November 2010 filing, reports had shown the efficiency ratio improving steadily in recent quarters. ■
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Jobs: New model to help economists KeyCorp subsidiary continued from PAGE 1
November, Mr. Zeller predicts, largely because the manufacturing sector will bear the brunt of the correction in how the data is formulated. “When that revision is done, all of the job growth in Ohio for 2010 will be gone,” Mr. Zeller predicted, referring to the state gaining about 25,000 jobs last year. To be fair, when the numbers change, Ohio won’t have any fewer people going to work than it did the day before — the numbers simply will reflect that the state has been overcounting its jobs to begin with, said Keith Ewald, chief of labor market information for the Ohio Department of Job and Family Services. “My major concern is not so much whether we have a downward revision — I think we will have a downward revision,” Mr. Ewald said. “I’m more concerned that a general reading of (Mr. Zeller’s) material leads people to think there’s been no positive change (in the job numbers) during the recession, because that’s not the case.” At issue is the government’s attempt to produce more accurate job estimates going forward, which includes an effort to estimate more
accurately the rates at which companies are born and die. Those rates are critical to the government’s estimates of how many jobs are in each state and the nation as a whole. The government must make some predictions about how many businesses are disappearing and how many are forming in order to adjust its jobs count — and the formula it has been using to make those predictions has been off, Messrs. Ewald and Zeller said. Mr. Zeller said the federal government’s model is thrown off by deep recessions, because businesses start disappearing at a faster rate than the model anticipates. In Mr. Zeller’s view, the coming change in the model is good because the government will be able to provide more accurate counts of the nation’s jobs by looking at federal tax data quarterly, instead of once a year the way it has been doing for decades. The more up-to-date data that will go into its model will mean fewer revisions going forward and will give economists and policymakers better data, he said. But first, it’s going to require some painful revision of previous data and Ohio will feel more than its fair share of the pain, Mr. Zeller
predicts. Instead of the 5 million jobs it thinks it has, Ohio will find it has only about 4.9 million, he said. That difference is significant, Mr. Zeller said, and shows the state is “in a deeper mess than we said we were in.” However, the statistical change is nothing compared to the state’s actual job losses over the last four years, Mr. Zeller notes. “Since the national recession started in December 2007, Ohio has lost a gigantic 408,300 jobs, or 7.5% of the state’s employment in only 36 months,” he stated in his December jobs report. Mr. Ewald said he hopes the revision will be smaller than Mr. Zeller predicts, though he declined to make his own estimate on the change. Mr. Ewald agrees that the numbers will reveal that the recession was deeper than first thought. But he adds that the data does not mean there is no recovery under way — there is, he insists. “My major concern is not to paint a picture that’s too dire,” Mr. Ewald said. “We’ve seen improvement in manufacturing since about May . . . and these are signs that we’re moving in the right direction.” ■
RECOVERY RESOURCES’ 20th ANNUAL
Celebrating the 55th Anniversary of Recovery Resources
staff forms venture By MICHELLE PARK email@example.com
Motivated by shifting priorities of the banking industry, the staff of a KeyCorp subsidiary has spun off and formed an independent company. Seven professionals from Key Capital Corp. on Jan. 1 became Cuyahoga Capital Partners. The investment management firm’s business remains the same — investing in private equity funds, which in turn invest in companies and produce returns for investors. However, the firm no longer will invest capital from KeyCorp, which had been its largest investor. The plan to break from KeyCorp originated roughly two years ago because Key Capital anticipated that, in light of the challenging industry environment, banks would reprioritize and retrench into their core businesses, said Bart Shirley, managing partner of Cuyahoga Capital Partners and former managing director for Key Capital. Private equity, he noted, is not a core business for Key. “If banks … abandon our industry when that’s your lifeblood for capital, that’s not good,” Mr. Shirley said. Both Mr. Shirley and John R. Sinnenberg, chairman of Key Principal Partners Corp., to which the seven people formerly reported, said the spinoff was done on friendly terms. KeyCorp no longer can do the
Cleveland Museum of Art elevates fundraising efforts By TIMOTHY MAGAW firstname.lastname@example.org
The Brandon Family Foundation C. Louis Meyer Family Foundation
Berea Children’s Home and Family Services
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Lee Hecht Harrison
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Margolius, Margolius & Associates
Fifth Third Bank
Austin Powder Company
McDonald Hopkins LLC
Calfee, Halter & Griswold LLP
J. Gilbert and Eleanor M. Frey
Southwest General Health System
KeyBank Martha Baker Medical Mutual
Stellar Beneﬁts Group
Robert and Heidi Heltzel
University Circle United Methodist Church
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type of investing Key Capital used to do for it, Mr. Sinnenberg said, citing a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that he said prohibits banks from investing in third-party private equity funds. So, practically speaking, there was no point for the group to stay with Key, Mr. Shirley said. KeyCorp’s investment activities via Key Capital represent a “very modest” part of its financial activities, according to KeyCorp spokesman Bill Murschel. Cuyahoga Capital Partners will continue to manage the funds it raised previously and has contracted with KeyCorp to manage the portfolio its professionals created while there. The firm is negotiating a lease for another Cleveland office but remains in KeyBank Center downtown. Being employees of KeyCorp limited how the group could raise funds from third-party investors because investors want a group’s priorities aligned with theirs, Mr. Shirley said. There are conflicts when one’s paycheck is paid by the bank and not by investors, he said. Key Principal Partners, a Key subsidiary that makes private equity investments directly into companies, won’t be affected by the spinoff, Mr. Sinnenberg said. Its activities are permitted as long as they’re done on the bank’s balance sheet and not via a private equity vehicle. ■
With its top brass now in place, the Cleveland Museum of Art is looking to ramp up its fundraising efforts as the institution chips away at covering the cost of a $350 million renovation effort and approaches its centennial celebration in 2016. David Franklin, who was named the museum’s executive director last August, said the museum has less than $130 million left to raise in its campaign to fund the renovation initiative, which is scheduled for completion in 2013 and will add more than 55,000 square feet to the museum. The museum’s total size will be about 592,500 square feet when the project is complete. “The museum is quietly building for something dramatic for 2013, 2014 and up through 2016,” Mr. Franklin said. “This is really a moment we’re trying to gather up the staff and seek out new visions. The community’s going to be very excited when we get everything in place.” Mr. Franklin said the museum is gathering momentum as its construction project nears completion, and now is the time to capitalize on that momentum with a new fundraising push. August Napoli Jr. joined the museum in December to command that fundraising effort as deputy director and chief advancement officer. Mr. Napoli, who most recently served as president and
chief operating officer of the Summa Foundation in Akron, will take charge of a broad-based fundraising campaign that will launch this year to cultivate support from individuals who hadn’t supported the museum financially in the past. It’s a tactic the museum hadn’t employed previously, Mr. Franklin said. “In a sense, we’ll be reminding people about the resource they have,” he said. Mr. Napoli said the museum still is working out the timeline and tactics for the campaign, but he noted that it likely will explain to the community what a vast resource the museum can be and will highlight how the museum’s permanent collection is free and open to the public. “I don’t think people recognize how rare that is,” Mr. Napoli said. Mr. Franklin, an internationally renowned scholar of Italian Renaissance and baroque art who came to Cleveland from the National Gallery of Canada, is tasked with arranging major art exhibitions for the museum. Because those exhibitions typically are planned three to five years in advance, new events would coincide with the museum’s reopening and centennial celebration. The exhibitions, Mr. Franklin said, are major investments that can cost $1 million to $2 million to bring to the city. He said the museum also is looking to get corporate sponsors to sign on to the exhibitions, which is a relatively new trend in the museum world. ■
JANUARY 3 - 9, 2011
CRAIN’S CLEVELAND BUSINESS
Fees: Facilities maintain fiscal restraint amid uncertainty continued from PAGE 3
spokeswoman for the Ohio Hospital Association.
Addressing the problem Gov.-elect Kasich’s team has been mum on budget details, though spokesman Rob Nichols said in a statement provided to Crain’s that the new administration is aware hospitals have been working to change the way the fee impacts their operations. The new governor will look at their ideas more closely during the budget process, according to the statement. Oliver “Pudge” Henkel Jr., the Cleveland Clinic’s chief government relations officer, said if the fee is included in the next budget, he hopes it will be structured so as not to create a system of winners and losers — the losers being major health care systems and those with low Medicaid volumes. The Clinic, for instance, expects to lose about $34 million through the franchise fee in the current biennium despite reimbursement adjustments. Mr. Henkel said the fee, along with lower patient volumes and uncertainties surrounding health care reform, forced the Clinic the lay off 200 employees, freeze
wages and cut back on capital expenditures. “We think we have managed our finances in a responsible way so we can move into 2011 with some degree of confidence that we have made the adjustments necessary to keep financially healthy,” Mr. Henkel said.
Bracing for its return Though Mr. Henkel said it was too early to speculate about further adjustments due to the fee’s prospective return, other Northeast Ohio hospitals are bracing for another wallop. Officials at Southwest General Medical Center in Middleburg Heights are conservative in estimating patient volumes for next year and are trying to keep staff and supply costs low, said Mary Ann Freas, the hospital’s chief financial officer. For instance, the hospital isn’t planning to fill some empty positions. Over the current biennium, Southwest, with a small Medicaid population, will have paid $4.5 million in franchise fees, but only expects to receive $941,000 in additional Medicaid reimbursement, according to Ms. Freas. “It’s a tax,” she said. “It was an
Shipping: Rule seeks to thwart invasion of foreign marine life continued from PAGE 3
find alternative shipping arrangements at the beginning of 2012, when the regulation would take effect.
Battling the invaders Recent amendments to the federal Clean Water Act allowed states to apply standards more stringent than the federal government. The New York rule says that, beginning Jan. 1, 2012, no ship can get a permit to travel through New York waters without onboard ballast water treatment technology that essentially can eliminate the discharge of invasive species. An international treaty signed in 2004 by members of the International Maritime Organization, a United Nations affiliate with 169 member countries including the United States and Canada, set an international standard for the cleansing of ballast water. A researcher from the Naval Research Laboratory in Key West, Fla., described the less restrictive IMO standard to members of the Great Lakes Ballast Water Collaborative at a meeting in May as “10 zooplankton in a cubic meter of water, which is comparable to finding 10 golf balls inside 27 Empire State Buildings.” The New York standard is 100 times more stringent, the researcher said. The regulation is tougher than those of other Great Lakes states and applies regardless of whether a ship stops at a New York port or discharges ballast water in the state. New York’s right to set a higher standard has survived several court challenges. The regulation is supported by commercial fishermen and wildlife and environmental groups. It is designed to keep foreign fish and other foreign marine life from invading the Great Lakes because they can crowd out native species and may carry disease. The intruders
live in ballast water, which ships use to maintain stability. Water and the organisms that live in it are pumped into ballast tanks on ships in one port as cargo is offloaded and pumped out in the next port as cargo is taken on. The Great Lakes have been plagued for decades by species that enter the lakes in ballast water; among them is the zebra mussel, a freshwater species native to Eurasia that arrived in the early 1980s, according to the U.S. Department of Agriculture. The tiny bivalve has crowded out commercial and sport fish species throughout the Great Lakes and clogged water intake and filtering equipment.
A ‘ridiculous standard’ Though they’re sympathetic to the need to keep invading species out of the Great Lakes, shippers think New York has gone too far.“It’s not doable right now,” said Steven Fisher, executive director of the American Great Lakes Ports Association in Washington, D.C. “It’s almost a ridiculous standard they are asking for.” Mr. Fisher said the New York state standard is 100 times greater the standard set by International Maritime Organization and that no technology currently exists anywhere in the world that could achieve this goal. Mr. Fisher said his organization, which represents the ClevelandCuyahoga County Port Authority and other ports on the Great Lakes, is hiring a lobbyist in Albany to plead the industry’s case for suspending enforcement. In the meantime, he said, ship owners have applied for waivers from New York until the technology is available to meet the state’s standard. The state has not yet responded to the waiver requests and a spokesman for its environmental conservation department told Crain’s by e-mail that his department won’t comment on the waiver requests. ■
“(The state is) creating a situation in tax policy where you encourage hospitals to make investment in other states where tax policy is more favorable to them.” – Bill Ryan, president and CEO, Center for Health Affairs added cost structure without any benefit.” Parma Community General also has a small Medicaid population — about 5% of patients — and a larger Medicare roster than most in the region. So the franchise fee has caused significant pressure, according to chief financial officer Barry Franklin. Over the biennium, the hospital’s net loss after the reimbursement adjustments was about $2.9 million. “That’s just one more cost factor we had to address as we managed operations of the hospital,” Mr. Franklin said. “Over the course of two years, that’s (money) we didn’t have to spend on other things.” Mr. Franklin said it was difficult to pinpoint one area of the hospital that was impacted by the additional cost, but he noted it “likely had some incremental impact on virtually every area of the hospital.” Parma Community expects to pay as much as $2.5 million in franchise
fees to the state over the next fiscal year. Mr. Franklin said that outlay likely will impact the size and scope of the hospital’s capital budget to replace equipment and upgrade its information technology infrastructure.
Part of the solution? Hospitals are cognizant of their role in helping the state mend its fiscal woes, said William Considine, president of Akron Children’s Hospital. Mr. Considine said he can’t imagine the new administration would shy away from the revenue the fee generated for the state. “If you do away with the franchise fee, that $8 billion (deficit) turns into $9 billion,” he said. Akron Children’s and the state’s five other children’s hospitals fared better than others because of their large Medicaid rosters, which make up about 50% of their total patients, according to Nick Lashutka, president of the Ohio Children’s Hospital
Association. However, those numbers don’t necessarily make them “winners” when it comes to the fee, Mr. Lashutka said. Though hospitals such as Akron Children’s receive more than what they pay in fees thanks to higher reimbursement rates, the hospitals still lose a substantial amount of money through the Medicaid program because it doesn’t reimburse them in full for the services they provide. “It’s really a perception game,” Mr. Lashutka said. Mr. Ryan of the Center for Health Affairs suspects that if the state continues to impose assessments on hospitals through mechanisms such as the franchise fee, there will come a time when larger institutions such as University Hospitals or the Cleveland Clinic open more specialty sites in other states with favorable tax rates to drive revenue back to their Cleveland operations. That’s the reason hospitals were taxexempt in the first place, Mr. Ryan said. “They’re creating a situation in tax policy where you encourage hospitals to make investment in other states where tax policy is more favorable to them,” he said. ■
CRAIN’S CLEVELAND BUSINESS
JANUARY 3 - 9, 2011
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he consultant-speak it contains about “budgeting for outcomes” and “charter agencies” can be a bit intimidating. Nonetheless, a report commissioned by Ohio’s major chamber of commerce groups on ideas for redesigning state government offers valuable recommendations that elected officials should consider as they begin to tackle the next biennial budget and state budgets going forward. The 52-page report, “Redesigning Ohio: Transforming Government into a 21st Century Institution,” offers lots of specifics on how to go about the transformation process. For those who’d prefer a CliffsNotes version of the report, here’s our reading of its major points, in no order of importance: 1.) Government can’t afford to be all things to all people, nor should it be. Or, in the language of the report, “Government’s central role is to steer, not to row. Steering is the most important thing government leaders do: setting direction, developing policies to move in that direction, measuring progress and making adjustments. Government needs to do that well. But government doesn’t have to do all the rowing…. It can choose the most cost-effective method possible, whether that means contracting with nonprofit or for-profit organizations, using public employees, partnering with community organizations, using vouchers, creating tax incentives or many other methods.” 2.) Inertia shouldn’t let state departments, agencies and programs continue to operate as they always have. Departments and agencies currently submit their budgets to the governor under a system that essentially assures them that they’ll receive at least 90% of what they spent in the last biennium, regardless of the results they produced. Under the recommended system known as “budgeting for outcomes,” the governor, Legislature or both figure out how much they can afford to spend; they then determine in conjunction with input from citizens, academics and others the areas where that money best can be spent to achieve the desired results most important to them — whether that’s a better economy, better schools or a cleaner environment. “Programs that don’t contribute much to those outcomes are no longer included in the budget,” the report states. 3.) The state is letting too much money that it could collect in taxes slip through its fingers. Tax deductions, exemptions, credits and preferential tax rates are known collectively in state budget lingo as “tax expenditures,” and they added up to $7.7 billion in foregone revenue in fiscal 2008. The trouble is, Ohio doesn’t analyze whether its tax concessions are producing desired effects and are worth the price. The report recommends the concessions “should be reviewed with the same scrutiny” applied to spending items, and that the Legislature should amend or repeal statues “that created tax expenditures that are not meeting their intended outcomes.” The chambers have done Gov. John Kasich and the Legislature a great service by providing a detailed blueprint for improving the operation of state government and the budget process. They should use it liberally to enact meaningful change in the way Ohio works.
FROM THE EDITOR
Rerouting river doesn’t float his boat
didn’t get the name Collision Bend for hould hoop-jumping ever become nothing. It already is challenging for the an Olympic sport, I’m sure someore boats and lake freighters that navione from Cleveland will win the gate the twisting river to negotiate. It would gold medal in it. We’re so ridicubecome an even tougher needle to thread lously good at the art. if the channel became more narrow. Look at the hoops civic leaders seem So, civic leaders have begun floating prepared to jump through to give Clevethe idea of bypassing Collision Bend land Cavaliers owner Dan Gilbert more altogether by creating a channel land to build the $600 million that would provide ships with a casino he’s planning along the MARK straight path to the portion of Cuyahoga River. DODOSH the river where the ArcelorMittal As our government reporter, steel mill is located. Jay Miller, first revealed two How much the channel months ago, Mr. Gilbert’s Rock would cost or who’d pay for it Ventures LLC wants to narrow isn’t clear. But here’s betting it the channel of the Cuyahoga wouldn’t be Mr. Gilbert who’d at Collision Bend in order pick up most of the tab. to accommodate the casino. The argument that likely will Schematics for the change prebe made for the new channel is sented in October by Rock Venthat it would kill two birds with one tures at a meeting with the U.S. Army stone. Shippers could carry their cargo in Corps of Engineers showed a desire to a safer, more efficient manner, while the move the existing shoreline bulkhead city would reap the economic benefits of out into the river almost 29 feet. a new casino — or so the pitch will go. The goal would be to create more But the motivation for this expensive parking for Mr. Gilbert’s casino and endeavor would be the casino, pure and maybe a marina, too. The problem is simple. The notion of rerouting the river that the section of the river where Rock for the sake of lake shippers hasn’t been Ventures wants to extend the bulkhead
the subject of serious civic discussion for decades. Suddenly it appears on the radar screen, with backers hurriedly trying to line up support for the idea. The irony is that it’s Mr. Gilbert and Rock Ventures that hand-picked their preferred location for the Cleveland casino and etched it in constitutional stone. In pushing for passage by voters of an amendment to the Ohio Constitution that would permit the operation of casinos in Cleveland, Cincinnati, Columbus and Toledo, Mr. Gilbert and Penn National Gaming both outlined in great detail the particular parcels of land where the casinos could be built. Readers can see the specifications themselves by checking out the Ohio Constitution at http://www.legislature.state.oh.us/ constitution.pdf and reading page 73. Now we discover the site doesn’t work as well as Rock Ventures would like and a bunch of other parties, including the Army Corps of Engineers, are supposed to lend it a hand — and a costly one at that — to smooth over its problem. Sorry, but in these tight financial times, this is one hoop I’d rather not see the community jump through. ■
THE BIG ISSUE What will you remember most about 2010?
Seattle (visiting family in Cleveland)
The disappointment of the sports teams, because the Indians, Browns and Cavaliers all were bad. … But we’re pretty much used to that.
For me it was the whole “Decision,” with LeBron “taking his talents” to South Beach and the way he went about leaving Cleveland. I’m only 24, but I’ve never seen anything like that.
I got a job. I was out of steady-paycheck work for a while (though he did freelance work), so that was a big deal.
On a personal level, I really made a commitment to being healthy and doing outdoor activities like biking.
JANUARY 3 - 9, 2011
CRAIN’S CLEVELAND BUSINESS
THEYEARINREVIEW STORIES THAT MATTERED
There’s no place like (a new?) home ■ American Greetings Corp. in November said it was considering seven sites — including two in the Chicago area — for its corporate headquarters. The Brooklynbased (for now) greeting card maker expects to make a decision by February, which marks the end of its fiscal year.
Big scandal ■ Cuyahoga County commissioner Jimmy Dimora in September pleaded not guilty to 26 counts of bribery, mail fraud and conspiracy to obstruct a federal investigation. Meanwhile, former county auditor Frank Russo pleaded guilty to 21 Dimora corruption-related offenses. Russo was sentenced to nearly 22 years in prison.
Something’s happening here ■ Leaders of the city of Cleveland and Cuyahoga County on Dec. 1 signed an agreement that clears the way for construction to begin on the new convention center and medical mart on the Mall. The county previously reached an agreement with MMPI Inc., the developer that will oversee construction and operate the tradeshow complex.
Let the good times roll
Well-suited to Cleveland
■ In case you hadn’t noticed, the recession officially ended. No, really, it did — in mid-2009, no less, the government said in September. By most measures, 2010 was indeed a better year for the economy than 2009, but two key areas — housing and the labor market — remain stuck in low gear.
■ After much negotiation, celebrity activism and pressure from institutional investors, Hugo Boss in April reached a deal to keep open its suit-making plant in Brooklyn, averting a plan to move manufacturing operations out of the country. The deal brokered with Workers United SEIU preserved the plant and its 375 jobs.
■ FirstEnergy Corp. last February agreed to buy Allegheny Energy Inc. of Greensburg, Pa., in an $8.5 billion deal that would create one of the nation’s largest electric companies. The combined company will be based in Akron. The merger has received shareholder approval and most regulatory OKs. It’s expected to close in the first half of this year.
Roll of the dice that worked ■ Forest City Enterprises Inc. and Dan Gilbert’s Rock Gaming LLC in August reached agreements to clear the way for casino operations in downtown Cleveland. Under one agreement, Rock Gaming will acquire 16 acres and air rights from Forest City to build a casino along Huron Road next to Forest City’s Tower City Center complex. The companies also agreed in principle on a multiyear lease for space in the Higbee Building within Tower City for potential construction and operation of a first phase of the casino.
Hubbub ■ Continental Airlines, the dominant carrier at Cleveland Hopkins International Airport, merged with United Airlines. The merged company’s CEO, Jeff Smisek, came to town in November and told business leaders that United Continental Holdings Inc. is “committed to Cleveland” but that the city must “earn its hub status every day.”
■ Squire, Sanders & Dempsey LLP and Hammonds LLP of the United Kingdom announced Nov. 8 that their partners approved a merger of the firms that took effect Jan. 1. The combined firm has 1,275 lawyers in 37 offices and 17 countries.
Swooping in ■ Hawk Corp. of Cleveland, a maker of friction materials and parts that go into products such as automobiles, aircraft and big earthmoving and
Put to the test ■ Danaher Corp. of Washington, D.C., in late September entered into a definitive agreement to buy Solon-based Keithley Instruments for an estimated $300 million in cash. Keithley, which makes electrical testing and measurement equipment, joined Danaher’s Tektronix business.
Crafty move ■ Fabric and crafts retailer Jo-Ann Stores Inc. of Hudson on Dec. 23 agreed to be acquired by a Los Angeles-based private equity firm for about $1.6 billion, or $61 a share in cash. The buyer is Leonard Green & Partners L.P., which has more than $9 billion in equity capital under management. The Jo-Ann Stores board of directors is permitted to solicit alternative proposals through Feb. 14.
... AND ONE WHO MATTERED, BUT NOT IN A GOOD WAY
Opto out ■ Cleveland Mayor Frank Jackson’s administration tried to negotiate a 10-year deal with SunpuOpto Semiconductor Co., a Chinese maker of LED lighting products, under which the city would have bought its lighting from Sunpu-Opto in exchange for the company building an LED lighting plant in Cleveland and establishing its U.S. headquarters here. The deal collapsed following extensive criticism of the negotiating process.
mining equipment, in October agreed to be acquired by construction materials maker Carlisle Cos. of Charlotte, N.C., for about $413 million.
LeBron James Strike up the band ■ It was an eventful year for the Cleveland Orchestra, which endured a short strike at the beginning but secured a $20 million commitment from the Milton and Tamar Maltz Family Foundation near the end of the year to help battle unfavorable long-term economic and audience demographic trends.
■ The Game 5 playoff quitting. The Decision. The boisterous Dec. 2 return to apply a beatdown to the Cavaliers. Cleveland fans were crushed by his departure and are left with a shell of an NBA team.
PEOPLE WHO MATTERED Gerald Blouch
Dr. Frank Douglas
■ He kept Invacare Corp. running smoothly after taking over as interim CEO when A. Malachi Mixon suffered a stroke last spring. The maker of wheelchairs, portable oxygen and other home health care equipment said in November that Mr. Blouch will carry the permanent CEO title starting Jan. 1. Mr. Mixon continues as chairman of the board.
■ The CEO of the Austen BioInnovation Institute in Akron made significant progress in two main goals: making the institute a leader in the use and creation of biomaterials and improving delivery in the health care system. He even earned a spot in GQ magazine’s “Rock Stars of Science” feature.
■ The Cleveland Browns’ new top executive brought discipline to the football team’s front office, which in turn helped lead to modest improvement — measured by competitive games, unfortunately, rather than wins — on the field.
Joseph Carrabba ■ The CEO of Cliffs Natural Resources oversaw a flurry of acquisitions that made Cliffs one of Northeast Ohio’s most powerful growth stories. The iron ore giant was No. 5 on TheStreet.com’s December ranking of the 10 best S&P 500 stocks of the last 10 years.
Celebrity chefs ■ Michael Symon already is a national brand, but stellar restaurateurs such as Zach Bruell, Scott Kuhn and Jonathon Sawyer (right), not to mention Melt’s Matt Fish and the Dim and Den Sum guys, are turning Northeast Ohio into a major destination for foodies at all price ranges.
Ed FitzGerald ■ The hard work starts this month for the first Cuyahoga County Executive, but simply winning the job was a big accomplishment for the former Lakewood mayor. Now about that possible American Greetings move …
William Friedman ■ He helped right the ship at the ClevelandCuyahoga County Port Authority after taking over last June. Among his growth initiatives are a planned rail loop that could improve shipping capabilities and a plan to bring imported liquor from overseas into the Port of Cleveland.
David Hurwitz ■ He took over as CEO of Developers Diversified Realty Inc. on Jan. 1, 2010, and produced significant improvement in funds from operations at the real estate investment trust. The company’s stock started the year at about $9.25 a share and ended at nearly $14.
Richard Kramer ■ Mr. Kramer was named president and CEO of Goodyear Tire & Rubber Co. last April, and in October he succeeded Robert J. Keegan as company chairman.
Doing our part to keep our Great Lake great. The Northeast Ohio Regional Sewer District is proud to protect public health and our environment.
Terry Stewart ■ The Rock and Roll Hall of Fame and Museum CEO was able to drum up a $5 million gift from the Rock Hall foundation, giving the Cleveland institution its first significant endowment.
Learn more at wheredoesitgo.org
CRAIN’S CLEVELAND BUSINESS
Riverside’s latest acquisition turns some focus to plastics By FRANK ESPOSITO Plastics News
Private equity firm Riverside Co. has renewed its interest in the plastics market by acquiring PVC window extruder Sunrise Windows for an undisclosed price. Riverside had sold off three plastics-related businesses since 2008, but found a worthy target in Sunrise, which is based in Temperance, Mich. Sunrise — which employs about 200 and operates four production lines at a 94,000-square-foot plant — has averaged growth of 8% for the last five years, according to Riverside partner Tim Gosline, even though PVC window sales were off by at least 50% as the U.S. housing bubble popped. Riverside declined to provide specific sales figures for Sunrise. Sunrise bucked the trend by focusing on the replacement window market and by expanding its geographic reach from the Midwest to other parts of the country, including the southeastern United States and areas west of the Rockies. Riverside is buying Sunrise from
majority owner FDG Associates LLC of New York and from founder and CEO Gary Delman, who held a minority stake in the company that he helped launch in 1994. Mr. Delman and his management team are expected to remain with the firm. “We’re excited about growth prospects for the construction market, especially when demand rebounds,” Mr. Gosline said. “At some point, we may need to look at adding another line in Temperance and we might need an add-on acquisition west of the Rockies.” For Riverside, the deal marked the firm’s 300th transaction since it opened its doors in 1988. Riverside itself employs 195 and has $3.4 billion in assets under management. Other plastics companies in Riverside’s current portfolio are medical injection molder Coeur Inc. of Lebanon, Tenn., and plastics processor Connor Sport Court International of Salt Lake City. ■ Frank Esposito is senior reporter for Plastics News, a sister publication of Crain’s Cleveland Business.
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Health: Employer notes results continued from PAGE 3
“I’m latching on to the economics because that’s one of the things that drove me to do this in the first place,” Dr. Roizen told Crain’s in explaining his fixation with ways to fix the nation’s health. The well-known physician has been making a name for himself since 1999, when he published the first of six best-selling books on health and wellness. Since then, he’s become a friend and regular TV guest of Oprah Winfrey and has been named chairman of the Clinic’s Wellness Institute. Dr. Roizen intends to put all that fame to work. He said it’s important to use his pulpit to ramp up his wellness message — not just for the health of individuals, but for the future and security of the United States itself. Dr. Roizen said it’s a matter of simple economics. The world’s employers are going to go where the cost of doing business is the least, he says, and health care is a major cost. “We’re at a turning point,” Dr. Roizen said. “We will lose more than manufacturing. We will lose service (jobs), we will lose everything that we know of, because we are twice as expensive as Europe, three times Asia — and that gap, the absolute percentage, is at a point where we won’t be able to keep jobs here.” What’s more, nations with the lowest health care costs not only will attract more employers, they’ll have more money for infrastructure, education, research and everything else that enables economic growth. The United States simply can’t afford to allow its health care costs to continue climbing if the country is going to maintain its stature in
the world, Dr. Roizen said.
Eating better at Eaton Some U.S. companies are taking heed, including Cleveland-based diversified manufacturer Eaton Corp., which is led by chairman and CEO Alexander “Sandy” Cutler, a devotee of Dr. Roizen. Eaton has established its own internal wellness program to reduce health care costs, said Jim McGill, its executive vice president of human resources. “The trend for medical and health care inflation is running between 8% and 10% a year,” Mr. McGill said. “If you just do the math, we know what we’re spending today, and at a 7% to 9% growth rate, our health care costs are doubling about every eight years. … If we could just cut that in half, it would mean millions and millions (of dollars) for Eaton.” Although Eaton is only about a year into its wellness program, Mr. McGill said the company already is seeing promising results. More than half of Eaton’s smokers have signed up for a smoking cessation program, which the company offers through the Cleveland Clinic. In addition, 75% of Eaton’s 22,000 North American employees have entered their health data — critical numbers, such as their cholesterol levels — into an online health-improvement program offered by WebMD. In return, they earn a discount on their health insurance premiums through Eaton. Eaton also has revamped its cafeterias to carry more healthy food, created fitness challenges between Eaton employee groups and offers coaching on diet and exercise. Eaton’s employees today are about as healthy as the U.S. population as a whole, Mr. McGill said, but the
company wants them to be healthier than average. Achieving that goal would benefit Eaton in a number of ways. It would lower health care costs for employees, increase productivity and reduce the cost of providing medical benefits for today’s employees when they retire later. Eaton is doing the right things, but more companies and the nation as a whole need to take up the matter with similar seriousness, or trouble is on the horizon, Dr. Roizen said. The nation’s population has become much fatter in just the last 10 or 15 years, he noted. Diabetes follows obesity by about 17 years, and heart disease by about 25, he said. If we don’t slim down, we will have far more people with those and other weight-related problems, Dr. Roizen said.
Yes we can However, Dr. Roizen said almost all the nation’s health problems are easily reversible if people can be convinced to do just four things: Eat better, exercise, stop smoking and reduce their stress levels. Easier said than done, perhaps, but Dr. Roizen said there’s no choice other than to try. The nation must address the wellness issue with the same seriousness that it once addressed diseases such as polio. That’s another reason he says he enlists the help of people such as Ms. Winfrey — to get his message in front of more people. “Do you know who cured polio?” Dr. Roizen asks. “Elvis cured polio. They had the vaccine, but it wasn’t until the nation saw Elvis get a vaccine that everyone else signed up.” This time around, though, the nation might get the message from a doctor with rock star status. ■
CRAIN’S CLEVELAND BUSINESS
retirement plans division; Marge Gillota to medical community liaison.
RETIREMENT SOLUTIONS: Kristine Charkosky to administrative assistant.
CLEVELAND STATE UNIVERSITY: Dennis M. Lafferty to executive-inresidence, Division of University Advancement. SAINT JOSEPH ACADEMY: Constance S. Sipple to vice president, institutional advancement; Amy Kocian to development director; Moira McGreer to vice president, finance and administration.
FINANCIAL SERVICE CAPITALWORKS LLC: John P. Corrigan III to associate. CEDAR BROOK FINANCIAL PARTNERS LLC: Craig Gabel to adviser,
MEDICAL MUTUAL OF OHIO: Krystin Jarrell to associate marketing communications specialist; Janice Miller to manager, member appeals.
JANUARY 3 - 9, 2011
database administrator/developer; Joe Dose to senior account executive.
OPTIEM LLC: Katherine McNamara to interactive coordinator; Ken Holmes to interactive marketing specialist; Dan Finley to paid search manager.
PORTER WRIGHT: Isaac A. Molnar to patent litigator.
METROHEALTH MEDICAL CENTER: Dr. M. Michael Wolfe to chair of medicine.
REMINGER CO. LPA: Brian P. Nally and Chetan S. Patil to associates.
STAN HYWET HALL & GARDENS: Barbara R. Boyce to director of major gifts and planned giving.
SUMMA WESTERN RESERVE HOSPITAL: William Arndt to director of critical care/emergency services.
RED RESTAURANT GROUP: Jonathan B. Gross to chief operating officer and chief financial officer.
KNOTICE: Nate Clark to professional services developer; Greg Brooks to production artist; Hershel Cohen to
TREMCO ROOFING AND BUILDING MAINTENANCE: Daniel Saddler to director of safety, field operations.
REAL ESTATE CB RICHARD ELLIS: Barry Holtzer to vice president; Jesse Grant to associate. MARCUS & MILLICHAP REAL ESTATE INVESTMENT SERVICES: Michael L. Glass to vice president. TRANSACTION REALTY: Philip
Was a regular garden good enough? Nope. They put in a rock garden. And a rose garden. Makes me tired just thinking about it.
Tromba and Allie Mazina to sales associates.
SERVICE GLOBAL TECHNICAL RECRUITERS: Jen Slater to branch manager, Mayfield.
SPORTS CLEVELAND INDIANS: Sara Lehrke to vice president, human resources and chief diversity officer.
BOARDS AMERICAN SOCIETY OF RETINA SPECIALISTS: Dr. Suber S. Huang (University Hospitals) to president. GREATER CLEVELAND VOLUNTEERS: Georgia J. Anetzberger to president; Michael E. Smith to executive vice president; Thomas H. Barnard, Joseph Cech, Robert F. Erzen, Becky S. Moldaver, Rosemary Rehner and Elaine H. Rocker to vice presidents; Jill M. Fowler to secretary; Thomas Skrovan to treasurer; Lisa Foley and Vincent S. Misiti to executive committee-at-large. INSTITUTE OF REAL ESTATE MANAGEMENT, NORTHERN OHIO CHAPTER: Emily Mogen (KeyBank) to president; Brunetta Harris to president-elect; JoAnn Hirsh to secretary/treasurer; Judy Simon to immediate past president. INTERNATIONAL FACILITY MANAGEMENT ASSOCIATION, NORTHERN OHIO CHAPTER: Patrick Waitkus (American Interiors) to president; Sal Parella to vice president; Jaime Shoens to secretary; Bill McCary to treasurer. HOME
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KIDNEY FOUNDATION OF OHIO: Gary Penny (Dominion) to president; Michael Lynch to treasurer; Robert Grossman to secretary. SAINT JOSEPH ACADEMY: Anne Marie Pecon to chair. UNIVERSITY SETTLEMENT: Dennis Runyon to president; Marilyn Chase to vice president.
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ECONOMIC OUTLOOK From food to advanced energy, new industries and markets poised to stimulate growth in Northeast Ohio ENTERTAINMENT/ CONVENTION ACTIVITY
■ Short term: In the absence of a competitive convention center, tourism marketers will be focusing on selling smaller groups on facilities at the downtown hotels and arenas, while offering the I-X Center to sponsors of big shows. ■ Long term: Everyone’s eyes are on 2013. That’s when the new convention center/medical mart and Dan Gilbert’s casino are expected to open their doors and the Rock Hall induction ceremony returns to town. By JAY MILLER email@example.com
he area’s tourism promoters could be forgiven for daydreaming about 2013 as 2010 wound down. That’s when the new convention center/medical mart and Dan Gilbert’s casino are expected to open their doors, and it’s the next time the Rock and Roll Hall of Fame and Museum induction ceremony returns to town. 2013 also is the year the Cleveland Museum of Art is expected to have a grand reopening, after eight years of reconstruction and expansion. But 2011 isn’t being neglected. On the calendar for the coming year are events ranging from the NCAA Women’s Gymnastics Championships to the Rubber Expo to a new, and as yet unannounced, exhibit at the Rock Hall to replace the long-running homage to Bruce Springsteen. And while it may not capture the imagination and attract visitors the way the opening of a gambling hall might, the city will be welcoming a major new tourist destination in the spring — the five-acre, $25 million African Elephant Crossing at the Metroparks Zoo. The absence of a competitive convention center makes it hard to attract conventioneers, but Positively Cleveland, the city’s convention and visitors’ bureau, sells smaller groups on facilities at the downtown hotels and arenas while the big shows find a home at the I-X Center. Tamera Brown, vice president of marketing at Positively Cleveland, said the biggest business convention on tap for this year is Rubber Expo 2011 at the I-X Center Oct. 11-13. See CONVENTION Page 17
PRIVATE EQUITY Page 14 ■ Short term: Private equity activity is stronger than it’s been in the past two years. The economy’s improvement and constricted bank lending are two reasons why, so expect the private equity uptrend to continue if those conditions persist. ■ Long term: Hard to say. Considering that private equity activity depends greatly on the availability of credit and the performance of companies, its outlook can be as murky as the economy’s. That said, at least one insider predicts that as baby boomers retire, private equity will become a tool for growing the companies they exit.
FOOD ECONOMY Page 14 ■ Short term: Increase local food production and consumption from the current range of 1% to 5% in expenditures, and reach out to more individuals with diverse cultural and socioeconomic backgrounds. ■ Long term: Northeast Ohio could have a self-sustaining food economy, in which all food that can be grown and raised in the region’s climate is produced locally.
FLEXIBLE ELECTRONICS Page 14 ■ Short term: Northeast Ohio companies are starting to commercialize niche products that rely on flexible electronics, and over time the number of products they sell to other manufacturers will grow. Those products should help the region create some jobs and establish a name for itself in the industry while it is young. ■ Long term: Larger companies in the region will start focusing on the sector, and firms outside the region will consider locating here. Collaboration will help speed the pace of innovation. Northeast Ohio companies may make many of the electronic components in new products, but much of the assembly could take place overseas.
MEDICAL DEVICES Page 15 ■ Short term: The momentum in the medical device sector is expected to continue as more companies become profitable and expand their operations in the region. The state’s catalytic resources, such as the Ohio Third Frontier program, will continue to support these up-andcoming companies. ■ Long term: Medical device companies, some say, will define Northeast Ohio much like automotive, steel and other industrial manufacturers have in the past.
CLEAN, ADVANCED ENERGY Page 16
PUBLIC-PRIVATE COLLABORATION Page 16 ■ Short term: Due to the continued credit crunch, there will be more calls for public aid by all levels of business in all locations. ■ Long term: Calls for public aid will lessen. However, such calls may remain higher than in the past because banks will provide less debt for realty deals due to new federal regulations. Levels of aid will remain highest for urban projects and those that maintain the region's base of existing corporations or provide catalytic regional benefit.
■ Short term: High-tech economic development organization NorTech hopes to have done by June “road maps” in energy storage, biomass and waste energy; these plans would spell out opportunities, competition and needs. Meanwhile, Team NEO plans to continue hosting its initially successful advanced energy site selection visits. ■ Long term: According to Moody’s Economy.com, advanced energy gross regional product in the 16-county Cleveland Plus region will grow 20% by 2015; LEEDCo hopes to start construction on its Lake Erie wind turbine project in late 2012.
EXPORTS ■ Short term: Over the next year or so, the outlook for exports looks good. Foreign economies, especially in Asia and the developing world, are still growing at a relatively rapid pace and those economies need the machines and other industrial goods made by Cleveland companies. ■ Long term: For some industries, such as aerospace and medical devices, in which sophisticated U.S. manufacturers still have an advantage and demographics point to increasing long-term demand, things should stay strong. Demand for other items will depend on the strength of the world economy, which some believe could still stumble as many nations still struggle with deep economic issues. By DAN SHINGLER firstname.lastname@example.org
hile U.S. consumers still will likely see mostly Chinese stuff on store shelves, experts say the area’s manufacturing community should see exports increase in 2011. The dollar is dropping in value, economies in places such as China and Brazil are growing faster than in the U.S. and the federal government says it will push to allow and enable more foreign sales — all making for a better climate in which to export, experts predict. “Everyone in the port and trade community is bullish on exports,” said Will Friedman, CEO of the Cleveland-Cuyahoga County Port Authority. “The world economy is certainly rebounding, the dollar is remaining relatively weak against foreign currencies, which helps, and the president is pushing exports. It seems like there is some alignment of the stars in favor of exporting, and that’s good for Northeast Ohio.” Nearly everyone agrees that if exports increase it will be good for manufacturers, good for the port and other transportation providers and good for the entire regional economy that still depends on manufacturing for much of its underpinnings. “We have a lot of customers that are in the export business, and as our customers get more involved in exporting, we can offer more services that can help them,” said Ken Marblestone, president of Charter One Bank in Cleveland. See EXPORTS Page 17
14 CRAIN’S CLEVELAND BUSINESS
PRIVATE EQUITY By MICHELLE PARK email@example.com
ne could call it a collective comeback. Private equity activity had slowed in recent years. Uncertainty reigned, credit proved harder to access and buying and selling investments appeared less lucrative. The story is different today. generate returns for local investors, “Private equity folks are incredibly infusing money into the regional active — they’re all looking at more economy, and they create goodopportunities today than they have paying jobs themselves — though in the last two years,” said Scott few, if any, anticipate significant McRill, director of transaction advihiring even as activity increases. sory services for Cleveland accounting Some private equity firms are firm SS&G, which performs due currently invested in local compadiligence for private equity deals. nies, driving growth in Northeast Take, for example, The Riverside Ohio, Mr. McRill of SS&G said. The Co., a global private equity firm firms, he noted, provide the means to co-headquartered in Cleveland and transform “sleepy” companies into New York. It came close in 2010 to significant businesses. completing the 25 to 35 acquisiRoughly 40% of the portfolio of tions it had come to expect in Evolution Capital Partners LLC in recent years, spokesman Graham Hearns said, and the final quarter of Pepper Pike is invested in two North2010 proved to be the busiest fourth east Ohio companies, said managing partner Jeffrey Kadlic. Through local quarter in its 22-year history. The investments, he said, the firm helps firm had made 21 acquisitions as of companies create jobs. Mr. Kadlic mid-December. cited the 30 to 40 people he said were The current “bubble” of activity hired over the past 18 months at the should make 2011 a better and two local companies in which busier year than 2010, said Frank Evolution has invested. Linsalata, chairman and founder of “We think the future in Northeast Linsalata Capital Partners in MayOhio is supporting these small field Heights. The year to watch, he businesses and helping them get said, is 2012, as long as the economy back on their operates at a feet,” he said. higher level. Private equity “The credit “Private equity folks are markets are key incredibly active — they’re all is a capital-raising option that is to what we do, looking at more opportunities attractive when and they are today than they have in the banks’ lending to coming back,” small businesses Mr. Linsalata last two years.” is down, noted said. “We are – Scott McRill Brendan Anderbusy — very director of transaction advisory son, another busy — in exits services, SS&G managing partand new investner of Evolution. ments.” “If you’re a small business looking Let’s make a deal to grow, I don’t know how else they would do it other than private equity, Private equity firms invest in other than private wealth,” he said. companies with the aim of growing and selling their investments to Land of opportunity earn returns. The sector’s activity Private equity grew roots in has improved because buyers’ and Cleveland largely because the region sellers’ expectations for price are had a large, well-developed finanbetter aligned and financing is cial sector and world-class law and more available. However, it isn’t accounting firms — all useful entirely smooth sailing. The impact of the global financial “human capital” for such deals, said Mr. Kohl of Riverside. crisis and resulting recession on Historically, there’s been a lot of private equity firms is a delayed wealth here, too, he and others one, and some “shakeout” is noted, and wealthy people typically coming, predicted Stewart Kohl, look for investment options. co-CEO of Riverside. Even as activity Insiders are hesitant to predict heats back up, some firms will grapple what private equity will do in the with fewer deals and investors who long term because it’s so make it harder for them to raise funds. dependent upon macroeconomic Though he anticipates there will conditions. The money that will be be firms that are shuttered, Mr. used to make investments in five Kohl said the cohort of investment years likely doesn’t exist today, funds in Cleveland appear to be noted Bill Mulligan, managing “survivors” that are performing well. director of Primus Capital Funds in Firms here, he noted, have proven Cleveland. they can raise money in good times However, Mr. McRill of SS&G did and bad. He noted as an example predict a large uptick in deal activity Riverside, which he said has weathas retiring baby boomers sell their ered three recessions. Mr. Hearns businesses to other owners, who said Riverside officials anticipate may decide to grow the businesses strong activity in the first half of through private equity deals. 2011, but noted that speculation Generally speaking, private beyond midyear would be premature. equity insiders anticipate there alThe resurgence in private equity ways will be companies to invest in activity is healthy for more than the and investors who choose private firms themselves. equity because of the returns it When the region’s private equity generates.“It will be a challenging firms thrive, they fuel demand for time for private equity firms,” Mr. lawyers, accountants and other Kohl said. “But principally, it will be professionals who assist in their a story of continued growth.” ■ deals. Plus, private equity firms can
ECONOMIC OUTLOOK By KATHY AMES CARR firstname.lastname@example.org
he way Cleveland City Councilman Joe Cimperman sees it, Cleveland is going to eat Minneapolis’ lunch next year — but only figuratively, of course. The Minnesota locale is considered to be the best city in the nation for its local food and agriculture sectors, with Cleveland in second place, according to the environmentally focused web site SustainLane. Mr. Cimperman is hardly alone in his prediction. From the farmer to the for-profit organization to the government, a constellation of Northeast Ohio public and private sector entities are working together to develop a local, self-sustaining food economy. “We are poised to become a place like no other,” Mr. Cimperman said. “Few places in the country have all the peas in the pod lined up like we do — policies, practices and politics — to become a self-sustaining city.” Advocates in cities such as Cleveland and Youngstown that once were industrial giants extol urban agriculture as a way to address problems with unemployment, vacant land and public health. Farmers and other purveyors in rural areas likewise see the economic benefits of connecting with the urban markets. However, proponents of the urban agriculture movement also know they must manage expectations, in part because of the ongoing need to find large sums of money to support their various endeavors.
Fruits of their labor Northeast Ohio is home to about
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24 community-supported agricultural programs; 40 wineries; 55 farmers markets; 100 meat-processing operations; 975 vegetable and potato farms; 1,000 hog farms; and 1,500 poultry and egg operations, according to a recent study known as the Northeast Ohio Local Food Assessment. The market for locally produced food over the last decade has increased as consumers have become more educated on nutrition and as more food-centric startups dot the landscape, said Brad Masi, founder of the New Agrarian Center, a nonprofit in Oberlin focused on growing a sustainable local food system in Northeast Ohio. “Now we’re seeing more sophisticated public-private partnerships” forming to elevate the potential of those businesses, Mr. Masi said. The Northeast Ohio Local Food Assessment reported that Northeast Ohioans spend about $15 billion on food annually, but only between 1% and 5% of that amount is spent on
food produced regionally. Local food economy proponents would like to see the consumption of locally produced food increase to at least 25% of overall food spending. It is estimated that such an increase would inject about 28,000 new jobs into the Northeast Ohio economy and increase regional output by $4.2 billion, according to the report. The consortium of policy makers, educational institutions and nonprofits that authored the recent report believe such a shift is possible, but not without an investment of $1 billion in food-related businesses. The output from those businesses would substitute local products for $2.5 billion of food imported into the market.The Cleveland Foundation, ParkWorks, Urban Design Center of Kent State University, Neighborhood Progress Inc. and the Cleveland-Cuyahoga Food Policy Coalition in November released the food assessment, which also called for establishing a nonprofit that could issue tax-exempt bonds to provide seed capital for new businesses. This so-called NEO Food Authority potentially would be owned and capitalized by regional stakeholders, and would be one more outlet for startup money beyond municipal grants and other investments. In addition, the region needs to improve greenhouse technology so that produce can grow year-round, said Mr. Masi, one of the study’s authors.
Fertilizing the movement Meanwhile, dozens of regional nonprofit and for-profit entities that include some of Northeast Ohio’s largest employers are supporting
By CHUCK SODER email@example.com
yron Clayton wants Northeast Ohio to become flypaper for flexible electronics companies. As a vice president at NorTech, Dr. Clayton has been tasked with leading the economic development group’s FlexMatters initiative. It’s an effort to turn the region’s nascent flexible electronics sector into a major force for job creation. The region already has the expertise to create flexible liquid crystal displays and other bendable electronics that could revolutionize all sorts of products, from computer screens and solar panels to milk jugs and medical devices. Innovation, however, doesn’t guarantee job creation. For instance, almost all liquid crystal displays are made in Asia, even though researchers at Kent State University helped create the technology 40 years ago. To stop that scenario from happening again, Northeast Ohio will need to create an environment that makes companies want to create and keep jobs here, Dr. Clayton said. “It’s making the region sticky,” he said. “We want to create the business case to stay.” The early success of Kent Displays Inc. provides an example of what is possible. The company a year ago released the Boogie Board, its first product built on a flexible liquid crystal display. The device, which works like an electronic dry erase board, has been selling briskly all year, both online and in Brookstone retail stores. The final product is assembled in
FLEXIBLE ELECTRONICS China, but the core of the Boogie Board, the display itself, is made at the company’s headquarters just south of Kent. Dr. Clayton said Northeast Ohio should be able to hold on to that type of manufacturing. It involves the automated production of flexible electronic components that form the base of new products or go into existing products. “We have to focus on capturing that value here,” he said.
A cluster of talent It will be easier to retain existing companies — or get outside firms to set up shop in Northeast Ohio — as the region’s flexible electronics cluster grows, Dr. Clayton said. Suppliers and the companies they serve will want to be close to each other to work together and reduce shipping costs. Plus, they’ll both want to be near Kent State and the University of Akron, which have expertise related to flexible electronics and produce graduates with skills the sector needs. The presence of universities with technical expertise was key to the formation of successful high-tech clusters in Silicon Valley and along Boston’s Route 128, Dr. Clayton said. Northeast Ohio also meets other criteria for forming a flexible electronics cluster, he said. The re-
gion has a handful of small flexible electronics companies working to commercialize products. In addition to Kent Displays, the region is home to thin battery maker Blue Spark Technologies Inc., liquid crystal products developer AlphaMicron Inc. and optical film developer Akron Polymer Systems Inc. It even has a few big companies interested in flexible electronics, such as American Greetings and GE Lighting. Both companies sent representatives to workshops NorTech organized to get input for a recently released roadmap on how best to grow the FlexMatters cluster. The cluster needs more big companies interested in developing new technologies or buying them, Dr. Clayton said. Other goals of the FlexMatters initiative include finding possible customers who could seek technologies from cluster members, helping members form joint ventures and connecting members with financing opportunities. “We’re going to commercialize some real products, we’re going to generate some real revenue, so we can create some real jobs,” he said. Other early players in the sector include regions of England, Germany, Holland and Taiwan, as well as Tucson, Ariz., and Binghamton, N.Y.,
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efforts to form an agriculture and bioscience industry cluster. The cluster’s goal is to develop a broader agricultural base and an improved distribution system so that fresh, locally produced food from an array of suppliers can substitute for products shipped into the area. “I’m anxious to see this initiative develop,” said Brad Whitehead, president of Fund For Our Economic Future, which has provided $450,000 in grants to help advance the cluster’s efforts. In the short term, various projects continue to sprout up that illustrate multilayer public-private cooperation: ■ The Cuyahoga County Board of Developmental Disabilities plans to break ground in April on a 3,000square-foot farm at Lakeside Avenue and East Ninth Street, next to City Hall, where the Free Stamp is located. The governmental entity’s second such urban venture will employ individuals with developmental disabilities who otherwise find it challenging to secure employment. ■ A similar venture, The Ohio City Farm, shared during its first year in 2010 its harvest with surrounding restaurants, Great Lakes Brewing Co. and other consumers, and looks to broaden its bounty next year. The nation’s largest contiguous urban farm sits on formerly vacant land, which its nonprofit co-developers lease from the Cuyahoga Metropolitan Housing Authority. “We’ve had a group of visionary civic leaders,” Mr. Whitehead said. “At the same time, we sit at the nexus of urban and rural, and industrial and agriculture. It’s natural this economy is growing.”■
according to NorTech’s roadmap.
Pull it together Flexible electronics could be used to create displays, solar panels or even lights that conform to various surfaces, but they could have many other uses as well, said Miko Cakmak, a University of Akron polymer engineering professor who has led an effort to develop three machines designed to give special properties to flexible polymer films. For instance, flexible electronics could be made to create water desalination devices or sensors that people could wear to monitor their health, he said. “That’s what’s so exciting. We can’t imagine what the market is going to look like. Something is going to come up … that is going to sell like hot cakes,” Dr. Cakmak said. Various members of the sector have been collaborating for years, but a formalized cluster will help them find more ways to leverage each others’ strengths, Dr. Cakmak said. “There’s no better time than now for Northeast Ohio,” he said. Gary Johnson, CEO of Westlakebased Blue Spark Technologies, noted that flexible electronics firms won’t be able to source all their work in Northeast Ohio, but such a cluster would help create jobs, especially at and above the engineering level. NorTech’s attempt to organize a formal cluster is “a tremendous statement,” said Michael Ciesinski, CEO of the FlexTech Alliance in San Jose, Calif. The region — and the industry as a whole — will gain momentum as it commercializes products. “We (as an industry) need to demonstrate to companies large and small … that these products can be produced,” he said. ■
By TIMOTHY MAGAW firstname.lastname@example.org
ith its strong manufacturing core and cluster of world-class medical institutions, Northeast Ohio is fertile ground to become a hub for medical device innovation. Indeed, industry observers expect to see growth in this area over the next year, with companies specializing in the sector becoming profitable or expanding. “(This) year is going to be better than 2010 because some major changes are occurring at the macro level,” said Baiju Shah, president of BioEnterprise Corp., a nonprofit that fosters the creation and growth of health care and bioscience companies in the region. Mr. Shah noted that there’s more clarity overall — both on health care reform and the regulatory pathways the devices must go through before they can go to market. He said because the region is in a relatively stronger economic situation than it was a year ago, investors also are going to become more comfortable injecting muchneeded capital into these burgeoning companies. Mr. Shah also expects even more of these companies to be acquired over the next year. He cited the recent acquisition of Twinsburgbased Edgepark Medical Supplies by two private equity firms in New York for a reported $850 million. “When (these companies) are acquired, they continue to grow,” Mr. Shah said. The momentum in the medical technology sector steadily has picked up over the last three or four years, according to Chris Coburn, executive director of Cleveland Clinic Innovations, the technology commercialization arm of the Cleveland Clinic. The rate of commercialization, he said, has “accelerated but also reached a pretty constant velocity.” “There is now a steady stream of success stories or emerging success stories,” Mr. Coburn said. “Not all of those will work out, but there are some very compelling technologies and product opportunities I think people can be excited about.”
The state of support Groups such as BioEnterprise and other catalytic resources — among them the Ohio Third Frontier program, an effort aimed at stimulating the economy through investment in technology that runs through mid2016 — have made Northeast Ohio a fertile ground for medical device companies, according to Mike Haritakis, executive vice president for Thermedx, a company in Solon that produces a device that warms fluids that go into the body during surgery. Thermedx, which started in 2007, recently was approved for a $1.28 million loan through the Innovation
Ohio Loan Fund, a component of the Third Frontier program. The money will help with the commercial launch of the company’s 37-5 fluid management system, which received clearance from the U.S. Food and Drug Administration in August. There’s a jobs component tied with the loan, Mr. Haritakis said, and the company plans to more than double its work force to 30 employees from the current 14 within two years. Meanwhile, the Global Cardiovascular Innovation Center in Cleveland received a $60 million grant from the Third Frontier program in 2007 to attract cardiovascularrelated companies to Ohio. So far, the innovation center has awarded more than $15 million in commercialization grant money to 27 companies and 10 institution-run projects, according to the center’s managing director, Mark Low. The center’s headquarters on Cedar Avenue near the Cleveland Clinic’s campus serves as an incubator for cardiovascular startup companies. To date, about 70% of the space is occupied by an “eclectic mix” of foreign and local companies, according to Mr. Low. “We’ve created enough momentum here, so it’s just attracting companies by the nature of it,” he said.
Possible bumps in the road Despite the throng of state-sup-
CRAIN’S CLEVELAND BUSINESS 15 ported initiatives geared to the medical device sector, Thermedx’s Mr. Haritakis said acquiring financing still can be a challenge for an up-and-coming company. “It’s a challenge,” he said. “It takes a lot of our time.” The Clinic’s Mr. Coburn said the capital markets still are a concern and that there is talk about how venture capitalists and corporate investors now are looking for laterstage, lower-risk technologies, which potentially could cause problems for early-stage companies. More importantly, Mr. Coburn noted, there has been a decline in the ability of venture capital funds in the region to raise cash — a repercussion of the economic decline. “The situation is there are a number of funds located within 300 miles of here that are having huge difficulties raising funds,” Mr. Coburn said. “That’s a challenge.” Bob Schmidt, chairman of a group of Northeast Ohio medical device companies, expects the growth of the medical sector to remain steady over the next two years. Beyond that, he said, the medical device tax included in the new federal health care reform law could cause problems. It taxes the sale of all medical devices except for consumer goods. “We’ve taken the one shining example of a good economy and
we’re going to tax it into oblivion. That’s not wise,” said Mr. Schmidt, whose firms include Cleveland Medical Devices, Orbital Research Inc., NeuroWave Systems and Flocel Inc.
Changing the landscape Unlike many sectors, the medical device industry actually is growing, according to Brian Davis, vice president of the Medical Device Development Center at the Austen BioInnovation Institute in Akron. Manufacturers are looking to the medical device sector to use their raw materials in new ways, Dr. Davis said. He cited the use of polymers, which have become ubiquitous in the manufacturing of such technology. “Now that people have to be creative because of the economy, they’re asking what else can we do to weather these storms?” he said. BioEnterprise’s Mr. Shah said he expects the region to be largely defined by health care technology within the next 10 or 20 years as Northeast Ohio will have been through several entrepreneurial generations. Also, new projects such as the medical mart will allow device makers the opportunity to more easily sell and get feedback on products from customers beyond Northeast Ohio. “You’ll see a lot more visibility of the industry in our corporate landscape” Mr. Shah said. ■
16 CRAIN’S CLEVELAND BUSINESS
CLEAN, ADVANCED ENERGY By JOEL HAMMOND email@example.com
f it appears every John, Jane, Jack and Jill in Northeast Ohio is hitching their respective wagons to the clean and advanced energy sectors, it’s likely because, well, they are. Reports continue to forecast wild growth in wind and solar energy, biomass, fuel cells and other alternative energy options, as more environmental — and political — scrutiny is placed on traditional energy sources such as coal and oil. And groups such as NorTech, the Lake Erie Energy Development Corp. (LEEDCo), Team NEO and others are intensifying their focus on these emerging areas in an effort to make the region not only a producer for those industries, but also a leader in 2011 and beyond. In a December report, the Philadelphia-based nonprofit Pew Charitable Trusts said clean energy investment worldwide could grow to $2.3 trillion over the next 10 years — with the United States in position to capture $342 billion of that pie, aided by more aggressive policies for promoting the use and development of alternate-energy sources. Those policies, said local Pew spokesman and Lakewood City Councilman Tom Bullock, would include a national renewable energy standard similar to Ohio’s, which
By STAN BULLARD firstname.lastname@example.org
lthough the real estate credit crunch has idled most property development in Northeast Ohio, a handful of multimillion-dollar transactions are managing to proceed. The list is short, but powerful: the Uptown project, which is adding new apartments and retail space in University Circle; the MidTown Technology Center office/warehouse building in MidTown Cleveland; the new Bridgestone Firestone Technical Center in Akron; and the new corporate headquarters for Eaton Corp. in Beachwood. A thread connects those disparate ventures: multiple sources of funding and public partnerships that helped coax private lenders out of hiding and reduced their risk or the amount of debt needed. Expect more of the same in the future, albeit perhaps to a lesser degree. The most potent of the pack emerged — on paper at least — in the closing in late December of the financing for the $240 million Flats East Bank Neighborhood project, which will add a new office building and vast riverfront park to downtown Cleveland. Why is Flats East the most potent? More than 30 sources of funding, from federal, state, county and city programs will restart the project, which stalled in 2008. Steve Strnisha, director of finance for Project Management Consultants LLC of Cleveland, who ran the developer’s financing efforts for Flats East, doubts the
mandates that by 2025, at least 25% of all electricity sold in the state comes from alternative energy resources. Such a move ideally would create more stable market demand for power produced by alternative sources and greater investment from the private sector. “We need to look a couple moves ahead on the chessboard,” Mr. Bullock said. “Don’t skate where the puck is right now, but where it will be.” The region’s existing advantages are many, according to Mr. Bullock and other stakeholders. They include: ■ a supply chain already serving clean and advanced energy needs. According to a white paper published in August by Team NEO, the region’s business attraction organization, industries designated as part of the advanced energy supply chain already make up $12.5 billion of the economy in the Cleveland Plus region, which covers 16 Northeast Ohio counties. In that area, 400 companies serve these sectors. ■ expertise in public and private sectors. The region boasts years of knowledge in steel, composites, coatings and bearings, all of which are essential components in the hardware used to produce clean
energy. In addition, Stark State College and Rolls-Royce USA in North Canton are fuel cell leaders, and Cleveland State and Case Western Reserve universities boast strengths in engineering. ■ a ready work force. The Team NEO report also included U.S. Bureau of Labor Statistics data that show Cleveland Plus is well-equipped with workers, such as assemblers and laborers, in occupations where demand is expected to increase in coming years due to growth in the clean energy sector.
The wind’s a-blowin’ That’s the present. The future is what has the region excited and also presents concerns. Pew in its report forecast great potential for the United States, but even greater potential for China and India. In China, Pew projects $620 billion to be invested in clean energy projects, while India’s clean energy investments are expected to grow 370%. “Growth in clean energy industries will help America reduce its dependence on foreign oil and regain its leadership in manufacturing,” said U.S. Sen. Sherrod Brown (D-Ohio), who has championed so-called “Buy American” legislation and pushed local manufacturers to retool for clean energy. “Ohio is already a leader in the
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development of several clean energy technologies like solar, wind and fuel cells, but we are facing stiff competition from places like China, where clean energy businesses are unfairly subsidized,” Sen. Brown said. “We need a level playing field that allows American workers and manufacturers to compete in the global clean energy economy.” While NorTech, a tech-centric economic development group, currently has its hand in a number of clean energy sectors — it is formulating “road maps” that will describe assets, competition and needs in energy storage, biomass and waste energy, said vice president Dave Karpinski — the top priority now in Northeast Ohio is being the first into the Great Lakes with offshore wind turbines. NorTech in December 2009 formed LEEDCo with designs on the first offshore wind turbine project in the United States. In September, LEEDCo signed a windfarm development agreement with Great Lakes Ohio Wind, which consists of engineering firm Bechtel Development Co. of San Francisco, Cavallo Energy of Houston and a group of local project developers. General Electric Co., meanwhile, is working on a freshwater-specific wind turbine that would run on a direct-drive system, rather than gears that more frequently break down. LEEDCo president Lorry Wagner said his organization has completed “preliminary geophysical and geotechnical work,” scanning the bottom of Lake Erie about seven miles off the shoreline where the
PUBLIC-PRIVATE COLLABORATION region will see such a cache of money sources assembled again for a single project. “I don’t think we will see another deal like the Flats done again from a sense of sheer practicality,” Mr. Strnisha said. “We had five years to round up grants. Some types no longer exist. The hope also is that the private lending market is coming back. Between the market, and hopefully some of the momentum produced by these projects, it won’t be quite as challenging.” While the complexity and extent of aid may be unequaled going forward, Mr. Strnisha, developers, government economic development types and lobbyists expect that Northeast Ohio development will continue to need public help. For one, urban development deals were tough before the credit crisis and will remain tough afterwards because Cleveland lacks population growth and has little rent growth compared to other areas.
High creative IQ Ari Maron, a principal of Cleveland’s MRN Inc. which is developing Uptown, noted there are 10 sources of funding in that project. But cobbling together unconventional real estate developments is familiar for the family-owned development firm. Such was the case in its redo of East Fourth Street in downtown Cleveland, which developed restaurants and lofts near Public Square in the mid-2000s. “It’s these types of collaborations (public grants and loans) that gets
This rendering of Eaton Corp.’s new corporate headquarters in Beachwood is one example of the notable real estate projects proceeding with development in Northeast Ohio.
turbines most likely would go. In addition, LEEDCo is finalizing a submerged land lease with the Ohio Department of Natural Resources. “We hope it helps us understand what it takes to build an industry,” Mr. Wagner said. “We want it to happen here first, so we can capture a majority of the benefit. If we establish this here, we can be a goto place for wind energy; why would developers start all over someplace else if we’re doing it here?” Still, there is uncertainty surrounding the stable market that Pew’s Mr. Bullock said is so vital. While wind power generation has seen steady growth in the United States — 33.5% in 2009 and 60.7% in 2008, according to the U.S. Energy Information Association — it still represents only 2% of electricity used in the U.S. Despite that concern, the battle for a substantial piece of the clean energy sector continues locally. Team NEO for the first time last summer targeted its frequent visits by site selection consultants around more specific industries, including Northeast Ohio’s wind energy prospects. “(Site consultants) go to the Country Music Awards, they go to the Kentucky Derby,” said Team NEO director of business attraction Jacob Duritsky. “It’s hard to get them here, but we had an easy time because of the topic. They’d say, ‘(Firestone Country Club) is great, the Pro Football Hall of Fame is great. “‘But we came to see these alternative energy assets.’” ■
under way. However, many privately worry that tight state and local budgets may reduce the ability to finance new projects. Steve Weitzner, president of the Cleveland-based Silverlode Consulting Corp. economic consulting and site location firm, said the cities will need to lead the way for getting financing done, particularly this year. The reason: Gov.-elect John Kasich’s vow to privatize the state development department is likely to crimp operations while new plans are formulated. Likewise, Cuyahoga County has a new charter form of government, so the county will need to feel its way, Mr. Weitzner said.
Could be better things done here,” Mr. Maron said. He believes that collaboration distinguishes the region. “All of these projects use these creative tools. The creative finance IQ in Cleveland is very high,” he said. As proof, he points to groups from other cities that study how Cleveland and other Northeast Ohio cities get projects under way in a continually challenging economic environment. Skills honed here often go into such projects elsewhere, such as Ferchill Group of Cleveland Book Cadillac hotel-condo project in Detroit. James Doyle, a principal of Twinsburg-based Hemingway Development and a partner in the MidTown Tech Center, also expects public aid to remain necessary, particularly in urban areas. He said land acquisition costs in urban areas are higher than in suburban areas and urban project sites often require demolition of buildings and costly brownfield cleanups. By contrast, Mr. Doyle expects the return of normalcy to bank lending practices may substantially restore funding for suburban settings.
Essential tools Tracey Nichols, Cleveland economic development director, said Congress in December renewed the federal New Markets Tax Credit program, which aids loans for job-creating projects in qualifying economically distressed areas. Congress also last month renewed the U.S. Department of Housing and Urban Development 108 loan program, which is used as a source of financing for economic development for the benefit of lowto moderate-income people or to aid in the prevention of slums. Both are used heavily here. Meantime, the pilot program for Ohio Historic Preservation Tax Credits, which allows the sale of state income tax credits to investors to raise more equity to aid old building renovations, expired as 2010 ended. Tom Yablonsky, vice president of the Downtown Cleveland Alliance, said to expect efforts by preservation and development groups statewide this year to renew the Ohio historic tax credit are already
There is room for improvement. Mr. Strnisha said he believes the conflict between cities and school boards over tax increment financing does not serve the region well and thinks legislative action to fine-tune laws governing it could remove the controversy. For Mr. Weitzner’s part, the multitude of local governments in Ohio presents a challenge. “When we talk to companies trying to enter the region, it’s hard to keep things simple. Team NEO (the regional business attraction nonprofit) helps. But it’s a very confusing environment,” Mr. Weitzner said. He said other states ask companies considering moves, “What do you need?” and then try to provide it. “At the end of the day, decisions are made by human beings. Here it’s often seen as a numbers game.” But the governments remain firmly at the table. For the city of Cleveland’s part, Ms. Nichols puts it simply. “I know if a good deal comes along,” she said, “we are going to put together a package to meet it.” ■
JANUARY 3 - 9, 2011
CONVENTION continued from PAGE 13
It’s the big annual show of the Rubber Division of the American Chemical Society. Ms. Brown said she expects convention goers to book nearly 4,300 hotel room nights. A religious group, the Jehovah’s Witnesses, will be bringing its district meetings back to Cleveland in 2011 after a successful 2010 here. The group books 3,500 hotel room nights over four weekends in July for its meetings at Cleveland State University’s Wolstein Center.
State of the art The region’s tourist strength until 2013 may well be its arts and cultural attractions. PlayhouseSquare will lose the Allen Theatre for most of the year, but a smaller Allen — along with two new theaters — is expected
EXPORTS continued from PAGE 13
Like other major business banks, Charter One provides exporters with the financial services they need to do business, including letters of credit, hedges against fluctuations in currency values and payment systems that enable them to turn sales into revenues. Bankers, along with a host of attorneys, accountants and other business service professionals, benefit nearly as much from exporting as do the manufacturers who actually ship product overseas, Mr. Marblestone said. They’re also counting on exports to pick up. Northeast Ohio manufacturers are making more medical devices, aerospace parts and other hot export items — and they are still making the machine tools and other means of production that long have been big export items for the region. On top of that, more businesses are pursuing exports, because they know it’s a means of securing new growth, Mr. Marblestone said.
Sky’s the limit Another area that’s a hotbed for exports is the aerospace industry — and it too is seeing an uptick in export activity that should carry on through next year and beyond, said Mike Heil, CEO of the Ohio Aerospace Institute in Cleveland. Ohio has 100,000 full-time employees in aerospace, most of them clustered around Cleveland and Cincinnati — and they rely on exports for much of their work, Mr. Heil said. “Airbus (of France) buys $4.6 billion worth of goods from Ohio every year. Ohio is Airbus’s top supplier” among U.S. states, he said. Like other industries, aerospace is benefitting from some short-term tailwinds, such as a declining dollar that makes it less expensive for foreign companies to buy American goods. But it’s also got a climactic jet stream pushing it over the longer term, Mr. Heil said — in the form of China. While Airbus might be the big foreign customer for Ohio’s aircraft parts today, China has a deficit of aircraft and will need U.S. suppliers to help it build the planes it needs, adding significantly to worldwide demand, Mr. Heil said. “From the numbers that I’ve
reopen before the year ends, bolstering the city’s image as a regional center of theater, music and dance. The $30 million capital program will bring the Theater District up to a complement of 10 venues and will make room for two new residents, the Cleveland Play House and Cleveland State University’s art, dance and theater programs. “We’re at the cusp of an exciting time,” said David Gilbert, president of the Greater Cleveland Sports Commission, who envisions a return to the late 1990s when the Rock Hall was gaining steam and the Cleveland Indians were contending for the World Series. “We can start to get back to that era.” This bustle of activity belies several years of struggle as the economy declined. Arts and cultural organizations have been fighting stagnant attendance and lackluster philanthropy. A Cuyahoga County tax on
seen, the market between now and 2028 is $3.2 trillion for airplanes — and a lot of that will be from China,” he said. “We’ve got a lot of suppliers in Ohio that will make parts for those aircraft.” And that’s just on the commercial side. When the U.S. government sells planes like the F-35 fighters to other nations, it creates business for the aircraft’s maker, Lockheed Martin, and its suppliers in Ohio and other states. “Aerospace manufacturing is one of the areas in which America is still a world leader,” Mr. Heil said. “It’s Parker Hannifin components, Eaton components, landing systems from Goodrich. … We’ve just got a lot of aerospace suppliers here.”
Smoother sailing ahead? But, overall, Ohio could still do more, say export proponents, and it could use some help in certain areas. For example, the Great Lakes currently do not carry container ships — which have come to dominate much of international shipping in recent years, said the Port’s Mr. Friedman. Partly because of that, the exports that go by ship from the port tend to be special projects. Often, they are huge machine parts or other big items that are best hauled by ship. But that might change next year if efforts to operate container ships are successful, according to Mr. Friedman, who said he’s hopeful that a sort of hub-and-spoke system, with Montreal as its central hub, is established for ships handling containers. Other factors are less controllable. A falling dollar is probably the biggest stimulus for exports. It’s been falling recently — but so have other currencies, especially in Europe, said Cleveland economist George Zeller. And there’s pressure from other nations that don’t want the dollar to be devalued, he said, so the dollar might not be able to fall indefinitely. All told, the environment looks good for increasing U.S. exports in the year ahead — but beyond that most experts decline to make predictions. But, they do agree on one thing — manufacturers should do what they can to take advantage of the export market that’s available today to help make sure they are competing for future international sales. ■
tobacco products to fund the arts passed in 2006 and eased the financial pinch, allowing beneficiaries to maintain their programming schedules. Organizations divvy up more than $15 million a year that is distributed on a competitive basis to qualifying nonprofit groups large and small. “(The tax has) come at a very important time to allow Cleveland and Cuyahoga County to maintain their arts and cultural sector,” said Thomas Schorgl, president of the Community Partnership for Arts and Culture. “It allowed a number of organizations to keep their doors open.” There’s a hope that the entertainment and convention sector will get on more solid footing when a 24-hour casino opens, energizing Public Square; and the new convention center and medical merchandise mart will put the city back on the map of convention planners. With the new year, the sports commission’s Mr. Gilbert will wear two hats. In addition to running the sports commission, he will become president of Positively Cleveland. He believes both organizations will benefit from the coming of the convention center
CRAIN’S CLEVELAND BUSINESS 17 and the casino. “Certainly Positively Cleveland and other organizations will be using those (new venues) to market Cleveland,” he said.
Plenty to do A groundbreaking is set for Jan. 14 for the convention center and medical mart, with an opening anticipated for September 2013. Plans for the casino still are firming up, though Rock Ventures LLC, led by Cleveland Cavaliers owner Dan Gilbert, soon is expected to announce its intention to open a temporary casino in downtown Cleveland’s Higbee Building before a permanent, $600 gambling palace opens sometime in 2013. Despite the economic slump, about 1 million visitors still will attend a PlayhouseSquare event in the year ahead, said Gina Vernaci, the organization’s vice president for theatricals. The year at PlayhouseSquare opens with an Elvis Presley birthday tribute Jan. 9 and includes the popular KeyBank Broadway Series, which continues with the Feb. 1 opening of “South Pacific” for a two-week run. The International Children’s Festival also returns to PlayhouseSquare in May for its second year.
Ms. Vernaci said the gala will include between 30 and 40 performances over the first week in May. The sports commission has nine events planned for the coming year, and while David Gilbert doesn’t characterize any one as a blockbuster, he said the events “will bring a significant number of out-oftown spectators and participants” to the amateur sports events. The slate is topped by a preliminary round of the Men’s NCAA Basketball tournament in March and the NCAA Women’s National Gymnastics Tournament in April. It also includes the Continental Cup series of youth events featuring baseball, basketball, soccer and lacrosse. Mr. Gilbert expects the event, scheduled for the weekend before the Fourth of July, to attract more than 3,000 participants. The Rock Hall’s Todd Mesek, vice president of marketing and communications, said the lakefront museum will have a new exhibit by midyear, but noted that the organization was not ready to discuss who or what the focus will be. And then there’s the zoo. The African Elephant Crossing is the zoo’s largest expansion since the Rain Forest in 1992. It will allow the zoo to increase its elephant population from the current three to as many as eight and create a more natural habitat. ■
CRAIN’S CLEVELAND BUSINESS
Budget: Officials holding their breath continued from PAGE 1
impact the municipalities,” Mayor Sutherland said in a telephone interview late last month. “We know that the local government fund is on the table. We just don’t know what that means, and I think they don’t really know yet.” The local government fund comes from a variety of taxes levied by the state and was created to replace revenue communities lost because of past state tax reforms. Beyond saying repeatedly during the transition with the Strickland administration that all state programs, including the local government fund, will be considered for cutting, Mr. Kasich has declined to be more specific until he gets into office. He has until March 15 to present a budget to the General Assembly.
to the state government and we’re at the bottom of totem pole.” Like most municipalities, Mayor Jackson’s administration is preparing to submit a new budget to city council after the first of the year. But he said that budget can’t be finalized until after Mr. Kasich presents his budget to the Legislature in March and the Legislature passes it by a June 30 deadline. Mayor Jackson and other area municipal leaders were briefed last month on the new governor’s approach to the budget by Bay Village Mayor Deborah Sutherland. She, in turn, got the bad news a week earlier at a meeting in Columbus with Tim Keen, who will be Mr. Kasich’s budget director. Mayor Sutherland was representing the Cuyahoga County Mayors and City Managers Association at the meeting. “The budget cutting will definitely
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Death and taxes As great a concern to several cities is Mr. Kasich’s oft-stated
intention to eliminate the state estate tax. It wouldn’t be a big loss of revenue for the state, but cities with older, wealthier residents could feel its loss, as 80% of the revenue goes to the community of residence of the deceased and only 20% to the state. In 2008 the state got $61.2 million and communities $227.3 million of the $288.5 million collected, according to a breakdown published in March 2010 by the Ohio Department of Taxation. “We have a two-fold concern,” said Shaker Heights Mayor Earl Leiken. “The decline in state (local government) funding is one thing, but cutting off a revenue source (the estate tax) is another. “To have both done at once would be pretty tough,” he said. Calling the estate tax a “death tax,” Mr. Kasich has said repeatedly that the tax punishes success and drives wealthy people, especially
JANUARY 3 - 9, 2011
entrepreneurs, to leave Ohio. Because the tax applies only to estates valued at $338,333 or more, it has little impact on most cities, and even in cities with significant estate tax income, the amount varies from year to year. Mayor Leiken said Shaker Heights in 2009 got $2.4 million in estate tax revenue, a significant amount for a community with a general fund budget of about $40 million. Because the amount of tax a community receives fluctuates, cities tend to put the bulk of their estate tax revenue in long-term capital budgets. Nonetheless, the tax’s demise would hurt going forward. “Many communities use (the estate tax) as a windfall to either fund operations or capital projects they wouldn’t be able to afford otherwise,” Mayor Sutherland said.
‘Well, that’s just dumb’ After Mayor Sutherland reported on her Columbus trip to her fellow mayors, the talk at the meeting of county mayors and managers
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turned to ways to cushion the impact of revenue cuts. It became clear that most of the mayors will be looking to collaborate with their neighbors to reduce costs. To move that process along, Mayor Sutherland said, it would help if the Legislature would pass a measure that would allow municipal workers to work beyond their cities’ borders. For example, Mayor Sutherland said, the cities of South Euclid and Cleveland have discussed Cleveland taking over trash collection in the eastern suburb. However, that arrangement can’t happen until legislation is passed, and a bill along those lines got hung up last year. “We would like to see (the new administration) help us achieve that,” Mayor Sutherland said. “Right now they’re prohibited by law from doing that. Well, that’s just dumb.” State Sen. Nina Turner, D-Cleveland, who with State Rep. Mike Foley, D-Columbus, sponsored the legislation last session, said she intends to re-introduce the bill when the Legislature returns. ■
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CRAIN’S CLEVELAND BUSINESS
THEWEEK DECEMBER 20 - JANUARY 2 The big story:
Fabric and craft retailer JoAnn Stores Inc. of Hudson agreed to be acquired by a Los Angeles private equity firm for about $1.6 billion, or $61 a share in cash. The buyer is Leonard Green & Partners L.P., which has more than $9 billion in equity capital under management. Leonard Green’s offer price represents a 34% premium to the $45.63 closing price of Jo-Ann’s shares on Dec. 22, the day before the deal was announced. Jo-Ann’s board will be permitted to solicit alternate proposals through Feb. 14 to ensure the transaction is the best available for its shareholders.
New life: First Interstate Properties, the company that developed Legacy Village in Lyndhurst and Steelyard Commons in Cleveland’s Flats, revealed plans for a large, mixed-use development on the site of the former Oakwood Country Club. First Interstate has bought 62 acres of the former Oakwood property in South Euclid and has a contract in place to purchase the remaining 92 acres in Cleveland Heights. The plan for the property calls for 69 acres to be preserved as dedicated green space for use by the public. Another 63 acres would become a multitenant retail development and the remaining 22 acres would be what First Interstate described as “a high-end residential development.” The total capital investment could be as much as $165 million. Buyer’s market: November was not good for home sales in Northeast Ohio and statewide as the market struggles following the expiration of a federal home buyer tax credit. The Ohio Association of Realtors reported there were 6,711 homes sales statewide in November, a decline of 28% from 9,355 sales in November 2009. In the 15-county region the association calls the Northeast Ohio Real Estate Exchange, there were 2,085 units sold in November, down 30% from 2,966 in November 2009. Dollar volume fell nearly 27%, to $267.3 million from $364.3 million.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Bet these folks talk your language
■ A black woman with a decade of law experience now leads legal affairs in the Americas for Akron-based A. Schulman Inc., an international supplier of plastic resins and plastic compounds. Andrean R. Horton was hired to the new position of senior corporate counsel, Amer-
icas, in early December. She’s half of the company’s two-person, in-house legal team and its first black and first female attorney. As lead legal counsel for the Americas business unit, Ms. Horton is tasked with handling legal issues in north, south and central America — among them, contracts, environmental compliance and employment and labor. David Minc, vice president, chief legal officer and secretary, hired Ms. Horton. “Everyone’s aware that minorities are not fully represented in senior positions, whether we’re talking African-Americans, whether we’re talking women,” he said. “But she wasn’t given the offer because she was an African-American. We were looking for the best candidate for the position, (and) we weren’t going to compromise.” Women and minorities are better represented today in corporate legal departments than they have been historically, said Majeed G. Makhlouf, co-chair of the Diversity Action Committee of the Cleveland Metropolitan Bar Association. But, Mr. Makhlouf added, “the fact that I can sit here and name a good number with you shows it’s still a rarity.” Most recently, Ms. Horton was general counsel and corporate secretary at The Bartech Group Inc. in Livonia, Mich., which she joined in 2008. She received her law degree from Case Western Reserve University. — Michelle Park
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■ Someone sees Cleveland’s cosmopolitan side. New York-based Transperfect Translations International has opened a two-person office downtown to serve area businesses with growing international footprints. “Cleveland, I think, has the most diverse economy of all the cities in Ohio,” said the company’s local director of business development, Tom Emery. Transperfect uses thousands of translators through 65 offices around the world, each specializing in a specific technical or professional area. They translate everything from engineering data to legal documents into any of 150 different languages. Talk to Mr. Emery for very long and it’s easy to see how Cleveland companies might need such services. For example, he said he’s already working with Sherwin-Williams Co. to put communications from CEO Chris Connor into 25 different languages — and that’s just for the paintmaker’s own employees. — Dan Shingler
A. Schulman’s Ms. Horton remains a legal rarity
Taking stock of the stock: Central Federal Corp. was notified by the Nasdaq Stock Market that its stock does not comply with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. The parent of CF Bank in Fairlawn said the bid price for its common stock was trading below $1 a share for the 30 consecutive business days prior to the Dec. 17 date of Nasdaq’s notice. To regain compliance with Nasdaq’s listing requirements, the closing bid price of Central Federal’s shares must be a minimum of $1 a share for at least 10 consecutive business days prior to June 15, 2011.
Financing bull’s-eye: The National Eye Institute awarded a $10.1 million, five-year grant to two departments at the Case Western Reserve University School of Medicine to research and develop new treatments for diseases of the retina, a leading cause of blindness.
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A kickin’ band seeks your aid ■ JD Eicher and the rest of his band want to make a second album. Thing is, it’s expensive. That’s where you come in: JD Eicher & The Goodnights, an independent rock group that calls both Pittsburgh and Youngstown home, is trying to raise money for the album on Kickstarter.com, a web site where artists and entrepreneurs can raise cash from large groups of people. Projects must be creative in nature. For instance, a National Geographic photographer on the site is trying to raise money to put together an art book to raise awareness about the 1986 nuclear disaster in Chernobyl, Ukraine. As of Thursday, Dec. 30, he’d raised $6,300 toward his $12,000 goal. A designer working to turn an iPad nano into a wristwatch has raised a bit more: $942,000. That makes the project the biggest in the history of Kickstarter, a New York-based startup. So far Mr. Eicher and his crew have raised $5,511 from 82 people. They aren’t giving away the money: People who pledge at least $11 get a signed picture of the band and access to exclusive content released on their Kickstarter page. The prizes go up from there. For instance, Mr. Eicher pledges to write a song about anyone who donates more than $1,600. They also get their names in the liner notes and a signed copy of the new album. No one gets anything, though, if the band doesn’t reach its goal of $7,800 by Jan. 11. — Chuck Soder
Excerpts from recent blog entries on CrainsCleveland.com.
The housing bust is the crisis that keeps on giving
Cleveland serves as model for cities remaking themselves
■ Inc. magazine took note of a Federal Reserve Bank of Cleveland report that finds plummeting house prices have hurt small businesses and will continue to do so. The report “fingers falling home prices as a major factor in small businesses’ struggle for credit, because many small-business owners use their homes as collateral for business loans or home equity loans to fund business costs,” Inc. said. Mark Schweitzer, the Cleveland Fed’s senior vice president and director of research, wrote in the report that “the decline in home values has constrained the ability of small business owners to obtain the credit they need to finance their businesses.” He and co-author Scott Shane, a professor at the Weatherhead School of Management at Case Western Reserve University, wrote that nearly 20% of small business owners borrow against their homes when taking out business loans. Slightly fewer use their value of their homes to back home equity loans to fund their business.
■ Syndicated national columnist Neal Pearce included Cleveland in a piece about cities that have “faced moments of serious economic challenge but devised ingenious recovery strategies.” Cleveland, as well as cities as diverse as Barcelona, Chicago, Minneapolis-St. Paul, Munich, Seattle and Turin, was celebrated at a Global Metro Summit last month in Chicago, sponsored by the Brookings Institution and the London School of Economics and Political Science. Mr. Pearce wrote that the sponsors “held them up as strong examples of ‘intentionality’ — regions strategically assessing their situations and then applying carefully conceived economic plans to move forward.” Seattle, the Twin Cities and the Cleveland area “are even in the midst of what Brookings is heralding as a new era of applying modern business-style planning to the economic development potential of entire citistates,” according to Mr. Pearce.
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January 3, 2011 issue