Extract from the marked-up version of revisions to the contract between Ann Arbor SPARK and the Local Development Finance Authority (LDFA).

Besides the usual housekeeping changes (like changing the year from 2012 to 2013), substantive revisions to the SPARK contract include the following: (1) eliminating support for angel investment groups; (2) adding licensed software to be provided by SPARK to incubator clients; and (3) adding a new talent-retention internship program.

Another significant deletion from the SPARK contract is $5,000 annually for maintenance of a web-based educational module for entrepreneurs, called Cantillon. According to an LDFA resolution from early this year, the LDFA had invested around $170,000 over the course of five years in the self-paced program, which integrates feedback from a mentor. The tool had been used by SPARK for its Entrepreneur Boot Camps and in other venues. However, a formal request for proposals to commercialize it – to license and market the software to a broader audience – did not result in a deal.

The initial RFP was issued last year, in August 2011, and elicited no responses. On re-issuance of the RFP, Kurt Riegger’s Business Engines was the only respondent. Riegger had been the developer of Cantillon. After negotiation, Riegger and the LDFA were not able to reach mutually agreeable terms. With the failure to reach an agreement, and the elimination of the item from the LDFA’s contract with SPARK, the Cantillon education module was characterized by city CFO Tom Crawford after the meeting as “on the shelf.” Cantillon will not be offered as a part of SPARK’s September 2012 Boot Camp.

In other business, the LDFA board approved SPARK’s marketing plan. A video that was presented to the board as part of that plan got a positive reaction from LDFA board member Stephen Rapundalo. He appreciated the fact that it focused on support for entrepreneurs, as opposed to enhancing SPARK’s efforts “across the board.” SPARK has a broader mission and other funding sources than just what’s expressed in its contract with the LDFA – but the contract is focused on supporting entrepreneurs in the development of new businesses. So Rapundalo wondered if it were possible for SPARK to put all of its LDFA-funded marketing budget towards that same entrepreneurial focus.

Skip Simms, SPARK’s vice president for entrepreneurial business development, told LDFA board members at their June 12 meeting that it’s possible he might be bringing them a proposal for a significant additional financial request. That request, Simms said, would be for an additional incubator that would provide Class A “wet lab” space. He said the amount he’d request would be consistent with the LDFA’s 15% fund balance reserve policy, and would only target the portion of the fund balance that exceeds the 15% level. For the recently approved FY 2013 LDFA budget, that works out to a maximum of around $157,000. Simms sits on the LDFA board as a non-voting ex officio member.

Reaction by LDFA board members to the wet lab incubator idea that Simms floated was extremely guarded. But they appeared to be open to being convinced – if they were to hear a clear business plan and case for the need for additional local wet lab resources for start-up companies.

It’s worth noting that the LDFA’s contract with SPARK is separate from the support that SPARK receives from the city of Ann Arbor, which has amounted to $75,000 annually for the last few years. The city’s $75,000 contract with SPARK for business support services is on next Monday’s June 18 city council agenda.

The full LDFA report begins with some brief background on the LDFA itself.

LDFA Background: Creature of the State

Ann Arbor’s local development finance authority is funded through a tax increment finance (TIF) district, as a “certified technology park” described under Act 281 of 1986. The Michigan Economic Development Corp. (MEDC) solicited proposals for that designation back in 2000. The Ann Arbor/Ypsilanti “technology park” is one of 11 across the state of Michigan, which are branded by the MEDC as “SmartZones.”

The geography of the LDFA’s TIF district – in which taxes are captured from another taxing jurisdiction – is the union of the TIF districts for the Ann Arbor and the Ypsilanti downtown development authorities (DDAs). It’s worth noting that the Ypsilanti portion of the LDFA’s TIF district does not generate any actual tax capture. The LDFA and the Ann Arbor DDA are similar – in having the same TIF capture funding mechanism, and having the same geographic area where taxes are captured. Yet the LDFA is different from the DDA in at least two significant ways.

That difference stems from the kind of taxes captured by the LDFA as opposed to the DDA. If a TIF-funded entity – like the LDFA or the DDA – did not exist, the taxes it captures would be collected anyway, and those monies would have some other “destiny.” In most cases, that destiny would be direct use by the municipal entity that levied the tax. By way of a concrete example, one of the kinds of taxes captured by the DDA is the city of Ann Arbor’s general operating millage. If the DDA did not exist, then a portion of city of Ann Arbor taxes currently captured by the DDA would go to the city’s general fund.

In the case of the LDFA, the story of an alternative destiny for its captured taxes has an extra wrinkle. That wrinkle is due to two things: (1) the kind of taxes the LDFA captures – Ann Arbor Public Schools (AAPS) operating millage; and (2) the way local schools are funded in Michigan. In Michigan, local schools levy a millage, but the proceeds are not used directly by local districts. Rather, proceeds are first forwarded to the state of Michigan’s School Aid Fund, for redistribution among school districts statewide. That redistribution is based on a per-pupil formula as determined on a specified “count day.”

If the LDFA did not exist, then the taxes captured by the LDFA would not be used directly by AAPS, but rather would flow into the statewide School Aid Fund. This is what underlies a standard explanation that local schools are not harmed by the existence of the LDFA. The idea is that the impact statewide is an inconsequential amount.

That’s why the TIF plan for the LDFA discusses the potential impact to local school funding as follows:

Based on current state law, this Plan shall have no direct impact upon the local school districts, as it has no direct impact upon the per pupil reimbursement from the State to the public schools. The impact to the State School Aid Fund will be approximately $24,000,000 over the 15 years of the LDFA plan. This translates to approximately $1,600,000 annually, or $0.79/student statewide.

So the LDFA board members are in one sense stewards of local tax dollars – because the money originates locally, and its amount is determined locally. But in another sense, board members are stewards of state funds – because the money would otherwise be distributed statewide.

Another way the LDFA is different from the DDA is that SmartZone status – given by the MEDC – is comparatively rare and limited in number. Only 11 such districts were created statewide. In contrast, the state statute enabling the formation of a downtown development authority (Act 197 of 1975) can be used statewide by any local entity that wishes to form a DDA in conformance with the statute. And that has resulted in the formation of over 130 DDAs across the state.

Ann Arbor SPARK Contract

Ann Arbor SPARK is a nonprofit focused on economic development. The LDFA hires SPARK to operate a business accelerator and perform activities related to it. The value of the contract for the 2013 fiscal year is about $1.5 million.

But SPARK has a broader mission than providing startup services to the LDFA. That’s reflected in its total operating budget in the range of $4.4 million (in 2011), of which the LDFA contract is a part. From SPARK’s mission statement:

Ann Arbor SPARK will advance the economy of the Ann Arbor Region by establishing the area as a desired place for business expansion and location … by identifying and meeting the needs of business at every stage, from those that are established to those working to successfully commercialize innovations.

Ann Arbor SPARK receives funding from area universities (most prominently the University of Michigan), local governmental units (including the city of Ann Arbor and Washtenaw County) and local businesses. The city of Ann Arbor’s support for SPARK has been at the level of $75,000 a year for the last few years.

At the June 12 meeting, LDFA board member Theresa Carroll reviewed a marked-up copy of the contract and scope of work that the contracts committee had produced. [.pdf scan of SPARK-LDFA marked-up contract]

From left: Theresa Carroll and Paula Sorrell at the LDFA board meeting.

Carroll described how the LDFA’s contracts committee and SPARK had exchanged comments on the new contract, which would be signed on July 1, 2012. She walked the rest of the board through the marked-up version of the document.

Carroll pointed to Article II 2.4, as having the intended effect of putting a control on a new internship program – by excluding that new program from a general but limited ability of SPARK to reallocate fees between categories. There is an addition under Article III 3.3 that Carroll described as not requiring more reporting by SPARK to the LDFA, but rather as clarifying what information is to be included in its already-required quarterly reports.

A significant deletion from the contract this year is removal of the $30,000 of support for angel investment groups. The previous contract had included support for a group “to build a robust angel network of investors interested in business accelerator clients.” No funds were to be spent for actual investment. Also struck from the agreement this year, Carroll continued, is $5,000 of support for the Cantillon web-based instruction module for entrepreneurs. That item was not discussed by the board in connection with the SPARK agreement – because Cantillon had a separate item on the agenda.

Added to the agreement is a section that covers a talent program, funded with $100,000, that is supposed to “create new programs that are designed to attract local talent, including and especially university graduates, and encourage them to stay and build a career in Ann Arbor.” The mechanism of the new program will be based in part on an internship program. And finally, Carroll said, there is a provision in the new contract for SPARK to be able to provide access to licensed software at the incubator. The amount specified in the agreement for that is $20,000.

Carroll characterized the changes as reflecting the budget, which the board had previously approved. Carroll described the next steps with the new contract as a vote by the board, to be followed by final review by the LDFA legal counsel, which is provided by Jerry Lax (a former Ann Arbor city attorney who’s now with the law firm Pear Sperling Eggan and Daniels). The MEDC will also be asked to review the agreement, she said.

Ann Arbor SPARK Contract: LDFA Board Deliberations

Stephen Rapundalo picked up on the new internship program. [The idea is that SPARK facilitates the hiring of interns by local companies – by funding the cost of the interns to the companies.] Rapundalo inquired what the allocation is for – does it go to SPARK’s administrative costs?

Skip Simms, SPARK’s vice president for entrepreneurial business development, responded to Rapundalo by distinguishing between the interns and the companies that hire them: “We’re paying the company, which we’re not really allowed to do in one sense of the language, but we’re actually contracting with the companies in this context.” The purpose of the internship piece of the initiative, Simms continued, is that when the company hires the intern, “the intern is our customer.”

SPARK is trying to introduce the interns to the startup, early-stage business community in Ann Arbor, and to introduce them to all the assets the city offers, Simms said. SPARK is trying to acquaint them with various aspects of working for a technology-based startup company. The idea is to encourage the students, as they enter the workforce, to put Ann Arbor on their list of places they want to live – along with New York or Chicago.

What SPARK offers, Simms continued, is a match to defray the cost of an intern to a company. The company pays $6,000 for a 12-week internship. SPARK then reimburses the company for half the cost of that internship. Simms described it as modeled on the Gani internship program at the University of Michigan.

It’s limited to one intern per company, Simms explained, so that SPARK is engaging as many companies as possible. The program is starting off with 10 interns. The program has launched and it’s going very well, Simms reported. If it’s successful, then SPARK wants to continue it through the end of the school year. Going back to Rapundalo’s question, Simms said that of the $100,000, around 15-20% would be for administration of the program.

Rapundalo worked through the arithmetic of $30,000 to pay the interns, another $15-20,000 for administration of it, for a total of around $45,000. To round out the LDFA’s $100,000, Simms said there are some other talent-related programs they’re “kicking around,” including the possibility that the internship program would be extended.

When it emerged in conversation with other board members that the first 10 interns had easily been placed and that there was a lot of demand, Rapundalo wanted to know why SPARK didn’t just expand the pool of current interns. The answer from SPARK’s business accelerator director – Bill Mayer, who was seated in the audience – was essentially that 10 was a number that was “containable” for now. Ned Staebler wanted to know what the program’s relationship is to the Intern in Michigan program.

LDFA board member Ned Staebler.

Mayer told Staebler that SPARK is undertaking its internship program independently of the Intern in Michigan program. Half of the program is allowing startup companies to afford an intern, but the other half is to stress the “quality of place.” Whether it’s a scavenger hunt or attending Top of the Park, SPARK has the interns visiting landmark Ann Arbor locations in partnership with other organizations like the Ann Arbor Convention and Visitors Bureau.

Staebler noted that Intern in Michigan can do that sort of thing, if you tell them: We need X number of interns that fit Y criteria. The Intern in Michigan program has thousands of resumes at this point, Staebler said. Mayer allowed that there could be an opportunity to look at it, but SPARK is handling the initial group “hands on” to ensure that the pilot goes well.

Rapundalo ventured that, based on his own experience, you end up doing a lot of things you didn’t plan on doing – like vetting, and other things that take a lot of time. The Intern in Michigan program is good for managing a large pool and perhaps narrowing it down to a smaller set, but would not necessarily be able to provide exactly the right person. And that’s what a company wants, Rapundalo said – for exactly the right person to just walk through the door and start doing something useful.

Mayer pointed out that the interns are still in college, and the goal is to reach them at that point, so that they can be retained here. Simms pointed out that SPARK is also inviting other companies who have interns, besides those subsidized by SPARK, to participate in social activities.

LDFA board treasurer Eric Jacobson wanted to know if the interns that SPARK is subsidizing are Ann Arbor natives. Simms explained that SPARK doesn’t care that much about where students come from, as long as they’re getting exposure to the career opportunities. So picking up on Simms’ earlier explanation that the interns were SPARK’s “customer,” not the company, Staebler wondered if SPARK wasn’t having it both ways: The intern is the customer, but the company has to be in the LDFA district.

Simms said that the company has to be in the district, because that’s where SPARK wants the interns showing up to work every day. Didn’t that mean that the company was SPARK’s customer? Staebler asked. Simms allowed that the company is a “beneficiary, for sure.” Staebler said he wasn’t against the program – he just felt it was actually the company who’s the customer: “I’m all for getting more smart people here!” he said.

Outcome: The board unanimously approved the contract with SPARK, subject to review by legal counsel.

SPARK Marketing Plan

Because Donna Doleman – Ann Arbor SPARK’s vice president of marketing, communications and talent – could not attend the LDFA board meeting, the marketing plan was reviewed by SPARK’s marketing coordinator, Andria Signore. Highlights of that plan include the SPARK website, various event sponsorships, a Google AdWords campaign, hosting SPARK’s own events, media relations, and tours. Goals of the marketing program include maintaining the pipeline of business accelerator clients and entrepreneur boot camp applicants, getting 2-3 online media mentions per month, and maintaining the SPARK Central incubator at 80% occupancy. [.pdf scan of SPARK marketing plan]

Signore presented the LDFA with two recently produced videos, one focusing on SPARK’s entrepreneurial services, and the other focusing on Ann Arbor as a sense of place, which is part of the Pure Michigan campaign. [Ann Arbor SPARK: Entrepreneurial Services] [Pure Michigan Business Attraction]

The first video includes SPARK CEO Paul Krutko posing the question: “Who’s the next Apple? Who’s the next Microsoft?” and then compares SPARK’s entrepreneurial services to “economic gardening,” focusing on the unique attributes of the Ann Arbor region that will identify the next new disruptive technology that will change the world. It features a quote from Steve Jobs: “Let’s make a dent in the universe.”

The Pure Michigan video also uses gardening imagery, as Menlo Innovations CEO Rich Sheridan compares the idea of Terroir – the characteristics of land that give food that’s grown there a unique character – to the kind of companies that emerge in the Ann Arbor area. The swelling music and heartfelt voiceovers (“Pure Michigan says, Welcome Home”) led to a quip at the LDFA board table: “Does anybody else need a tissue?”

Signore explained that the Pure Michigan video is part of a national campaign – to local and national bloggers and media. The entrepreneurial services video is being hosted on the SPARK website and all of SPARK’s social media channels, she said. They’re trying to reach out to all the local news outlets and will use it in presentations that SPARK gives, she said.

Stephen Rapundalo noted that in the past, the LDFA budget allocation for marketing was to some extent arguably something that enhanced SPARK’s efforts across-the-board. What SPARK had done with the first video was to put more emphasis on entrepreneurs, which he said “is a great thing.” It’s where he’s always wanted those dollars to go.

But some marketing dollars still go to the “bigger picture,” he noted. What’s stopping SPARK from focusing the entire marketing budget from the LDFA on the entrepreneurial aspect? Rapundalo wondered. He stressed that he was a proponent of the idea that everything the LDFA paid for should relate directly to the services that SPARK provides under its contract – the entrepreneurial services, period.

SPARK’s Skip Simms replied by saying that as an organization, SPARK serves existing big companies as well as entrepreneurial enterprises – because SPARK serves all of the growth companies, the “driving industries,” he said, from Toyoto to Terumo. The entrepreneurial component of the marketing effort, he continued, is more than half of overall marketing and he didn’t see SPARK letting up.

SPARK has increased somewhat its activity in the area of attracting businesses to Ann Arbor, Simms said. When the LDFA started helping to fund the marketing efforts of SPARK, he said, the part that was aimed only at the city of Ann Arbor was around 33% of the marketing budget. In the current agreement, he said, that’s been cut to 30% – because they were trying to be reasonable and fair.

Paula Sorrell, an ex-officio LDFA board member who works for the MEDC, ventured that a marketing budget has a mix of the specific technical part and brand development [which Rapundalo had described as SPARK's "big picture" efforts]. Ultimately, the success of the marketing effort, she said, is: “Did it put butts in seats? Did it get people through the door?” She felt that the way to approach it was to look at the actual results – how many new companies were started or located here – and not to ask if the mix of branding and specific message was right. It should all be tied back to metrics, she said.

LDFA board member Dick Beedon.

Rapundalo said he agreed with Sorrell, but still looked at it from the point of view that the program gets funded by the LDFA. He drew a distinction between that LDFA funding for marketing, and the separate allocation given by the city of Ann Arbor [$75,000 annually]. The Ann Arbor city contribution, he continued, was generally understood to go to support the brand and the broader activity of SPARK. He took the perspective that the LDFA-funded marketing should be related back to the specific activities of the LDFA. He wanted to see the use of LDFA money used on the “branding out of the entrepreneurial services.”

Sorrell said she didn’t disagree with Rapundalo, but said, “If you’re going to police it, police it on the results.” Dick Beedon ventured that the results were metrics, so he wondered what the specific metrics were. Simms told Beedon that the metrics are in the reports that SPARK submits to the LDFA quarterly – data like how many entrepreneurs SPARK served, how many startup companies SPARK served, and the like. How that’s tied back to a click-through from a Google ad or if it resulted from someone who stumbled across their video – Simms did not know.

Rapundalo came back to the fact that the one video focuses solely on entrepreneurial services, and it ties directly back to what the LDFA does. That’s very visible and very tangible. The fact that we have the video and we didn’t have the video before was, to Rapundalo, an “outcome.” He’d like to see more of that. He said he could easily justify to anybody who asked: Where is this money going?

Beedon indicated that some of the metrics included in the presentation were things like 6,000 Facebook “likes.” He felt that metrics are important and the metrics are related to the audience. A CEO who could move his company, Beedon said, is one audience. But employees who might potentially stay in the area are another audience, he said. It’s difficult to allocate marketing resources to different audiences, Beedon said.

Ned Staebler picked up on the idea of audience, and noted that Signore had presented a list of 20 different targeted audiences. How can you craft targeted messages to each of those audiences? he asked. So Staebler asked which of the audiences were the top priority and what messages are being sent to those? Signore told Staebler that the priorities are the entrepreneurs, decision-makers, talent and investors. “Decision-makers where?” asked Staebler. “My wife is a decision-maker.” Signore indicate that it’s “decision-makers in the sense of someone who can move their company to the Ann Arbor area or not.”

Simms added that a lot of what SPARK does by way of marketing doesn’t cost cash – but rather time and resources. SPARK doesn’t spend a lot of money on ads per se, he said, because they try to maximize what they can get done for free.

Outcome: The board unanimously approved SPARK’s marketing plan.

City of Ann Arbor Administrative Services Agreement

The LDFA board considered the new administrative services agreement with the city of Ann Arbor. It included a municipal service charge of roughly $13,125 and a charge for direct services from city of Ann Arbor financial specialist Ken Bogan for around $15,225 – for total of $28,350.

City of Ann Arbor CFO Tom Crawford gave a brief description of that agreement. [.pdf scan of city of Ann Arbor-LDFA administrative services agreement]

Outcome: The board gave unanimous approval to the administrative services agreement with the city of Ann Arbor.

Cantillon Education for Entrepreneurs

The board was briefed on the ultimate inability to commercialize Cantillon.

Cantillon: Background

By way of background, Cantillon is a self-paced web-hosted educational program (courseware) that entrepreneurs can use in concert with a mentor, who can also log on to the program to review and provide feedback on work that the entrepreneur has done. Cantillon is hosted on the University of Michigan MEonline platform. Cantillon includes video presentations from local business leaders like Tom Kinnear and Roger Newton, among many others.

Cantillon was developed incrementally, adding different sections, over the last five or more years. The course takes the user through the process of developing specific elements for building a business: executive summary, financial plan, marketing plan, product roadmap, and business model. For some LDFA board members, the Cantillon program was seen as a way of creating a tangible asset from an activity that the LDFA wanted to fund anyway – the education of entrepreneurs.

In a telephone interview with The Chronicle, Kurt Riegger – who was paid to develop Cantillon for the LDFA – described the courseware as relying crucially on a mentor, and he stressed the fact that it’s not an academic exercise. That is, the Cantillon course is meant to help entrepreneurs develop, say, an actual financial plan for an actual business they are trying to start. It’s also a cost-effective way to train entrepreneurs, he said, because they are to some extent using the tool to educate themselves, and they can make the most efficient use of a mentor’s time.

In the past, Cantillon has been offered as a supplemental tool for participants in SPARK’s Entrepreneur Boot Camp, a two-day course offered by SPARK each year (full-price tuition is $1,500 per “camper”). Part of SPARK’s pitch to potential Boot Camp participants is to “hone your sprawling corporate narrative into a lean, mean call for venture capital.”

Cantillon has received positive reviews from Boot Camp participants, according to SPARK’s April-June 2009 quarterly report to the LDFA:

A satisfaction survey of the Entrepreneurs Boot Camp participants was conducted immediately after camp. One question focused on the value of the Cantillon Executive Summary unit and its impact. For the Camps in 2007 – April 2009, the Cantillon average score was 5.90 on a scale of 1 to 7 where 7 is Excellent and the impact of the Executive Summary averaged 5.71. From a survey of mentors who have engaged with Entrepreneurs to use the course at Camp, they had a similar high rating and opinion.

Cantillon is configured so that it’s possible to monitor how much time a user is spending on various sections. SPARK’s October-December 2008 quarterly report includes some examples of the more detailed analysis of user activity. The set of users is described in the report as “mostly attendees of the November Boot Camp and focused on Unit 2 ‘The Executive Summary.’”

Last Login: December 22,2007, 2:32 PM
Total Login Time: 14 hours, 0 minutes
Excellent activity – 24 plan reviews taken

Last Login: October 14, 2008, 9:00 PM
Total Login Time: 4 minutes
Limited activity – downloads

In August of 2011, the LDFA issued a request for proposals (RFP) soliciting offers to commercialize Cantillon. [.pdf of August 2011 Cantillon RFP] There were no respondents by the time the RFP deadline. However, after the RFP had closed in October, Riegger made a proposal.

The LDFA board draft minutes for its Jan. 24, 2012 meeting show that at least some board members were not favorably inclined towards Riegger’s proposal. Part of the objection stemmed from the fact that Riegger had been paid to develop Cantillon and that he had not responded to the first RFP.

Cantillon (moved up on agenda from Other Business): [Phil] Tepley asked the record reflect his objection to selling Cantillon back to the developer at 10 cents on the dollar. [Mark] Maynard noted that the proposal by Kurt Riegger was made after the RFP closed. [Dick] Beedon agrees on the record, with Tepley, that the LDFA should not be involved in software development. After discussion, the Board requested that the Cantillon Committee draft a resolution, to be considered at the next meeting, based on the Committee’s recommendation to sell Cantillon to Kurt Riegger.

The sentiment that a formal RFP process should be followed resulted in a re-issuance of the Cantillon RFP (twice, on March 16 and April 10). The subsequent re-issuances of the RFP were identical to the original issuance, with the exception of a set of requirements that included a dollar amount:

1. Proposing party will bear all responsibility and costs for content maintenance and end-user support.
2. The LDFA will retain the right to market and provide Cantillon to entrepreneurs in the LDFA region at no cost to the LDFA.
3. Proposing party will pay to the LDFA fair market value of not less than a reasonable royalty or lump sum payment of not less than $25,000.

The June 12 resolution that the board passed on Cantillon pegged the LDFA’s investment in Cantillon over the last five years at around $170,000. The resolution also pegged the actual usage of Cantillon as low, and attributed most of the usage to University of Michigan students:

Whereas, while over 500 entrepreneurs, including 250-300 boot camp attendees, have registered to use Cantillon, activity reports provided to the Cantillon Committee by the provider did not show evidence that more than a small percentage made substantive use of it;

Whereas, it was apparent that the subset of users that received the most value were University of Michigan students who used Cantillon as part of a business and finance class and through a venture capital club;

Whereas, while these University of Michigan students technically fall within the TIF district and are therefore eligible users, it is the opinion of the Cantillon Committee that it is not the intention of the LDFA to fund programs utilized primarily by university students;

In a phone interview with The Chronicle, Riegger objected to the way the resolution discounts UM students as users of Cantillon – because it seemed to him inconsistent with MEDC’s rationale for choosing Ann Arbor as a SmartZone location. It’s the presence of the University of Michigan that made Ann Arbor a logical place to enable an LDFA here – as opposed to Bad Axe, or some other Michigan city, he said.

Riegger also questioned the merits of the conclusion that only a small percentage of Boot Camp participants made substantive use of Cantillon. It’s possible to assess Cantillon’s use in terms of the relative strength of the teams who participate in Boot Camp, he contends. [The Chronicle confirmed with SPARK that an evaluation is done of Boot Camp participants to assess their performance – and a Best of Boot Camp designation is given to one of the teams.] Riegger contends that if you divide Boot Camp participants into thirds, based on the strength of the teams who participate, then it’s the top third that actually get the most benefit from Cantillon. That is, the strongest entrepreneurs are those who are able to “roll up their sleeves” and get benefit out of Cantillon’s instruction.

In any event, Riegger was the only respondent to the RFP, and negotiations commenced between Riegger and the LDFA.

Based on an email chain between Riegger and LDFA board member Theresa Carroll, negotiations appear to have foundered on the amount of the royalty and whether the $25,000 would take the form of cash or in value provided through support. An email from Riegger on May 2, 2012:

Hi Theresa,
The answer to a cash upfront payment is no. To a commitment to provide support valued at $25K over 2.5 years, the answer is yes.

Did you or the committee have some comparables that suggest a 20% royalty is market pricing and a 5% is not?

Cantillon: Board Discussion

At the June 12 LDFA board meeting, Theresa Carroll reported to the board that the committee had negotiated with the one respondent to the RFP – Kurt Riegger. They’d gone back and forth, and “just couldn’t get there on terms,” she said. That had been a month or so ago, she reported [early May 2012]. She said she’d just received an email the previous day with a message from Riegger, but had not had a chance to assess it. Not all board members had seen the email, so a portion was read aloud. The compete text sent from Riegger:

Hi Theresa,

I wanted to toss out another idea that might solve our mutual problems. If a department within the University of Michigan were willing to pay a $1 to have the rights to Cantillon, would you be able to license the content to them? They would continue to offer it for free to the LDFA region.

Board members seemed generally receptive to the idea of licensing the content to UM, or some educational entity. But there was some question about what the appropriate process would be to do that, if indeed UM wanted to do that. The idea of issuing yet another RFP was not met with enthusiasm by the board.

City CFO Tom Crawford, who sits on the LDFA board as an ex officio non-voting member, said he’d just seen the email. But his initial impression is that the university really should respond through an RFP process. Crawford pointed out that the university was certainly aware that the previous RFP was out there.

Dick Beedon felt that if nothing went forward, it would not be a big loss. Crawford offered the view that the LDFA had established the value of Cantillon [in terms of the cash someone is willing to pay] as essentially nothing, which Beedon agreed with. Crawford said the LDFA board could bat around ideas all day, but he would not advise spending a lot of additional time on it.

Carroll asked if it made sense for her to speak with Riegger about the email. The board’s response was essentially that the ball is in the university’s court, if it were interested in pursuing it. The board felt that whoever Riegger might have talked to at UM – and Riegger seemed to indicate from the audience at the meeting that he’s talked to someone – could contact either Carroll or Beedon.

In any case, according to Jennifer Cornell, public relations consultant for SPARK, Cantillon will not be offered to Entrepreneur Boot Camp participants this fall.

Outcome: This was a point of information and did not result in a vote.

Wet Lab Space?

In an item added to the agenda at the meeting, Skip Simms alerted the board to the possibility of a possible “significant ask” of the LDFA in the future. Simms is SPARK’s vice president for entrepreneurial business development and sits on the LDFA board as an ex officio, non-voting member.

He noted that SPARK has been running an incubator in downtown Ann Arbor for several years that is fairly traditional – with office space. There could be an opportunity for an incubator that offers space to startup companies that need “wet lab” space. It would be primarily for life science companies, Simms said, or perhaps for alternative energy companies. Class A wet lab space for incubation companies in the city of Ann Arbor doesn’t really exist, Simms said. He thinks there may be a need, as well as an opportunity for SPARK to provide that Class A wet lab space.

As with any incubator, Simms continued, it would need to be subsidized. Simms said SPARK was in very early discussions with some parties – in the city, but not in the LDFA district – to create such an incubator, if the need did arise. He felt that the timeframe would be within the next year – so not imminent, but still relatively soon.

Simms said that SPARK would come back to the LDFA for a formal request to amend the contract for a new program, modeled on the contract SPARK has with the LDFA for the current business incubator. For example, SPARK would charge rent, and would manage the facility and provide business accelerator assistance for any of the tenants.

Simms indicated that the amount of financial support that SPARK would need could require the LDFA to approve tapping its reserves. Currently there’s a policy of maintaining reserves at 15% of revenues. He said that the request for support for the wet lab space would not require dropping below that. [For the recently approved fiscal year 2013 LDFA budget, the fund balance reflects a 25% reserve, and the difference of 10 points works out to a maximum of around $157,000 for the request.]

Simms said he did not know what the dollar figure would be of SPARK’s request to the LDFA, but that it would “not be insignificant.” Simms stated that SPARK believes the wet lab incubator fits clearly within the LDFA mission. He wanted to get a feel for the board’s reaction to the idea.

Board chair Dick Beedon asked if SPARK had done any research on the need for such a facility. Simms replied that it’s not an ongoing process. SPARK learns about a need by the number of entrepreneurs who contact the organization, Simms said. The need comes from research institutions – as life science companies are spun out of an existing research institution. Primarily that’s the University of Michigan, he said. So SPARK is in constant communication with University of Michigan Tech Transfer, which has its own incubator. [LDFA board member Mark Maynard is marketing manager for UM Tech Transfer, but he was not able to attend the June 12 meeting.]

UM Tech Transfer is restricted in hosting only companies that are using university-licensed technology, Simms said. The question, he added, is where those companies go after Tech Transfer’s incubator. That’s were the need is for Class A space, he said, as opposed to somebody’s kitchen.

Simms also described some companies started by people who left Pfizer who need wet lab space – working on drug development, for example. Simms felt there was a consistent flow of consistent demand – large enough to pay attention to. The state of Michigan chose life sciences as one area of focus back in 2000, Simms said, and he felt it’d be a shame to give up on it at this point.

Stephen Rapundalo said he’d like to see some kind of quantification of the demand. He raised the issue of rates you can charge tenants in a Class A wet lab incubator. Simms indicated that would be laid out for the LDFA in any plan that were brought forward.

Rapundalo wondered if the wet lab incubator would be scalable: Say you build a six-company-sized incubator, and it turns out there’s demand for another six. That would be a factor in discussions with the potential developer and landlord, Simms answered.

LDFA board member Phil Tepley.

Phil Tepley wanted to know how it would affect the community – because it could be seen as a subsidy for PhDs who want to join up with venture capitalists. Responding to Simms’ statement that we shouldn’t give up on the life sciences, Tepley quipped, “Cover your ears, Steve [Rapundalo], but maybe we should [give up on life sciences.]” [Tepley was referring to the fact that Rapundalo is CEO of MichBio, a trade association of life sciences companies.]

Tepley also wanted to know what the return-on-investment is for such incubators around the state: How does that translate into jobs in the community?

Tom Crawford, the city’s CFO, wanted to know what companies do now if they need that kind of wet lab space. Simms indicated that SPARK currently operates a wet lab incubator in Plymouth, so people are referred there. There’s also one on the south side of town, outside the city – SPARK refers people there, too.

The question was raised about what exactly Class A space includes. Rapundalo indicated that the old Pfizer labs are Class A. Simms described hoods, air-handling, tanks, hoses and connections, waste control and positive pressure. Tepley wanted to know what kind of businesses need Class A facilities. Rapundalo ventured that drug companies would be one example, or companies in the cell-culture business. Other companies needing such space would include those making research products and devices.

Ned Staebler asked about the availability of other wet lab space – whether it’s private or public. He wanted to include the wet lab assets of a broader region in the assessment, not just in the city of Ann Arbor. Managing such a facility can turn into a “pain in the butt,” he said, or can also become a “real estate play,” which is a distraction to providing business accelerator services. He’d want to be convinced there’s a need before going into that kind of wet lab incubator business, Staebler concluded.

Beedon ventured it would be fair to say the board would be open to discussion of Simms’ idea, assuming it had an appropriate business plan to support it. Rapundalo agreed with Staebler. Rapundalo felt that no one had done an asset assessment of Class A space – what’s available and what the demand is.

On the cost issue, Tepley stated that if the LDFA has a rule of maintaining at least a 15% fund reserve, then he did not want to maintain anything above that. He wanted anything above that 15% put to use. He did not know if a wet lab incubator was the right use. But if Simms could present a case that gives a positive return on investment, that’s better than letting it sitting in the bank, Tepley concluded.

Outcome: This was not a voting item for the LDFA board.

Present: Eric Jacobson, Christopher Taylor (Ann Arbor city council), Paula Sorrell (MEDC, ex officio), Theresa Carroll, Tom Crawford (city of Ann Arbor CFO, ex officio), Richard Beedon, Skip Simms (representative of Ann Arbor SPARK business accelerator, ex officio), Stephen Rapundalo, Ned Staebler, Phil Tepley.

Absent: Mark Maynard, Vince Chmielewski.

Next meeting: July 24, 2012 from 8:15-10:15 a.m. in the second-floor city council chambers at city hall, 301 E. Huron St.

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Jenny Paillon, director of operations for the Humane Society of Huron Valley, reviews some HSHV financials with county commissioner Yousef Rabhi (D-District 11) during a break at Wednesday's board of commissioners meeting. (Photos by the writer.)

With supporters of the Humane Society of Huron Valley (HSHV) demonstrating outside the county administration building and speaking during public commentary at the meeting, commissioners debated at length over how to handle its contract with the non-profit. The proposed budget calls for cutting HSHV’s contract from $500,000 this year to $250,000 in 2012 and 2013.

HSHV’s current two-year contract expires at the end of 2011, and leaders of the humane society have expressed reluctance to sign a new one with such a significant cut, saying that even at the current rate the county is not paying what the services are worth. [.pdf of HSHV analysis of legal and financial costs for mandated services]

For their part, some commissioners contended that they don’t yet know the actual cost of providing mandated services, and that HSHV hasn’t provided them with the kind of financial data they need to make an informed decision.

In the budget that received initial approval, the line item that originally earmarked $250,000 in annual payments to HSHV in 2012 and 2013 was renamed to “Mandated Animal Control,” a generic reference that reflects the possibility that the county might contract with another agency for animal control services – an option they discussed explicitly.

Board chair Conan Smith also proposed an amendment to move that line item out of the county’s funding for outside agencies, where it has traditionally been listed, and add it to the budget for the sheriff’s office. The funding could then be combined with a line item of $180,000 that is already part of the sheriff’s budget – for animal control officers. The county recently has discussed the possibility of paying HSHV $250,000 plus $180,000 – a total of $430,000 – if the humane society also takes responsibility for the work now done by the animal control officers. The shift in fund categories was approved on a 8-3 vote, with dissent from Rob Turner, Rolland Sizemore Jr., and Ronnie Peterson.

After the vote, sheriff Jerry Clayton spoke to the board during public commentary, saying he hadn’t been notified that this shift in funding to his office might occur. He expressed a range of concerns about the decision.

After making two other amendments not related to animal control, the board ultimately gave initial approval to the budget on a 9-1 vote, with dissent from Sizemore, who said he still has questions about it. Felicia Brabec abstained. Appointed two weeks ago to fill Kristin Judge’s vacated seat in District 7 (Pittsfield Township), Brabec indicated she’d like more time to review the budget document. Additional amendments are expected before the board takes a final vote on the budget, likely at its Nov. 16 meeting.

The board also got a third-quarter 2011 update from the county’s finance staff, projecting a nearly $1 million shortfall for the year, which will be covered by use of the county’s fund balance.

In other business, the county voted to create a planning task force for a new pilot program in agribusiness. Called ”Seeds for Change: Growing Prosperity in Ypsilanti,” the project is intended to provide job training and placement to unemployed workers interested in agricultural employment, and to offer shared commercial kitchen space and business support to local agribusiness entrepreneurs. No funding has yet been identified for the effort.

2012-2013 Budget

On the agenda for approval was an initial vote of the two-year budget for 2012 and 2013, bringing closer to conclusion a process that began with a board retreat in January. Like the board’s meeting two weeks ago, much of the discussion centered on animal control – a relatively minor line item in the $97 million general fund budget.

2012-2013 Budget: Mandated Animal Control – Public Commentary

In addition to about a dozen HSHV supporters who were demonstrating in front of the county administration building before Wednesday’s meeting, three people spoke in support of HSHV during the first opportunity for public commentary.

Todd St. Clair introduced himself as HSHV’s shelter manager, saying he’s worked there for four years. He said he wasn’t trying to make commissioners cry, but he wanted to talk about the real cost of shelter work. He’s certified to euthanize animals, and has done it hundreds of times – with love, skill, a stroke on the animal’s head and a sincere apology, he said. The lengths to which HSHV staff will go in order to save an animal is a value add, St. Clair said. He talked about the impact of compassion fatigue, which can result in anxiety and depression – the staff is subjected to trauma, by witnessing situations like a kitten brought in with its tail cut off, or a dog covered in cigarette burns. Earlier in the week he had to put down a dog that was one of 39 animals rescued from a hoarder situation, living in a room where several inches of feces had hardened to become the floor. “His fate was not his fault,” St. Clair said, adding that the HSHV staff  “put him to death for you.”

Jessica Anderson told commissioners she was concerned about the process in which these proposed cuts had been decided. As a kindergarten teacher, she said she’s learned that “I can’t” means “I won’t try.” People are looking to the commissioners as leaders who can preserve services – if they don’t do it, no one else will, she said. If needed, the county should raise taxes or commissioners should cut their salaries – make the same kinds of sacrifices that everyone is doing. She said she didn’t know if the county is legally bound to continue funding HSHV at the current level, but “it’s the morally right thing to do.”

Kelly Schwartz, HSHV’s director of volunteers and operational support, thanked commissioners Alicia Ping, Felicia Brabec and Rolland Sizemore Jr. for coming out to the shelter and learning about what HSHV does. It’s highly emotional, she said – there’s not a single employee who wants to kill an animal. “We will not go backwards to those days of killing more animals than we adopt,” she said. That would be like asking the county’s information technology department to move all its computers back to the DOS operating system, Schwartz noted. But instead, the IT and telecom department gets $8 million in the budget. The decision isn’t about people versus animals, she said, but it is about people vs. iPads. She hoped the commissioners would do all that they could to support both the people and the animals of the community.

2012-2013 Budget: Mandated Animal Control – Commissioner Response

Commissioners responded at length to the public commentary. Barbara Bergman distributed copies of a monthly invoice that HSHV sends to the county, and noted that the lack of detail concerns her. In addition to the invoice for $41,666, HSHV provides a monthly animal intake report, listing how many animals in different categories – bird, cat, dog, ferret, livestock, etc. – it takes in from each municipality, and indicating whether the animal was a stray, wildlife, seized, returned or surrendered by its owner.

Bergman said there’s no indication of what the county is paying for. The information is insufficient for her to decide. She noted that, as she’s said before, if there has to be a choice between animals or children and families, she knows what she would choose. [.pdf of invoice and intake forms]

Yousef Rabhi said that in handling public money, the board must take an objective approach. The county needs to determine what it’s mandated to do, and what those services cost, he said. But they don’t have the numbers to make that determination, he added. Rabhi said he’s been asking for weeks to get that information, but the HSHV hasn’t provided it. He wants to pay the non-profit for the cost of services it provides, but he doesn’t know what that amount is.

Rabhi described himself as a pretty positive person, who tends to see the best in people. He thanked people who had attended the meeting to voice their opinions. He said he’s a strong supporter of the humane society, but he’s been saddened by the process. “It’s a process issue that did not originate with us and that’s a little disappointing to me,” he said. The county has tried to reach out to HSHV and find a solution, he said. But before commissioners talk about dollar amounts, the county needs to know what it costs to provide mandated services. The commissioners are not against animals and are not against the humane society, he said.

Humane Society of Huron Valley supporters demonstrate outside the Washtenaw County administration building at Main & Catherine, prior to the Nov. 2, 2011 board of commissioners meeting.

Wes Prater responded to Anderson’s call for commissioners to cut their salaries. He noted that commissioners haven’t raised their salaries since the year 2000, “so I do believe that this board is doing their part.” The board’s job is to represent taxpayers and to spend their money wisely, he said. With the drop in taxable value of properties in the county, there are less revenues to do what needs to be done than in the past, he said. Prater said the board is on the right track, however, and the administration is doing a good job in providing the information that the board needs to make decisions.

Dan Smith noted that the commissioners earn $15,500 each year – for a total of $170,500. That’s considerably less than the $250,000 they’ve planned to allocate to HSHV, he said. [Board officers make more: $18,500 for the board chair, $16,000 for the board vice chair, $16,500 for the Ways & Means Committee chair and the working session chair.]

Leah Gunn pointed out that when the HSHV built its new facility, the county contributed $1 million to the project and allowed HSHV to use the county’s bonding capacity, which saved the nonprofit about $600,000 in interest. It was a very generous offer on the county’s part, she said. The county appreciates HSHV’s work, she said, but the money isn’t there anymore. “Our past generosity ought to be acknowledged,” she concluded.

Bergman added that she was one of the commissioners who had insisted on the $1 million gift and the bonding for the facility. She cares about animals, she said, and wants them kept warm, dry and free of pain. But the county can’t afford medical care and boarding for every animal, she said. Every animal that’s picked up can’t be adopted, she said.

Alicia Ping asked about a meeting that had taken place the previous day – on Nov. 1 – between HSHV leaders and the county administration. Conan Smith said a meeting had originally been scheduled the previous week, but he’d had to cancel it. County administrator Verna McDaniel said she was present at the Nov. 1 meeting, and the group had discussed providing $430,000 to HSHV – $250,000 that’s earmarked for HSHV in the proposed budget, plus $180,000 from a line item currently in the sheriff’s department for two animal control officers. That would bring the amount close to $500,000, McDaniel said.

A decision hadn’t been made by the full HSHV board, McDaniel said, but the indication from members who attended the Nov. 1 meeting was that it would likely be rejected. HSHV wasn’t interested in taking on additional animal control responsibility, she said. McDaniel added that she’d keep the dialogue open.

Conan Smith described the situation as being at the start of the process, and said he’s still hopeful. There’s been a 20-year partnership that’s been beneficial to the community and county alike. HSHV has indicated that the proposed $430,000 isn’t sufficient for what the county is asking it to do, he said. In the past, the county has asked HSHV to step far beyond the state mandate. He said the county’s obligation should be to go beyond the mandate – the mandate is inhumane, he said.

At this point, Bergman spoke up, saying that Smith didn’t speak for the rest of the board. Smith continued, noting that changes are being dictated by the budget. But by adding the $180,000 line item into the mix, in addition to the $250,000 for mandated animal services, that creates more flexibility to find a solution, he said. HSHV officials have said they also value the partnership with the county and that they’re sensitive to budget constraints, he said. But the humane society sees things differently from the county.

The mandate is only for cruelty – to kill dogs, Smith said, not for care and compassion. There are options, and he hoped to reach some agreement.

Ronnie Peterson wanted more information about the meeting with HSHV. McDaniel said HSHV has indicated it have four staff members who handle animal control, including two who are deputized by the sheriff and can pick up strays. Peterson wondered if the county was now asking HSHV to take on animal control for the entire county, in exchange for $180,000.

Conan Smith replied that the county is trying to meet HSHV’s financial needs by pooling money from two line items – the $250,000 for contracted services, and $180,000 for animal control. The current contract for services expires at the end of 2011, he noted, and includes a scope of services that’s broad. The county is asking for a change in the scope of services – it’s not reasonable to expect the same amount of service that the county received for $500,o00. But the two groups haven’t gotten to that level of detail yet, he said.

Peterson said the county is asking HSHV to change direction and take on additional responsibility in order to receive more than the $250,000 in the 2012-2013 budget. If this was just proposed the previous day, it seems like a rush, he said. To say that HSHV hasn’t been willing to work with the county isn’t the case – HSHV was just given this information and hasn’t had time to consider it, he said. HSHV has volunteer board members, and the county needs to be respectful of that and give them more time.

Bergman said she didn’t know what kind of services the county was asking HSHV to do, but it was clear that the county couldn’t pay to save the number of animals that are currently being saved. “You do not speak for me, Mr. Smith,” she said.

Gunn reflected on the broader budget process, recalling that the board had begun conversations in January about the need to evaluate mandated services, and perhaps make cuts if they were currently providing more than the mandated level. Each county department has made cuts, she noted, as have county employees. There are deep cuts to human services that the county funds, she said, noting that funding for the Delonis Center homeless shelter had been cut by 80%. This has been devastating to other local nonprofits that are also run by dedicated volunteers, she said. So to give the humane society a $70,000 cut seems reasonable, Gunn concluded. If HSHV decides it doesn’t want to do business with the county, she said, then the county can issue an RFP (request for proposals) and find an organization that will.

Rabhi responded to Smith, saying he has a lot of respect for Smith but that Smith’s tone has changed substantially from previous meetings. It’s hard to swallow Smith’s words, Rabhi said. This has been a long process, he added, and it’s been only recently that HSHV agreed to meet with the county. HSHV does important work and he’s hopeful, but “the word partnership is key.” Times aren’t good anymore, and everyone needs to realize that. The two groups need to find common ground.

Rabhi urged people in the community to contact HSHV and encourage them to work with the county. He said he thinks they can reach an agreement, but noted that any deal that’s negotiated needs to come back to the board for approval. He said he understands the depth and magnitude of the issues they’re dealing with.

Ping voiced her support for fully funding HSHV, but added that “our pies are not that big anymore.” She said she’s hopeful that they can reach an agreement for the $430,000 and possibly find other resources as well.

Felicia Brabec asked for details on what the state mandate requires, and a breakdown of the cost for those services. The county needs that baseline information before making a decision, she said.

Dan Smith said he wanted to refresh some budget history regarding HSHV. The board has information about historical funding for the humane society, he noted. In 2006, HSHV received $214,119 from the county. Subsequent funding was $300,000 in 2007 and 2008, $400,000 in 2009, and $500,000 in 2010 and 2011. Many organizations would be happy to get the same amount they’d received in 2008, he said – that piece tends to get lost in the conversation.

Rob Turner asked a series of questions about the current contract. [.pdf of 2010-2011 HSHV contract with Washtenaw County]

By way of background, the contract specifies the following scope of services:

The Contractor will:

1. Accept and impound, in accordance with the laws of the State of Michigan or other applicable law or ordinance, all dogs and cats brought to the Contractor’s facility by any law enforcement officer in the employ of the County, or any local unit of government within Washtenaw County.

2. Release animals impounded pursuant to Paragraph 1A, above, in accordance with instructions from the impounding officers; and

3. Collect statistics that accurately reflect the number and source of animals brought to its shelter, the jurisdiction (city, village or township) in which the animal was picked up, and the disposition of the animals, and agrees to maintain an accounting system that accurately indicates its costs under this Agreement.

McDaniel characterized the contract as fairly global in nature, relating to dogs and cats. She said she’s never seen a per-animal cost breakdown – the contract specifies $500,000 for 2010 and 2011, to be paid by the county in monthly installments. HSHV does provide animal intake reports, she said, but not the cost breakdown that the county has been asking for.

In response to another question from Turner, McDaniel said the sheriff’s animal control officers pick up about 190 animals per year. Turner said he’s not sure how the humane society is coming up with its numbers. Everyone on the board has compassion for animals, he said, but they have to do more with less. He hoped the two groups could reach an agreement for the $430,000. At some point in the future, he hoped the county could make all the organizations it supports “whole” again.

From left: county commissioners Yousef Rabhi, Ronnie Peterson and Rob Turner. Out of camera view but sitting between Rabhi and Peterson are Barbara Bergman and Leah Gunn.

Gunn said the new contract should not include the pick-up of cats – that’s not a mandated service. Curtis Hedger, the county’s corporation counsel, acknowledged that the state law does not mention cats. He said the board should keep in mind the distinction between the county’s mandate and HSHV’s mission, which is much broader.

In response to a question from Peterson, Hedger elaborated on the state mandate, which is based on the Dog Law of 1919. The law specifies that under certain circumstances – if a dog is rabid, for example – the sheriff has authority to shoot the dog. Over time, Hedger said, court cases have softened the law, requiring dogs to be held for a certain period and treated humanely. [For additional background on the law and the county's relationship with HSHV, see Chronicle coverage: "Dog Watch: Humane Society Bond"]

Gunn clarified with McDaniel that by excluding cats from a new contract, the county would be reducing HSHV’s scope of services.

Rabhi requested that in future contracts, the terms should specify that commissioners must receive reports on cost breakdowns, so they can see what their money is paying for.

Peterson noted that he has cats and his neighbors have cats. He said he didn’t realize the meeting that night would be so long and intense, but he had concerns about the process and about what will happen next. He noted that some commissioners have said that the board chair [Conan Smith] doesn’t speak for them – that means these discussions about HSHV should happen at the board’s meetings. He wondered what the limitations were for the chair to negotiate with HSHV, and what would happen to the county’s cats under a revised scope of services.

At this point, Gunn reminded commissioners that the line item for HSHV was being changed to “Mandated Animal Control.” The service doesn’t have to be provided by HSHV, she said, and the mandate applies only to dogs, not cats. She said she didn’t understand why HSHV won’t accept a cut of $70,000.

Rolland Sizemore Jr. observed that there seemed to be problems on both sides – the county and HSHV. He expressed frustration that he hasn’t been able to learn what other counties are doing regarding animal control, although he’s asked for that information. [Later in the meeting during public commentary, HSHV's Kelly Schwartz pointed out that comparative information for other counties had been sent to the board – some commissioners acknowledged that they had received it, but Sizemore said he hadn't. .pdf of comparison chart provided by HSHV]

Sizemore said he had questions that hadn’t been answered, so he didn’t plan to support the initial vote of approval for the budget that night.

Rabhi again stated that talking about dollar amounts to fund HSHV was premature, because the county didn’t have information about how much it costs to provide mandated services. He said he’s been asking for it for weeks. The county shouldn’t just offer an amount and ask HSHV if that’s sufficient, he said.

2012-2013 Budget: Mandated Animal Control – Shift to Sheriff’s Budget

Later in the meeting, during deliberations related to the 2012-2013 proposed budget, funding for mandated animal control was again the focus.

Conan Smith moved to shift the line item for mandated animal control – formerly labeled as funding for the Humane Society of Huron Valley – out of the county’s funding for outside agencies, where it has traditionally been listed, and add it to the budget for the sheriff’s office. The funding could then be combined with a line item of $180,000 that was already part of the sheriff’s budget – for animal control officers.

Ronnie Peterson said this is the first time he’s heard this proposal – what is the intent? he asked. Smith said that combining the two line items would give the administration more flexibility in negotiating for animal control services.

Peterson then spoke at length about the proposal, saying it must have been discussed at some time when he wasn’t there – perhaps when he’d been in the restroom. It’s clear that the county has entered into negotiations with HSHV. Commissioners had heard a brief report that night, but only because he and Alicia Ping had asked about it, he said. One meeting with HSHV had been canceled, and another one had taken place only the previous night, he noted. And now there’s a resolution to shift funds to the sheriff’s office – and shifting responsibility, too, he added.

Responsibility should rest with the board, Peterson said, but it’s unfair to negotiate at the board table without the other party also at the table to present their side. He said he used to understand the hand waves, ear rubs and eye winks that commissioners would use as signals, but somehow they’ve changed the way they operate. He’s no longer privy to certain discussions, and indicated that those talks need to happen in public.

When the county paid HSHV $1 million for its new facility, that wasn’t a gift, Peterson said, and HSHV raised much more than that from donors. HSHV provides services to the county – it’s a partnership. But it sounds like the county is signaling the end to that partnership, he said. If the county is going to contract out to another agency, commissioners need to say that, Peterson said. They have an obligation to talk about why, and the budget shortfall has nothing to do with it.  “You choose to fund what you choose to fund,” he concluded – prompting applause from HSHV supporters in the audience.

Conan Smith, chair of the Washtenaw County board of commissioners.

Conan Smith replied, saying that every contract over $25,000 must get board approval – it doesn’t matter what line item it’s under. Any animal control contract will come back to the board, he said. His proposed amendment simply increases flexibility in negotiating with the county’s preferred provider, Smith explained.

He noted that the board had received a letter from the HSHV board chair Michael Walsh, indicating that $250,000 would be insufficient for HSHV to provide services to the county. [.pdf of Walsh's letter] Smith said he’s spoken to county commissioners individually, and there’s no consensus about where they might find additional funding for HSHV. However, there was support for adding the $180,000 from the sheriff’s animal control line item to the $250,000 already earmarked for HSHV – that increases the county’s ability to meet HSHV’s needs without compromising the county’s bottom line.

It’s not his intent to sidestep the issue, Smith said. The person who’s most at risk is the sheriff, he added, because the law states that the sheriff can be found guilty of malfeasance and removed from office if the mandate isn’t met. “That’s a pretty serious endgame,” Smith said. Combining the two line items gives the county more options.

Smith noted that the letter from Walsh also indicates that HSHV would not sign a new contract under the proposed financial terms, but has offered to provide transitional services if the county moves to a new contractor. On Jan. 1, the county will still have a mandate for animal control services, Smith said, so it behooves commissioners to have a Plan B in case HSHV doesn’t agree to new terms. That’s not his hope, he added, but they need to be prepared.

Wes Prater clarified with Smith that the animal control contract would definitely require board approval. Prater noted that there are some cases in which certain contracts over $25,000 don’t come to the board. He wants to make sure this one does.

Prater said he has no problem with issuing an RFP right now, for services beginning Jan. 1. It’s been the county’s practice to issue RFPs just to see what’s out there, he said. The relationship with HSHV has been cozy – it’s been a long-term relationship that’s worked well until now, but there are problems. He referenced Dan Smith’s comments about the history of funding HSHV, adding that costs are “totally out of hand.” The county might get a good response from the private sector, whether it’s for boarding dogs or for clinical work, Prater said.

The demands from HSHV are very high, given the county’s financial situation, Prater said. “It’s unreasonable, in my opinion – and when those things occur, we need to look at alternatives.”

At this point Dan Smith proposed an amendment to Conan Smith’s amendment: Directing the administrator and requesting that the sheriff continue negotiations on mandated animal control services for the county. Conan Smith said he had no objection to it.

But Barbara Bergman did object, saying it simply added another layer. She’d been prepared to support Conan Smith’s amendment, but wouldn’t if Dan Smith’s amendment were added to it.

Dan Smith said he had no intent of creating a heated debate. He’d wanted to clarify the original amendment, to indicate that negotiations would continue even though the funds were shifted. It wouldn’t limit the administration from negotiating with other parties besides the HSHV.

Curtis Hedger, the county’s corporation counsel, noted that if even one commissioner objected, the amendment could not be viewed as a friendly amendment – it would therefore require a vote.

Peterson said that the 2012-2013 budget was proposed by the administrator, but now it’s in the board’s hands. The county administrator recommended the funding cut to HSHV, but now the board is sending her back to negotiate with HSHV without giving her anything to offer. He said he’s never seen anything like it. He thought it would be fair to send the chair or a chair designee at this point. But it seemed to him that some commissioners have already made up their minds.

Leah Gunn argued that everything has been discussed publicly. She wouldn’t support Dan Smith’s amendment, and said that Conan Smith has done all he can do. She suggested that because the dog law mentions the sheriff, it should be the sheriff who issues an RFP and then brings back a proposal to the board. Then they can vote on it, she said. She hoped Dan Smith would withdraw his amendment. Bergman also called for the amendment’s withdrawal.

Dan Smith said he was simply trying to codify the intent of Conan Smith’s amendment, but he agreed to withdraw it.

Rob Turner expressed concern about the discussion, saying he didn’t think Conan Smith’s amendment meant that the board would turn over responsibility to the sheriff. If that happens, it seems like that would severe the county’s relationship with HSHV. “I would really not like to do that,” he said, and so he wouldn’t support the amendment.

Rolland Sizemore Jr. weighed in – he felt the amendment muddied the waters, and sent a bad signal that the county was moving in a different direction from its partnership with HSHV. He hadn’t made that decision. He also felt that Conan Smith should continue negotiations, because things seemed to be moving along faster now.

Yousef Rabhi felt the board was looking at it in the wrong way. They shouldn’t be talking about how to come up with more money at this point. The county doesn’t know how much it costs to provide mandated services, he argued, so they shouldn’t be throwing money at the organization. That applies to anything, whether it’s HSHV, the sheriff’s office or any organization, he said. The county needs to know what it’s paying for, he said, and HSHV should be providing that information now. Rabhi said he’d support Conan Smith’s amendment, but the county needs to be more objective.

As Peterson began to speak, Bergman “called the question” – a procedural move that forces a vote. Peterson told her she needs to learn some manners, and noted that having this discussion seemed to get on some commissioners’ nerves. This has been a challenging board in terms of sharing information, he said. How did the board reach this point? he wondered. Bidding out the work isn’t negotiating, he said. HSHV understands what’s happening, and knows that the board is trying to shift responsibility, Peterson said. Humane society supporters aren’t naive, he said.

Prater again called for the county to issue an RFP. After that the board can evaluate its options – that’s the best use of taxpayer dollars, he said. The county needs to get the work done as cheaply as possible. If they had bid out the work decades ago, the county would have saved hundreds of thousands of dollars, he said.

Outcome: The budget amendment to shift $250,000 in mandated animal control funds from the “outside agency” category to the sheriff’s budget was approved on a 8-3 vote, with dissent from Rob Turner (R-District 1), Rolland Sizemore Jr. (D-District 5), and Ronnie Peterson (D-District 6).

2012-2013 Budget: Mandated Animal Control – Public Commentary Round 2

Sheriff Jerry Clayton spoke to the board during public commentary after the vote, saying he hadn’t been notified that this shift in funding to his office might occur. He said he’d been taken aback by the direction that the discussion had taken.

Sheriff Jerry Clayton, right, talks with Conan Smith, chair of the county board, after the board voted to shift mandated animal control funding to the sheriff's budget. Clayton said during public commentary that he hadn't been aware that this shift might occur.

He expressed some concerns about the decision, saying it’s not clear that his office is in the best position to negotiate for these services. For one thing, the county and the sheriff’s office have different mandates related to animal control, he said, and it’s important not to blur those lines.

The board talks about transparency and how they value county employees, Clayton noted, but there are two animal control officers who are watching these proceedings and impacted by these decisions.

Clayton also stressed the importance of identifying the specific items that are mandated by the state, the specific services that HSHV provides to fill those mandates, and the itemized costs for those services. He agreed that the county should go beyond the mandate, but that means they need to prioritize how to spend of funds that remain after the mandate is fulfilled. He suggested the board take more time to consider all the variables.

Jenny Paillon, operations manager for HSHV, said there hasn’t been a transparency issue on the humane society’s part. Since July they’ve been providing a breakdown of mandated services, she said. What the county is paying for isn’t a gift – it’s mandated, she said. Former county administrator Bob Guenzel had estimated that the services would otherwise cost the county $1.5 million, Paillon said.

She also noted that the board hadn’t discussed a memo provided by HSHV that gave a legal and financial analysis of mandated services. [.pdf of HSHV analysis of legal and financial costs for mandated services] Anything above the mandated costs are covered by donors or volunteers, she said. All of HSHV’s costs and budgets are on its website, she noted, and they are happy to keep the dialogue open. However, she said HSHV had received a letter from the county at 5:30 p.m. that evening, indicating that continued dialogue might be off the table. She concluded by urging commissioners to work with HSHV.

Mark Heusel, vice president of HSHV’s board of directors, said there’s common ground that both groups share, and that he’d been surprised by the tenor of the discussion. He sees how passionate the commissioners are, and how they’re trying to deal with the county budget while addressing the needs of the humane society. But he was also surprised by the lack of common ground based in facts. There’s a profound misunderstanding of the underlying facts that support the amount paid to HSHV. He urged commissioners to dig deeper to understand those facts. Both parties need to understand the numbers, Heusel said, and the HSHV board is ready to do that. But so far, that negotiation hasn’t taken place. In his world, he said, both parties sit at the table and talk about solutions to solve problems. “That can still happen,” he said.

Kelly Schwartz of HSHV spoke again, reporting on the people who had attended the previous day’s meeting between the county and HSHV. Among them were county administrator Verna McDaniel; Diane Heidt, the county’s human resources and labor relations director; HSHV board president Mike Walsh; local attorney Paul Gallagher; and HSHV executive director Tanya Hilgendorf. She also read from the chart of costs per capita that other counties pay for animal control, compared to Washtenaw County.  [.pdf of animal control cost comparison chart] Washtenaw County pays the least, she said, yet the shelter has the highest save rate – about 80%.

2012-2013 Budget: Mandated Animal Control – Commissioner Response Round 2

Yousef Rabhi said he appreciated the sheriff’s comments, and he hadn’t been sure what kind of dialogue had taken place about the funds being shifted to the sheriff’s budget. Rabhi said he hadn’t been aware that the change would be suggested that night, either. In response to Paillon’s assertion that the information on costs is available, Rabhi said he’d love to see those numbers, but so far he hadn’t. He told Heusel that Heusel’s impassioned speech was great, and the willingness to work with the county board was heartening. He thanked all the HSHV volunteers for their work.

Ronnie Peterson told Heusel, Paillon and Schwartz that he was glad they had spoken up and defended HSHV. He said he was glad the sheriff hadn’t known in advance about the possible shifting of funds – that meant the discussion happened in public.

2012-2013 Budget: Other Amendments

In addition to amendments related to the animal control line item, two other amendments were proposed.

Alicia Ping proposed a budget amendment to reallocate $30,000 previously budgeted for the economic development agency Ann Arbor SPARK and shift those funds to the Michigan State University Extension ($15,000) and the Food Systems Economic Partnership ($15,000). The original proposed budget called for SPARK’s allocation to increase from $200,000 in 2011 to $230,000 in both 2012 and 2013. Ping had raised objections to increased SPARK funding at the board’s Oct. 18 working session. The original budget also funded both the MSU Extension and the Food Systems Economic Partnership at $15,000 annually. Those groups will now receive $30,000 annually.

The funds come from revenues of an Act 88 millage levied at 0.05 mills, which the board authorized in September. Act 88 predates the state’s Headlee Amendment, and therefore the millage can be approved by the board without a voter referendum. Ping had voted against the Act 88 millage.

Outcome: Without discussion, the board unanimously approved the amendment shifting $30,000 from Ann Arbor SPARK to the MSU Extension and FSEP.

In addition to financial items, the proposed budget includes several revisions to board policies and directives regarding the budget. The policies and directives cover budget transfers, personnel matters and other issues. [.pdf of budget policies and directives]

Dan Smith highlighted a revision to one of the items in that document [revised, added text in italics]:

CURRENT: 14. The Board of Commissioners authorizes the County Administrator to red circle an employee’s salaries above the pay range for up to 6 months. After that period, the department head must submit a Position Description Questionnaire to Human Resources for review and approval by the Board of Commissioners.

REVISED: 14. The Board of Commissioners authorizes the County Administrator to red circle an employee’s salaries above pay range. If assignment extends past six months the County Administrator will provide a report of employees on extended assignment to the Chairs.

He noted that by changing approval from the board to the board’s three chairs – chair of the board, chair of the ways & means committee, and chair the working session – it was changing policy. He proposed a single word revision – changing the final word “Chairs” to “Board.”

Outcome: Commissioners unanimously approved Dan Smith’s amendment to the board’s budget policies and directives.

Wes Prater clarified with the administration that amendments could still be brought forward at the next meeting, even after initial approval of the budget. Curtis Hedger, the county’s corporation counsel, said that the board could amend the budget at any time, even after they give it final approval.

2012-2013 Budget: General Discussion

Ronnie Peterson began by stating that he wanted the record to show that he was voting against three specific line items in the budget: (1) elimination of $125,000 in membership dues for the Southeast Michigan Council of Governments (SEMCOG), (2) cuts to the Humane Society of Huron Valley, and (3) elimination of support in 2013 for Washtenaw Head Start. The county administration has proposed relinquishing administration of that program – federal officials would then be charged with selecting another agency to take over the program.

Dan Smith observed that the budget process had started in January with a board retreat. Commissioners had asked what entity would be the best provider of services, and acknowledged that it might not be the county in all cases, he said. They had indicated they might be getting out of the business of providing some services that the county has traditionally provided – now they’ve done that, he said. They also talked about the need to reduce serviceability levels in some cases. They’ve discussed the budget at numerous working sessions, Smith noted, and even scheduled additional working sessions for that purpose. Everyone has had the opportunity to voice their objections. There are items that he doesn’t like in the budget, Smith said, and he knows that there are some items that other commissioners don’t like. But it’s a good budget, he concluded, and he’s proud of the work they’ve done.

County administrator Verna McDaniel talks with Greg Dill, infrastructure management director.

Leah Gunn described politics as the art of compromise. The board has reached a compromise on the budget, “and I can live with that,” she said.

Peterson said he was proud to stand up for Head Start – he had not compromised on that. He would not compromise on the treatment of pets. He said that’s why he chose to be part of the Democratic Party, which believes in caring for children and those who can’t care for themselves – even the pets. [Peterson is among 8 of the 11 commissioners who are Democrats. Republicans are Alicia Ping, Dan Smith, and Rob Turner.]

Conan Smith thanked everyone for their work, especially noting county administrator Verna McDaniel, interim deputy administrator Kelly Belknap, and Tina Gavalier, the county’s finance analyst. The three women received a round of applause from commissioners and other staff. Smith said the fact that the board has spent the last few weeks focused on about $1 million worth of expenditures speaks well for the rest of the $97 million budget. He thanked the staff, noting the massive three-department consolidation that’s taking place under the leadership of Mary Jo Callan [the office of community development, ETCS (the employment training and community services department) and the economic development & energy department].

The board also owes a debt of gratitude to the employees who made labor concessions to help overcome a budget deficit, Smith said. The willingness to sacrifice pay and benefits says a lot about the county’s culture, he said.

Rolland Sizemore Jr. told his board colleagues that he wouldn’t support the budget at this point – he still had questions. He wanted information on part-time employment, saying he has a problem with people retiring and then returning to work for short periods of time on a contract basis. [Wednesday's meeting was attended by Pete Ballios, the county’s former finance director who retired at the end of 2009 but is now working on contract for the sheriff's office.]

Sizemore also said he has a problem with some people getting 8% raises when there’s not enough money for children and animals. [This was a reference to the possibility that McDaniel will give 8% temporary pay increases to four top administrators, in lieu of previously proposed $15,000 stipends that some commissioners objected to.]

Felicia Brabec, who was appointed to the board two weeks ago to fill a vacancy in District 7 following Kristin Judge’s resignation, said the budget is an incredible document and she thanked everyone for their work. But because she hasn’t had enough time to digest it, she didn’t feel she could vote for it. “I’m playing catch-up,” she said.

Conan Smith asked corporation counsel Curtis Hedger if the board could suspend its rules to allow Brabec to abstain instead. Hedger said the rules requiring commissioners to vote on the budget applied to the regular board meeting, not to the initial vote taken at the Ways & Means Committee. [All resolutions are voted on twice by the board: first at the meeting of Ways & Means, a committee of the entire board; and finally at the regular board meeting. Ways & Means and regular board meetings are held back-to-back, but typically a resolution that's passed at the Ways & Means meeting is considered at the regular board meeting two weeks later for a final vote.]

Wes Prater said he wasn’t really ready to vote on the budget. He said he had several questions, including questions about expenditures in certain departments. He also wanted the finance staff to take a closer look at revenue projections, to ensure they are as accurate as possible.

Prater asked McDaniel how many bargaining units accepted labor concessions, including furlough days and reductions in health care benefits. Of the 17 bargaining units, McDaniel replied, all but 5 had made concessions. In response to a question from Prater, McDaniel said that the units not accepting concessions were those representing the prosecuting attorneys, the prosecuting attorney supervisors, attorneys in the public defenders office, supervisors of attorneys in the public defenders office, and AFSCME Local 3052 representing general supervisors.

Yousef Rabhi thanked the public, saying it was a long process but that he’d been heartened by the emails and public commentary, which showed that people are engaged. He also thanked commissioners who have worked to find solutions. He finds it difficult when some commissioners identify problems but don’t offer any solutions. This isn’t the final budget document, he noted. It sets the tone, but they can still make changes.

Rob Turner also thanked everyone for their work, and described the budget as a living document. Adjustments can be made throughout the year, he said, but he was ready to approve it.

Peterson called the employees who’ve made concessions for two budget cycles “the real heroes.” As a commissioner, he said, he has a responsibility to advocate for his constituents. “Ronnie can always find solutions,” he said. If given the opportunity, he added, he can find the resources.

Outcome: The initial vote on the overall budget passed 9-1, with dissent from Rolland Sizemore Jr. (D-District 5). Felicia Brabec (D-District 7) abstained. Ronnie Peterson (D-District 6) stated that he was voting in favor of the overall budget, but against cuts to SEMCOG, the humane society, and Head Start.

The board has until the end of the year to give final approval to the budget, but only two more regular meetings are scheduled – on Nov. 16, and Dec. 7. More amendments are expected to be brought forward before the final vote. The budget can also be amended at any time after approval, with a six-vote majority of the board.

From left: Nancy Heine, president of AFSCME Local 3052, and Caryette Fenner, president of AFSCME Local 2733.

2012-2013 Budget: General Public Commentary

Caryette Fenner – president of AFSCME Local 2733, the county government’s largest union – spoke with emotion during public commentary following the initial budget vote. She said she was a little disappointed in the board’s discussion. Some bargaining units made concessions even when their employees couldn’t afford to, she said. Yet now she’s hearing that some departments are already planning budget adjustments and increasing their budgets. And there’s talk about the county administrator’s cabinet getting 8% raises instead of the $15,000 bonus, she noted. Were the unions asked for too much money? The commissioners don’t have to listen, as she does, to the employees who can’t afford their health care or can’t afford the cuts they’ve taken through elimination of their banked leave days. Fenner said she asked her union members to make sacrifices, and now she has to explain the decisions that commissioners are making. She asked the board to think about that before they take a final budget vote.

Earlier in the meeting, a representative from CenturyLink – a telecom company that merged this year with Qwest Communications – spoke about the fact that the county can get a discount on CenturyLink’s services via a membership with the Michigan Association of Counties (MAC). It was one benefit to retaining membership, he said. [The county's proposed 2012-2013 budget was amended at its Oct. 19 meeting to eliminate $20,315 in annual dues to the Michigan Association of Counties. Those funds were reallocated to the Delonis Center, a homeless shelter in Ann Arbor operated by the Shelter Association of Washtenaw County.]

Thomas Partridge spoke during three of the four opportunities for public commentary, saying he was an advocate for seniors, the disabled, and others who weren’t able to attend these meetings. Commissioners seemed intent on making cuts, he said, when they should be looking to raise revenues. The county should ask those who’ve been blessed by “the gods of Wall Street” to voluntarily pay higher taxes, Partridge said. He called on commissioners to table the budget vote.

Pilot Project for Agribusiness

On the agenda was a resolution to create a task force that will guide a pilot training program for agribusiness jobs in Ypsilanti, including support for entrepreneurs in food-related businesses.

Called  ”Seeds for Change: Growing Prosperity in Ypsilanti,” the project is intended to provide job training and placement to unemployed workers interested in agricultural employment, and to offer shared commercial kitchen space and business support to local agri-business entrepreneurs, according to a staff memo. The initiative will also encourage local entities – including governments, universities, hospitals, and other partners – to buy products made from people in this program. Products will be available for purchase with food stamps, to address the nutritional needs of low-income residents and expand the market for locally-produced products.

Mary Jo Callan, director of the county/city of Ann Arbor office of community & economic development, talks with commissioner Rolland Sizemore Jr.

The project will rely initially on existing county staff, including workforce development resources, as well as local Dept. of Human Services support and possible other public funding, which has not yet been specified. It will be administered by the new office of community & economic development, led by Mary Jo Callan. Additional funding from state and federal sources will be needed, according to the staff memo, and the project will seek private grants and volunteer support.

Possible partners include Zingerman’s Community of Businesses, Food Gatherers, Food Systems Economic Partnership, Growing Hope, Think Local First, two local food co-ops, St. Joseph Mercy Hospital and University of Michigan Hospital, local school systems, University of Michigan, Eastern Michigan University, Washtenaw Community College, local working farms and farmers’ markets. [.pdf of staff memo with additional details]

None of the 17 members to the task force have been identified. Those appointments will be made at a later date.

Pilot Project for Agribusiness – Commissioner Discussion

Wes Prater asked whether the resolution allocated any funding for the program. No, Callan said – part of the task force’s job will be to help identify funding sources. Prater teased Callan, saying that he suspected she might have “hid back” some money in her department’s budget for this project.

In response to a question from Barbara Bergman, Callan said that at this point, the county will be providing staff time , initially forming a technical team to develop the program with staff from various departments. Tony VanDerworp has agreed to be project manager.

Yousef Rabhi described the project as “absolutely phenomenal.” It addresses job creation, hunger, the environment, and the community’s reliance on fossil fuel to transport food into this area. The project focuses on the local economy, local food, health, and civic engagement, he said. There are a lot of strong partners, and this is the kind of thing he can get really excited about, Rabhi said.

Conan Smith pointed out that Matt Shane of the MSU Extension was in the audience. The board had voted earlier in the meeting to increase funding for that program, Smith noted, and it has a direct interest in the food economy as well.

Dan Smith joked about how store-bought tomatoes taste lousy.

Outcome: The board voted unanimously to create the task force for ”Seeds for Change: Growing Prosperity in Ypsilanti.”

Third-Quarter Budget Update

The board got a third-quarter 2011 budget update from finance staff and county administrator Verna McDaniel. The county now faces a nearly $1 million projected shortfall for the year, which will be covered by use of the county’s fund balance. That includes a projected net revenue shortfall of $363,690 and a net of $619,939 in higher-than-budgeted expenses.

Tina Gavalier, the county’s finance analyst, gave the formal presentation and answered most of the questions posed by commissioners. The board had received a second-quarter update in August.

Third-Quarter Budget Update: Presentation

Gavalier reviewed major items on both the revenue and expenditure sides. For revenues, highlights include:

• $2.9 million use of fund balance revenues, which was planned.
• $749,000 surplus from the police services lawsuit settlement, paid by August and Ypsilanti townships.
• $78,000 surplus from property tax reimbursement by the Ann Arbor Downtown Development Authority.
• $268,000 surplus from the clerk/register of deeds office, due to higher-than-expected fees & transfer taxes.
• $77,000 surplus from the treasurer’s office, including increases from dog license fee collections.
• Revenue shortfalls at the district court and trial court of $56,000 and $45,000 respectively. The district court cited declining case filings and less state drunk-driving reimbursements. The trial court attributed its shortfall to lower state reimbursement revenue.
• A $65,000 shortfall in interest revenue was attributed to the county’s lower cash balance and interest rates.

A projected revenue surplus in the sheriff’s office of $374,000 – from higher-than-expected civil fees, state revenue and E-911 surcharge transfers – will be offset by $298,000 in higher expenses, Gavalier said. Those expenses relate to one inmate medical case, she said. Other highlights from expenditure changes in the first nine months of 2011 include:

• IT maintenance contracts are $191,000 higher than budgeted.
• The district court’s projected expense reduction planned for 2010-2011 hasn’t fully materialized, with a shortfall of between $40,000 and $75,000 of its expense-reduction goal.
• $439,000 in higher-than-budgeted expenses for the OPEB (Other Post-Employment Benefits) certificate of participation (COP) bond will be covered with reserve funds.
• Expenses in the treasurer’s office are expected to be about $116,000 less than expected, due to a vacant position and other expense reductions.
• Expenses in support services are about $389,000 less than budgeted, primarily due to job vacancies and cost savings for professional development.

The total projected 2011 shortfall is $983,629, to be covered by use of the general fund balance.

Third-Quarter Budget Update: Commissioner Discussion

Rolland Sizemore Jr. clarified with Gavalier and McDaniel that savings for vacant positions are calculated cumulatively each quarter. Barbara Bergman cautioned that the 2011 budget won’t be settled until all the bills come in by the stroke of midnight on Dec. 31.

Wes Prater described the presentation as one of the best he’d ever seen. He noted that when the board originally approved the two-year budget in 2009, the finance staff had projected revenues for 2011 at $98.7 million. In fact, this year’s budget will be closer to $101.2 million, he noted – that means the projections were off by $2.5 million, he said.

Prater said he understood that the 2011 budget has been amended since then. His point is that he doesn’t want the staff to make the same mistake for 2012-2013. He said he was just raising the issue.

Alicia Ping asked about the $77,000 surplus in the treasurer’s office, in part related to dog licenses. She noted that the licenses are for a three-year period, and wanted to make sure that’s accounted for in the 2011-2012 projections. That is, the county can’t expect those licenses to be renewed until 2014. Gavalier reported that the budget calls for $40,000 in dog license revenues in 2012 and 2013.

Conan Smith clarified with Gavalier that a $1.3 million item on both the revenue and expenditure side – related to capital leases for the information technology department – was an accounting adjustment, not a mismanagement of a contract.

Both Dan Smith and Rob Turner asked about the fund balance. The balance currently stands at $14.3 million, Gavalier said. At the end of the second quarter, it was projected to be $14.2 million, she said – so it’s $100,000 higher than projected.

Turner noted that the county can’t really have a balanced budget if it’s drawing from the fund balance to make that happen.

A resolution on the agenda called for making technical adjustments to the 2011 budget, related to the items discussed during the third-quarter update.

Outcome: The board voted unanimously to make adjustments to the 2011 budget, resulting in a net increase to the general fund budget of $619,939.

Misc. Communications, Commentary

During the meeting there were multiple opportunities for public commentary, and for communications from the administration and commissioners.

Misc. Comm/Comm: Public Commentary

Douglas Smith, who also spoke during public commentary at the board’s Oct. 19 meeting, said he wanted to follow up on some comments made by the county’s corporation counsel regarding the Freedom of Information Act appeal process. [Smith had filed a FOIA request with the county regarding an incident at Ypsilanti Township hall, where a court employee had reported that $20 was stolen out of her car in the parking lot. She had requested video surveillance footage, but instead of providing it to her, the building’s security officer had emailed the sheriff’s office, according to Smith. That apparently prompted an internal investigation, he said, involving a high-ranking member of the sheriff’s office. His FOIA request for the video footage has been denied on appeal to the county administrator, and he has asked the board to take up the issue.]

Curtis Hedger – the county’s corporation counsel – had told the board that for FOIA appeals, there’s a shorter time to respond, and that’s why the law gives the option of having the head of a public body – in this case, the county administrator – to handle it. Otherwise, the board would need to call a special meeting each time there’s an appeal, he had said. During his Nov. 2 public commentary, Smith said the reality is that the county has 10 business days to respond to an appeal, and can ask for an additional 10-day extension. A regular board meeting would easily fall within that period, he said. Smith also rebutted the reasons cited by county FOIA officer Judy Kramer in denying his request.

Later in the meeting, Smith spoke on another subject: Renaissance Community Homes. He referred to an August 2011 news article about patient neglect at an Ypsilanti Township group home run by Renaissance, and noted that the Washtenaw Community Health Organization (WCHO) contracts with Renaissance to provide services to county residents. The question is why does WCHO keep renewing its contract with Renaissance? Smith urged commissioners to read the article and look into the situation.

Thomas Partridge requested that appropriate accommodations be made at county buildings for physically challenged residents. He said he’s made this request multiple times, and was ready to make it through an attorney, if necessary. Later in the meeting, commissioner Ronnie Peterson asked whether there was a review that could be done to ensure that facilities are accessible. He challenged anyone to try to get into the boardroom in a wheelchair without the door hitting the back of the chair. Barbara Bergman said the county has completed such a review, and that Dave Shirley, the county’s operations and maintenance manager, would have that information.

Misc. Comm/Comm: Communications from Commissioners

Rob Turner reported that Phase 1 of the renovations of the downtown county courthouse are completed. [The board had been briefed by in January 2011 about this project by Donald Shelton, chief judge of theWashtenaw County Trial Court – an entity that includes the 22nd Circuit Court, juvenile court, probate court and Friend of the Court program.] Phase 2 – which entails renovating the first floor of the courthouse – is ongoing, Turner said, with about 60% of demolition finished. The project is a bit behind schedule, but will likely hit a February 2012 completion date.

Turner, who serves as a board liaison to the Washtenaw County Road Commission, reported that he and Yousef Rabhi had attended the recent ribbon-cutting ceremony for reopening of the Lima Center Road bridge in Lima Township and the Waldo Road bridge in Sharon Township. Both bridges cross Mill Creek. He said it shows that things can happen, and now the route is easier for school buses and other vehicles to use that part of the county.

Conan Smith told commissioners that Gov. Rick Snyder had appointed him – along with executives from Wayne, Oakland and Macomb counties – to a planning group for a possible regional transit authority (RTA). He said they’d be working hand-in-glove with representatives from the Ann Arbor Transportation Authority to address AATA’s concerns. [For background on these recent transit developments, see Chronicle coverage: "Washtenaw Transit Talk in Flux"] The RTA would focus on a handful of regional corridors, Smith said, but the one of most interest to Washtenaw is between Ann Arbor and Detroit, with a connection to Detroit Metro Airport. He said it sounds like the governor would like to move quickly on this project.

Before their Nov. 2, 2011 meeting, some county commissioners posed for a photo with Michigan Main Street banner. The board later passed a resolution of support for the city of Saline's Economic Development Corp. to apply for the Michigan Main Street program – Select Level.

Executive Session

At the end of their Nov. 2 meeting, the board voted to enter into executive session for the purpose of discussing labor negotiations. They emerged about 15 minutes later and immediately adjourned.

Present: Barbara Bergman, Felicia Brabec, Leah Gunn, Ronnie Peterson, Alicia Ping, Wes Prater, Yousef Rabhi, Rolland Sizemore Jr., Conan Smith, Dan Smith, Rob Turner.

Next regular board meeting: Wednesday, Nov. 16, 2011 at 6:30 p.m. at the county administration building, 220 N. Main St. in Ann Arbor. The Ways & Means Committee meets first, followed immediately by the regular board meeting. [confirm date] (Though the agenda states that the regular board meeting begins at 6:45 p.m., it usually starts much later – times vary depending on what’s on the agenda.) Public comment sessions are held at the beginning and end of each meeting.

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Called ”Seeds for Change: Growing Prosperity in Ypsilanti,” the project is intended to provide job training and placement to unemployed workers interested in agricultural employment, and to offer shared commercial kitchen space and business support to local agri-business entrepreneurs, according to a staff memo. The initiative will also encourage local entities – including governments, universities, hospitals, and other partners – to buy products made from people in this program. Products will be available for purchase with food stamps, to address the nutritional needs of low-income residents and expand the market for locally-produced products.

The project will initially rely on existing county staff, including workforce development resources, as well as local Dept. of Human Services support and possible other public funding, which has not yet been specified. Additional funding from state and federal sources will be needed, according to the staff memo, and the project will seek private grants and volunteer support.

Possible partners include Zingerman’s Community of Businesses, Food Gatherers, Food Systems Economic Partnership, Growing Hope, Think Local First, two local food co-ops, St. Joseph Mercy Hospital and University of Michigan Hospital, local school systems, University of Michigan, Eastern Michigan University, Washtenaw Community College, local working farms and farmers’ markets.

This brief was filed from the county administration building at 220 N. Main St. A more detailed report will follow : [link]

The program was developed in partnership with UM’s office of technology transfer.

This brief was filed from the regents meeting in the boardroom of the Fleming administration building on UM’s Ann Arbor campus. A more detailed report will follow: [link]

Tom Kinnear talks with University of Michigan regent Julia Darlow. Regent Denise Ilitch is seated to the left. Kinnear is head of UM's Zell Lurie Institute for Entrepreneurial Studies, and spoke to regents about programs for student entrepreneurship. (Photo by the writer.)

Regents also approved the naming of the Von Voigtlander Women’s Hospital, reflecting a $15 million gift to the institution – part of the massive $754 million C.S. Mott Children’s Hospital and Women’s Hospital complex being built and expected to open in 2012.

The board signed off on several facilities projects, including interior work on offices at the former Pfizer site, now called the North Campus Research Complex (NCRC), as well as the next step in renovations of the Couzens Hall dormitory.

Also approved was a letter making UM’s annual operating request to the state, which laid out why legislators should appropriate funds to support the university in fiscal 2011. The letter, under the signature of UM president Mary Sue Coleman, did not request a specific dollar amount.

Coleman kicked off the meeting, as she typically does, with some opening remarks that led to news about plans to hold the April 2010 regents meeting in an unusual location: Grand Rapids.

Coleman: Kudos and Collaborations

In her introductory statement, UM president Mary Sue Coleman said it was a time of celebration for the 1,400 students graduating during winter commencement. Also worth celebrating, she said, was a licensing deal announced Dec. 16 between the pharmaceutical giant GlaxoSmithKline and NanoBio – an Ann Arbor firm founded by UM professor Jim Baker, who serves as its CEO. Research that led to the treatment for cold sores was developed at UM and is licensed to NanoBio, Coleman said, and demonstrates the value of university research.

Baker was also among 10 UM scientists who were recently elected as Fellows to the American Association for the Advancement of Science, Coleman said. He and others reflect the university’s rich heritage of innovators and entrepreneurs, she added, using that as a segue to highlight the work of UM’s Zell-Lurie Institute for Entrepreneurial Studies and MPowered Entrepreneurship, a campuswide student group. Representatives from both groups gave a presentation later in the meeting.

Coleman also expressed gratitude for the $15 million gift from the Ted and Jane Von Voigtlander Foundation for the women’s hospital, and to former UM football player Charles Woodson, who gave $2 million to the children’s hospital for pediatric research. The lobby of the hospital will be named in his honor when it opens in 2012, she said.

Finally, Coleman noted that she gave the commencement address at Grand Valley State University on Dec. 12, and that UM plans to work with that Grand Rapids-based institution on wind technology research. It’s an example of ways that UM is looking to collaborate with partners across the state, she said.

Regent and board chair Andy Richner then noted that because of the university’s growing partnerships in western Michigan, the regents would hold their April 2010 meeting in Grand Rapids. “We look forward to visiting the west side,” he said. A specific location for the meeting was not given.

Graduate Student Enrollment: Policy Change

Janet Weiss – dean of the Rackham Graduate School and vice provost for academic affairs-graduate studies – gave regents an update on a policy change affecting students enrolled in Ph.D. programs. The “continuous enrollment policy” requires that students enroll each semester until they complete their degree, unless they receive approval for a leave of absence.

Weiss told regents that the proposal is part of a strategy to help students complete their degrees with support from the university. Currently, about two-thirds of students in UM’s Ph.D. programs ultimately get their degrees. That’s better than the national average, Weiss said, “but we should be way better than the national average.”

The policy will help administrators better plan support services for the students, Weiss said, and make it easier for faculty to help students complete the program. “We don’t want students to fall between the cracks or to be left out of the loop,” she said.

The proposal has been controversial – at the April regents meeting, graduate students turned out to protest the change. Students charged that it was really a way to push them through the program, and they objected to the additional tuition that they felt they’d have to pay.

No one spoke during public comment at the Dec. 17 meeting, but Weiss told regents she knew they’d heard from students in April, and that she and all the other deans had been working to ensure that students wouldn’t bear additional tuition costs because of the new policy. The university could commit to tuition support for students who are making satisfactory progress toward their degree, she said.

The policy also allows for students to request authorized leaves of absence for health or family reasons. One of the concerns voiced by students in April was the fact that some students took time off to have children, for example, and they didn’t think the new policy would allow for that. Weiss told regents that the policy allowed for flexibility, and that a dispute resolution process would be set up so that students would have recourse for their concerns.

Returning to the issue of tuition, Weiss said that regents would be asked to approve a tuition reduction for Ph.D. candidates in June of 2010, when all tuition rates are set. To keep tuition costs flat, the plan is to lower the tuition rate but spread the cost over additional semesters. She described it as an important component of the overall policy, which she hopes to implement for the fall 2010 semester.

Responding to a question from regent Libby Maynard, Weiss described several others ways that students would be supported, including a faculty mentoring program and help to develop dissertation writing skills. Regent Denise Ilitch asked about the tone of the policy with respect to leaves of absence – would it be stringent and bureaucratic? Weiss pointed to drafts of the policy available online, and said there were four categories available: medical, family, military and personal. Students request permission from their graduate program adviser, who either recommends approval or not. The process is designed to be simple and quick, Weiss said, with recourse through the dispute resolution board.

Regent Julia Darlow asked if there were limits on the number of times a student could request a leave of absence. Weiss said only the personal leave category had a limit – students could use that one time.

With respect to tuition coverage, provost Teresa Sullivan said that her budget team had looked carefully at the numbers, and felt confident that it was financially viable.

Entrepreneurship at UM

To highlight the university’s entrepreneurial activities, two speakers gave presentations to the regents, starting with Tom Kinnear, executive director of the 10-year-old Zell-Lurie Institute for Entrepreneurial Studies at the Ross School of Business.

Kinnear began by saying he was “joined at the hip” with the other speaker, Thomas Zurbuchen, associate dean for entrepreneurial programs at the College of Engineering. Their approach, he said, was to “get people’s hands dirty” – meaning that they encouraged students to actually do the work of entrepreneurs. A large part of it is attitude, he said, including a willingness to take risks.

He cited several examples of that approach, most notably the Wolverine Venture Fund. With guidance from faculty and an advisory board, MBA students have made venture capital investments in over 18 companies since the $3.5 million fund was formed 11 years ago. One of those companies is NanoBio, Kinnear noted. “We were there before any of the big venture funds came in,” he said.

Most recently, the fund saw its biggest return – $2 million, from an investment in Ann Arbor-based HandyLab totaling $350,000 between 2000 and 2005. HandyLab, a UM spinoff, was acquired by New Jersey-based Becton, Dickinson and Company for an undisclosed amount in a deal announced in October 2009.

Kinnear also described the Zell-Lurie Institute’s role in the broader Michigan entrepreneurial community, as host of the long-running Michigan Growth Capital Symposium and the annual Entrepalooza, and the institute’s involvement with the Great Lakes Entrepreneur’s Quest, among other activities.

In handing off to Zurbuchen, Kinnear said the Zell-Lurie Insitute doesn’t work in isolation, and that a lot of collaboration happens with UM’s College of Engineering. He also noted that despite Michigan’s economy, “the world I live in, through this, is positive, growing, prosperous.”

Zurbuchen said he shared Kinnear’s optimism, and that entrepreneurial thinking spills out of the business school and across all the campus. It’s a supportive environment that wasn’t as strong 10 years ago, he maintained. [The full text of Zurbuchen's remarks are posted on his director's blog.]

Zurbuchen cited the MPowered 1,000 Pitches program as a way that the entire campus community was engaged in entrepreneurial thinking. This was the program’s second year, and 2,165 ideas for business ventures were submitted by students across campus.

Several challenges remain in order to make entrepreneurial thinking a core part of the engineering curriculum and of the entire campus, Zurbuchen concluded. The transformation requires help from all corners – he said he hoped that regents would do everything in their power to make it a success.

Several regents had comments and questions following the presentation. Regent Kathy White said she’d seen Zurbuchen and some of his students featured on a recent PBS Newshour report, and that it was exciting to see him helping get the word out about the entrepreneurial activity here. She invited him to tell the regents what they could do to help.

Libby Maynard said it was important to integrate that attitude into all of the curriculum, not just business and engineering. Andy Richner asked what could be done to keep more UM graduates – those who had this entrepreneurial mindset – from leaving the state.

Zurbuchen said that placing students in internships with local companies was an effective way to make connections with the local business community. Those internships can turn into jobs, he said.

Kinnear added that supporting Michigan’s economy was one reason why the Zell-Lurie Institute is involved in so many statewide initiatives and organizations, like the Michigan Venture Capital Association. [Kinnear is vice chairman of that Ann Arbor-based group.] He said the five biggest venture funds in the state – Ardesta, EDF Ventures, Arboretum Ventures, Dow Venture Capital and the Wolverine Venture Fund – are all controlled by UM graduates. He said the university can’t thrive without the infrastructure around it, and that they’re a long way from declaring success on that front. “We’re pushing the boulder up the hill a little,” he said.

Environmental Sustainability

Terry Alexander, executive director of the university’s office of campus sustainability, briefed regents on the new environmental sustainability initiative. His role is to coordinate operational aspects of the effort, working with UM’s Graham Environmental Sustainability Institute, which focuses on academics. The goal, he said, is to turn the campus into a living-learning lab for improving the environment.

Alexander reviewed key points of the initiative: 1) the 2009 Environmental Report, 2) renewable energy, 3) alternative transportation, 4) green purchasing and recycling, 5) new construction and renovation projects, and 6) the Planet Blue program.

Environmental Report: Noting that the full 2009 report was online, Alexander hit on a few highlights. Per capita water use was down 7.1% in 2009, compared to 2004. Energy use had remained flat, despite an additional 11% increase in gross square footage on campus during that period, and a 9% increase in the campus population compared to 2004. Normalized for those factors, he said, energy use was down 19% (measured by British thermal units, or BTUs). Greenhouse gas emissions were also flat, at around 600,000 metric tons of carbon dioxide equivalent. While it was good that energy usage and greenhouse gas emissions hadn’t increased, he said, “holding steady is not going to be adequate going into the future.” [.PDF file of 2009 Environmental Report]

Renewable Energy: This was an area that hadn’t made great strides, Alexander said. He pointed to the Dana Building’s photovoltaic array project, and the central power plant’s hot water solar array as two examples of efforts toward generating renewable energy on campus.

Alternative Transportation: Use of alternative transportation was up 28% compared to 2004, Alexander said. Ridership on the UM bus system surpassed 6 million during 2009, while the MRide program – which allows UM-affiliated riders to use the AATA system at no cost to them – had over 2.4 million riders. More than 3,000 people have signed up to use the GreenRide program, Alexander said, a system to help people find others interested in using carpools or vanpools. There are 86 UM vanpools, he reported, used by 527 people.

Green Purchasing/Recycling: The university’s recycling rate is at 33%, Alexander said, up from 29% in 2004. A toner cartridge recycling program is just starting, he said, with the expectation of saving about $2 million over the next year. One of their biggest recycling programs is during student move-out dates, when university staff helps divert items – things that would otherwise be left behind and thrown out – to local nonprofits. Over the life of that program, they’ve diverted an estimated 138 tons of usable items, he said.

New Construction/Renovation: This year, the university adopted a new goal for its design standards, aiming to go 30% beyond the 2007 energy efficiency standards set by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE). Alexander cited the example of the North Quad dormitory being built at the corner of Huron and State – by using energy efficient design, the university hopes to save $300,000 in annual utility costs.

Planet Blue: The Planet Blue initiative is a building-by-building approach, Alexander said, with operations staff working with each building’s occupants to find ways to reduce energy. Five buildings – including the Fleming administration building, Chemistry and Rackham – have completed the program, showing a 6% reduction in energy use and an annualized cost avoidance of $340,000. Thirty more buildings are involved in Planet Blue this year, and another 30 will be targeted in 2010. Alexander said he thinks the 6% energy reduction will grow to 15-20% when these other buildings complete the program.

Alexander told regents that compared to other schools in the Big 10, UM was a leader in sustainability efforts. Looking ahead, he said, the key will be to balance environmental and economic goals.

Gift for Women’s Hospital

Regents unanimously approved the naming of the new women’s hospital as the University of Michigan Von Voigtlander Women’s Hospital – reflecting a $15 million gift to the hospital from the Ted and Jane Von Voigtlander Foundation. Ted Von Voigtlander was a co-founder of the Discount Tire chain.

Ora Hirsch Pescovitz, UM’s executive vice president for medical affairs, thanked the staff who’d been instrumental in securing the gift, including Pat Warner, Jennifer Edwards, Tamara Carr and Tim Johnson. They were attending the meeting and received a round of applause from the regents. Pescovitz also thanked Gwen Haggerty, president of the foundation, daughter of the Jane Von Voigtlander and adopted daughter of Ted Von Voigtlander. Both of the Von Voigtlanders are deceased.

Regent Andrea Fischer Newman, who participated in the meeting by phone, made the motion to approve this resolution. She noted that it was almost 14 years ago that she spent a few days under the care of Johnson, “and I have a 13-year-old to prove it,” she quipped. Johnson is currently chair of obstetrics and gynecology at the UM Medical School. Newman said she remembered talking to him about his goals for women’s health programs at the university hospital, and that she knew how much this gift would mean toward achieving those goals.

A $754 million C.S. Mott Children’s Hospital and Women’s Hospital complex is being built on the university’s medical campus, and is scheduled to open in 2012.

Building Projects

Regents approved several facilities projects for the Ann Arbor campus:

• A $1.8 million remodel of about 92,000 square feet of office space in four buildings at the North Campus Research Complex (NCRC), formerly the Pfizer campus. The job includes painting and new carpet installation, as well as improving the site’s accessibility. When renovations are finished, the university plans to move administrative staff into the NCRC offices, vacating other space that it currently leases.
• The next step in the $49 million renovation of the Couzens Hall dormitory on East Ann Street, which houses about 560 students – authorizing the project to be put out for bids, and authorizing the awarding of construction contracts. At their July 2009 meeting, regents approved the schematic design for the dorm renovation, which UM chief financial officer Tim Slottow previously characterized as the last “deep” renovation of a heritage residence hall.
• An $11.1 million renovation and expansion project on the second floor of the Michigan Memorial Phoenix Laboratory building, which houses the Michigan Memorial Phoenix Energy Institute. The architectural firm of Lord, Aeck & Sargent Inc. will design the project. It includes renovating 10,000 square feet of research space and building another 10,000 square feet for administrative use.

Lease Report

The university’s real estate policy requires that an annual report be given to the regents with information about leases exceeding 50,000 square feet at any given location. The current report lists five such places – no dollar amounts were given regarding the cost of these leases.

• 229,550 square feet at the Domino’s Farms complex, leased from Domino’s Farms for use by various University of Michigan Health System (UMHS) departments, including sports medicine, plastic surgery, preventive cardiology, and various Medical School groups, including internal medicine.
• 125,815 square feet at the KMS Building on 3621 S. State St., leased from Kosmos Associates for hospital clinical billing and other UMHS groups.
• 63,920 square feet at 2301 Commonwealth Blvd., leased from First Properties Associates for use by various UMHS groups.
• 59,219 square feet at 325 E. Eisenhower Parkway, leased from Burlington Property LLC for use by physical medicine and rehabilitation, spine rehabilitation, and the Dental School.
• 51,534 square feet at 1051 N. Canton Center Road in Canton, leased from Saltz Center for the UMHS Canton Health Center.

Conflict of Interest Items

Regents approved 10 items that required disclosure under the state’s Conflict of Interest statute. They involved deals with the following nine companies: McCreadie Group Inc., Fusion Cooolant Systems Inc., ChemXLerate LLC, NanoBio Corp., NeuroNexus Technologies Inc., Incept BioSystems, ACSI LLC, Arbor Photonics Inc. and 3D Biomatrix Inc.

Regent Larry Deitch, an attorney, recused himself without elaboration from voting on a master sub-recipient agreement between the university and NanoBio Corp. – the company led by Jim Baker that was cited in UM president Mary Sue Coleman’s opening remarks.

Annual Operating Request to the State

Regents approved but did not discuss annual operating requests made to the state legislature for the Ann Arbor, Flint and Dearborn campuses for fiscal 2011, which begins July 1, 2010. [.PDF file of request made for the Ann Arbor campus]

The requests came in the form of a letter from UM president Mary Sue Coleman to state budget director Robert Emerson. No specific dollar amount was mentioned. Rather, the letter made a case for why it was important for the state to maintain adequate funding for the university. The letter states, in part:

We acknowledge the financial circumstances of the State. Nevertheless, the University of Michigan is an essential component in the stabilization and revitalization of the Michigan economy. We also play a critical role in the development and education of our workforce and cannot risk jeopardizing the quality of our instruction, research and service. Our current state appropriation is $47 million less, in nominal dollars, than the appropriation we received in fiscal 2002. At the same time, our activity levels have grown, and the competition we face for the best students and faculty has increased.

Maintaining our position as one of the most prestigious educational and research institutions in the world is one of our top goals, and it is critical to our ability to continue supporting the State’s economic recovery. The impact of the State’s historic contributions to the University of Michigan’s success cannot by overstated, and we believe the State’s continued investment in our success is central to our collective future.

UM’s Ann Arbor campus received a state appropriation of $316.6 million for its current fiscal year, plus $8.78 million in one-time funding.

Present: Mary Sue Coleman (ex officio), Julia Darlow, Larry Deitch, Denise Ilitch, Olivia Maynard, Andrea Fischer Newman (via phone), Andy Richner, Martin Taylor, Kathy White

Next board meeting: Thursday, Jan. 21 at 3 p.m. in the Fleming Administration Building, 503 Thompson St., Ann Arbor. [confirm date]

Jeremy Canfield and Sergio Mendez of the tech start-up Phonagle study their iPhones as they search for virtual game pieces in Ingalls Mall during the art fairs on Thursday. (Photo by the writer.)

Sergio Mendez was meandering through the art fairs crowd in downtown Ann Arbor. Walking down Washington toward Main Street, Mendez saw something worth picking up. It was the left arm – just the left arm – belonging to a guy he knows, Eric Garcia. So Mendez  grabbed it and put it in his backpack.

That left arm wasn’t some sculpture in the art fair. But no worries, it also wasn’t Garcia’s literal left arm. It was a virtual arm, part of a multi-player iPhone game that Mendez and Garcia are developing, along with their colleagues at Phonagle, Jeremy Canfield and Ben Malley.

Phonagle LLC is a tech start-up. This week they’re using the art fairs as the setting to test out the game they’re developing. The object of this game: Find and collect virtual objects set up around the city – this version included their own virtual body parts.

At their downtown office in the basement of Tally Hall, Mendez explained that they intended to blend the online and offline worlds with their game. It’s meant to become a part of players’ daily lives, something they do while hanging out at a coffee shop or walking from place to place on the street.

Thursday afternoon was the first test  for the game. After gathering at the entrance to their office building on Washington Street, the Phonagle members split up, with Mendez and Canfield functioning as a team and Malley and Garcia striking out in their own directions. The Chronicle shadowed Mendez and Canfield to see how the game would play out.

Jeremy Canfield and Sergio Mendez of the tech start-up Phonagle look for virtual body parts on the Diag while doing a test run of their multi-player iPhone game on Thursday. (Photo by the writer.)

Canfield explained that they had applied Photoshop filters to photos of themselves,  then digitally sliced up those photos and scattered the pieces around the city, with a concentration on the art fairs. Each player started out with the torso from his photo. Rule of the game for this test:  First person to find his head, arms and legs, and then reconstruct his photo would win.

Before heading out, Canfield and Mendez studied their iPhones. Using their built-in GPS capability, the phones displayed maps of the downtown area. A blue dot indicated the current location of the player. Question marks on the map indicated body parts that were virtually located within four blocks or less of the blue dot. Players could “pick up” body parts by being within about 40 feet of them.

So when Mendez picked up Garcia’s left arm, it was because he’d gotten within 40 feet of it. As the arm appeared on the screen of his iPhone, he explained that players can also trade body parts, making them “jump” from one phone to the other with a downward motion of the player’s arm. That means players in the game can pick up each other’s parts and use them to bargain for bits of their own bodies.

Mendez decided to continue toward another question mark at the intersection of Liberty and Main, while Canfield went after another nearby piece. It was slow going through the crowd on Liberty. Art fair visitors lingered around the booths, looking at wooden carvings of animals and beaded jewelry. The sun was blazing, and the scent of ice cream, sunblock and hot dogs mingled in the summer air.

Mendez eventually made his way to Main, where he found Malley’s left arm.

“I’m going to pick it up in any case, so I have trading power,” Mendez said.

Canfield returned with one of his arms and one of Malley’s. As the two of them meandered back down Liberty in their quest for more body parts, Canfield noted that the art fairs didn’t seem like the best venue for the game. Players need to move quickly to gather their pieces before others do, but the fair clogs the streets and slows the gamers’ progress.

And the players might want to stop and see the art, too.

“You’re torn because you kind of want to look at the exhibits,” Canfield said.

Despite their need for speed, Canfield and Mendez soon got waylaid at a booth for Paradise Island Gourmet Popcorn. The plastic containers with free samples of cheddar, strawberry and bacon-flavored popcorn drew them in. Soon they were munching handfuls of Jamaican BBQ and taking out their wallets to actually buy a couple bags of the bacon-flavored stuff.

“Back to the game,” Canfield announced as they left the booth, popcorn in tow.

The Phonagle duo wandered the crowded, sunny streets down State Street. They walked through Ingalls Mall, while the Black Eyed Peas’ “Boom Boom Pow” emanated from a nearby tent. Canfield forged ahead, scrutinizing his iPhone’s screen, while Mendez paused to study the menu at a booth serving Mediterranean food. No question marks showed up on their maps.

“Those guys have picked everything up,” Mendez said of Malley and Garcia.

Sergio Mendez (left), Jeremy Canfield and Ben Malley of the tech start-up Phonagle discuss possible revisions to their multi-player iPhone game in their office after testing the game out during the art fairs on Thursday. (Photo by the writer.)

After traversing North and South University and the Diag with no luck, Mendez and Canfield headed back to Liberty. On the way there, they discussed possible revisions to the game.

They agreed that they should program in “backpack limits,” allowing one player to pick up only five or six pieces at a time. Canfield also proposed that they include hints on the map, if a player isn’t close enough to even see any of the pieces as question marks. Arrows pointing in the direction of the pieces (and even telling the player the number of pieces in that direction) could keep the game’s participants from getting stuck.

Canfield also mentioned adding art fair trivia to the game, so players have to gather information and can’t “just pick pieces up.”

“What is the item in booth 74 that looks like the ocean?” Canfield gave as a potential clue.

The Chronicle first encountered Phonagle members in our report on RPM-10, an entrepreneur internship program sponsored by the University of Michigan College of Engineering Center for Entrepreneurship and RPM Ventures. The 10-week program gives student entrepreneurs funding and office space for the summer. Canfield, Malley and Garcia attend the U-M School of Information; Mendez is a recent graduate.

Back in their office an hour and a half after the start of the game, Garcia greeted Mendez and Canfield with a triumphant grin.

“I think I win,” Garcia said. He revealed that he’d picked up 15 of the 20 pieces in the game, not including the torso he started out with. Mendez and Canfield collected four pieces (not counting their torsos) …  and 4 bags of popcorn. Malley collected 1 game piece … and a Starbucks beverage.

Even though he’d retrieved the most pieces, Garcia didn’t have all of his own body parts and therefore couldn’t reconstruct his photo. No one had officially won.

“Ok, we do now know we need backpack limits,” Canfield said. “But there’s also something else missing. It can’t be just a game of speed.”

Garcia called the game “really fun,” since he consistently found new question marks on his map to hunt down. It wasn’t as fun for the others, however. Canfield said they needed to fix the game so players wouldn’t log on and see an empty map if there were no pieces around.

“Every time you enter, there should be something there,” Canfield said.

Based on the test run, Canfield said the team will revise the game. They also plan on recruiting students to test it out sometime soon.

Even though the game had some glitches, the afternoon wasn’t unsuccessful.

“I have bacon popcorn now,” Canfield said. “I’m happy.”

The TechArb offices are accessible via a graffiti covered door in the alley next to the Michigan Theater. (Photo by the writer.)

Behind a graffiti-covered door, at the end of the alley next to the Michigan Theater and one floor below street level, a handful of entrepreneurs are working at all hours in some pretty unusual office space.

Under the umbrella of TechArb, a coworking space for University of Michigan students, 10 start-up technology companies have set up shop in 30,000 square feet of commercial basement space that has been vacant for years. With 18-foot ceilings, imposing columns and no natural light, there is feeling of total isolation from the hubbub of Liberty Street, just one story up. The seclusion allows the 30 entrepreneurs to focus intensely on building their businesses.

They’re hard at work because the clock is ticking. They’ve got the rent-free space for this summer, and this summer only.

First, a little bit about the space: Tally Hall, the massive structure housing these young businesses, is actually made up of two buildings built in 1984. The taller building, known as Liberty Square, is a six-story parking structure owned by the city of Ann Arbor. The shorter building comprises two floors of office space owned and managed by McKinley Inc. since 2007. With entrances to the ground level from two different streets and a full basement, the building takes on several identities. The University of Michigan’s English Language Institute currently leases the first floor on the Washington Street side, and the Liberty side is under redevelopment for retail use, according to Frances Todoro Hargreaves, property manager for McKinley.

The building was originally developed by the city of Ann Arbor as a public/private partnership – the basement was a food court with retail stores on the first floor. Later, Borders had their corporate headquarters located on both the lower level and the first floor. According to Hargreaves, when Borders vacated the property in 1998 to relocate to the south side of town, the property was left vacant until McKinley purchased it in January of 2007.

TechArb occupies only a small corner of the expansive space. (Photo by the writer.)

Since then, the basement – though empty – has served as an occasional hub for start-up activity in Ann Arbor. In the literal shadow of the office building housing Google a half block away, the location enjoys a certain cachet. It was briefly used last summer as the location for StartUp Weekend, a 54-hour event that brought together professionals from the technology and marketing sectors with the goal of building community and launching new companies. For that event, McKinley donated the use of the space.

Like StartUp Weekend, TechArb enjoys free office space courtesy of McKinley. TechArb, which has no affiliation with Start-Up Weekend,  came by the space in a circuitous way.

To understand how TechArb ended up with 30,000 square feet of prime downtown office space for free, we start with UM’s RPM-10 program. RPM-10 is an entrepreneur internship program sponsored by the University of Michigan College of Engineering Center for Entrepreneurship and RPM Ventures, an early-stage technology venture capital firm. Now in its second year, the program provides a summer’s worth of funding, mentorship and office space to UM student entrepreneurs. The program lasts approximately 10 weeks – that’s the “10″ in the name – and is highly competitive. This year, only three companies were accepted out of 35 that applied.

The two founders of RPM Ventures, Marc Weiser and Tony Grover, are both UM College of Engineering alums with strong ties to Ann Arbor. Weiser also has strong ties to McKinley – he’s the son of McKinley founder Ron Weiser, and sits on the Ann Arbor firm’s board of directors. He’s also a board member for the College of Engineering’s Center for Entrepreneurship.

Weiser and Grover started RPM-10 as a way to nurture more tech companies in Michigan. Program winners are offered a unique opportunity to try out entrepreneurship with a very low cost of failure. As Grover says, “The best way to truly learn what it’s like to be an entrepreneur is to just go out and do it.” While RPM Ventures is in the business of funding upstart companies, they have no claim over the RPM-10 teams. Grover says, “At this point, RPM Ventures hasn’t taken a legal or financial stake in the three RPM-10 teams. There’s always the possibility that RPM Ventures could invest in one of the companies in the future out of our investment fund, so that it could become part of our portfolio.”

McKinley, a sponsor of RPM-10, donates the use of the basement space for the RPM-10 summer program.

So where does TechArb fit in?

Jason Bornhorst, a UM student who participated in the RPM-10 program last year, approached the RPM Ventures team with his idea of establishing a coworking space for student-founded start-ups. They invited him to set up what eventually became TechArb in the basement space that they had procured for RPM-10. Now, the three RPM-10 teams work alongside seven other start-ups founded by students, sharing not only the office, but also ideas and advice. Among some of the projects in development: a public transportation tracking system, a website that allows fans to purchase stock in their favorite bands, and smart-phone applications. [See the full list of start-ups here.]

Jeremy Canfield, left, of Phonagle LLC talks with Matt Burton, who's visiting, and Phonagle co-founder Sergio Mendez in their TechArb office. That's a big iPhone poster leaning against the back wall. (Photo by the writer.)

Smart-phone apps are the focus for Phonagle LLC. Sergio Mendez, a recent graduate of the the U-M School of Information, and his three Phonagle co-founders moved their offices into the Tally Hall basement last month. As one of the RPM-10 program teams, they receive assistance to meet the goal of their first multi-player iPhone game launch by the end of the summer. “We develop social mobile games that embed into your daily life, have real-world location components, and allow you to play and cooperate with friends,” Mendez says.

Mendez found out about the RPM-10 program when a representative gave a talk at the UM School of Information, where he has just completed a master’s degree. He was initially wary of the basement: “I personally had mixed feelings when I first saw the space – this is huge! But after two weeks I realized the advantage of working with different people near you … we collaborate a lot with other groups and bounce ideas, get feedback about designs and technical challenges.” The lack of windows has affected his work habits, in a positive way: “You can spend hours of work down here without realizing if it’s sunny or raining outside. I can concentrate better and get work done.”

For businesses that essentially  require only a solid internet connection, a chair and a desk to be fully functional, this sparsely furnished space serves its purpose well. Says Jeremy Canfield, co-founder of Phonagle, “The space lends itself to software and technology. There’s a limitation to what it can provide to people outside of that [industry].” If they weren’t working here, the TechArb and RPM-10 teams would most likely be working from coffee shops or their homes. The general consensus is that everyone benefits from the proximity. Canfield notes that “Cross-pollination results from so many companies in a small space.”

While there is interest in establishing TechArb as a permanent space, for now it’s a four-month experiment. At the end of the summer, the free use of the basement will end, and students will return to working in their apartments and dorm rooms. Many will resume classes and make the transition back to being full-time students. But if this summer’s experiment turns into something more permanent, some might be back next year for more.

For a video produced by UM’s College of Engineering about TechArb, click here.

About the writer: Shannon Riffe is a freelance writer living in Ann Arbor.

Bikes, skateboards and Frisbees are a recurring feature of the decor. (Photo by the writer.)

Phil Power talks to UM students on Friday afternoon as part of the MPowered lecture series on entrepreneurship.

Here’s what Phil Power believes: “There is nothing in life that is more challenging or more of an art form than being an entrepreneur.”

The former UM regent and newspaper publisher was talking to a group of University of Michigan students on Friday afternoon, giving them some insights on his own experiences founding Hometown Communications Network as well as his newest venture in social entrepreneurism, the Ann Arbor-based Center for Michigan. His talk was part of a series hosted by MPowered, a student entrepreneur group.

Power said he’d read Friday’s Detroit News article reporting that more than half of UM’s graduates leave the state after graduation. People have told him there’s nothing here for them in Michigan, he said, “which I think is a load of bull.”

This state is a great place for entrepreneurs, Power said, in large part because major market discontinuities (which he defined as “when things are really screwed up”) are creating opportunities. “Michigan is a perfect example today of wholesale market discontinuity,” he said, specifically in the auto and newspaper industries.

Michigan also has a rich history of inventive ideas spawning business ventures, he said, much of it occurring at the turn of the last century. Dow, Upjohn, Kellogg, Ford and Hudson’s are the most high-profile examples – each started small and grew into major corporations. “Entrepreneurship DNA is in our bones,” Power said.

Social entrepreneurship, too, has a history in this state, he said. Back in the 1960s, UM graduate students Alan and Judith Guskin founded the group Americans Committed to World Responsibility, which Power joined. He was also editor of the Michigan Daily at the time, and published a letter the Guskins wrote that called on other students to join them in serving abroad for their country, Power said. The letter was picked up by other media, and eventually made its way back to John F. Kennedy, who was running for president. Power said this ultimately led Kennedy to establish the Peace Corps after he was elected.

The point of his story, Power said, was not to talk about what limited role he played in this chain of events, but rather to show that “in social entrepreneurship, nothing is more powerful than a bright idea whose time has come.”

Students await the start of Phil Power's talk on Friday at the Stamps Auditorium on UM's North Campus.

Power sees himself as a social entrepreneur. In 2004 he sold his chain of newspapers, which serve suburban markets, to Gannett – noting that this was just prior to the industry’s collapse, and “it is much, much better to be lucky than smart.” A Democrat, he said he was disturbed by increasingly fractious partisan politics in Lansing, and told his wife, “I will be goddamned if we move to Florida and let the sand flow between our toes while our state goes to hell.”

So he founded the Center for Michigan as a bipartisan effort to develop and advocate for policy changes, pressing both political parties to move toward the center. He said he has no interest in forming a third party or running for governor – “if I did, my wife would slit my throat” – but believes the center can be instrumental in finding solutions without being bound by ideological strictures.

He describes the center as a “think and do tank,” because thinking without doing is pointless, and “as the mayor of Detroit has discovered, doing without thinking gets you into a great deal of trouble.” The group began by hosting a series of conferences focused on specific topics, including tax reform and human investment. Power said an example of human investment is the Kalamazoo Promise, a program that pays tuition to state colleges and universities for any Kalamazoo resident who graduates from high school.

The next step was to start doing, Power said, and the center did that by starting community conversations, holding small group meetings around the state to discuss the vision for Michigan, and strategies for achieving that vision. The idea is to create a citizens movement from the ground up, developing common ground and common sense solutions, he said. They held 180 of these meetings in 2007 and 2008, engaging 2,000 people. From those discussions they compiled and published a document – Michigan’s Defining Moment – which is also the name of the center’s broader effort to push for change.

They’re holding additional community conversations over the next year or so, and plan to create action groups around topics that participants identify as priorities. The effort also involves developing policies and lobbying lawmakers in Lansing to enact legislative changes based on these policy recommendations.

The 2010 elections will be a watershed moment, Power said, as term limits will result in a massive change of power in Lansing. Michigan is at a hinge in its history, he said. The state can unify around a shared vision for its future, “or we can be Mississippi with cold weather,” he said. “I believe the choice is relatively simple.”