Why are we just now finding out the extent of the contamination on Water Street?

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Over the past several weeks, it’s come to light that Water Street, the 38-acre parcel of downtown, riverfront property that the City of Ypsilanti has been trying to develop for the past 16 years, may be significantly more toxic than we’d previously been led to believe. What follows is the first of what I’m hoping will be several conversations with Ypsilanti’s Director of Economic Development Beth Ernat about the toxicity of Water Street, how it is that we’re just now coming to know how bad it really is, and where we go from here. Hopefully this first discussion of ours will both help dispel some misconceptions that are out there about the situation as it stands today, and shed some light on how it is that, after 16 years, we still don’t know the full extent of the damage done by the businesses that had been active on the site… Happy Earth Day!

[The image above shows the Water Street Commons native plant prairie, which was shut down by the City a few days ago, shorty after they closed down the portion of the border-to-border trail that runs through Water Street.]

MARK: Let’s start at the very beginning… Since the mid-1800s, the 38-acre collection of parcels we now know collectively as “Water Street” has been home to numerous small companies, some of which were working in relatively dirty industries. The property has seen print shops, manufacturing companies, and foundries, among other things, spread across its 40-some individual parcels.

BETH: This is true. To my knowledge, there was also a landfill, a mill shop, and several auto repair shops. And, we should note, there were very few environmental regulations in existence prior to the 1970s.

MARK: And those regulations that were passed in the ‘70s have continued to evolve over time.

BETH: Right. The regulations continue to change and evolve as more information becomes available about chemicals, products, and the effects they have on those who come in contact with them. The governing legislation as relates to residential contact is called the Toxic Control Substances Act of 1976 (TSCA).

MARK: And a lot of these companies that existed on Water Street, as we know now, left behind chemicals that are known to be harmful, like PCBs.

BETH: Yes. Old oil and fuel products tend to leave behind the most contamination… PCBs are a byproduct of oil when it’s used in the operation of equipment, vehicles and buildings. And, as such, PCBs are the most widespread and common toxic substance found on Water Street today. There are also, however, concentrations of lead, VOCs, and chemicals such as arsenic.

MARK: OK, let’s step back for a minute, before we start going too deep into the contamination, and discuss how the City came to be in possession of Water Street… It’s my understanding that, in late 1990s, Cheryl Farmer, who was Mayor at the time, and members of the Ypsilanti City Council, decided that it would be in the City’s best interest to reimagine these 38-acres of downtown riverfront property. As I understand it, this was seen as an opportunity not only to push older, dirtier industry from the City, but to open up a significant piece of riverfront real estate to new development, which would in turn raise tax revenues, allowing the City to maintain services, etc.

Had it worked, I suspect we’d now look very favorably on the decision. It didn’t, though… After going into significant debt to acquire all of the individual properties, and create this unified 38-acre parcel, Biltmore, the company that we’d brought on as a partner to build higher-end townhouses across the entire site, and construct retail spaces along Michigan Avenue, backed out, leaving us with no plan and millions of dollars in debt.

BETH: Yes, but it’s worth noting that, regardless of whether or not the City had purchased the property 16 years ago, we’d still likely be in much the same position today relative to contamination. As you previously stated, the uses on the property were largely industrial in nature and were causing environmental damage. It’s also worth noting that most of these industries didn’t survive through the late ‘90s and early 2000s. In other words, it’s doubtful that they’d still be in operation today, and investing in the necessary remediation themselves.

MARK: Agreed. Leaving aside for the moment whether or not it was wise for the City to get involved in real estate speculation, had these polluting companies stayed on Water Street, we’d likely have more toxins to contend with now.

BETH: Right. The contamination would still be present on the site today and redevelopment would be still be limited… I was not an Ypsigander at the time, but I can appreciate the conundrum from a redevelopment perspective. It’s long been considered good practice for municipalities to acquire and bundle properties for redevelopment. Yes, this site had challenges, but these challenges would have been much worse had multiple private owners been involved. Also, because the City owns the property, we were able to create a Brownfield TIF to help finance redevelopment-related activities.

On a smaller scale, we’re dealing with the same thing at 2 West Forest, the former Farm Bureau site. Although we don’t yet know the full situation relative to contamination, we know there are environmental challenges. It’s a prime site, but the costs associated with remediation are going to make redevelopment prohibitive.

MARK: I’m not terribly familiar with the 2 West Forest site. I believe, however, the building sold at auction sometime last year to an individual who claimed to have plans of some sort. Are you saying that because a private owner has possession of a brownfield property it’s going to make cleanup more difficult?

BETH: Yes, the property was purchased by an individual. We’ve only had one meeting so far, but the new owner has told us that he has a 5-to-10 year plan to transform the property. As far as we know, he’s not yet had any environmental studies done on site, though. This isn’t to say that development can’t happen. It can. I’m just making the point that it will be costly, and it will require expensive clean-up activity, which can be easier with public ownership. But we will work with any owner to make development happen.

MARK: OK, back to the history of Water Street, what else can you tell us about the acquisition and the remediation work that’s been done to date?

BETH: From my understanding, the City spent approximately $11 million in general revenue bonds on property acquisition, environmental assessment and a small amount of remediation. Additionally, the City has spent approximately $9 million of grant funds; $3.3 in Community Development Block Grant (CDBG) funds, $4.5 in Environmental Protection Agency (EPA) grants, and $1.75 in Neighborhood Stabilization Program (NSP) funds. [NSP is a federal grant program intended to stabilize communities hardest hit by the recession.] And there may be more that I’ve yet to uncover. Furthermore, the City has spent over $1 million in general funds on general upkeep, maintenance, and engineering not covered by grants over the past 16 years.

MARK: And the debt associated with the purchase has continued to grow over the last 16 years, even with the efforts of City employees to renegotiate, etc… As of right now, how much do we owe on Water Street?

BETH: The total debt for Water Street based on the original bond issue was $29,434,535. The City was able to recall the bond debt this year and refinance it, though. Based on current interest rates, a pay-down out of City savings, and a grant for over $3 million, as of May 1st, the remaining debt will be $11,140,000. The annual City payment will be $1,375,340 and will allow the City to pay-off the debt in 14 years. And, if the 2.3 mill levy is approved by voters in August, it would reduce that annual general fund payment to $924,500.

MARK: So, getting back to the contamination, would I be right to assume that, early on in this initial push to redevelop the property, both the City and Biltmore had environmental assessments of the entire parcel done, identifying areas of concern, etc?

BETH: Yes, both the City and Biltmore had assessments done. When commercial or industrial property is purchased, the purchaser is required to submit what is called a Baseline Environmental Assessment (BEA) in order to document the known contamination and restrict the purchaser’s liability by identifying what currently exists on the site. The City had BEAs done for each property it purchased. The BEA includes a Phase I, and sometimes a Phase II, environmental assessment. From the records I have seen, Biltmore started preparing some of this information as well, as they intended to be the purchaser of the property. Biltmore had also prepared a Document of Due Care and Compliance (DDCC) plan for the development of the site. When remediating contamination, a DDCC is required to be submitted to the Michigan Department of Environmental Quality (MDEQ) as a guide to limit exposure to contaminants and to safely either dispose of them, or cap them.

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[The above map, taken from the City’s 2014 Brownfield Plan for Water Street, shows the areas of concern as they were thought to exist until recently. The legend can be seen below.]

BrownfieldLegendMARK: You mentioned Phase I and Phase II environmental assessments. What’s the distinction between the two, and are there other levels beyond them?

BETH: A Phase I Environmental Assessment is basically a historical research study of documents, owners, and uses of property. This provides an estimation of what environmental concerns may be present. A Phase II Environmental Assessment is a follow-up study with soil borings and lab analysis. A Phase II study is the most detailed assessment used, and can include many studies. Documents of Due Care and Compliance (DDCC) are created based on the Phase II findings. A DDCC is a written document that spells out how, step by step, a site is to be properly remediated in such a way that both protects the site site itself, and the adjoining sites during construction.

MARK: OK, so the city had BEAs done for each individual parcel they purchased 16 years ago. Some involved Phase I assessments, and some involved Phase II assessments. And then Biltmore either started or completed a BEA for the entire site before backing away from the deal. Is that correct?

BETH: Correct. Biltmore completed several Phase II assessments and a DDCC draft. The City purchased this documentation from Biltmore when the deal dissolved.

MARK: And, I would assume, a number of tests have been run on the site since that point, given that we’ve attracted state and federal funds to remediate distinct areas since Biltmore walked away, correct?

BETH: The grants acquired for remediation activity required that Phase I and II reports be provided as a starting point for remediation activity. Where studies were lacking, the grant paid for new assessments. And, based on what I’ve been able to find, quite a bit of that grant money for remediation was actually spent on assessment, as there was still a lot that we didn’t know.

MARK: It can’t be easy inheriting a project like this… I mean, there’s a ton of data, and, given the turnover in the City Manager’s office over the past 20 years, there can’t be much in the way of institutional knowledge as to what was done and why.

BETH: It’s definitely a complicated site, and it’s made more complicated by the fact that multiple environmental consultants have worked on the site over the years. And this is compounded by the fact that many of the files are incomplete. Furthermore, as there weren’t surveyor benchmarks on the site, we’ve never accurately marked the locations of testing and remediation. Additionally… and this is a big issue… the environmental standards have changed since some of this work was completed. For example, the Michigan Department of Environmental Quality (MDEQ) set the allowable residential exposure rate to PCBs at less than 4,000 Parts Per Billion (PPB) in 1995. Since then, though, the MDEQ has deferred to the EPA standard, which is less than 1,000 PPB.

MARK: So parcels that would have graded out as OK for residential development 20 years ago, now might not…

BETH: That’s true. Some things which didn’t require remediation activity in the past now do.

MARK: You mentioned just a moment ago that the site doesn’t have surveyor benchmarks. I suspect there’s a really obvious answer, but, without benchmarks, how did the City perform environmental studies of the individual Water Street parcels as they were being purchased? I mean, how do you determine how dirty a parcel is, if you can’t identify the parameters?

BETH: The site now has benchmarks, and, as of six months ago, everything can be identified by GPS coordinates. Prior to benchmarks, though, surveyors used things like the centerlines of streets, the edges of buildings, and other physical landmarks.

MARK: Do you know which company or companies did that initial environmental analysis?

BETH: From the records I’ve reviewed, most of the environmental work done prior to 2006 was done or supervised by the Traverse Group and ECT Environmental. In 2008, AKT Peerless was contracted to create our Brownfield Plan and supervise our environmental work.

MARK: OK, as we were discussing earlier, when Biltmore backed out, and we started the process of looking for a new partner to develop the property, we successfully secured state and federal grants to both tear down the structures that were still standing on the property and address a number of those areas identified as having contamination issues. And with those grants, as I understand it, we were able to remediate all of the significant areas of contamination except for two. Is that correct?

BETH: Yes, that’s correct. There are two large areas that still require significant work. And the amount of work they require has evolved with the changing standards.

MARK: Where, specifically, are these two area?

BETH: See the following map. It’s still a draft, as the accompanying DDCC has yet to be approved by MDEQ, but you can see the areas we presently think need remediation. This map, I should add, is still being finalized, as lab results are still coming in, and as additional testing is going to be done.

newWaterStreetmap

[The above map, which can be found larger here, was just made public today, and reflects the results of the new testing that has taken place to date. The legend can be found below.]

secondlegend3MARK: Which brings us to the parcel along the southern edge of the Water Street property that Indiana-based developer Herman Kittle expressed interest in for the affordable housing project they planned to call Water Street Flats. Things, it would seem, were advancing relatively well, in spite of some citizen pushback against the idea of building more affordable housing downtown, when the Michigan State Housing and Development Authority (MSHDA), a few months ago, issued a letter stating that, in their opinion, we didn’t appreciate how bad things were on the site, or have an acceptable plan as to how to move forward safely with construction.

BETH: They were both insinuating the contamination was worse and more widespread than what we had identified, and that we were not taking any caution in preparing for a housing development that would have direct contact with the contamination… Additionally, and this is important, MSHDA was basing their critique on standards that are not in any state (MDEQ) or federal (EPA) rules. Furthemore, they were imposing standards higher than these environmental authorities. MSHDA also wanted to regulate activities beyond the HKP development, which again falls to the MDEQ.

MARK: And the reason MSHDA is involved at all is because they’re contributing money toward the building of the HKP development, correct?

BETH: Yes, MSHDA provides tax credits for the project, which are federal dollars, and they are responsible for approving all aspects of the project.

MARK: And on what did MSHDA base their claim that the “contamination was worse and more widespread”? Had they done a study of the site on their own?

BETH: I’m unsure. If they did any study of the site, it has not be provided to us. It’s reasonable to say, though, that conflicting documents available on the City’s website, and on historic maps, could have led them to that assumption.

MARK: OK, so they likely saw conflicting reports issued by the City over the past several years, which gave them cause for concern. Would I be correct to assume that all of our public information concerning Water Street is now being changed to reflect our most recent data?

BETH: Yes, we are developing new documents and maps and updating data as it is approved.

MARK: Speaking of our most recent data, this past November, after the MSHDA challenge was raised, Ypsilanti City Council agreed to pay its environmental consultant, AKT Peerless, $50,000 to test the site’s soil and analyze 20 years of existing environmental records to determine definitively what cleanup is still needed. This report, as I understand it, was just recently delivered to the City. What does it say?

BETH: The preliminary report was received last Friday. At this point, the initial results show PCBs closer to the surface and at a higher concentration than earlier reports had shown. Borings done near the new border-to-border trail caused immediate concern to the City and resulted in the closure of the trail, which will stay closed until we can review all of the data more closely and create a plan to resolve any possible issues.

MARK: Just to be clear, the trail itself is safe. It’s the ground on either side of the paved trail that’s the concern.

BETH: Yes, the trail itself is safe, as it’s been capped with asphalt and therefore doesn’t allow for any direct soil contact. However, the City remains concerned that some users of the trail, like children or pets, may venture off the trail and come into direct contact. The standard we’re using is the residential standard, which is based on contact of more than 335 hours in a year. We realize it’s not likely that trail users would have that much contact with the surrounding soil, but we want to be cautious. In the past, the City has been defensive and reactive, and we didn’t want to take that approach this time.

As far as other areas of contamination, we will be working with our consultants to create a comprehensive action plan to address areas of concern and limit direct contact by anyone in the area.

MARK: Just so I’m clear, the new report shows PCBs in areas where no PCBs had been identified in the past?

BETH: There are PCBs in areas that had not been previously studied… This new study was based on data collected following a grid pattern that was approved by the EPA. The thing with PCBs and lead is that they can be very localized, limited to just a very specific area, and the previous sampling could have missed the contamination by just feet.

MARK: And this, in your opinion, sufficiently explains the discrepancy between the 2014 brownfield report produced by ATK Peerless, and this most recent study, which they also authored?

BETH: The Brownfield Plan was a compilation of millions of pages of documents created by other consultants. It’s essentially an incentive guide, and not an environmental document. The documents on which the 2014 Brownfield Plan was based are the Document of Due Care and Compliance, which we discussed earlier, and the individual Act 381 work plans. Both of these plans were based on scientific analysis, and required that specific results to be included.

MARK: So, if I’m following you correctly, everything that we’re dealing with now is the direct result of our relying on the Document of Due Care and Compliance prepared by Biltmore?

BETH: I believe so.

MARK: So where does that leave us now? What’s next?

BETH: First, we will be creating action steps to re-open the trail as soon as possible and address the environmental concerns. This will be followed by the creation and approval of the DDCC for the site, which, as we discussed before, is a step-by-step guide for safe redevelopment. Much of the plan will remain the same, though. The goal is to have everything ready for the developers of these sites, who will do the actual remediation work, some of which will be reimbursable through the terms outlined in the Brownfield Plan… And the City will, of course, follow any recommended actions from our environmental consultant and the MDEQ.

Posted in Special Projects, Uncategorized, Ypsilanti | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 24 Comments

EMU athletics spending under the microscope in wake of HBO Real Sports investigation

The last time he was on the radio with me, Howard Bunsis, the president of the Eastern Michigan University chapter of the American Association of University Professors (AAUP), mentioned that he’d just filmed a segment for HBO’s Real Sports. The segment, he said, was going to be about EMU’s exorbitant spending on athletics, and how the academic mission of the university had been suffering as a result… Well, the Real Sports episode just aired for the first time last night, and now the EMU administration is scrambling to deal with yet another public relations crisis, as everyone is beginning to ask how it’s possible that, over the past two years, the athletic department lost $52 million putting losing teams in front of almost non-existent audiences, all while cutting faculty positions and raising tuition. Here’s a clip from the segment featuring Bunsis.

If you want to know more, and don’t have HBO, just listen to my last interview with Bunsis on the Saturday Six Pack. While we were primarily discussing the faculty’s vote of “no confidence” against the EMU regents, Bunsis went into some detail about sports spending on campus, telling us that, while 20 faculty positions had been eliminated in recent years, 8 new coaches had been hired. “The academic side (at EMU),” he said, “is being starved,” while athletic spending continues to rise, as administrators continue to gamble with student tuition dollars, hoping that a winning football program might boost enrollment, revenue and alumni donations. It’s just not working, though. Here’s Bunsis telling us how, while EMU is in the top 20 schools of its size when it comes to athletic spending, attendance at home football games is the lowest of any Division I football program in the United States.

ssp40bunsis

Following, with a little more on the University’s response to the Real Sports story, is a clip from Terry Foster’s most recent piece for CBS Detroit.

…Eastern Michigan University is doing a thorough self-examination that could change the landscape of the school’s athletic and academic programs.

Should it keep football? Should the football program drop to Division II? Should the school continue to subsidize athletes by siphoning moneyfrom academics? HBO dropped a bomb on the school Tuesday night during a Real Sports program that said the athletic department lost $52 million the last two years and ranks last in Division I football attendance.

But EMU Regent Jim Stapleton said some of the measures the school is considering were in the works before the Wednesday firebomb came out.

“The HBO special in no way shape or form prompted the regent’s actions,” Stapleton told CBS Detroit Wednesday morning. “We have been thinking about and analyzing our overall academic and athletic expenditures for at least the last several months. Any decisions made won’t be because of HBO. You don’t have to be Kirk Herbstreit or Desmond Howard to know we have a problem with our football program. But it has nothing to do with our current football coach Chris Creighton who is a good man and a good football coach. But so was (former) coach Ron English.”

Why does Eastern Michigan University have football?

Real Sports questioned why schools across the country siphon money from academics to athletics. For example the program said Rutgers lost $312 million over the past 10 years. HBO also visited EMU in February and finally released their findings on Tuesday.

One EMU economics professor estimated that students pay an annual athletic tax of $1,000 a year for a football program that has not had a winning season in 20 years and draws hundreds to games.

They can paint the field grey, blue, black or green and can sledge hammer as many brick walls as they want, but few come to The Factory.

So why keep football?

“That’s a fair question,” Stapleton said. “That is one of the things we are evaluating but we are not at the point of making a decision now. You get into football because you believe if you win you will have a school pride experience, increased enrollment and development. When you don’t win those things don’t happen and it has not happened (at EMU) for a while. It starts in that you examine everything. This is the process we are going through at this time”…

So, what do you think? Is it time for Division I football to go at EMU?

Posted in The Saturday Six Pack, Uncategorized, Ypsilanti | Tagged , , , , , , , | 36 Comments

Rick Snyder says he’ll be drinking Flint water for the next 30 days

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Last Friday, when Governor Snyder told the people of Flint that it was time for them to stop relying on bottled water, and start drinking from their taps again, they responded with a resounding, “You first.” After a moment of awkward silence, Snyder unenthusiastically said, “I’m happy to look into that.”

Well, over the weekend, Snyder and his people apparently came to the conclusion that, if he’s going to stay in office, he’s eventually going to have to drink the water. And, today, there was a big photo op in Flint, where the Governor let himself into a home, filled up a big glass of tap water, and then proceeded to take tiny little sips from it while telling the homeowner that her tap water was now safe enough for people over six, unless, of course, they might be pregnant. And, not only that, but he filled up three gallon jugs full of water to take back to Ann Arbor with him, telling the homeowner that he’d be back for more, as he intends to drink nothing by Flint tap water for the next 30 days… The following is from MLive.

Gov. Rick Snyder says he will drink Flint water for the next 30 days.

He made the promise while visiting a home in Flint’s college area Monday to talk to homeowners about the Flint water crisis and to see if their water filters were working.

“I’m going to start drinking this at home and work,” Snyder said of gallons of water his team collected from the home. “I’m going to be drinking Flint water for the next 30 days or so.”

Snyder was in Flint April 18 for a press conference and to visit a home on Brookside Drive near Court Street where his team collected the gallons of water for Snyder to drink…

Early on in this whole thing, it might have meant something to me had Snyder gone into a Flint restaurant, ordered an untested glass of water, and gulped it down in front of television cameras. Announcing that he’s going to be drinking filtered water from a home where it’s already been tested, though, doesn’t really do much for me. Plus, we don’t even know that he’ll actually be drinking the water. It’s not like he’s going to live stream himself drinking a glass of Flint water ever hour, on the hour. And, given everything that’s happened over the past year, that’s what I’d need to see before even considering the possibility of changing my mind about our Governor. I’d have to see him drink pint after pint of water, all day long, brought to him from random homes, apartments and schools around Flint. Until he does that, I’m just going to assume this is another brilliant marketing move dreamed up by one of the high-priced PR firms he now has on retainer.

Here’s a little more from the Detroit Free Press on why this is happening now.

…Snyder’s actions Monday followed developments Friday, when the governor encouraged Flint residents to start using more filtered tap water instead of bottled water and was told by a state official that Flint residents wanted him to start drinking the tap water first.

“I completely understand why some Flint residents are hesitant to drink the water and I am hopeful I can alleviate some of the skepticism and mistrust by putting words to action,” Snyder said. “Flint residents made it clear that they would like to see me personally drink the water, so today I am fulfilling that request. And I will continue drinking Flint water at work and at home for at least 30 days.”

Snyder spokesman Ari Adler said two media outlets were invited to the home to watch Snyder drink the water. Snyder’s office later released photos of him drinking the tap water.

The governor said he won’t always be able to drink the Flint tap water when he is travelling, but he plans to drink it when he is at his downtown Ann Arbor home and when he is at work in his office in the Romney Building in Lansing. He said he will get more filtered Flint tap water when the initial three gallons runs out…

Video from Grand Rapids’ Channel 8 News:

As for watching the Governor drink the water, I wonder if he’d allow us to put a camera in his Ann Arbor home and live-stream it… If I were to launch a Kickstarter to raise enough money for a camera, would you contribute?

Oh, for what it’s worth, Linette doesn’t think it’s a stunt. She just thinks that he doesn’t want to drink the Ann Arbor water anymore because of the dioxane plume.

update: I was up late last night struggling to remember the pop culture precedent for this water-drinking photo op of Snyder’s. I knew there was someone on a television who, like our Governor, had been forced to consume something against his will in order convince people of its non-toxicity. I just couldn’t remember who it was. Thankfully, though, Sara Grosky, came up with it this morning, sending me the following image of Mr. Burns being served Blinky the fish.

3eyedfish

[The lead paint portrait at the at the top of the page of Rick Snyder was painted by local artist Michael Dykehouse, who I interviewed here a while back.]

Posted in Marketing, Michigan, Uncategorized | Tagged , , , , , , , , , , , , | 19 Comments

Author Michael Shuman will be speaking in Ann Arbor on Wednesday on the importance of local business ecosystems

local-economy-solutionIf you’re a regular reader of this site, you know that I think very highly of economist and author Michael Shuman, our nation’s foremost authority on the importance of cultivating, supporting and investing in local businesses. Well, he’s got a new book out called The Local Economy Solution: How Innovative, Self-Financing Pollinator Enterprises Can Grow Jobs and Prosperity, and the folks at Zingerman’s are bringing him to Ann Arbor this Wednesday morning to speak. Tickets are $50 a piece, which I know is a lot of money, but, if you’ve got a little extra cash saved up, or a tax refund check coming your way, I think you might find it well worth the investment. I’ve seen Shuman speak at least three times now, and every single time I’ve found the experience to be not only incredibly thought provoking, but also inspiring… So, if, like me, you’re anxious to find ways to strengthen your community, create meaningful career opportunities of local people, and stop giving our hard-earned dollars to large, out-of-state corporations, do yourself a favor and come out on Wednesday and join the revolution.

If you’re not sure about investing the money, I’d encourage you to check out some of the articles I’ve posted here after having heard Shuman speak in the past. They should give you a pretty good sense as to what to expect. Here are the links: 2006, 2012, 2013.

update: Actually, I can do better than that. Here’s a clip from my 2013 post, for those of you who don’t follow links. These as the 16 things which Shuman said on his last visit to Ann Arbor that struck me the hardest.

1. The economic development policy of Michigan, according to Shuman, has “gone off the rails.” This, he says, is not an indictment of any particular political party, as both the Democrats and the Republicans, according to him, promote a failed “attraction and retention” approach, which has little or nothing to do with nurturing the small, local companies that are the overwhelming creators of jobs and prosperity in this country. Instead, our various economic development organizations focus primarily on luring big businesses to leave the states where they currently reside, by offering tax abatements and other short-sighted incentives, and bribe those big businesses that are already in-state to stay. A more successful strategy, he argues, would be to implement policies that maximize local ownership, increase regional self-reliance, and reward adherence to the so-called triple bottom line (the understanding that environmental and societal costs should be factored in, along with profitability, when assessing a business’s value). In further exploring the triple bottom line concept, Shuman says that it’s already appreciated by most people that decisions aren’t just motivated by price. It’s about value, he says. If it were just about price, Starbucks wouldn’t exist. They, however, attract people for a reason. When thinking about local business, we need to keep that in mind. We need to reframe the value proposition, and demonstrate how other factors need to be taken into consideration. Until not so long ago, he says, people in many companies couldn’t purchase long-life, energy-efficient light bulbs, as they were more expensive. There was no way, according to Shuman, to factor in the life of the bulb when making a purchasing decision. That, however, has changed. And, as we move forward, other things will be factored in as well.

2. The evidence, according to Shuman, shows that “local busineses are more reliable and efficient users of public money.” Shuman, in making this case, references an assessment that was done of the tax abatements given to entities doing business in Lane County, Oregon. 95% of all abatement dollars, during the specific period of time that he studied, were given to six non-local businesses. Three of these companies, after receiving their abatements, promptly moved their facilities to Asia. And, of those remaining, two never delivered the jobs that they promised. (Speaking of which, does anyone remember how many jobs Google said they’d bring to Ann Arbor when they got their abatement half a dozen years ago?) But, while only one of the six investments in businesses headquartered out-of-state actually brought about significant job creation, the 5% of incentives that went to businesses rooted in the community were actually quite successful. And, those jobs which were created cost the tax-payers a great deal less. Whereas it had taken over $60,000 in abatements to create each job with an out-of-state business, a new job was created with every $2,000 invested in a local business. (I plan to ask Michael for a link to the study.)

3. Local businesses recirculate dollars in their communities. An analysis of bookstores in Austin showed that, of every $100 spent in a locally-owned store (Book People), $45 were circulated back into the community, whereas only $13 made its way back into the community when $100 was spent at the nearby corporate chain store (Borders). Local companies, as Shuman was quick to point out, hire local accountants, advertise in local papers, pay dividends to local owners, and give more to local charities, among other things. You would be hard pressed, said Shuman, to find an example of a non-local business making a more significant impact than its locally-owned competitor. And there are now dozens of academic papers that prove this to be the case. A recent study in the Harvard Business Review, according to Shuman, found that the highest per capita job groth rates in the United States are in those communities with the highest density of locally-owned businesses. And it’s not just job creation where these communities excel. Academic studies have also shown that, when you have well-established, healthy, local business ecosystems, you also tend to have smart growth, tourism, more entrepreneurial behavior, better public health, more civil society, and increased political participation. (Of course, it could be that these other factors lead to more robust local business ecosystems, or that all of these positive outcomes have more to do with the relative wealth of a community than the percentage of stores that are locally-owned, but we’ll leave the “correlation v. causation” discussion for another time. For the time being, I just think it’s interesting to note that these indicators of community health all seem to correspond with increased local business ownership.)

4. There’s more opportunity for local businesses with the costs of fuel going up. Our economy has, over the past several decades, been shifting from one that manufactured and sold goods, to one in which most people are working in the service sector. (It is, after all, harder to outsource service sector jobs to China and India.) Now, however, the pendulum is swinging back. With the price of oil rising, local companies are starting to be able to compete in the area of manufactured goods, ranging from paper products to building materials. We need to acknowledge this opportunity, and start looking for opportunities to substitute locally produced goods for ones that are currently being shipped across the world, and trucked across the country, at great expense to the environment.

5. If you were to ask anyone, “Would you rather have full employment with high environmental and labor standards, or full employment with low standards?” they would say that they would rather have full employment with higher standards, says Shuman. The problem is, people think that there has to be a trade-off. They don’t think full employment is possible in a world where the environment is respected and labor rights are protected. They’ve been convinced that we can’t have both simultaneously. We need to demonstrate that it’s possible, and that triple bottom line thinking doesn’t have to negatively impact the economy.

6. The big problem is that we don’t have a way to capitalize local businesses that have the potential to grow and create jobs. We know that small businesses (businesses with fewer than 500 employees) are the ones with the real potential to create jobs, and transform our communities, but, as of right now, there’s now way for us to help them grow, and participate in their success. America is an extremely rich country. Collectively, the people of the United States currently have $150 trillion in wealth. The problem is, almost all of it, that isn’t in real estate and other tangible assets, is invested in large companies. It’s incredibly easy to invest in public companies and mutual funds. We don’t, however, have a mechanism by which to invest in the companies in our communities, unless we’re extremely wealthy, in which case we’re considered “accredited investors” under securities law. (The SEC operates under the assumption that the rich, unlike the rest of us, are capable of making informed decisions. Shuman calls the current system “securities apartheid.”)

7. In 2009, Shuman proposed that a slight change be made to the existing system. He recommended a $100 exemption, arguing that unaccredited investors should be given some small degree of freedom to invest outside of the established securities system. His colleagues liked the idea, and a letter writing campaign was initiated. The Securities and Exchange Commission, however, did nothing. They sat on the idea until, one an a half years later, when the head of the SEC was called before Congress and asked, by Representative Darrell Issa, what innovative measures they could put in place to get the unemployment rate back below 9%. And, in the resulting conversation, Shuman’s proposal was brought up. Ultimately, the House committee unanimously voted to enact the legislation, but with a $10,000 exemption. This then went to the Senate, where it was whittled down to $2,000. (People that make less than $100,000 a year, can invest $2,000, or 5% of their income, annually. People making over $100,000, can invest in 10% of their incomes.) And, in April 2012, it was signed into law by President Obama. (If you’re interested, I discussed this legislation at some length not too long ago with author Amy Cortese.) The SEC is now working to get the rules, regulations and infrastructure in place, and the hope is that, in the next few months, we’ll have a system where unaccredited investors will be able to invest in specific companies through online middlemen. (Intermediaries are required by law, but the SEC is still debating what role they will play, what kind of licensing they will need, etc.)

8. Move Your Money campaigns, aimed a getting people to transfer their accounts from big banks to local ones, are great, says Shuman, as big banks neither care about, or invest in, our communities, but funds invested in banks are “just a drop in the bucket.” We need to get at the over $30 trillion currently invested in securities, says Shuman. We need to start the process of slowly chipping away at it, taking advantage of the few opportunities that currently exist, and pushing for more. “We are on the verge of a huge change in capital markets,” says Shuman. “What happens when the first trillion goes from Wall Street to Main Street? People will take notice.”

9. Shuman suggests that we immediately do two things as a community. Together, he says, these two things would likely only cost us about $20,000. And, if we did them, we’d be infinitely better off than every other community in the United States. First, he suggests that we create a passive web listing of every local business investment opportunity there is. Second, he says that we should strike a deal with a local accountant to help implement a self-directed IRA initiative. If we could gather 1,000 individuals, all willing to pay $100 a year to have someone manage a self-dircted IRA, he suspects that we could find an accountant willing to drop his/her rates to accommodate us. And, once we have this mechanism, we could begin moving our savings from investments in the S&P 500, into our own communities. (Self-directed IRAs are currently legal under SEC rules.) The accountant would just have to do the administrative work of facilitating the investments in these local companies. And, as he says, this could happen immediately. (He said that, if we wanted, we could also consider implementing a community portal, like those being rolled out by Mission Markets. As the new crowdfunding legislation still hasn’t been rolled out, Mission Markets can’t facilitate equity deals, but they can facilitate debt deals, connecting local businesses to those in the community who have money to lend. The equity piece will follow, when the terms of the legislation are announced.)

10. As local banks are the ones investing in our communities, we need to make sure that all of our local governmental entities are investing their cash reserves in local banks. (You’ll be happy to know that I’ve already started looking into this, and hope to have a report soon.)

11. Foundations, by law, have to give away 5% our more of their assets each year. The other 95% of their holdings, however, can be invested anywhere. What would happen, Shuman asks, if our local foundations began investing in local businesses, instead of in the big securities, which are systematically destroying our communities? And, he says, they can legally do this now. This would be a powerful mechanism for immediate change.

12. This isn’t about investing in start-ups, he says. No, he would focus on companies that are between three and five years old, that are poised for growth. They’re the ones that need the crowfunding, and they’re the ones that could really create jobs. And this grassroots funding could keep local companies local. Shuman offers the example of Tom’s of Maine, saying that, if they’d been able to capitalize their growth themselves, they wouldn’t have had to sell to Colgate-Palmolive, and they could have stayed in Maine, and grown.

13. Here’s how he thinks it will likely play out… This will all start with Direct Public Offerings (DPOs), with individuals buying equity in small companies though crowdfunding portals. Then, people will need a place to buy and sell stock, and local stock exchanges will emerge. Then, once there are exchanges to provide liquidity, we’ll see portfolios develop, and open-ended mutual funds. And, ultimately, we’ll see pension funds moving their money over. The path, he thinks, is relatively clear… It will likely take ten years, he says, and there will be setbacks along the way. There will be crowdfunding scams, and many portals will crash and burn, but, by 2015, a few good websites will have emerged, and we’ll be on our way.

14. This is politically doable. The fact that we need to end corporate welfare, and stop stacking the deck against our local companies, is one of those rare things that both libertarians an progressives can agree on.

15. Local businesses can outperform Wall Street. Regardless of what people may tell you, the S&P, over the past 140 years, according to Shuman, has an average rate of return of 2.6% annually. At that rate, you’d be better off putting your money in the bank, says Shuman. He then notes that it’s not unusual for local businesses to return 5% annually to their investors.

16. Something that we could do immediately, that would cost nothing… We could start identifying the businesses that are most in need of investment right now. Which companies have potential for growth? Which companies could, if they were capitalized, grow and add jobs? We could put the word out through our networks, and start aggregating the data. Second, we could start pulling together a list of people who are interested in local investing, even at relatively small levels. We could have people sign an “I’m a committed local investor” list, and capture their contact information so that, as opportunities arise in the near future, we know who we can turn to… The bottom line is that we need to start building the infrastructure now.

If you found this post at all interesting, I’d encourage you, after reading my last two Shuman posts, to check out the discussions I’ve had recently with Judy Wicks, the founder of the Business Alliance for Living Local Economies (BALLE), Zingerman’s co-founder Paul Saginaw, and author Amy Cortese. They’re all incredible.

Posted in Local Business, Locally Owned Business, Uncategorized | Tagged , , | 26 Comments

If you saw anyone acting strangely in downtown Ypsi last night, I think I might know why

potions

The arrow pointed down an alleyway off of Washington Street. Another sign, about 20 yards down the alley, pointed behind a garage, where I assume someone was waiting with various bottles of potion. I was tempted, but I did not give in to my curiosity. I value my life too much.

Posted in Mark's Life, Ypsilanti | Tagged , | 15 Comments

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