Thursday, December 29, 2011

Fred Leeb: Detroit's Old Games Are Over

Fred Leeb: Detroit's Old Games Are Over

Detroit Has "Hit the Wall"
Those of us in the turnaround world have been waiting for decades for the City of Detroit to be in its current dismal financial condition with no easy way out. This is called "hitting the wall" when there is no cash available any longer to continue business as usual. We have been waiting for this because it is finally the time when people must step up and take positive actions -- there are no alternatives. When you are about to hit the wall, the old games are over. People are not impressed any longer with:

• Speeches full of promises,
• Macho tough-guy tactics,
• Elaborate analytical studies,
• Infinite variations of blaming others,
• Fancy job titles and sound bites from celebrities, or
• Refusing to compromise and being negative without proposing workable solutions.

Leaders must make drastic cuts in costs now but they also must develop and implement new far-reaching but practical strategies. They must take the personal risks necessary to take action or they must get out of the way. Turnaround professionals know this is the most critical and precious time to bring forward new ideas, settle on new short and long term strategies, organize teams, and implement change. A tremendous amount can be accomplished when all the stakeholders finally recognize that they are in the same boat, that the boat is in a severe storm, and that they all most row in the same direction if they are to have any chance of success in saving themselves.

Thursday, December 22, 2011

Fred Leeb: Detroit Can Be Great Again

Fred Leeb: Detroit Can Be Great Again

Fred Leeb

Detroit Can Be Great Again

Posted: 12/14/11 03:31 PM ET
I was the first emergency financial manager in Pontiac from March 19, 2009 through June 30, 2010 and I believe my experiences could be very applicable to Detroit. I know that, even though I have been a turnaround consultant for over 20 years, I learned a tremendous amount from actually going through the process.

We made some mistakes but we also achieved many successes as a result of listening to the city's staff personnel, respecting their expertise, encouraging new ideas and then enlisting their support to take action and implement the changes.

We didn't just create more reports or studies that went on someone's shelf. We were able to generate, even under the old Public Act 72, over $115 million in multi-year benefits for the city, upgrade the city's bond rating and generate two years of surpluses in a row after many years of deficits.

Virtually all the recent discussions about Detroit have focused on how much power either the mayor, the city council or an emergency manager could bring to bear to cut costs immediately. It is true that in a financial emergency the only controllable factor initially is expense so that must be addressed first. But cutting expense alone is overly simplistic and shortsighted. To be successful, Detroit must cut expense and increase its revenues. The major sources of city revenues are from property taxes and income taxes. These will increase only if more people and businesses, who are able to pay taxes, live or work in the city.

Detroit must have a plan to cut expense without drastically reducing services and to attract taxpayers to the city. Creativity and teamwork on the part of all stakeholders involved will be absolutely essential if Detroit is to both cut expense and attract major new taxpayers who are being courted by virtually every other community in the country. Detroit must compete for these taxpayers with a clear-cut turnaround plan.

The first step in the turnaround planning process is to stop all forms of denial. This is not to criticize or blame, but to understand the depth of what must be done. [Nobody should assume that any one person will be given a magic wand to cure-all Detroit's problems quickly.] Just a few statistics can help to begin the process to understand Detroit's competitive position and that its resources already are severely limited. For example, Detroit is now only the 18th largest city in the country based on 2010 data from the U.S. Census Bureau.

It is no longer in the top 10. Detroit also was ranked 522, of 540 cities listed by the U.S. Census Bureau based on per capita income of $14,213 (based on 2009 data). For comparison purposes, per capita income of Dallas, the 200th highest city, was $25,941, 82 percent above the level of Detroit. Detroit also had the lowest per capita income and the second highest level of individuals in poverty (at 36.4 percent, only better than San Juan, Puerto Rico) of the 50 largest cities in the U.S. (based on 2009 data). Despite these statistics, Detroit needs at least tens of thousands of additional people and/or businesses who can pay taxes.

We are now very late in the timeline to be able to be successful. Detroit cannot wait any longer to pull together and implement programs such as Detroit Works in order to increase the quality of services at a lower cost to a more concentrated community. If additional precious time is lost through continued infighting and tax revenues continue to decrease, the city's downward spiral will speed up and the city will never be able to cut its way to success. On the other hand, if the city, the county, the region, the state and the federal government have a workable and attractive plan for the future and pull together, Detroit can be great again.

Tuesday, December 13, 2011

Guest post: former Pontiac emergency manager Fred Leeb says PA 4 not necessary for success | Crain's Detroit Business

Guest post: former Pontiac emergency manager Fred Leeb says PA 4 not necessary for success | Nancy Kaffer
Crain's Detroit Business

Last week I blogged about the difficulties a (hypothetical) state-appointed emergency manager of Detroit would face if the new state law that grants an EM the ability to open union contracts were to be suspended or revoked.

My opinion was that an emergency manager in Detroit would largely have his or her hands tied without the ability to break union contracts, because it's generally agreed that reducing benefits for active and retired city workers is the sine qua non of balancing Detroit's budget.

Fred Leeb - who served as emergencey manager as Pontiac for 15 months, but resigned in large part due to conflicts with Pontiac Mayor Leon Jukowski – disagrees:

I was the first EFM in Pontiac and faced many of the issues that are now facing Detroit. I learned a huge amount from that experience, which was under Public Act 72, not Public Act 4.
We were very successful because we listened carefully, respected the knowledge and experience of the city's staff and then worked with them as team members to develop and implement a long list of tangible improvements.

For example, we were able to generate over $115 million in multi-year benefits, upgrade the city's bond rating during a time when many other cities with much less severe financial problems were getting theirs downgraded, and developed two years of surpluses in a row after many previous years of deficits.

In addition, we were able to successfully negotiate with the city's six unions to have them voluntarily agree, for the first time, to pay for the equivalent of 20 percent of their medical benefits.
Of course, these achievements didn't happen overnight or without a lot of work but they did not require all of the provisions of Public Act 4 to be successful.

I believe that the likelihood of a financial turnaround in Detroit will be much greater if people work together in the most cooperative manner possible.

No matter what, however, I am sure there will be a tremendous amount of controversy and purposeful misinformation on the part of certain people in the community.

There is a natural tendency to resist change and there are many people with vested interests who will actively try to undermine anything that puts their personal positions at risk but those problems should be expected.

Unfortunately, these relatively small groups of people who resist change are often much more vocal and emotional than the majority who appreciate the necessary improvements.

Somehow the leaders must enlist the silent majority to stand up and work together to support the change process. If the support is broad-based, there will be a much greater likelihood of success.

Tuesday, October 11, 2011

A Tale of Two Arenas: Detroit's Silverdome vs. Pittsburgh's Civic Arena

A Tale of Two Arenas: Detroit's Silverdome vs. Pittsburgh's Civic Arena

  Democracy in America

A Tale of Two Arenas: Detroit's Silverdome vs. Pittsburgh's Civic Arena

A Tale of Two Arenas: Detroit's Silverdome vs. Pittsburgh's Civic Arena
Courtesy Wahlia Creative

A 127-acre, 80,300-seat domed stadium, the all-purpose Pontiac Silverdome, once hosted NBA and NFL teams, the 1994 FIFA World Cup, and musical performances from Elvis Presley, Pink Floyd and many more.

But faced with decades of economic decline, the City of Pontiac—about 30 miles northwest of Detroit—was famously forced to auction the stadium in 2009.

Though the Silverdome was built for $55.7 million in 1975, it sold for a paltry $583,000 in 2009 to Toronto-based developer Andreas Apostolopoulos.

Major publications explored the sale as yet another metaphor for Pontiac’s downfall. One Pontiac resident told the Washington Post the sale made the city look like "the laughingstock of the country."
But in retrospect, the Silverdome sale doesn't look so bad. Instead of spending millions in tax dollars to demolish the stadium and clear 127 acres of land, the Silverdome is still operational; Apostolopoulos has spent millions of his own to rehab the facility and is working on a deal to host a Major League Soccer team.

The Silverdome deal, in fact, may have been rather sweet compared to the saga of a similar property in Pittsburgh.

Built in 1961, the Civic Arena—known as the Igloo—sits in the heart of downtown Pittsburgh. It was the first retractable roof venue in the world and it hosted NHL and NCAA games as well as nearly every mainstream musical act to visit Pittsburgh in the last 50 years. While the Igloo’s construction arguably helped sever Pittsburgh’s economic center from its most prominent black neighborhood, the Igloo also represents much of the city’s 20th century history, both good and bad.

In 2007, the Lemieux Group, owners of the Pittsburgh Penguins, arranged with local and state governments to build a new arena, the Consol Energy Center, across the street from the Igloo, which would in turn be razed and converted into a parking lot. (Recent reports have laid out plans for new offices, residences, and chain restaurants like TGI Friday’s and Subway.)

Though Consol’s construction was complete by August 2010, debate over the Igloo’s demolition continued.

In the face of that debate, demolition was set to begin this year. Preservation Pittsburgh—a group that lobbies to conserve historic architectural and environmental sites—appealed to the Pittsburgh Historic Review Commission to halt the Igloo’s demolition on the grounds that the building is a landmark.
That assertion was rejected. But a lawsuit filed in July put brakes on the demolition again. And according to Rob Pfaffmann, a local architect and key member of Preservation Pittsburgh, a main reason behind the push to delay demolition was a behind-the-scenes discussion with Silverdome’s owner, Andreas Apostolopoulos.

Pfaffman says Apostolopoulos expressed interest in purchasing the Igloo and contracting it to Montreal-based Cirque Du Soleil. The circus arts group had, according to Pfaffman, considered using the Igloo as a U.S. training facility. Cirque has never publicly acknowledged that it considered the deal but earlier this year, Pfaffmann, inspired by a tip from a high-level Cirque employee, unveiled an extensive proposal for a Cirque-centric Civic Arena that would, he says, bring “real jobs to the city, new viability for Pittsburgh’s failing airport and a plan that makes use of a historic building rather than tearing it down.”

That proposal fell on deaf ears.

Preservation Pittsburgh’s lawsuit was dismissed last month and a judge gave the go-ahead to begin tearing down the Civic Arena from the inside. The demolition should take months and redevelopment could take years.

While Pfaffman considers the issue closed, he says demolishing the Civic Arena will serve as an example of Pittsburgh destroying its assets unnecessarily.

“You’d think the city would be eager to use the Silverdome as an example here,” he says. “But they haven’t. They want more TGI Friday’s and Subways instead.”

Above image courtesy Wahila Creative
Matt Stroud writes about crime, healthcare and city issues from Pittsburgh. All posts »

Tuesday, September 20, 2011

Sale of Silverdome-Court of Appeals Ruling 9/20/11

S T A T E- O F- M I C H I G A N- C O U R T- O F- A P P E A L S-- 298649-0.pdf (application/pdf Object)

298649-0.pdf (application/pdf Object) 
UNPUBLISHED September 20, 2011, No. 298649, LC No. 2009-105475-CZ, Oakland Circuit Court

MARKETING, Defendants-Appellees.

Before: SAWYER, P.J., and JANSEN and DONOFRIO, JJ.

"Defendant Leeb testified that he continued to negotiate on behalf of defendant City with prospective purchasers including plaintiff, but all of his negotiations were “ineffectual” because no buyers wanted to put up cash to purchase the property. Leeb stated that “due to past difficulties in dealing with City administrations, the depressed state of the local economy, and the high cost of demolition, three major real estate developers stated that they would not take on the Silverdome project even if it were provided to them at no cost.” According to Leeb, in order to stop the “cash bleeding” that was occurring due to the high cost of maintaining the Silverdome, defendant City decided that the property should be auctioned prior to the winter months in 2009."

"Defendant City continued to identify and negotiate with potential bidders including plaintiff as the auction approached in an attempt to encourage potential buyers who were not interested in the auction to submit firm financing commitments. Defendant City had arranged with defendant Williams & Williams Marketing, Inc. that it could cancel the auction at any time and accept a private offer."

"To the contrary, there is a multitude of documentary evidence in the record that defendants in fact repeatedly encouraged plaintiff to continue negotiations and to secure financing for the purchase even after plaintiff failed to close on the property at the time of the 2008 agreement. Because plaintiff’s argument is wholly unsupported by the record, plaintiff has not sustained its burden to show a genuine issue of disputed fact for trial.... Quinto, 451 Mich at 362; Innovative Adult Foster Care, Inc, 285 Mich App at 475. 2"

"In accordance with our authority, this Court awards costs to defendants as the prevailing parties pursuant to MCR 7.219(A). Further, pursuant to MCL 600.2445(3) and MCR 7.216(C)(1)(a), (2), this Court sua sponte orders damages against plaintiff for this vexatious appeal. Plaintiff took this frivolous appeal “without any reasonable basis for belief that there was a meritorious issue to be determined on appeal[.]” The record was devoid of merit supporting any of plaintiff’s claims both in the trial court and on appeal. Plaintiff attempted to thwart the sale of the Silverdome to another qualified buyer even though it had no contractual basis to do so. This action is especially disconcerting considering the fact that it was so well known that defendant City was suffering financially and needed to sell the Silverdome property because it could no longer afford the significant maintenance costs. The trial court shall award reasonable attorney fees in favor of defendants in an amount to be determined by the trial court together with any other damages or costs it deems appropriate as a result of plaintiff’s engagement in these baseless, vexatious proceedings."

"Affirmed and remanded for proceedings consistent with this opinion. We do not retain jurisdiction."

/s/ David H. Sawyer
/s/ Kathleen Jansen
/s/ Pat M. Donofrio

Tuesday, March 15, 2011


Mar-2011-Michigan-TMA-Newsletter.pdf (application/pdf Object)

TMA Michigan Newsletter Pages 5-8

Perspectives on Governmental Financial Crises and

Governor Snyder’s Budget Proposal for Fiscal Year 2012

By Fred P. Leeb
Fred Leeb & Associates and the Nonprofit Management Group

Forty-five states and the District of Columbia are projecting budget shortfalls (revenues less than the costs of services) totaling $125 billion for fiscal year 2012 (the year beginning July 1, 2011, FY12”). Michigan’s shortfall was estimated to be $1.8 billion of this total. On February 17, 2011, Governor Rick Snyder proposed a budget for FY12 incorporating what seems like many draconian measures to deal with this financial crisis. The purpose of this article is to provide perspective on the depth of the problem as compared to other states and to understand why a turnaround plan for Michigan is necessary now.

1. Michigan’s projected budget shortfall is large but less than that of many other states. Michigan, however, can no longer rely on Federal Recovery Act Funds to fill the gap and mask the underlying structural problems that it is facing.
2. The budget will continue to be squeezed by falling revenues and increasing needs for governmental services. It will get more difficult each year to develop additional solutions.
3. There is no rainy day fund to fall back upon.
4. Job losses have been severe and regaining lost ground will be very slow.
5. Unfunded pension and retiree health care benefits will be the “elephants in the room” for a long time to come.
6. Both state and local governments are in financial crises and the local governmental units will have tremendous difficulties in dealing with any additional fiscal burdens passed on to them by the state.
7. The Treasury Department’s measures of financial stress must be improved and made much more timely to provide a meaningful early warning system.
8. A new sense of urgency on the part of governmental officials is developing and new legislation to provide more authority to the Emergency Financial Manager should help significantly.