Michigan Pensions Cover Missed Bond Payment for Film Studio

Michigan Pensions Cover Missed Bond Payment for Film Studio
February 2, 2012

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

The $80 million Raleigh Michigan Studios in Pontiac, Michigan missed a $630,000 bond payment that came due Feb. 1, forcing the Michigan Employees’ Retirement System to make the payment.

The pension system for state government workers had to make the payment because the MERS had guaranteed $18 million in bonds issued for the studio. The missed payment came just 10 months after the studio opened.

“First, every sitting politician who championed this program should be on the hook for its failure. To be clear, they should write a check from their personal resources to cover the losses,” said Michael D. LaFaive, director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy in Midland, Michigan.

“It’s easy to issue press releases and make grandiose claims about new jobs when your money is not on the line, but it is quite another to deliver the goods when it is. In the end Michigan’s political class delivered more job announcements than real jobs.”

LaFaive has long criticized Michigan state government’s economic development programs and handouts to select businesses and industries, including the film and television production industry.

History of Failure

“Second, Michigan pols ignored a mountain of evidence—anecdotal and otherwise—that showed government economic development programs rarely deliver as promised. This was just the film version of AutoWorld [an $80 million theme park partly funded with taxpayer dollars that opened in Flint, Michigan in 1984 to attract tourists and their money. It closed a few months later and was demolished in the 1990s.]”

Third, said LaFaive, Michigan citizens should be angry, and not just at the film subsidy “follies.”

“Robbing Peter to pay Paul is unlikely to create any jobs on net balance,” he said. ”Yet year after year the pols seem to line up to do the bidding for our state’s corporate welfare-industrial complex.”

Former Governor’s Pet Project

MERS ended up backing the $18 million of bonds after then-Gov. Jennifer Granholm (D) in 2009 pushed to make the state employee pension funds the guarantor. This came on top of another $15 million in tax incentives the state promised the studio.

Raleigh Studios has three facilities in California, and one each in Louisiana, Georgia, and Budapest, Hungary.

The Raleigh Web site bills its Pontiac, Michigan facility as “the first full-service, built-for-production studio in the State of Michigan.”

It has seven sound stages in a 170,000-square-foot building and another 350,000 square feet of office and support space, some of which is available for rent to nonproduction companies.

The big-budget movie "Oz: The Great and Powerful," was filmed there last year, though Raleigh is geared toward smaller, independent productions.

Tax Foundation Vice President Joseph Henchman noted Michigan had been extending some of the most generous film tax credits in the nation, “offering to cover 40 percent of qualified expenses, an outlay that cost Wolverine State taxpayers nearly $100 million a year.”

Much Less State Support

That changed last year when new Gov. Rick Snyder (R) persuaded legislators to dismantle the film tax credit program and replace it with a $25 million grant program.

Michigan’s new film program, which Snyder signed into law last December, gives productions shooting at a qualified facility such as Raleigh Michigan Studios a 30 percent incentive for direct production expenditures. Michigan residents will be eligible for 35 percent.

Senate Majority Leader Randy Richardville (R-Monroe), who sponsored the bill, said in a statement, "With the passage of this five-year program, we will now be able to focus on creating sustainable jobs for Michiganders and supporting and developing the infrastructure to support this exciting industry in Michigan."

Henchman has his doubts.

“While supporters talked about how they were building a permanent new Hollywood, in reality the whole thing depended entirely on ongoing state subsidies. Their reduction kicked the legs out from under the lie that it was ever going to be self-sustainable.”

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)