Hollywood Land in Pontiac: Pension Holder Account Loses $630,000
Michigan has this popular kid-coupled with Reagan mentality: play up to the popular kid and benefits will roll downhill. Hmm, or is it the bullshit the rolls downhill? No matter, in what appears to be another colossal mismanagement by Michigan municipal gods, the film incentive program here in Michigan cost pension holders’ accounts $630,000. One might wonder? How did this happen? Doesn’t Hollywood make money? One might also wonder about all those washed-up film careers people don’t want to talk about, but then again, unicorns might emerge. Those in Pontiac, a relative of the Detroit area, also wonder: if Hollywood makes money, why doesn’t Hollywood give money to Michigan when it films there? A simple formula: tax incentives for filmmakers mean that those taxes aren’t being funneled into local economies. And surprise, Hollywood filmmakers didn’t rush to hire the projected 3,600 workers projected when the tax incentives waved by like a perfume-scented flag, and since these companies weren’t paying taxes, no big money rolled into Michigan:
A former municipal bond analyst, Mr. Schimmel spent decades warning Michigan towns against trading tax revenues for jobs. “I’m just about the biggest critic of these programs, because giving away the taxes of the city is so detrimental,” he said. “The money is needed for police, fire and trash pickup.”
Mr. Schimmel said Disney had offered to prepay its workers’ personal income tax to the city, but Pontiac declined. The city later had problems collecting some of the taxes because Disney operated through a separate business entity that was difficult to track down, he said.
“This is a glamorous industry if you want to talk about Hollywood, but it’s not very glamorous for the municipality that wants to collect something,” Mr. Schimmel said. Pontiac, he said, was outgunned.
Taking Michigan tax money is like taking candy from a baby, or letting the popular kid take your lunch. Here in Pontiac, it seems the popular kid gets to take pensioners’ lunches. I wonder two things: who said that companies filming in Michigan were going to create 3.600 jobs and how is it that the companies cost pensioners money?
Hmm, 14 jobs created doesn’t even come close to that 3,600 number. How did that happen? Investors didn’t want to agree to a clause keeping jobs local to Michigan.
How did pension holders lose over 600,000K? Well, since some of the incentives have dried up, i.e. Michigan couldn’t afford to not charge taxes to big corporations, some of the studio companies couldn’t pay the bonds due:
Mr. Schimmel was not alone in his opposition to incentives. Michigan elected a new governor in 2010, Rick Snyder, a Republican who believed that it made better sense to lower taxes for all businesses. The governor’s budget director, John Nixon, said in an interview, “States harm themselves by competing on tax credits.” The governor quickly began reining in the program.
Almost immediately, filmmakers pulled out of Michigan. The change hit hard at “Hollywood-land in Pontiac,” as Mr. Nelson sometimes refers to his studio, now called Michigan Motion Picture Studios. He said the makers of “Iron Man 3” had been considering filming there but opted for North Carolina after Mr. Snyder slashed incentives.
When the bill for the studio’s bond interest came due in February this year, it paid only a portion, $210,000. The state pension fund had to pick up the remaining $420,000. Mr. Nelson said he and his partners would have made the payment if the state had not changed the tax credit program. “No one would have missed a bond payment,” he said. “No one would have missed anything.”
One of the development agency’s board members is Mr. Rakolta, the construction executive who invested in the Pontiac studio. He and Mr. Nelson said in separate interviews that they had never considered personally paying for the bond interest. A deal is a deal, they said, and the state agreed to cover the bond. The studio’s chief financial officer said the investors already stood to lose twice as much as they originally intended to invest.
A spokesman for Mr. Emanuel said he was not willing to discuss the situation on the record. A spokesman for Mr. Taubman said he was unavailable.
In August, the studio defaulted on the entire $630,000 payment on the bond, despite a decision by Mr. Snyder to temporarily allocate some film incentives.
One might also ask how this happened, too. How did pensioners come to be responsible for a film studio’s demise?
When attempting to bankroll this entire storytelling fiasco, the investors ran into financial problems, cue scary music and foreshadowing hints with dark lighting, and municipal bonds were involved:
Not long after, he and the other studio investors hit a major hurdle. They would be borrowing around $18 million in municipal bonds, but they needed someone to back them.
Over the objections of some local officials, the state agreed to use the state workers’ pension funds to guarantee the bonds. If the investors failed to pay, the retirees would be on the hook.
At the time of the deal, the governor was speaking regularly with Mr. Obama, who was negotiating the General Motors bailout. Edward B. Montgomery, who was leading the White House’s efforts on communities and workers affected by the automaker’s bankruptcy, was engaged on the studio plans.
Mr. Montgomery said in an interview that he had expressed support for the studio and other projects that he believed would help diversify Michigan’s economy. He said the studio’s investors received assistance from the Treasury Department to qualify for a federal tax credit program. Mr. Montgomery said he was unaware of the bond guarantee involving the state pension fund.
Granholm, long in bed with the automakers, spearheaded the GM bail-out and apparently sunk pensioners’ accounts into a bad studio film investment, costing pensioners untold monies.
Sad story, made sadder by the fact that this sort of debacle was preventable. If the investors didn’t have the cash to start the film business, why use a form of state funds to jump start it, especially if the state had no real ability to make that boat sink or float? Who decided to bankroll these guys with state monies? The NYTimes, whose article I quoted above, doesn’t explicitly detail how it became common practice for the state to back speculative deals.