The New York Times today has published a
blow-by-blow account of how Michigan politicians and the Obama
administration combined to squander tens of millions of dollars
chasing the phony dream of subsidizing the Great Lakes State’s way
to audiovisual industry success. Excerpt:
It all started back in August 2007, when Gov. ;Jennifer M.
Granholm ;met with Mike Binder, a Michigan-born actor and
director who was lamenting the state’s lackluster program to award
financial aid — otherwise known as film credits — to the movie
industry. Ms. Granholm, an aspiring actress when she was in her
early 20s, became determined to make Michigan competitive, she
Eight months later, the capital of the flailing auto industry
became the capital of film tax credits. For every dollar spent
locally, filmmakers would receive almost half back from
What could go wrong?
The corporatism hardly stopped there. Linden Nelson, a
“well-connected local entrepreneur with a charismatic personality,”
dreamed up an idea to create a new film studio in Pontiac on the
site of a shuttered GM facility. He happened to call his old buddy
Ari Emanuel, the well-connected Hollywood agent with a charismatic
personality who happened to be the brother of the then-White House
chief of staff. ;”Not to use an L.A. phrase,” Emanuel told the
Detroit Regional Chamber of Commerce, “I think this is a no-brainer
for the state of Michigan.” ;
The Nelson/Emanuel team so believed in this no-brainer that they
agreed to put up “a total of $10 million to $12 million of their
own money,” bless their hearts. If only the project cost that much!
“They would pay for the rest — $70 million or so — using borrowed
money and state and federal incentives.”
The proposed studio received “redevelopment tax credits from the
federal government and separate aid from the state that included
incentives for technology companies that hire residents.”
Naturally, Nelson/Emanuel wanted handouts from the city of Pontiac,
but the city of Pontiac had been declared a financial basket case
by Gov. Granholm in February 2009, in part because it was “still
weighted down by old incentives it had given to businesses like
G.M.” Still, the city caved.
It gets worse:
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.
Republican Gov. Rick Snyder, elected in 2010, gutted the subsidy
program, and a new emergency manager of Pontiac turned out to be a
huge critic of industrial tax incentives as well. “Almost
immediately,” the Times reports, “filmmakers pulled out of
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.”
In August, the studio defaulted on the entire $630,000 payment
on the bond[.]
But fear not! The investors “are lobbying
state lawmakers to put more money into the tax credits and have
formed a political action committee,” and have enlisted the
Teamsters union to help.
This story should be blown up into 500-point type and stabbed
onto the closed doors of any lawmaker who ever again talks about
public “investments” to goose politically favored and/or sexy
business sectors. If an established industry–Hollywood’s a century
old, people–cannot survive without $1.5 billion in government
giveaways, then it does not deserve to survive. Business plans
based on political whims are inherently unstable, and usually a net
drag on the private economy.
Worst of all, these terrible outcomes are 100 percent
predictable. Need another
reason to donate to Reason?
How about the impressive
on the subject
alone. As Senior Editor Peter Suderman wrote
as recently as in our December 2012 issue,
[S]tate-based ;film tax
credits ;are a big idea without a big payoff. Currently 43
states offer the subsidies, which are worth a
total of $1.5 billion. Multiple government reviews of those credits
in states such as Michigan and Massachusetts have concluded that
the subsidies typically fail to pay for themselves. Instead, states
end up losing money paying for film productions that in many cases
would have happened with or without the tax incentives.
An America that reads more of this type of analysis is an
America less likely to repeat such an obvious mistake. Or to write
lines like this chin-scratcher in the otherwise terrific
Hollywood may make movies about the evils of capitalism, but it
rarely works without incentives, which are paid for by
See original article here: