Public Employee Pension Systems Raided To Pay Film Studio Bills

Michigan teachers and state employee systems paid $1.68 million so far for Pontiac studio

By Tom Gantert | March 8, 2013

At a time when Michigan's public sector employees' retirement plans are underfunded by tens of billions of dollars, the state is tapping those funds to pay the bills of a Michigan movie studio that defaulted on its own bills.

Michigan Motion Pictures Studios, which is being celebrated in the local media for having made the movie, "Oz: The Great and Powerful," in Pontiac, has missed its last three payments on $18 million in bond obligations. The movie opens across the nation today.

Under a deal made in 2010 by then-Gov. Jennifer Granholm, the State of Michigan Retirement Systems is on the hook for those missing payments. Michigan Motion Pictures Studios was formerly known as Raleigh Studios.

According to state officials, the state retirement system has made three payments since February of last year totaling $1.68 million. Michigan Motion Pictures Studio didn’t respond to requests for comment.

Terry Stanton, spokesman for the state treasury department, said 80 percent of the money for the payments comes from the Michigan Public School Employees pension with remaining balance from three other pension funds.

The State of Michigan Retirement Systems includes the Michigan Public Schools Employees' Retirement System, the Michigan State Employees' Retirement System, the Michigan State Police Retirement System and the Michigan Judges' Retirement System.

As of Sept. 30, 2010, the Michigan Public School Employees' Retirement System and the Michigan State Employees' Retirement System were unfunded by $21.7 billion.

Joe Henchman, vice president of legal and state projects at the Tax Foundation in Washington, D.C., has analyzed state film credits around the country and said they seldom deliver promised economic benefits.

He said he wasn’t surprised Michigan backed the studio's debt payments.

"These are some of the problems you get when the state plays venture capitalist with taxpayers' money," Henchman said.

Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy, said he would like supporters of the film tax credit be held financially responsible for the studio's defaulted payments.

"The supporters need to be made to feel the sting of their bad choices," he said. "Ultimately, you and I are on the hook for this. If supporters of these corporate welfare programs were responsible for covering the losses, there'd be far fewer corporate welfare programs. Right now, the political class has no skin in the game."

In March 2012, Raleigh Studio's then-chief financial officer Steve Lemberg blamed the studio’s financial struggles on the film tax credit being reduced.

The state reduced the tax credit from $100 million when the studio was being built in 2011 to $50 million last year. Gov. Rick Snyder has $25 million budgeted for tax credits this year.

Henchman said relying on government subsidies is not a legitimate business model.

"It would have always been dependent on that subsidy, which shows how unsustainable it is," Henchman said. "It would have never become an independent self-sustainable industry."

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

Michigan Taxpayers Already Paid for 'Oz'

Film costs state taxpayers almost $9 each

By Jarrett Skorup | March 7, 2013

The Disney blockbuster, "Oz: The Great and Powerful," opens today. The film cost the studio about $200 million to make, but Michigan taxpayers chipped in substantially for the production through the state’s generous film subsidy program.

In fact, the state paid more per taxpayer than the average price of a movie ticket — Michigan residents should be seeing the film for free.

Michigan has 4.5 million individual taxpayers, and the state gave the film studio $39.7 million to shoot the movie in Pontiac. That works out to a subsidy of $8.82 per taxpayer while average ticket prices nationwide are $7.96.

The subsidy was granted in 2010 when the program refunded up to 42 percent of Michigan expenses to film makers — essentially a check from the treasury to Hollywood studios. The program expired, but the Legislature, dominated by Republicans, overwhelmingly decided to keep it around.

Despite "conservatives" who claim to not like the government picking winners and losers and "liberals" who say government shouldn't benefit large corporations and big business, Michigan politicians continue to spend taxpayer money on the program. The current state budget set aside $50 million for film tax credits and political leaders on both sides of the aisle are pushing for more.

In the past few years, the program has handed out tens of millions of taxpayer dollars for films like: "A Very Harold and Kumar Christmas," "Iron Man 3," "Transformers 3" and "Real Steel,” as well as the classic “House of the Rising Sun” (which went straight to DVD and was subsidized more than four times what the film made in sales).

The program has dished out money to a veritable Who’s Who of box office bombs: “The Genesis Code,” “Vanishing on 7th Street,” “Trust,” “Conviction,” “Alleged” and “Kill the Irishman” — all of which made almost no money in theaters or sales.

As I wrote in a recent blog at the Mackinac Center's website, for 2010-11, "the Michigan Senate Fiscal Agency found that even among the most optimistic of assumptions, the film program brought the state only $0.11 per dollar spent — costing Michigan taxpayers $125 million and returning $13.5 million in 2010-11. According to the Center for Budget Priorities, economic analysis of film subsidy and tax credit programs across the county have been almost unanimous — the programs are not near worth the cost."

Film subsidies are an expensive way for state lawmakers to look like they are "doing something" and they have the added lure of bringing Hollywood stars to the state. But almost no economists or researchers who have looked at film subsidy programs have found an economic benefit, making this a policy flop.

(Editor's note: This story has been edited since its original posting. The focus of the story has not been altered.)