Hangar42 Studios' Incentives Raise Questions
In her State of the State address last February, Gov. Jennifer Granholm lauded an alleged economic development success story from her administration, a new movie production facility known as "Hangar42 Studios" near Grand Rapids.
The new studio was apparently in line for a refundable infrastructure tax credit worth 25 percent of the investment in the project, although Gov. Granholm did not mention that fact from the podium. Published reports indicated that the total investment would be worth as much as $45 million. (Note: Gov. Granholm also mentioned Unity Studios of Allen Park, which has recently experienced its own problems.)
But the deal may provide an example the governor never intended since Hangar42 has raised a number of troubling — and unanswered — questions.
The main question is how much of the $45 million "investment" is represented by the sale of the building in which the studio is to be built to the prospective new owner? The property is located in Avastar Park near Grand Rapids, Mich., on the site of a former Lear Corp. manufacturing facility. As late as February, it had been listed by realtor Stu Kingma for $9.8 million, according to the Multiple Listing Service Exchange Inc. Why would investors pay $40 million or so for a building that did not sell when listed for a quarter of that price?
The building has undergone some renovation to turn it into working studio. The Mackinac Center's own investigation indicates that the owner was converting the property into a studio for the buyer. But there is no evidence that the value of this work adds up to $35 million and officials at the Michigan Film Office and the Michigan Economic Development Corp. will not comment on the deal. Neither will the buyer and seller.
In addition, contractors hired to help convert the property into a studio say they have not been paid, and there are six liens outstanding, including one for $228,000.
Since the involved state agencies have been less than forthcoming in the past, the Mackinac Center in February filed a Freedom of Information Act request about the deal. The MEDC denied the request, claiming that the deal involved the "administration of a tax" and was therefore confidential. In March and April, 11 phone calls to the MFO, MEDC and principals went unreturned. Michigan Film Office spokesman Ken Droz eventually responded to e-mail and telephone calls, but insisted he was unable to answer the few questions we had posed.
So we do not know if the business plan submitted to the state only lists a total investment figure or if it includes details on how the figure was derived. Taxpayers have no way to know precisely what method the state uses to check the veracity of investment claims. However, a title search shows no transfer of the property to date.
Perhaps the deal was to be financed entirely by the seller through a land contract rather than through a commercial bank with a regular loan. If that is the case, it is effectively seller-financed and not a penny would actually have to be "invested" by anyone involved. That could mean that the only party taking any risk here is the public. If the deal should collapse, the property would revert back to the control of the seller.
Increased scrutiny of such deals is especially appropriate in light of the recent approval of a $9.1 million Michigan Economic Growth Authority tax credit/subsidy deal involving Richard A. Short, a convicted embezzler who was on parole. Short is facing parole violations and other embezzlement charges.
The Hangar42 Studios deal involves the Michigan Film Incentive program, created in 2008. The more high-profile component of the program involves tax breaks/subsidies to filmmakers for up to 42 percent of their Michigan-specific expenses. That part of the law is expected to cost taxpayers $155 million in fiscal 2010 alone. The Hangar42 deal involves a different component, an infrastructure investment tax credit (cash subsidy) equal to 25 percent of the investment made in a "qualified film and digital media infrastructure project."
The amount of money involved in these film subsidy deals, combined with a historical lack of transparency on the part of involved state agencies, creates an atmosphere where taxpayers can often end up with a raw deal.
In an effort to bring more light to these arrangements, the Mackinac Center has produced six video shorts and a number of essays, including a Policy Brief critiquing a Michigan State University review of the program's efficacy.
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.