Michigan's Solyndra?

According to The Detroit News, former Gov. Jennifer Granholm made a deal with a group of wealthy and politically connected individuals in Oakland County to use state pension funds to guarantee $18 million they borrowed to set up a film studio in Pontiac, essentially making the pension fund the “co-signer” on the loan.

The “business model” for this studio was completely dependent on another of Gov. Granholm’s corporate welfare schemes, a subsidy program that paid up to 42 percent of film producers’ Michigan expenses. No reputable economist has ever defended these subsidies, which are pure “political development” programs, not economic development ones.

Thankfully, last year the Legislature supported Gov. Rick Snyder’s recommendation to greatly scale back these unlimited subsidies, and instead appropriate “just” $25 million for the handouts. That is, we’ll still waste taxpayer dollars on them, but fewer taxpayer dollars.

But not surprisingly, a business model that depends entirely on wasting the full, unlimited amount every year will have problems should the handouts become limited.

And so it is: The project Gov. Granholm backed with state pension fund money is unable to pay its debt, which means in a few weeks the state employee pension fund will have to cough up $630,000 from money set aside to pay future benefits to retired employees. Unless Gov. Rick Snyder and the Legislature reverse course on scaling back the absurd film subsidies, taxpayers could get stuck repaying the balance of the $18 million loan.

The plot thickened when Senate Majority Leader Randy Richardville, who has been working to reverse the scaled back program, said the following to the Gongwer news service:

"A few years ago we told some Michigan investors that if they invest in an industry that we would back them. And we gave them parameters and now we've changed that. We sent several businesses away that would help recoup that investment.”

By “sent several businesses away,” he means taxpayers stopped picking up 42 percent of film producers’ expenses. In other words, Sen. Richardville is using this default to lobby the governor and his colleagues to give more loot to film producers, insinuating that the state is breaking a promise by choosing to give away less loot instead.

Sorry, Sen. Richardville, but it doesn’t work that way. The individuals who finagled a state pension fund guarantee from Gov. Granholm are big boys who understand that their “business model” was in fact a purely political bet, not a business one, and the risks involved are likewise political as well as financial.

And now their political bet is coming up a loser.

Well, too bad. Rule one: When a state is digging itself into a hole, it should stop digging. Preventing a loss on one dirty deal by pouring more money into another one is no way to run a state government.

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.