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(Editor's note: The following sentence of the transcript was slightly edited on July 8, 2010, for clarity: "Buchanan is referring in part to the investment group's application for a 25 percent tax credit from the state through the Michigan film incentive program.")
A great deal of fanfare ushered in what was supposed to be a 146-million dollar film studio and school in Allen Park late last summer. Less than a year later, and despite lucrative tax deals from the state, Unity Studios could be in jeopardy — reportedly over unpaid rent and lax financial reporting by studio executives.
Michigan's west side saw similar excitement over another new film studio project announced in early February. But information has surfaced that raises serious questions about the state's use of tax subsidies for this project.
In her final State of the State address, Michigan Gov. Jennifer Granholm announced, "And in Grand Rapids, it's Hangar42 film studios!"
The governor referred to a site in the Grand Rapids suburb of Walker. The property is a former Lear plant, bought by Jack Buchanan and his father in 2006. Just days after the governor's speech this year, Buchanan told the Mackinac Center that investors plan to spend at least $40 million to turn the property into a film studio.
"This room you're standing in is 265,000 square feet, and then it has adjacent rooms on the other side," Buchanan said. "We're finishing work on the other side of that wall, and there's 35,000 square feet on the other side of this wall."
Buchanan also said tax incentives moved the Hangar42 deal forward: "The whole building is about 750,000 square feet. So really to take that building and put it back into productive use took a lot of tax incentives to make it viable."
Buchanan is referring in part to the investment group's application for a 25 percent tax credit from the state through the Michigan film incentive program. With a price tag of at least $40 million, the end result could mean tax credits of $10 million or more, which can be sold for cash.
What's curious however, is the property was listed the day before the governor's State of the State address for less than $10 million. Right now, the Hangar42 property is still listed for sale on the company's website for nowhere near $40 million, raising the prospect that the refund could be worth more than the actual property itself.
Then there's the state tax subsidy. Officials with the Michigan Film Office confirmed an application was submitted for Hangar42, but the state had yet to sign off on the deal.
Neither the film office nor its "parent" agency, the Michigan Economic Development Corp., offered any explanation for the hold-up.
Mackinac Center Fiscal Policy Director Michael LaFaive believes the Center's own questions could have pushed the state to take a closer look at the deal.
"Important questions that we believe raised red flags at the Michigan Film Office, at the MEDC and even among other parties to the transaction," LaFaive said, "that have compelled the state to slow down its approval process."
There is also speculation that financing may not be secure, though in February, Buchanan insisted investors were lining up.
When asked "How many people are involved in the investment group?" Buchanan responded, "A little more than five investors, and there's more that are looking at it."
The state may be understandably skittish about giving out millions of dollars, after the state approved a refundable tax credit to a convicted embezzler, who, in an April announcement with the governor, promised to build a renewable energy plant in Flint.
As one Grand Rapids television station reported, "A convicted felon and con man who served prison time for embezzlement gets $9 million in state tax breaks."
In the meantime, the problems may just be starting for Buchanan and Hangar42 studios. The Mackinac Center has learned that several contractors have not been paid for work completed at the site. There are at least six legal claims against Buchanan so far this year — including one lien for nearly a quarter-million dollars.
LaFaive says all of these stories should serve as cautionary tales.
"With $20 to $50 billion or more a year sloshing around these economic development programs at state and local units of government across the country," LaFaive said, "we have to recognize that the incentives are such that they will induce people with little or no legitimate business claims to try and get something for nothing."
Kathy Hoekstra is a communications specialist and Michael LaFaive is fiscal policy director at the Mackinac Center for Public Policy. The Mackinac Center for Public Policy is a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.