Film Subsidy Rationale Revealed: Pixie Dust!

It's hard to find a reputable, independent economist willing to argue that transferring millions of tax dollars from households and businesses to filmmakers is a rational, plausible economic development strategy. Most scratch their heads at a program that pays 42 percent of the expense of producers who make a movie here and 25 percent to developers who install a film production facility.

A Grand Rapids developer seeking one of those 25 percent "film infrastructure" subsidies under questionable circumstances may have inadvertently explained why lawmakers — if not economists and taxpayers — have been so dazzled by this particular form of corporate welfare. It amounts to a curious new factor previously left out of the economic calculations, but amply (if not explicitly) included in the political ones: pixie dust.

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Here's the background: Jack Buchanan Jr. owns a building supposedly being converted into a film studio by a promoter seeking a 25 percent state subsidy. Buchanan and the promoter, Joe Peters, claim that the property is worth $40 million. This means the promoter may be able to receive as much as $10 million from taxpayers via the Michigan Film Office.

However, as first reported by the Mackinac Center, just weeks before the subsidy application was submitted, the building had been listed (and not selling) for $9.8 million. The question has been, Where did the additional $30 million of value come from?

The Grand Rapids Press has found no building permits showing anything close to $30 million. Several unpaid contractors have filed liens against the property for work they did and were not compensated for. The largest lien is for $228,000 — again, nowhere close to $30 million worth.

Buchanan and Peters refused a request from The Press for a tour of the $30 million in improvements and a request to share an appraisal reportedly justifying the value. The Michigan Film Office has wrapped itself in an iron curtain of government secrecy about the deal.

Finally, however, some light may have been shed in the latest installment of excellent reporting from Chris Knape of The Press. This tells how Buchanan allegedly warned those unpaid contractors that talking to the media would "kill the (state subsidy) deal." Previous reports described him telling them that their getting paid was contingent on the taxpayer handout.

The report also contains this explanation of the mysterious $30 million value increase:

"Buchanan and Peters, speaking last month through a spokesman, said the value reflected improvements to the building and its change of use from a factory to a movie studio."

Emphasis added, because the statement is so extraordinary, and because it explains so much not just about this deal, but about the entire film subsidy adventure. What element can magically make an unused manufacturing plant instantly worth four times its previous value, and four times the value of comparable facilities elsewhere in the state?

Hollywood pixie dust! Yes, folks, you too can quadruple the value of your property — and get the state to reward you with a big check — by simply announcing that you've re-purposed it to make movies!

Hollywood pixie dust! Never mind hard things like tax, regulatory and labor reform. Lansing has discovered an infinitely easier method for transforming Michigan's broken economy: Just sprinkle on the dust, add tax dollars and watch it bloom!

Hollywood pixie dust! It's not found in any economics text, which explains why independent economists can't explain the value of these subsidies. The concept is familiar to politicians, however, which explains why lawmakers are still defending these handouts, and why 108 House members and 37 Senators voted for them back in 2008.