A Michigan movie studio that opened just ten months ago is in default on an $18 million state-issued bond.
Raleigh Studios made a big splash when it opened in Pontiac last March, with its seven sound stages and state of the art facilities. But now the movie studio can no longer meet its debt obligations, and will not make a $420,000 payment due Feb. 1.
"The movie studio is in default of that payment," explains Terry Stanton, communications director for the Michigan Department of Treasury. "But the bonds will not be in default, since the State of Michigan Retirement Systems is obligated to make those payments."
The money will come out of the retirement funds of public school and state employees, police and judges.
"In June of 2010, the State Treasurer (at the time Robert Kleine) signed a guaranty and credit enhancement agreement, which promised to pay $18 million of bonds, principal and interest, if the company is unable to make payments to bondholders," says Stanton.
When Raleigh Studios opened its Pontiac location last March, the state's generous film incentives were still in place - up to 42 percent. But those incentives have been significantly scaled back by Governor Rick Snyder, and the new film credit program is capped at $25 million.
The Hollywood Reporter reports the drop in incentives has had a huge impact on Michigan's film industry:
The free lunch was off the table. The impact on the choices made by Hollywood was immediate.
”Business does not like uncertainty,” says [Carrie] Jones, [director of the Michigan Film Office.]
There was a two-thirds drop in the number of applications to film in Michigan during the second half of 2011, compared to the period one year earlier, according to a study released by the state film office earlier this month.
From July 1 to Dec. 31 of 2011, 16 productions applied for the film and digital media incentives compared to 42 in 2010.
No one from Raleigh Studios was available to comment on whether the studio's business dropped off over speculation the tax incentives were being reduced.
Meanwhile, Carrie Jones is touting Michigan's new film incentive package in Los Angeles. Jones, director of the Michigan Film Office, is in L.A. for three days to meet with executives from all the major studios: Warner Brothers, Disney, Dreamworks, Paramount, Marvel, Warner Brothers.
Asked whether she's had success in getting any of those studios to agree to come to Michigan to film their next production? Jones laughs and says "not yet ... but I'm working on it."
The Michigan Film Office has received only three film applications so far this year. Jones says that's on par with previous years, and that applications usually start flowing in around February and March.