CHICAGO — The Oakland County Economic Development Corp. will price $28 million of recovery zone facility bonds — most of which will be privately placed — to finance a new film studio in an abandoned General Motors Corp. plant in Pontiac, Mich.
The county’s approval was the last hurdle for the $60 million project. It’s considered a key part of Michigan’s bid to attract film and television production companies, and is expected to bring new jobs and visibility to Pontiac, a cash-strapped city that the state declared to be in a fiscal emergency more than a year ago.
The state Legislature in 2008 passed a tax-credit package for film and television companies that is among the most aggressive incentive programs in the country. Film expenditures in Michigan have nearly doubled since then, to $244 million last year from $125 million in 2008.
The borrower, Michigan Motion Picture Studios LLC, will benefit from generous state tax credits, exemption from most property and income taxes for 15 years, and up to $4 million in federal stimulus funding.
Roughly $18 million of the $28 million borrowing also features a guarantee from the Michigan treasurer pledging the state’s massive retirement systems to back the debt if necessary.
The project is located in an abandoned General Motors facility and will include nine sound stages, offices, and additional production space. It is expected to open by early next year.
The bonds are divided into three series. Raymond James is acting as placement agent on the largest series, for $18 million. Two additional series, for $5 million and $4.8 million, are being sold only to affiliates of the borrower and their family, according to officials.
Butzel Long is bond counsel on the transaction.
The transaction will be Oakland County’s first recovery zone facility bond sale, according to Mary Langhauser, the county’s supervisor of financial services.
“It’s pretty important,” she said. “It’s going into a community that needs jobs in a huge way, so it’s very exciting.”
Located 30 miles outside Detroit, Pontiac was hit hard by the bankruptcy of GM, the city’s largest tax payer and employer. Just under a third of its population is unemployed, and the automaker’s problems have aggravated a decades-long erosion of the regional manufacturing base. In March 2009, the state declared the city to be in a state of fiscal emergency.
The deal is also important for Michigan, proponents say. Gov. Jennifer Granholm in 2008 pushed through the Legislature an aggressive tax-credit package that features a 42% tax credit on all film and media-related expenditures. The state also offers a 25% tax credit for companies that invest in new film and television studios and a 50% credit for on-the-job training expenses.
The film industry’s struggles since 2008 have made financial incentives increasingly important, the company said in bond documents. “The cost-cutting strategies in the industry that began prior to the current economic downturn have increased in importance, and have caused the tax-incentive structures to be a more important driver in location decision-making for all types of film and video production,” documents said. “The financial terms in Michigan’s current tax incentive program are more favorable than the current terms in any other state.”
Bond documents said the state has seen nearly $350 million of on-location filming in the last two years. Projections for the Pontiac-based studio predict revenue will reach $28.5 million in 10 years with gross profits of just under $14 million that same year.
“Michigan is currently ranked as one of the top three states in America for film work, primarily because of the refundable tax credit but also because of its increasing skilled work force and unique locations,” the company said in bond documents.