CHICAGO — Michigan lawmakers approved a measure giving $19 million to the state's retirement systems to pay off bonds they guaranteed five years ago to finance a film studio.
A House and Senate conference committee approved the agreement Tuesday and it likely will become part of the state's new budget, which lawmakers are expected to complete by the end of next week.
The deal is aimed at ending a long-troubled bond deal that has the state's retirement systems on the hook for payments. The budget measure would pay the systems back for debt service payments they've already made and cover any future payments if needed.
It's the one and only time the state's retirement systems backstopped a bond issue.
Michigan, mired in recession, was struggling to attract filmmakers to the state with a generous film incentive program pushed by Gov. Jennifer Granholm.
"It was tough times back then and they were doing all sorts of weird and complex things," said Cory Savino, fiscal analyst for the Department of Treasury and Department of Talent and Economic Development. "They changed the law a couple years ago to make sure this can never happen again."
The bond deal, which was privately placed by Raymond James & Associates Inc., also featured a seven-year forbearance period banning the State of Michigan Retirement Systems from lien enforcement action until 2017. After that, the retirement systems may go after the studio's assets.
Under the new measure, Michigan would appropriate $19 million from its general fund and send it to SMRS in case the systems are forced to make debt service payments on the $18 million of bonds to which it pledged its unconditional guarantee in 2010.
The $80 million Michigan Motion Picture Studios was expected to bring thousands of jobs to the struggling Detroit suburb of Pontiac, where it was located on a former GM site. It benefited from tax credits, exemption from most property and income taxes for 15 years, and up to $4 million in federal funds.
The studio began to struggle less than a year after it opened in March 2011. By 2012, it was no longer able to make payments on the debt.
The state's retirement systems were forced to cover debt service, making a total of three payments totaling $1.6 million; two in 2012 and one in 2013, according to Savino.
To stop the bleeding, the state treasurer stepped in and bought the bonds from investors in late 2013.
Since then, the studio has made several debt payments, Savino said.
With deep cuts in the film incentive program, the studio's ability to continue to make payments through the 2040 maturity is uncertain.
Gov. Rick Snyder began chopping the incentive program as soon as he took office. The cuts have been controversial, with supporters saying the program generates more than $1 billion in revenue and creates hundreds of jobs.
The current budget is expected to cut the program to $25 million from $50 million. After the $19 million is transferred to the pension systems, only $6 million will be remaining.
The Oakland County Economic Development Corp. was the conduit issuer for the entire tax-exempt film studio deal, which totaled $28 million of recovery zone facility bonds.
Raymond James & Associates Inc. was the manager. The bonds were sold in three series. Only the largest, the $18 million deal, featured the unconditional guarantee from the state's retirement systems.
The bonds do not have backup pledges from the county or Pontiac. The SMRS-backed bonds have a 2040 maturity and 7% coupon.
Raymond James privately placed the $18 million series with a handful of large institutional investors. The rest of the debt, a $5 million series and a $4.8 million series, was purchased by affiliates and family of the borrower.
Original bond documents touted the state's then-flourishing film industry and projected annual revenues of $14 million after 10 years.
The studio is still operational.
