Shattered Movie Dreams May Mean State Control for Detroit Suburb
It was lights, cameras, farewell.
California film executive Jimmy Lifton persuaded Allen Park, Michigan, to become a Midwest moviemaking hub, then left the Detroit suburb $31 million deeper in debt and, according to a state report this month, so financially stressed that it needs an appointed emergency manager.
Three years ago, hundreds attended Lifton’s announcement of a $146 million studio where an automotive supplier once operated. Then-Mayor Gary Burtka declared “Hollywood 48101” -- a reference to Allen Park’s zip code -- and Lifton talked of cranking out movies like Henry Ford mass-produced cars, with 3,000 new jobs. The city sold $31 million in general-obligation bonds to buy and improve 104 acres for Lifton’s Unity Studios. By mid-2010, the deal had dissolved in a dispute over rent.
“We were buffaloed,” said Tony Lalli, a member of the City Council that approved the bond sale and then was voted out of office. “Everyone said they wanted it, and we went along.”
The crisis in Allen Park, which is saddled with $2.6 million in annual bond payments, a $6 million deficit and junk- level B credit rating from Standard & Poor’s, shows the risk governments take when they go into debt to aid private enterprise. Rhode Island is on the hook for $75 million in state bonds to lure a video game company led by former Boston Red Sox pitcher Curt Schilling, which never took off.
Moberly, Missouri, was stuck last year with $39 million in bond debt to lure a Hong Kong-based artificial-sweetener plant project that collapsed, and with it the promise of some 600 jobs in the town of 14,000.
“Different municipalities will experiment in different ways,” said Michael Imber, senior director of public sector services at Alvarez & Marsal, a New York restructuring consultant. “Some will be successful, some won’t. That’s part of the risk.”
Allen Park has 28,000 residents and is home of the Detroit Lions’ football training camp, Michigan’s largest bowling alley and what is said be the world’s biggest sculpture of a car tire, an 80-foot Uniroyal. Its population is 93 percent white with an annual median household income of $56,000 that’s higher than the state average of $48,400, according to the 2010 U.S. census.
In Michigan, emergency managers have been imposed almost exclusively on cities with chronic financial ills and large percentages of black and poor residents. That’s prompted calls of racial prejudice.
In a string of southern suburbs called “Downriver,” Allen Park had a reputation as a zone of stability, according to a March 2011 Standard & Poor’s report. Then, as property values plunged 25 percent since 2008, its tax base eroded. There are $24 million in unfunded pension liabilities and $120 million in retiree costs, according to the Aug. 8 state review, which called the City Council “manifestly dysfunctional.”
The studio bond sale doubled Allen Park’s long-term debt and is draining its general fund.
“It was a very risky decision, and they were being pressured to do it because they thought they were going to miss an opportunity,” said Mayor William Matakas, 72, who was elected in November 2011 after Burtka resigned.
City officials plan to disband the police and fire departments and have another municipality provide protection, though Matakas said he’d rather obtain concessions. Instead of a takeover, Allen Park needs lower worker costs and a property-tax increase, Matakas said Aug. 4. Voters twice rejected a tax increase to pay off the bonds.
A taxable general-obligation bond that the city sold for the film-studio development in November 2009 with a 7.33 percent yield and due in 2039, traded Aug. 10, the most recent sale, with an average yield of 10.87 percent, 6.82 percentage points above an index of benchmark taxable municipals due in 30 years, Bloomberg data show. The bonds were trading with an average yield as high as 12.89 percent April 10.
Should Republican Governor Rick Snyder order a takeover, its effect would be in doubt. Voters will decide Nov. 6 whether to keep a 2011 law that gave emergency managers sweeping powers over cities and school districts, including the ability to nullify union contracts and sell assets. Snyder said a weaker 1990 law is in effect for four cities and three school districts under emergency managers -- and possibly Allen Park.
The state review portrays a city in turmoil.
Matakas and others describe Lifton, a Detroit-area native, as a piano-playing charmer who swept into town when Michigan led the nation in unemployment -- and offered the most generous tax credits for filmmakers among states. Lifton is president of Oracle Post in Burbank, California, an audio and video post- production company.
Lifton ran a movie-making school at the Allen Park site until June 2011. The Lifton Institute for Media Skills offered 21 courses with tuition that ranged from $3,000 for script- supervisor training to $13,000 to become a stunt coordinator, according to state records. The school trained 195 students, the records said.
Harry Sisko, 61, an Allen Park councilman who finished a four-month course to become a location manager, said the state paid his $3,000 tuition and that of many others under a retraining program. Lifton’s plan for a movie studio depended on income from the school, which folded when state funding stopped, said Sisko, a former restaurant owner.
“We got hoodwinked,” Sisko said. He said only a few landed temporary, low-pay movie jobs.
Lifton didn’t respond to a dozen attempts to reach him by phone and at his Burbank office. Burtka, the former mayor, didn’t respond to telephone calls for comment
The collapse of city finances infuriated residents.
“If my house starts on fire, is the mayor going to come down?” said Brian Laurin, 37, in an interview at the city’s street fair with his wife and 20-month old twin sons. “If someone’s breaking into my house is the City Council going to come?”
The studio plan “was just so fake, I told everybody it’s just too good to be true,” Laurin said.
The 104 acres the city bought for $25.3 million was appraised at $19.4 million in December 2010. The deal prompted a U.S. Securities and Exchange Commission inquiry.
The property includes buildings covering 767,000 square feet. About half has been leased, though rent payments will fall $267,300 short of the cost of maintenance this fiscal year, according to the state report.
Allen Park officials consulted with lawyers and investment advisers before approving the studio bond sale, said Kevin O’Shea, of the Miller Law Firm in Rochester, Michigan. O’Shea said the city asked him in May to investigate the bond sale after the SEC inquired.
“This is not a bunch of rubes who were taken to the cleaners by a fast talker,” O’Shea said. “There’s a lot more to it.”
O’Shea said the glamor of a movie studio curdled.
“If it had been a pickle factory that didn’t work out, I don’t think it would have drawn nearly the attention,” he said.
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