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Michigan agency casts critical eye on state's film tax credits

Michigan Film incentive tax programs have been touted as a welcome revenue generator for state coffers. There are now more than 40 states that offer such tax breaks to Hollywood filmmakers, siphoning off production from Southern California. Economically depressed Michigan boasts the most aggressive film tax incentive program in the country.

But a recent report from a fiscal agency that advises the Michigan state Senate is raising pointed questions about the value of the program, claiming more money is going out than coming in.  

Since offering a film tax credit of up to 42% in 2008, Michigan has emerged as favorite destination for Hollywood. The state has attracted more than 100 movie and TV productions, from “Transformers 3” and the horror spoof “Vamps” to the new ABC cops drama “Detroit 1-8-7.”  Spending on film productions in the state has mushroomed: to $224 million in 2009, up from $2 million in 2007, according to the Michigan Film Office.

But a report by the Senate Fiscal Agency, which evaluates state programs, has thrown cold water on the upbeat picture — renewing debate about whether film incentives are worth the cost to taxpayers.

The report found that the subsidies — which work like a rebate toward qualified production expenses — generate roughly 10 cents in new tax revenue for each dollar paid to filmmakers. In 2009, for example, the state spent $68.7 million on film tax credits but generated only $7.5 million in tax revenue from the film production activity, leaving the state with a net loss of $61.2 million.

The study concluded that nearly half of the expenditures that qualified for the state’s media production credit did not affect the Michigan economy, mainly because they were made to individuals and firms outside of the state. Additionally, the state agency disputed as unverifiable job creation claims touted by the state’s Film Office.

“Any probable impact from the film incentives is likely to have a negligible impact on economic activity in Michigan,’’ the report concluded in its sobering tone.

Carrie Jones, Michigan’s Film Office director, has countered that it’s too early to evaluate the program and says it is “misleading” to measure the program based on tax revenue alone, citing the positive effect on jobs and small businesses that service the industry. “The program provides benefits for Michigan that the numbers alone don’t account for but are critical to understanding the overall impact on the state,’’ Jones said.  “It is reigniting our entrepreneurial spirit, providing hope and excitement in our communities and reshaping Michigan’s image.”

The Senate report is certain to become political fodder in Michigan. Among the staunch supporters of film tax breaks is Gov. Jennifer Granholm, a Democrat, who views the film industry as a growth driver for an economy ravaged by recession, high unemployment and the travails of the U.S. auto industry. Republican gubernatorial candidate Rick Snyder, however, has questioned the financial viability of the tax breaks in light of the state’s budget crisis.

For now, film and TV activity in the state shows no signs of letting up. Producers are expected to spend at least $300 million more in Michigan this year. Several new production facilities are sprouting across the state, including a $76 million studio that Los Angeles-based Raleigh Studios is building in Pontiac.

Despite the severe recession, most states have kept their film tax incentive programs intact. Some states, such New York and Florida, have even expanded them. Still, as the Michigan study attests, such programs are drawing more scrutiny as states grapple with massive budget deficits — and in some cases scandal.

Iowa Gov. Chet Culver has called for scrapping the state’s film program after a criminal investigation over the misuse of tax credits. In Michigan, the state has charged a developer of a proposed studio called Hangar42 of seeking to fraudulently obtain $10 million in tax credits.

Jones declined to comment on the case but said production expenses are closely audited. “We were able to weed out any wrongdoing before any state dollars were expended,” she said.

— Richard Verrier

 
Comments () | Archives (4)

It still amazes me that the film industry considers itself some elite industry deserving of tax credits and subsidies, but then, overall, supports policies and politicians that burden other businesses and individuals with high taxes - except when it comes to them. High taxes have decimated California and our economy.

California needs to look to Michigan as an example of how to save our own industries and individual pocketbooks - including film.

Of all the things that California has messed up economically, this, oddly enough, is something they got correct. These are subsidies that are a great deal for Hollywood but a bad deal for the general populace of the state in question. People are so star stuck over the idea of a movie/tv show coming to town, that they refuse to do the hard work and analyze the numbers (as opposed to what this article is actually does). "Bringing Hollywood to (fill in the state)" creates a great photo opportunity for the governor who can trumpet the new jobs and the money that will be spent in the state. Look; financial journalism is a hard beat to cover and even harder for the reader to digest. Michael Lewis has proven himself the only writer capable of distilling very complicated financial information into readable prose.

If you're in Michigan or any other state with these generous film incentives, you have been suckered.

@ Andy. You may think MI has been suckered, but the Film Industry in MI, has kept a roof over my family's heads here. More than half of my friends (educated friends) have lost their jobs, and will do anything to keep themselves off of welfare, and in their homes. The measley checks you get from being an extra on set are probably doing more than you can imagine for them right now. ...and for me. Some of us are now getting work in commercials, and voice over. Are we "A List Stars"? Maybe not, or at least not yet. Are the incentives a temporary Band Aid? Maybe, but it's helped me start a whole new career, and as I stated above, has kept a roof over my little boys head.

@ Om3g4m4n It's not up the the tax payers of your state to put a roof over your head.
Believe me, I work in the business. I have traveled to State after State to do job after job. I have watched big money talent get paid 10 to 20 million a picture, only to run it through their corporations and pay ZERO tax to MA, NM, MI, NY etc.
I have stood on the set and tried to do the numbers in my head between takes. A Co. like Warner Bros. spends 100 million in a State but then gets to take 40 million back out. 60 of the 100 is paid to high priced talent, writers, producers, directors, actors. This money counts toward the rebate, but never enters or is taxed by the state. The State never sees their money back just taxing the worker bees on the set. I have often wondered why all the mom and pop dry cleaners, pizza shops, markets, etc. in these places have not also had their hands out. I mean after all, if their state government is going to cofinance a movie to the tune of 40%, why not my business too?
The common thread in all of this is: The few "locals" working on the set in whatever the rebate capitol of the moment is think they are making a killing and that it's never going to end.


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