Figuring out the future of the Michigan film tax incentives

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BY TIMOTHY RABB
Daily Arts Writer
Published October 31, 2010

The fate of Michigan's substantial film production incentives could ride on the outcome of tomorrow's midterm elections, and with Republican gubernatorial candidate Rick Snyder leading Democrat Virg Bernero by double digits in the polls, things don't look good for the program’s supporters.

Since being enacted by the Michigan legislature in April 2008, the program has offered a 40-percent tax rebate on in-state expenses to eligible production entities and an extra two percent for those filming in commercialized areas like Ann Arbor. The rate is lower – 30 percent – for productions using crews and talent from outside the state.

More than 100 films have been produced in Michigan since the incentives were passed, according to the Michigan Film Office. And after spending only $2 million on film production in 2007, film producers have now spent almost $350 million, and that number is expected to reach a possible $650 million by the end of this year.

Speaking recently to Detroit radio station WJR-AM 760, Snyder criticized the incentives.

"I think it's something that needs to be adjusted,” he said. “It is creating jobs, but at what cost to other alternatives?"

On the same program, Bernero voiced his continued support of the incentives.

Several state legislators share Snyder’s concerns as to whether or not Michigan is receiving a significant return on its investments.

“The Michigan film credits are an open-ended promise that could cost us $50 million next year or $250 million next year. There’s no limit,” said state Sen. Mickey Switalski (D–Roseville) in an interview with the Daily. “The first thing we need to do is decide how much we can invest in film credits, and put a cap on it. The second thing we need to do is establish a permanent industry, by gearing the credits toward facilities that produce television shows, commercials and video games,” he said, instead of awarding taxpayer-supported benefits to people who will likely return to their home states.

Switalski’s sentiment is shared by his senate colleague Nancy Cassis (R–Novi), whose September op-ed in the Detroit Free Press criticized what she called financial inefficiency in the program, citing a Senate Fiscal Agency report to support her stance.

“According to the data, the film credits are less effective than previously thought, bringing the state only 11 cents back for each dollar given away in credits,” Cassis said. “In 2008, according to the report, 47.4 percent of the expenditures that qualified for the Media Production Credit did not affect the Michigan economy — primarily because they were made to individuals and firms outside of Michigan."

Donald Grimes, senior research associate at the Institute for Research on Labor, Employment and the Economy at the University, agrees that the incentives don't present a long-term benefit for the state.

"It costs more money than it’s worth in terms of the state budget — they give off more incentives than what they get back in tax revenue," Grimes told the Daily.

"When they give the film subsidy, what they’re basically hoping is that on one level that they can somehow create an industry that doesn’t depend on that subsidy, or secondly that we get some good publicity for the state. And so those are the two arguments for it," he added. "But it is a direct subsidy, it doesn’t pay for itself, and any argument that would say it pays for itself is sort of crazy."

The Senate Fiscal Agency report also describes how the additional revenue brought to the private sector through film crews coming to Michigan presents financial drawbacks for the state.

"While the private sector receives a positive net benefit, the State faces a negative net benefit in that the ‘feedback’ in additional tax revenue from all of those hotels, rental cars, lumber yards, florists, etc. does not exceed the cost of the tax credits," the report states. "The loss to the State exceeds the gain to the private sector. Using the figures from the 2008 Annual Report, the State spent $43.6 million to generate $25.3 million in private sector benefit."

The report acknowledges the difficulty of accurately assessing the merits of film programs like Michigan's. It lists some of the specific obstacles in analyzing such incentive programs, pointing out both the "confounding circumstances" that can come up in observations outside of a laboratory setting, and that some effects of the incentives, including prestige for the state, are not always observable or measurable.

Switalski and Cassis are co-sponsoring a bill that would limit the expenditures of the program. As an alternative to the production of blockbuster films like Clint Eastwood’s “Gran Torino,” Switalski expressed a desire to see more emphasis placed on small-scale films that he believes will establish in-state independent production houses and, with them, the more permanent jobs that Michigan needs.

“The only reason people are coming here is the incentives; it’s not building a permanent industry here. Clint Eastwood comes in for a big movie, and it makes everybody feel good, but in terms of economics it doesn’t really do any good," Switalski said. “Those are exactly the types of films that bring in their own crews from outside the state. If you’ve got a small film production, you’re far more likely to hire locally.”

But the incentive program also has some compelling support. Those with a vested interest in the survival of the program have become increasingly vocal in opposing any interference with its operation. Jim Burnstein, screenwriting coordinator in the University’s Screen Arts & Cultures department, believes that critics of the tax rebates simply aren’t seeing the whole picture when it comes to the financial benefits the program offers and the auxiliary industries it pays into.

“We can go right down the line: trash-hauling companies, security guards, caterers, travel agencies. In 2009 alone, there were 20,000 hotel room nights booked by filmmakers," Burnstein said. “Peoples’ imaginations are too limited.”

Burnstein faults the by-the-numbers approach adopted by critics of the incentive program for only counting the full-time jobs as viable. Even in the film industry, he argues, part-time jobs exist for Michigan residents with payouts that render full-time work unnecessary.

“How is film-related employment any different than construction work? After a guy finishes building your house, he’s going to move on to the next available job. The only difference here is that the film jobs pay much more highly,” Burnstein said.

University alum Chris Farah, director of the locally made film “Answer This!” — which recently held its Ann Arbor premiere on campus accompanied by widespread grassroots publicity — is a prime example of a local resident who has reaped the benefits offered by the incentives. An adamant supporter of the incentive program, he said many of its benefits are not necessarily economic.

“Anybody that thinks that the incentive program should be generating more tax revenue than what it’s paying out never understood the program in the first place,” Farah said. “The program exists on one hand to stimulate the economy in the short-term, but also to create a long-term, sustainable industry with a strong infrastructure that won’t require a 43-cent on-the-dollar return to entice out-of-state production companies.”

Burnstein echoed Farah's sentiment by explaining how the incentive works to keep young talent in the state.

“Movies, television production and video games are ‘cool,’ and they attract other young people to stick around in Michigan, even if they aren’t directly related with the entertainment industry,” Burnstein said. “This state is not going to stop producing talent, and the most important infrastructure we can build to forge a better reputation for the state is an infrastructure of talent."

Many of the biggest names in entertainment grew up in Michigan before fleeing for greener pastures.

"Robert Shaye (founder of New Line Cinema), Sam Raimi (director of the “Spider Man” series), Bobby Kotick (CEO/founder of Activision Blizzard, Inc.), Jerry Bruckheimer (prolific TV and movie producer), all these people are from Michigan," Bernstein said. "What if they’d stayed? As a state, you simply can’t afford to lose your creative class, and there’s never been a better idea for keeping those brilliant minds in the state than the Michigan film incentives.”

Many financial analysts and media pundits, including Detroit Free Press columnist Mitch Albom, have prophesied that the incentive program is doomed if Republican gubernatorial candidate Snyder is elected tomorrow. Much of Snyder's argument centers around his belief that the tax incentives do not provide for a sustainable industry, but an environment in which out-of-state production crews exploit our incentives and proceed to cut-and-run from the state.

Snyder supports “phasing out” the incentives well before the end of the five-year period that Burnstein and Farah believe to be most crucial to the state film industry’s survival. And with a likely win by Snyder tomorrow, the Michigan film tax incentives may be in jeopardy only three years after their arrival.

—Daily Arts Editor Sharon Jacobs contributed to this report.