Film Tax Incentives Looking Like This Year's Ishtar

Will the who-died-this-year reel at Sunday's Oscar ceremony include a moment for Michigan's film production tax incentive? Motor State Gov. Rick Snyder tells the Detroit Free Press' ed board that he's going ahead with a plan to phase out the most generous movie subsidy in the nation:

The governor has proposed providing $25 million in new incentives for the industry each of the next two fiscal years and paying out tax credits already awarded, which will cost the state $75 million in fiscal 2012 and $25 million in fiscal 2013.

"If you look at our budget situation, those are not insignificant numbers," Snyder said. "We did want to create a successful path (for the industry) and to give them some options. They don't agree with the number I set aside."

Under the movie credit, approved projects were awarded up to 42% of their production costs as a refundable tax credit—which means that if the producer's Michigan tax was less than the credit, the company would receive the difference as a check from the state.

Snyder said the state already has slowed down the approval process for new tax credit applications from film production companies and other businesses. Only two of 26 applications from filmmakers this year have been approved, said Michelle Begnoche, spokeswoman for the Michigan Film Office.

Poor word of mouth has plagued the incentive since the release last fall of a devastating financial review [pdf] by the Michigan Senate Fiscal Agency. That report found that the state spent $81.7 million to create 2,350 part-time jobs in 2008, $208.6 million to create 3,867 part-time jobs 2009.

That comes to $34,765.96 per job in 2008; $53,943.63 per job in 2009. The state also estimates that 2,350 part-time jobs equate to 216 jobs on a full-time-equivalent basis, while 3,867 equate to 355.5 full-time jobs. At those rates, Michigan spent $378,240.74 per job in 2008; $586,779.18 per job in 2009.

Faced with numbers that are both poor and moving in the wrong direction, many states are looking to scale back their movie subsidies, as Richard Verrier reports in a blog post that includes what may be the first funny headline I've seen in the L.A. Times in…ever?

With leading contenders Ohio and New Mexico winding down their incentives, Louisiana may end up the winner of this particular game of chicken. A pro-subsidy editorial in the Shreveport Times notes that the Pelican State is still chasing the tinsel dragon:

But Michigan also serves as a warning to Louisiana, where a similar scenario could play out if its incentives also fall victim to budget woes. "The last thing we need is them tinkering with the system that we have," [Millennium Films' Shreveport contact Diego] Martinez said.

With a host of other states seeking to match or surpass Louisiana's tax breaks, the Legislature in 2009 locked in tax credits at 30 percent for production expenses and 5 percent for Louisiana labor and eliminated the sunset provision.

Are film tax credits as bad as all that? A report [pdf] commissioned by the Convention & Visitors Bureaus for metro Detroit, Grand Rapids, Ann Arbor and Traverse City says film incentives produced $119.1 million in direct economic impact and $190.2 million in indirect impact, for a total of $309.3 million in total economic impact. A strangely uncritical piece at Minyanville raves: "Aside from the appealing revenue implications, there is also a benefit to Detroit, and the state as a whole, to attract an industry that is 'clean' and devoid of the environmental implications that accompany Michigan's historically manufacturing-heavy industry."

Disclosure: As noted in my Reason TV interview with Joe Gressis, I was involved in a feature film shoot in the Motor State last summer, which made use of the state's tax incentive. For more on the crabbed economics of cinema:

Related: Matt Welch discusses script notes from Michigan's film commissioner.