Film Subsidies

Film Tax Incentives Looking Like This Year's Ishtar

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Lights, camera, guy sitting along back wall doing nothing, ACTION!

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.

Exotically clad laborers are alienated from the means of production.

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.

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  1. My very conservative, very republican mother has called NM’s new governor’s plan to get rid of NM’s film incentives the stupidest idea she’s ever heard.

    1. Your mother is a recipient of those funds, I’m guessing?

      1. Nah… retired stock broker.

    2. Well there you have it. One person who happens to be a Republican thinks that film subsidies are a good idea, so they must be.

      1. Actually, it shows that the knee jerk reactions of many of the new batch of Republicans is going end up pissing off a lot of their base. Specifics matter in policy decisions…the wiser choice in NM, in terms of adjusting the tax structure, would be to look at broader tax reform rather than messing with a successful program that has brought lots of money/jobs to the state.

        1. No, it’s more likely your mom just has a stupid fascination with Hollywood, as if a film produced in New Mexico means New Mexicans aren’t the grimy slack-jawed yokels Hollywood made them out to be.

          1. Well, given that most of the movies shot in NM are “set” somewhere else, I doubt that.

    3. My very conservative, very republican

      This seems like an obvious contradiction. One can be either very conservative or very republican but you can’t be both. Is Olympia Snow also “very conservative” in Neu’s world?

    4. If you have to add tax incentives to make it worthwhile for industry to exist in your state, either:

      1) Your tax rates are fine, but the industry just isn’t a good fit for your state.

      or

      2) The industry is fine, but taxes are just too damn high in your state, and it’s affecting all the less glamorous industries too.

      1. See Pro Lib below. NM’s tax credit is designed to help establish the industry in the state and it has worked wonderfully. NM is, actually, a fabulous fit for the film industry.

        And yes, NM tax rate in general is less competitive than many states.

      2. Absolutely, this hits the nail right on the head.

        It probably means that, in most cases, taxes are just too darn high…

  2. Iowa’s film tax credit program ended with filmmakers & the head of the state program going to prison for fraud.

    http://articles.latimes.com/20…..n-20110119

    1. Nobody’s in prison just yet, though that’s a technicality now. The head of the program goes on trial next month on felony misconduct charges, so he may or may not see prison.

      Hey, Hit and Run! I’ve been obsessively covering the film credit corporate welfare fiasco since 2006 — how about a little link-love for a fellow traveler who is still waiting on his Koch grants?

  3. many states are looking to scale back their movie subsidies

    But we need to make famous rich people richer! And famouser!

  4. “The last thing we need is them tinkering with the system that we have,” [Millennium Films’ Shreveport contact Diego] Martinez said.

    Parasite loves blood; who knew?

  5. The only time I can see giving tax breaks (as opposed to cash) to companies is when trying to stimulate new industries. So if Florida wanted to attract New Space companies, for instance, it might grant a ten-year tax abatement or moratorium to attract such businesses.

    That said, I’m not sure I even want that kind of meddling going on, as it always seems to end up becoming a political mess. Or the the tax breaks are used solely to reward favored constituencies and/or industries.

    1. Wasn’t it Gillepsie that said that if a company can’t survive without a tax break, then it can’t survive?

      1. Don’t know, but I tend to agree. The problem is, states are going to do something to attract industries. Better tax breaks than cash handouts or other goodies, I guess.

        1. Well, I think where Nick was going with it (and this might have been from the Cleveland City Council meeting) is that you can’t target specific businesses or industries, because then the government is picking out winners and losers. Better to create an environment with a stable, predictable, light tax and regulatory system, and then the business side will take care of itself.

          1. Yeah, I really agree. It’s just that they’re going to monkey with things anyway.

            1. Thinking this through a little more, a way for a state to compete with states that do throw cash around is to simply be more favorable in general to business development and growth. Lower taxes, less corruption, fewer barriers to entry/competition, etc.

    2. Maybe, but really there are only a small number of areas where it’s feasible to conduct space operations, so FL’s competition for New Space companies just isn’ that broad. In other words, they don’t really need to offer incentives because they’re the ones with the environment that’s conducive to launching spacecraft.

  6. Can you size down the photos you use? We don’t need 1600×1200 px thumbnails.

  7. 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.

    Probably those companies were making more money just by FILMING there than by actual ticket sales.

    That was no tax incentive, that’s welfare for movie makers!

  8. 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.

    I think I am going to coin that a Randmission

  9. That said, I’m not sure I even want that kind of meddling going on, as it always seems to end up becoming a political mess. Or the the tax breaks are used solely to reward favored constituencies and/or industries.

    Anybody who is even tempted to be in favor of tax incentive bribes to get businesses to relocate in your state/city should read up on the fiasco which was the (fictitious) “United Airlines Indianapolis Service Facility”.

  10. Hey Michigan, you know why nobody likes you? It’s not the weather and it’s not the people, it’s the UNIONS! Nobody wants to film anything in a goddamm Union state where you have to put up with union thugs getting paid more while working less.

    Get rid of the mother effing unions and maybe we can shoot something there. Otherwise, we’ll keep shooting our commercials and movies in Canada and Mexico, where foreign production companies don’t have to deal with parasite unions.

    IRAQI IMMIGRANT HONOR KILLING IN PHOENIX
    http://libertarians4freedom.bl…..honor.html

    1. Re: Gregory Smith,

      Hey Michigan, you know why nobody likes you? It’s not the weather and it’s not the people, it’s the UNIONS!

      No – it’s the people.

      1. I actually like the people, I lived there. Liberals are so cute when they’re freezing to death.

      2. as I Michigander, I accept that.

  11. Nobody wants to film anything in a goddamm Union state where you have to put up with union thugs getting paid more while working less.

    You are such a dumb fuck. The film industry is one of the very few “private sector” industries where the unions still have strength.

    STFU and go away.

    1. Sweetheart, I work in the industry, we NEVER EVER film in America. Shooting a typical car commercial in Mexico or Canada costs about $300,000. In the USA it’s about a million and you have to pay the actors residuals every time the commercial airs.

      So do the math, my commie contrarian friend.

      Iraqi Immigrant Convicted of Honor Killing.
      http://libertarians4freedom.bl…..honor.html

  12. When I was still living in Colorado Springs, long before I had any properly formed knowledge of economics, it was obvious to me that existing small businesses were being forced to subsidize “glamorous” high tech corporations like H-P and Kaman which were being “lured” to town with massive tax breaks and other giveaways.

    If low taxes are good for large international corporations, they are good for small local businesses like body shops, florists, and light manufacturing.

    1. Big Government no likee Small Business.

    2. The Film industry credit in NM has primarily benefited small business and independent contractors.

    3. I pointed out to a local Chamber honcho that it goes one step further – the newcomers then bid up labor and take away your better performers, forcing you to raise wages.

  13. And I suppose all those cute little “Indian” trinket shops in Old Town and trendy restaurants on Rte 66 up by the University would dry up and blow away without movie subsidies.

    1. uh huh, my uncle sayeth

  14. Politics and government were an itch, especially to the film industry.

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