A much-anticipated annual report about the state of Michigan’s film incentive program is now in the hands of state lawmakers and the governor. The report, by law, is supposed to detail the Michigan Film Office’s use last year of the film incentive’s refundable business tax credits, which were approved by state lawmakers in April 2008.
However, the report, issued by the Film Office, appears to significantly misrepresent a key figure, omits important information on Michigan job numbers, and fails to provide much of the detail the law requires, raising questions about the Film Office’s compliance with the law and its administration of the film incentive program.
The Film Office report, which boils down to less than three pages, states that Michigan’s generous refundable tax credits were used by 35 films completed in 2008, and that these 35 films supposedly made $125 million in Michigan expenditures last year. But a longer and more detailed Michigan State University study made a careful breakdown of the films’ spending. The study concluded that although the films spent $125 million that qualified for the state tax credit, nearly $60 million was effectively spent outside of Michigan on film workers who were not Michigan residents. Thus, the MSU study calculated that the film companies’ spending in Michigan was more like $65 million — not the $125 million the Film Office reported.
The lead author of the MSU study acknowledges the Film Office used too high a figure for Michigan spending. Specifically, when we asked, “The accurate number based on what the report was asking — or what was required in the report — would have been 65.4 million [dollars]?” Steven Miller, author of the MSU study, answered “correct.”
Mike Shore with the Michigan Economic Development Corporation, speaking on behalf of the Film Office, said the MSU numbers are different because they were based on earlier, unaudited reports. Shore said, “They [the MSU analysts] went to work on that report prior to … the closure, if you will, … of those audited — of the tax certification process.”
But the MSU study indicates it used both audited as well as unaudited figures to reach its conclusions, and the MEDC’s explanation raises the question of why the Film Office would submit the MSU study along with its own report if the university’s analysis was based on such highly inaccurate data.
The Film Office report also states that the movies in the film incentive program provided 2,800 Michigan jobs. But as the MSU study makes clear, these 2,800 positions were short-term, averaging just 23 days. That’s equivalent to just 254 year-round jobs. Even when you include jobs the films may have spurred at other Michigan businesses, the MSU study estimates the total year-round jobs created at about 1,100.
Then there’s the question of the information the Film Office report was supposed to provide, but didn’t. Patrick Wright, senior legal analyst with the Mackinac Center, a Michigan think tank, explains that state law required details about spending for each of the 35 films. “The Film Office had a number of details that were required in the report: breakdowns by film, people employed, wages, amounts spent and so forth. And their report was sorely lacking in any detail in that regard.”
In fact, all that the Film Office did report was total spending, jobs and tax credit amounts for the 35 movies, stating that it couldn’t go into the required detail because, “The law allows production companies to request confidentiality regarding their budgets. …” The Film Office has made this argument before.
But Wright notes that according to the film incentive legislation, the confidentiality argument doesn’t hold water. “A person like you or I cannot go in and demand that the government give us that information,” he says. “However, the statute is very explicit in that this stuff has to be in the report to four different people. Those four people — the Senate [finance committee chairperson], the House [tax policy committee chairperson], the governor and [an official of the MEDC, which oversees] the Film Office itself — have the discretion whether they want to disclose this information. So the confidentiality is only that we as the public can’t really demand it. Our public representatives, however, can give us that information should they choose to do so.”
And Wright adds that the reporting requirements are in the law for good reason. He says: “It was part of the deal in creating this film credit that this level of information is going to be provided so that people could take a serious look to determine whether or not the money we’re giving away is worth it. Let’s remember that we are giving away not just the full extent of the tax liability; we’re actually giving out cash on top of that, and so the benefit better be huge.”
But for now, policymakers don’t have much to go on in deciding whether to change how the state hands out its generous film incentive tax credits, which amounted to $48 million last year alone. And the Film Office’s meager two-and-a-half page document, which seems to greatly overstate the incentive’s impact and omits key details, leaves policymakers and taxpayers struggling to assess how well the incentive is working and how carefully the Film Office is spending public funds. The result is a cloak of mystery that conceals more answers than it reveals about the use of taxpayer money.