The MC: The Mackinac Center Blog

House Vote on Terminating Michigan Film Producer Subsidies

House rejects $50 million per year program

On March 11, 2015, the Michigan House of Representatives voted 58‑51 to pull the plug on an “incentive” program that since 2008 has distributed some $500 million in state tax dollars to film-production companies.

According to the federal Bureau of Labor Statistics, Michigan had 1,663 full-time film-industry jobs in 2008, and 1,561 in 2013 (the latest year information is available), a decline of 102 jobs.

Last June, the Legislature appropriated $50 million in subsidies for the current fiscal year, which ends on Sept. 30, 2015.

The House-passed repeal bill also contains a provision requiring any leftover film subsidy money be used to reimburse state pension funds for losses from a past film-related deal. The Granholm administration had used pension money to back investments, made by some politically well-connected individuals, in the setup of a production studio in Oakland County.

2015 House Bill 4122: Repeal film producer subsidies (House Roll Call 26)

Who Voted “Yes” and Who Voted “No”

Republicans in favor:
Afendoulis, Barrett, Bizon, Bumstead, Canfield, Chatfield, Cole, Cotter, Courser, Cox, Farrington, Forlini, Franz, Gamrat, Garcia, Glenn, Goike, Graves, Heise, Hooker, Howrylak, Hughes, Iden, Inman, Jacobsen, Jenkins, Johnson, Kelly, Kesto, LaFontaine, Lauwers, Leonard, Leutheuser, Lyons, Maturen, McBroom, Miller,A, Nesbitt, Outman, Pagel, Pettalia, Poleski, Potvin, Price, Pscholka, Rendon, Roberts,B, Runestad, Somerville, Tedder, Theis, Vaupel, VerHeulen, Victory, Webber, Yonker

Republicans opposed:
Callton, Crawford, Glardon, Lucido, McCready, Sheppard

Republicans not voting:
Muxlow

Democrats in favor:
Kivela, Santana

Democrats opposed:
Banks, Brinks, Brunner, Byrd, Chang, Chirkun, Clemente, Cochran, Darany, Dianda, Dillon, Driskell, Durhal, Faris, Garrett, Gay-Dagnogo, Geiss, Greig, Greimel, Guerra, Hoadley, Hovey-Wright, Irwin, Kosowski, Lane, LaVoy, Liberati, Love, Miller,D, Moss, Neeley, Pagan, Phelps, Plawecki, Roberts,S, Robinson, Rutledge, Schor, Singh, Smiley, Talabi, Townsend, Wittenberg, Yanez, Zemke

Democrats not voting: None

Three Reasons Why Michigan Should End Film Incentives

Results show the investment is not worth it

The Michigan House recently passed House Bill 4122 which would end the state’s film incentive program. The legislation now moves on to the Senate.

But Senate Majority Leader Arlan Meekhof, R-West Olive, has raised concerns about ending the subsidy. And Gov. Rick Snyder, who previously proposed eliminating the subsidies, now says he doesn’t believe ending the program abruptly is an “appropriate answer.”

So those are the obstacles standing in the path of terminating payouts to Hollywood. The good news is that it is believed most Michigan Senators want to end the subsidies. There may end up being an agreement between the branches of state government, but they should resist the temptation to merely reduce the appropriation.

The state should cut the film incentives once and for all for three simple reasons:

1. No increase in film jobs. According to the Bureau of Labor Statistics, there are fewer film jobs in the state today than when the film incentives began in 2008.

2. No permanent jobs. According to the Michigan Film Office (which distributes the subsidies), there were zero full-time jobs created from the program last year.

3. No money. According to the Senate Fiscal Agency, the incentives bring in only 11 cents on the dollar spent — a huge loss for taxpayers.

By all fair measures, the nearly $500 million devoted to the film incentive program has been a waste. It should be ended and the money redirected to better priorities.

Excise Tax Hike on Cigarettes Irrational Choice for Washington

Fewer legal sales doesn't necessarily mean lower smoking rates

The Washington Legislature appears again poised to go to the cigarette excise tax well. A proposal to hike the state’s excise tax by another 50 cents — to $3.52 per pack — would exacerbate an already large smuggling problem and offer little in the way of gains to public health.

We have created a statistical model to measure the degree to which cigarette smuggling occurs in most American states. Through 2013, our model reported that Washington had the third-highest smuggling rate among 47 states. Our estimate shows that, of all the cigarettes consumed in Washington that year, 46.4 percent were obtained as a result of tax evasion or avoidance. The state’s smuggling rate would be four points higher if we did not subtract out cigarette smuggling exports going to Canada.

We are not the only team of scholars to tag Washington state with a very high smuggling estimate. On February 19, the National Research Council and the Institute of Medicine released its own state-by-state smuggling estimates in a report titled, “Understanding the U.S. Illicit Tobacco Market: Characteristics, Policy Contest, and Lessons from International Experiences,” in which they estimate Washington’s smuggling rate for 2012 at 45.5 percent.

In other words, two groups of analysts, working independently, made nearly identical smuggling estimates. Even if both are off by 10 or 15 percentage points Washington still has a rampant problem that could get even worse. The state’s own smuggling estimate for 2013 is 32.9 percent of the total market.

To measure the future impact of adding 50 cents per pack onto the state’s existing tax, we reran our model at the higher rate. It reports that smuggling will leap to 52.5 percent of the total market, moving Washington into second place among smuggling states, behind only New York State, whose smuggling problems are exacerbated by New York City’s municipal excise tax of $1.50 and its proximity to tobacco state Virginia.

Perhaps more instructive is that the model is informing us that Washington is getting dangerously close to the point at which revenues from a higher excise tax will turn negative. We estimate that the higher excise tax will only raise about 3.3 percent or $13.5 million more than it does now due to a drop in legal paid sales of 11.4 percent.

It is worth noting that the state’s own estimates aren’t too different. They estimate new revenues of $18 to $20 million in the year following the hike and a legal paid sales decline of 9.5 percent.

As a large percentage of Washington’s population lives along the I-5 corridor, it does not strain credulity to suggest that large amounts of illicit cigarettes are being trucked up from Oregon, which maintains an excise tax of just $1.31 per pack. We also suspect that Washington’s busy port system facilitates the illegal transit of untaxed smokes, but our model is not yet designed to measure it.

We do recognize that supporters of such tax hikes for health reasons are well intentioned, but evidence suggests that illicit sources of smokes may be undermining their goals.

In 2004, economist Mark Stehr published a paper that suggested up to 85 percent of the change in legal paid sales of cigarettes may be attributed to tax avoidance or evasion, and not from people ending their smoking habits.

The authors of a 2014 study, “Do Higher Tobacco Taxes Reduce Adult Smoking?” published in the peer-reviewed Journal of Economic Inquiry, are skeptical as well. They write: “Considering all the evidence, we conclude that there is insufficient justification for the widespread belief that raising cigarette taxes will significantly reduce cigarette consumption among adults, even young adults.”

The reasoning behind this is simple. People turn to illicit markets for cheaper (and we argue, sometimes more dangerous) alternatives and those who still smoke have a “strong preference” for doing so. Lawmakers should never confuse declines in legal paid sales with a decline in smoking rates. The former need not lead to the latter, especially to the degree health advocates hope.

By opposing a further cigarette excise tax increase, Washington legislators will avoid forcing residents to accept substantial increases in lawlessness in exchange for modest reductions in smoking rates.

Michael LaFaive is director of fiscal policy with the Mackinac Center for Public Policy in Midland, Mich. Todd Nesbit, Ph.D., is a senior lecturer in economics at The Ohio State University and a member of the Mackinac Center’s Board of Scholars.

Will Michigan GOP Continue Michael Moore Film Subsidies?

Program is a waste of taxpayer money

Michael Moore received over $840,000 from Michigan taxpayers to make a film (image via David Shankbone at Wikicommons).

In 2011, left-wing filmmaker Michael Moore sat on the advisory council for the Michigan Film Office. The office is in charge of determining what productions will receive the hundreds of millions of dollars that have been sent from state taxpayers to mostly out-of-state moviemakers since 2008.

So perhaps it should not be surprising to learn that Moore himself – with a reported personal net worth of $50 million – was able to grab taxpayer money to cover some of the costs for his 2009 film “Capitalism: A Love Story” (which criticized the well-connected for taking taxpayer money).

As previously reported by Michigan Capitol Confidential: “Moore requested and was approved for $1 million from Michigan’s film subsidy program. In the end, according to The New York Times, he received over $840,000 from Michigan taxpayers to film some of the movie in his home state.”

Today, the Legislature is considering a bill that would end the film incentives fiasco once and for all. The program has redistributed nearly $500 million from taxpayers, added no jobs to Michigan’s film industry, has been criticized by independent scholars from across the political spectrum, and has contributed to schemes that resulted in the near-bankruptcy of the city of Allen Park and a raid of the state’s teacher pension fund to bailout a movie studio in Pontiac.

House Bill 4122 has passed out of a committee in the state House. It now heads to the full House where it is expected to pass – the House and Gov. Snyder have previously proposed ending the program. Then the bill will head to the state Senate, which has a 27-11 overwhelming Republican majority, where it may hit a roadblock. Insiders say there may be enough legislators in the GOP to kill or severely stamp down the bill.

According to the last report filed by the Michigan Film Office, the film incentive created zero permanent jobs in 2013. It is central planning at its worst, and there are far better ways to spend taxpayer money.

LaFaive in Los Angeles Times

Detroit’s foreclosure problem and what to do about it.

Director of Fiscal Policy Michael LaFaive is quoted in Los Angeles Times on the subject of foreclosure in Detroit. According to the article, 62,000 Detroit property owners are facing foreclosure due to falling behind on the city’s high property taxes.

There are other ways the city can increase revenue. Privatizing the city’s transportation system could alone save it millions. Detroit should also look to the city of Pontiac, which has made commendable progress in pulling itself out of bad financial straits. The city of Detroit has already said it plans to lower property taxes for homeowners in June, in hopes of alleviating the foreclosure problem.

The story also appeared in the Pittsburgh Post-Gazette on April 3.

Vernuccio Cited in Forbes

Why Wisconsin and others become right-to-work

A recent Washington Times opinion piece by Director of Labor Policy Vincent Vernuccio and Brett Healy, president of the John K. Maclver Institute in Wisconsin, is cited in Forbes for supporting evidence for the benefits enjoyed by right-to-work states. On Monday, Wisconsin became the nation’s 25th right-to-work state.

Right-To-Work For Taylor Teachers Begins Today

Mackinac Center Legal Foundation case in the news

Starting today, Taylor teachers are no longer constrained by a 10‑year union “security” agreement, and may opt-out of financially supporting the union if they wish. A request by the Taylor Federation of Teachers and the Taylor School District to place a hold on the ruling, pending the ruling’s appeal in court, has been denied.

The MERC decision called the 10-year agreement “arbitrarily, indifferent and reckless.” Mackinac Center attorney for the case, Derk Wilcox, says “Despite attempts from the union and school district to force these teachers to pay an organization which they don’t agree with, it looks like freedom of association won here.”

News outlets including The Detroit News and The News-Herald have reported on the state's newest right-to-work district.

March 3, 2015, MichiganVotes Weekly Roll Call

Pension debt, double-dipping, film subsidies

Now with one click you can approve or disapprove of key votes by your legislators using the VoteSpotter smart phone app. Visit votespotter.com and download VoteSpotter today!

Senate Bill 86, Authorize more local pension debt: Passed 38 to 0 in the Senate

To extend for one year a 2012 law that allows local governments to incur long term debt to cover unfunded pension liabilities, but only if they close their traditional “defined benefit” pension system to new employees. The 2012 law also allows new debt to pay for retiree health insurance, which unlike pensions is not a legal obligation.

Who Voted “Yes” and Who Voted “No”

House Bill 4078, Spend $24.7 million for state land purchases & recreation projects: Passed 31 to 5 in the Senate

To appropriate $24.7 million from the state Natural Resources Trust Fund. Royalties from oil and gas wells on state land are earmarked to this fund. At least 25 percent of its annual spending must be for land acquisition, and not more than 25 percent for recreation projects.

Who Voted “Yes” and Who Voted “No”

House Bill 4059, Remove sunset on allowing school retiree “double dipping”: Passed 108 to 2 in the House

To repeal the sunset on a law that allows a “retired” teacher to work in schools with shortages in certain subjects and collect pension checks alongside his or her current pay.

Who Voted “Yes” and Who Voted “No”

Notable Committee Actions: Terminate State Film Subsidies

On Wednesday the House Tax Policy Committee voted 8 to 3 to advance a bill that would end state subsidies to film producers. Specifically, the committee sent House Bill 4122 to the full House with a recommendation that it pass.

The previous week the committee heard testimony for and against. On one side were individuals and businesses saying they have benefited financially from the subsidies. On the other side were individuals and organizations critical of the state having spent nearly $500 million on subsidies over seven years with little or no impact on the small number of full time film industry jobs in the state. Notably, the Michigan Chamber of Commerce and the state branch of the National Federation of Independent Businesses recommended that the program be ended.

The current state budget has $50 million allocated for film subsidies. Gov. Rick Snyder has recommended the same amount next year, but is also on the record saying the program should be ended.

Republicans in favor: Jeff Farrington, David Maturen, Lee Chatfield, Gary Glenn, Martin Howrylak, Brandt Iden, Pat Somerville, Ken Yonker
Republicans opposed: None
Republicans not voting: Michael Webber (“abstained”)
Democrats in favor: None
Democrats opposed: Jim Townsend, Wendell Byrd, Bill LaVoye
Democrats not voting: Paul Clemente (“abstained”)

 

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

Hohman in Wall Street Journal

Right-to-work states enjoy higher per capita income

Research conducted by Assistant Director of Fiscal Policy James Hohman appeared in the Wall Street Journal this week. The article, titled "The Right-to-Work Advantage," discusses the economic advantages and freedom-based benefits that lead states to adopt right-to-work policies. Hohman’s research found that “right-to-work states have 4.1 percent higher per-capita personal incomes than non-right-to-work states” once cost of living is factored in.

Wisconsin is currently considering legislation that would give public and private sector workers the freedom to choose whether they wish to financially support their union. The Wisconsin Senate has already passed the bill and it is now in the state House.

House Committee Votes to End Michigan Film Incentives

$500 million spent with no overall increase in jobs

The House Tax Policy Committee voted 8-3 to end Michigan’s $50 million per year film incentive program. The vote passed House Bill 4122 out of committee and it is on to the full House.

The bill was supported by Rep. Jeff Farrington (R-Utica), Rep. David Maturen (R-Brady Twp.), Rep. Patrick Sommerville (R-New Boston), Rep. Ken Yonker (R-Caledonia), Rep. Martin Howrylak (R-Troy), Rep. Lee Chatfield (R-Levering), Rep. Gary Glenn (R-Midland), and Rep. Brandt Iden (R-Portage). It was opposed by Rep. Jim Townsend (D-Royal Oak), Rep. Bill LaVoy (D-Monroe), and Rep. Wendell Byrd (D-Detroit).

Rep. Michael Webber (R-Rochester Hills) and Rep. Paul Clemente (D-Lincoln Park) abstained from voting.

“It’s on track to be taken up soon, but there is no firm timeline,” said Gideon D'Assandro, spokesman for House Speaker Kevin Cotter, R-Mt. Pleasant.

Passage in the House is the most immediate hurdle the legislation needs to clear, but the general view in Lansing is that if House Bill 4122 is destined to run into obstacles, it will most likely happen after it reaches the Senate.

The vote taken on House Bill 4122 in the House Tax Policy Committee took place as soon as the hearing opened. There was no discussion other than Committee Chair Rep. Jeff Farrington, R-Utica, pointing out that the bill had already received a full hearing a week earlier.

Last week, Assistant Director of Fiscal Policy James Hohman testified in front of the committee, saying film incentives are a poor use of public money.

Taxpayers in Michigan have spent about $500 million on the film subsidy program since it began in 2008. According to the Bureau of Labor Statistics, there has been no overall increase in film jobs in the state. Film incentive programs are widely seen by economists across the spectrum as one of the worst “economic development” programs governments are involved in.