There’s a lot of news right now about a purported 3,500 new movie industry jobs that could be on the way to metro Detroit. The jobs are attributed to the state government’s generous film incentive program. The program is the state’s marquee response to a prolonged economic malaise, in which the state has lost more than a half million jobs since the year 2000.
When movies are filmed in Michigan, the studios have to pay Michigan business taxes. Under this program though, state government will give filmmakers a refund check for up to 42 percent of the money they spend in Michigan. That means a movie company that spends $10 million in Michigan could get a check for more than $4 million. That’s even after the film companies pay their own taxes.
In effect, Michigan taxpayers will foot the bill every time the refund is more than the movie company’s taxes, and there’s no limit as to how large the refund could be. In return the state is supposed to get more jobs and revenue.
But just what will the costs and benefits be?
Since the film incentive became law in April 2008, The Michigan Film Office has touted bringing Hollywood to Michigan as one remedy for the state’s economic ills. In July, Film Office Director Janet Lockwood argued that the incentive is in the best interest of the state, saying: “The reason we’re giving incentives is not for the heads of the studios. It’s for the Michigan people who are now going to work. It’s the Michigan businesses that are going to reap the benefits.”
Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center, has spent more than a decade researching economic development programs. He said although there can be some benefits from these incentives, there are costs from subsidies that many people don’t see. He observed, “So Every time you hear somebody from the film office talk about all the hotel rooms that are going to be filled as a result of this program all the local business that’ll be selling more coffee and muffins, you have to ask yourself to consider the ‘unseen.’ You have to say to yourself, ‘Well, where else in the state are businesses being diminished? Where are they selling less coffee? Where are they selling less muffins? Where are they filling fewer hotel rooms?’ — because the state has diminished one group of people to enliven or enrich another group.”
LaFaive said these “unseen” effects of subsidies demonstrate why taxpayers need access to information about movies made in Michigan, especially since it’s their money paying filmmakers’ tax refunds. He says, “As you know, we have faced many budget crises in the last seven or eight years, and we actually endured a $1.4 billion tax increase last year in order to close our discrepancy between the money coming in and the money the state wanted to spend. Now we’re looking at a possible shortfall in the next fiscal year, and over a hundred million of that could be a direct result of this single program — a program that will probably create no new net jobs or economic revenue for the state.”
As for the refunds, the Mackinac Center tried to determine the refund amounts. The investigation turned out to be more difficult than first thought. In July, Lockwood had one estimate: “Overall, it will still be around [$]100 million or more.”
Then at a November meeting of the Michigan Film Office Advisory Council, the projected refunds were much less. Lockwood told the Mackinac Center, “Well under $50 million maximum [in] refundable tax credits.” When the Center asked, “Is that for 2008?” she responded: “For 2008. It may even be closer to $35 million. I’m going a bit high with the $50 million figure.”
But the state Senate Fiscal Agency has estimated that refunds would be more than $148 million and that filmmakers would pay only $26 million in taxes, leaving a net loss to the state of $122 million.
Lockwood called the Senate Fiscal Agency study “interesting,” saying, “I’m not very certain where he got his figures from.”
An agency source said the figures came from the Film Office website and newspapers and expressed frustration at not being able to get more specific figures from the Film Office.
The Mackinac Center’s investigation found that a complete list of approved movies with spending and refund estimates is not readily available from the state. Of some 71 approved movies, less than two dozen are posted on the Film Office website, and these just give the movies’ titles.
Lockwood says that’s due in part to moviemakers’ wishes. “We can put the name on it, we’re putting the name on, absolutely. But as far as their overall budget, if they’ve requested confidentiality, we can’t.” When asked if most of the movies had requested confidentiality, Lockwood said, “one-third.” Lockwood said of the other two-thirds, “We could [release spending and refund estimates], and we have.” Asked if there is “something, somewhere [about these estimates],” Lockwood told the Mackinac Center: “Absolutely. Why don’t you call me?”
At the request of the Mackinac Center on December 2nd, Lockwood promised to have her staff compile a list of movies and estimated refunds. As of December 31st, however, the Center had received no such list.
And it’s not the just the Mackinac Center. The Film Office’s failure to release information to anyone who wants it could have consequences in Lansing. There’s a Senate bill in the works calling for movie data to be posted online and updated monthly. And lawmakers in both the House and Senate want to cap the film incentives.
Lockwood said she understands the concerns but thinks limiting the incentives is a bad idea. She said: “I think they should give it a chance to work. We’re not going to spend anywhere near as much money as people anticipate — not anticipate, as people are saying. And so, I’d like to wait and have everybody see how it really does work.”
Greater transparency from the Film Office might ease a lot of anxiety over the refunds, even within the Film Office itself. Lockwood said, “My estimates based on what I have on my desk is [sic] so much lower than what I’m hearing in the press, I’m just … I’m astounded.” The Mackinac Center suggested Lockwood put out a news release with her estimates, to which she replied, “I should ask if we can. Remember we work with the governor’s office now, so we are very careful about what we put out individually, but that’s a very good, very good idea.”
That good idea seems like the least the Film Office could do. Whether the film incentive itself is a good idea for Michigan remains to be seen.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.