Are We Being Too Tough on Hollywood?

The Mackinac Center for Public Policy has been critical of the Michigan Film Incentive since its inception in 2008. At first, the criticisms focused on the pure principle of the thing: state government has no business trying to pick corporate winners from losers in the marketplace. This time, the perceived “winner” would be moviemakers who could get cash refunds of up to 42 percent of money spent in Michigan. This also became the most generous film incentive in the country.

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The concerns then broadened to transparency. Representatives from both the Michigan Film Office and its parent state agency, the Michigan Economic Development Corp., repeatedly failed to answer questions about detailed movie production expenditures and estimated refund amounts, citing filmmaker “confidentiality” as the reason.

Nearly a year later, after a four-part video series by the Mackinac Center, prodding by state lawmakers including at a Senate Finance Committee Hearing, and a flawed economic impact study by Michigan State University, the Michigan Film Office has only released a bare minimum about spending information. At the same time, this same agency continues to tout the purported successes of the program, telling us that these incentives are creating enough jobs and luring enough movie stars that Michigan is turning into the “Midwestern Hollywood.”

There had already been some controversy over film incentive programs in other states such as Louisiana (bad deal, bribery), New Mexico (illegal no-interest loans) and Wisconsin (breaks even on high publicity multi-million dollar movie).

Now there’s Iowa.

Its unfolding film program scandal could be the most troubling yet. It started last week, with a memo sent from the Iowa Economic Development director to state officials about an internal investigation into the state’s film program. The investigation started simply with a question about two vehicles bought “through the tax credit program that were not used directly on a film.” Among the subsequent findings:

• Files on each film were inadequate. Most of the necessary information was in unsorted email archives.

• Contracts were amended, often to increase amount of credits requested substantially, after director/deputy approval. Signature pages appeared shuffled among versions of contracts.

• There were only receipts for two of 18 film projects. Some receipts were obviously prepared in a single batch by the filmmaker who claimed all of their vendors on identical receipts which were usually not signed.

• Ledger sheets that were accepted as claims were vague and overly broad. It appeared everything was allowed. Tax credit certificates were issued for the full amount requested. It appeared nothing was ever disallowed.

• Many vendors clearly resided outside of Iowa.

• Some film makers were allowed to claim payment for several roles in a production leading to very high payments. Some of the roles played by a single individual, such as accountant/CPA should have held an arms length relationship but did not. Large payments were also made to family members.

The author’s conclusion:

• Some of the problems emanate from the statute that specifically identifies a very broad list of eligible expenditures and allows a credit that is comparatively lucrative.

• The cost of the program is increasingly a problem in a time of declining state revenue.

The author of this memo, Michael Tramontina, who was the Iowa Economic Development Director, resigned two days after its release. The Des Moines Resister reports that on Monday, Tramontina’s deputy director resigned and that Gov. Chet Culver fired Iowa Film Office Director Tom Wheeler. The Register also reports that Gov. Culver suspended Iowa’s film tax credit and also expanded the investigation into the scandal. Given these situations, demanding transparency of the Michigan Film Office and the MEDC seems pretty reasonable, especially with our money at stake.