Michigan’s film subsidies: Why I’m glad to see them gone

‘In less than a decade, the absurd notion of welfare for movie producers has evolved… to an unshakable American tradition…’ –Michael Kinsley, ‘Lights, camera, cut on Hollywood subsidies

As I’ve written before, there’s plenty to dispute in Governor Snyder’s FY 2012 budget.  But I’m tired of all the whining about at least one of his cuts:  the elimination of Michigan’s film subsidies.

What do I have against these particular “incentives,” as their supporters often euphemistically term them?  Let me start with the Craig Fahle Show on February 25, when Amy Miller interviewed James Hohman of the Mackinac Center.  Hohman explained that state subsidies are “not expanding the market for film, we’re just transferring wealth from one place to another instead of generating it,” that we’re taking taxpayer money and bribing an industry to move their work from one state to another.  As Amy noted, the industry has, as a consequence, become highly transient.  Jim Russell posted last month on BurghDiaspora about how they think they’re going to be the next Hollywood over in Pennsylvania, too.

But Michigan is special, right? If we just plant the seed and give it a couple of years, the industry will put down roots permanently, won’t it?  Michael Kinsley, in an early March 2011 article for Politico, explains that subsidizing films

essentially is a “beggar thy neighbor” strategy. Some of the movies that have been bribed to locate in New Mexico would have been made in New Mexico anyway… (M)obility giveth and mobility taketh away. Pit the states against one another, and the subsidies will inevitably become more generous and less effective at the same time…

As yet another observer, former Merrill Lynch entertainment industry analyst Harold Vogel, quoted by the Free Press at around the same time, puts it:

“It’s a false promise,” Vogel said. “The industry is notably mercenary. Any time it gets a better deal, they’ll be out of Michigan in the blink of an eye.”

And the studies that supporters have cited turn out to be garbage.  Kinsley again:

In the definitive document on this issue, a paper published in December by the Center for Budget and Policy Priorities, senior fellow Robert Tannenwald notes what he tactfully calls “flaws” in various studies the states have commissioned to justify the subsidy. Even after our recent experience with gullible or mendacious accountants in financial scandals such as Enron… it’s actually shocking that reputable firms like Ernst & Young would pull some of these stunts — such as counting the allowances film crews are paid for expenses as a benefit to the state and then counting the same money again when it is spent…

The really sad part is that our states aren’t just in a bidding war over film subsidies.  Midwestern policy guru Richard Longworth has written frequently about how the states themselves are an economic relic that now undercut the competitiveness of the Midwest’s metro regions.   Last week, he argued again for why tax credits for individual businesses are stupid policy, focusing in particular on the example of the Kansas City area, so eloquently and in such detail that I hope you will forgive my quoting it so extensively:

It’s precisely these states’ inability to compete globally that causes them to declare war on the folks next door.

In a global economy, Kansas and Missouri aren’t competing with each other, any more than Illinois, Indiana and Wisconsin are competing with each other. The real competition is 10,000 miles away and all Midwesterners know that we’re losing it. The region — not just the individual cities and states but the entire region — is losing companies, manufacturing, jobs, people, congressional seats and college grads, which means they’re losing the resources needed to compete in a global economy.

Clearly, what the Midwestern states are doing isn’t working. You’d think they’d do what the Europeans, Indians, Chinese and other competitors are doing, which is to form regional alliances to leverage all their strengths, to maximize their economies of scale, to merge their assets in to a single world-beating economy. On a global scale, Midwestern states are tiny: there are more than 30 Chinese cities with more people than there are in all of Kansas. But as a region, the Midwest has more than 60 million people which, even on a global scale, counts for something…

By mandate, they are geography-bound, forced to limit all thinking and action within their state lines. Any business they can steal from next door looks good to their voters, whether it makes sense or not…

One reason this doesn’t work is that poaching businesses involves giving tax breaks to the poachee. Right now, states aren’t spending on the future because they’re broke, and one reason they’re broke is that they’re giving away badly-needed tax money. The letter from the Kansas City businessmen made this point clearly:

“… The states are being pitted against each other and the only real winner is the business who is ‘incentive shopping’ to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.”

Neither does this poaching usually create new jobs. Most of these cross-border raids, in Kansas-Missouri and in other states, involve companies just moving a few miles away across the state line — usually so close that their workforce changes not at all. People just commute in different directions. The overall impact on job totals, incomes and economic gain in the region itself is absolutely nil…

The state governments and governors, like Brownback, claim that these tax lures are necessary to draw in companies not from next door but from far-away states. If so, they aren’t working. A University of Illinois study showed that there are some 300 significant corporate relocations in the United States every year, and about 15,000 different economic development organizations — state, county and local — competing for them. In other words, the odds against success are fifty-to-one…

… State economic development officials tell me that the company, such as Honda or BMW, simply announces that it intends to set up a new assembly plant somewhere in the Midwest. Then the company just sits back and watches the states throw money at them, trying to outbid each other with tax holidays, free land, training subsidies and other lavish gifts.

All the states know this goes on. All know they could stop it in an instant by banding together and refusing to play the game…

Mark Drabenstott, in… Past Silos and Smokestacks, wrote that these recruiting incentives and other bribes account for no less than 80 percent of economic development budgets in the twelve Midwestern states. That leaves virtually no money left over for approaches that might really work.

Every economic development professional knows that this adds nothing to the Midwest’s long-term growth or its ability to compete globally with China and other rising nations. The only true solution is to create truly  new companies and industries by building them from the ground up  — by investing in local education, encouraging local entrepreneurs, setting up incubators, growing business services, increasing venture capital.

This is called economic gardening, and it works. It means working regionally. It means spending money, not giving it away in tax breaks. It means planting seeds now, knowing they won’t sprout until some other governor is in office.

Right now, Midwestern governors are competing not with China but with each other to see how much they can slash spending in the next few months while stealing jobs from the next state… And it’s useless.

Again, Longworth’s entire post is worth reading in full when you get the chance (and I encourage you to subscribe to his blog as well).

The good news is, like Michigan, the madness may be subsiding in other states as well.  According to the Detroit News:

In the last couple of years, New Jersey, Kentucky, Connecticut, Iowa, New Mexico and Kansas have all cut back film programs. Georgia, where producers of “Detroit 1-8-7″ originally planned to film, is considering ending its 20 percent rebate altogether. New Mexico lawmakers also are considering spreading out payments to more costly film productions over multiple years.

The bar for sanity has been set so low  in American public policy, I’ll take a little comfort wherever I can.  I like movies and want to see Michigan’s creative scene grow as much as anybody, but this year’s budget is a viciously zero-sum game.  I would much rather have my tax dollars plugging the massive holes in the education budget or local revenue-sharing, to cite two examples, than to some Hollywood producers who are shopping around for a handout.  Wouldn’t you?

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3 responses to “Michigan’s film subsidies: Why I’m glad to see them gone

  1. I’m with you on the film credits – we don’t even have to look up to the global megaregion scale to identify the transient, beggar thy neighbor effects. These were parachute-in investments, wham, bam, wrap, and leave.

    *Maybe* had the State kept enough incentives for long enough and spent them strategically enough, it would have resulted in some sort of emergent agglomeration economy that could have been weaned off the tax credits a bit. Maybe. Most of the capital-scale investments discussed seem to have been vaporware, though.

    I like my investments environmental – provide education, transportation, and other public services that facilitate activities.

    If we’re going to use direct subsidies, I prefer the bricks-and-mortar types that have some permanency – historic rehabilitation tax credits or brownfield redevelopment tax credits, for example, both effect behavior that has a public benefit even if no business activity aside from the bricks and mortar happens, but also serves as an investment rooted in one location: if we’re going to throw tax incentives on things, these are the things we should be throwing them at.

    Finally, if we really wanted to subsidize costs of film production, we probably shouldn’t be targeting the big-budget, highly-mobile films. I’ve heard some (filmmakers) suggest that film incentives be capped to productions with budgets no greater than, say, $2m or $5m. This would put a much greater balance of the incentives on people who are already here and trying to finance small indie productions – the people who perhaps have an underlying reason to stay and foster a nascent industry, rather than swoop in, scoop up credits, and leave.

  2. I hadn’t thought of incentives only for smaller/local indie productions. Interesting thought. I too might have been a little more supportive of the credits under that scenario. Grants to university film departments and/or scholarships to film students would have been another way to do it.

    BTW I just now am noticing you have your own blog too! I am so clueless. I added it to my Google Reader so I can start following.

  3. As much as I like to watch movies and see scenes that I am familiar with, giving money to one of the more profitable sectors in the US economy leaves a bad taste in my mouth. Especially when you compare that to the ringer they are putting teachers through. My mom was saying that if some of the pay cuts go through, she will be making less now than what she made when she started teaching a little over 10 years ago. When you figure that a teacher has to get a license and then continue his or her educaiton, there is something wrong with that. Why should some already rich Hollywood Producer get more money when it taking money from people that actually contribute value to society (Don’t get me wrong…I like movies but I don’t consider them on the same scale as education).
    And as you said, the various states giving subsidies leads to shopping around the different states for various subsidies.

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