Tag Archives: Michigan film credits

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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The Snyder Budget IV: Tax credits

Lessenbury discusses the reaction to another one of the Snyder budget’s unpopular cuts — the elimination of the film tax credits:

The howling began immediately, some of it less dignified than the rest. Starting at the bottom, Mitch Albom, who wants more of his cloying books made into movies, emitted a protracted whine about the film credits in the Sunday Gannett paper. “As a person who helped create the film credits program, I asked for months to meet with Snyder,” he huffed.

The governor, evidently not knowing that Mitch was a Very Important Person, kept him waiting until two weeks ago, the churl. When the governor didn’t do what Mitch wanted, Albom wrote that he felt like he’d “been punched in the stomach.” No five friends in heaven waiting for Rick Snyder, no siree!

As Nolan Finley asked last week:

How can he justify spending $160 million on a Hollywood giveaway while asking senior citizens, middle class families and public workers to sacrifice?

Moreover, he argued,

If we really believed that the subsidies would serve to build a movie-making infrastructure that would ultimately be self-sustaining, that would cast them in a different light. But the experience of other states suggests that when the subsidies are reduced or ended, the film makers jump to another state.

Perhaps realizing that the administration is still at risk of losing the messaging battle, the Governor’s budget director John Nixon reiterated the case against the cuts in an editorial in today’s Free Press:

Our current mechanism is nothing more than a subsidy by which the state writes a check for 42% of the cost of the film project with almost no return on investment to the state coffers.

Furthermore, there are no limits to the number of films or the number of checks we write. If a producer spends $100 million on a film in Michigan, we would be forced to write them a check for $42 million. Michigan simply can’t afford this…

(W)hat state services are taxpayers willing to cut in order to fund the movie business?

…(W)hile economic activity is generated, the film industry doesn’t give the state coffers a return on investment, the industry does not create sustainable jobs for the long term, and the cost for the long-term jobs that it does create is quite high.

In case you still think we need to preserve these subsidies, the Governor brings up another point in his his interview with the Detroit News.  It’s one which, based on their reactions to ‘Detroit 187’, might register with Detroit City Council:

(N)ot all of the productions made in Michigan necessarily cast the Great Lakes State in the best light.

Snyder pointed to Clint Eastwood’s “Gran Torino” as an example: “Watching someone being shot down in a front yard is not necessarily the image I would like for our state.”

While the film lobby has received the most attention, there’s been plenty of pushback regarding the proposal to cut the rest of the state’s business tax incentives as well.  Writing for AnnArbor.com, Rick Haglund cites, as evidence in favour of keeping tax incentives, former Governor Engler’s reversal of his earlier position on tax credits, due to loss of the GM Willow Run plant in 1992. A shrewd commenter points out that, if anything, this example undermines his argument:

All one needs to do is look at GM, Ford, and Chrysler to see if tax incentives work.  All three receive huge incentives and tax abatements from the State of Michigan. None of these companies are adding jobs and any rate that is significant even after chalking up huge profits.

Ultimately, I think advocates for the film subsidies and other business tax credits are going to lose the fight, simply because there are competing with so many other constituencies that are either more influential (the business lobby that wants its overall tax rate lowered, the army of politically powerful retirees who will fight to the very death to keep from having to pay their share of income tax) or can demonstrate more compelling need (the advocates for the working poor trying to preserve the EITC; the education advocates trying to maintain school funding; the municipalities that will be driven into financial distress if statutory revenue sharing is cut).

And that is how it should be.  As Finley argues: ‘Buying jobs is not a healthy economic model.’