LANSING – On the same day that a major national newspaper highlighted the state’s success in attracting film production, the Michigan Senate Fiscal Agency released a detailed study of the impact of Michigan’s controversial film credits that concluded there is no anticipated situation in which the credits could pay for themselves in terms of state revenues. Whether that, in the end, is a bad thing or an acceptable risk to help diversify the economy is an issue left to policymakers, the paper said.
“The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit ‘pay for itself’ from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred,” the paper said. But it also concluded by saying that losing revenue is the case for most incentives: “As is true for most tax incentives, the film incentives represent lost revenue and do not generate sufficient private sector activity to offset their costs completely. As with other types of incentives and credits, whether the relationship of costs to benefits is acceptable is a decision for individual policy-makers.”
But in terms of overall tax costs to the state, there is no question that at this time, in its third year of operation, the credit has resulted in overall revenue loss to the state. Nor has it yet generated a large-scale number of jobs.
However, as evidenced by a section-leading story in the Wall Street Journal, there is also no question the credit has brought enormous attention to Michigan and the Detroit-area in particular.
A spokesperson for the Michigan Film Office said: “We stand by the film incentive program and its ability to create good paying jobs to stem the brain drain of young people, and promote Michigan in a positive light to residents, visitors and potential businesses. All of these things we feel are critical factors for strengthening the Michigan economy.”
Since the credit was adopted in 2008, political critics have tried to lessen its overall impact, thus far to no success.
And Michelle Begnoche with the state’s film office said the program is still in its infancy so it would be unwise to take major steps against it “before it’s had a chance to take root.”
How politically sensitive the issue is with the voting public is uncertain. For example, former Republican Rep. Bill Huizenga, who was one of the primary sponsors and supporters of the credits, won the GOP primary for the 2nd U.S. House district, while one of his opponents, Bill Cooper, who made the film credits a major issue in the race, finished well out of the money in the primary.
Given the popularity the credits have had with the public being able to see some of their favorite stars in towns across the state (when Hugh Jackman filmed scenes for an upcoming movie in Mason earlier this year, for example, it drew dozens of fans to watch to the city’s downtown), it is questionable whether the public thinks much on the revenue effects of the credit. That was an issue not raised in the paper, though it did look at some of the indirect economic effects of the credit.
The paper also emphasized that assessing and analyzing the impact of the credit is difficult given some aspects of the law and how it has been interpreted to this point.
“Estimating the revenue impact of the film incentives adopted in 2008 has been difficult and will remain vulnerable to a wide margin of error until the State has enough experience to discern the correlations between projected media activity, the claimed credits, and wider economic conditions. In addition to major uncertainties, such as those created by the current weak economic climate (and associated lending crises), the ever-changing landscape of competing film incentives in other states and countries, and the wide variation in the costs associated with different productions, a variety of more administrative issues have complicated the estimates,” the paper said.
However, in terms of generating revenue compared to the revenue cost, the paper said the credit has had a significant negative return. The net impact of that revenue loss has grown since the acts creating the credits, which can be as much as 42 percent of the production expenditures in what the law calls a core community, and will likely grow with time.
In fiscal 2008-09, the credit had a net impact of $33.8 million, the paper said. In 2009-10, the net impact grew to an estimated $89.7 million, and for 2010-11 the net impact is forecast at $111.4 million.
Nor has the film credit had an overwhelming impact on job production in the state, especially when compared to the massive job losses the state endured during the ongoing recession.
An estimated 2,350 people hired for mostly part-time work in 2008 equated to 216 full-time jobs, the paper said. The number grew to 3,867 jobs in 2009, which equated to 355.5 full-time jobs. In sum, the people hired had an effect of 0.4 percent on the state’s total employment picture, the paper said.
The paper also looked at the specific impact each of the films and television shows that were produced in the state during 2008 and 2009 had. Among those were the critically acclaimed films of “Gran Torino” and “Up In The Air.”
Gran Torino spent some $6.5 million in the state, had eligible tax credits of $4.7 million, hired directly about 19 people and generated tax revenues of more than $589,000. Up in the Air spent an estimated $702,000 in Michigan (the film was produced in a number of areas compared to Gran Torino) and had a tax credit of $519,000. It hired more than 13 people and generated revenues of $55,131.
In terms of total amount of money spent in Michigan by production companies thus far, the Wall Street Journal said it has totaled at least $350 million. That figure could reach as much as $650 million by year’s end.
In contrast, in 2007, the year before the credits were issued, a total of $2 million was spent on film production in Michigan.
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