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Michigan Film Incentive Program

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The Michigan Film Incentive Program (MFIP) is a program designed to create additional jobs and revenue for the state by offering incentives to the film industry. Under the program, studios filming in Michigan pay state business taxes, but can receive a refund check for up to 42% of all expenditures they made in the state. Since becoming law in April 2008 the program has created a great deal of controversy, with opponents questioning the economic benefit and many calling for greater transparency from the Michigan Film Office.

There has been much controversy over the program and it began to interfere with businesses.

History

Legislation creating an incentive program was originally proposed by Governor Jennifer Granholm in her State of the State address. MFIP was officially created on April 7, 2008, when Granholm signed a 14 bill package into law. It is part of a much larger overall economic stimulus package designed to grow the state's economy and create jobs.[1]

In signing the legislation Granholm announced, "We're going to grow this industry and in the process, grow our economy and create jobs. Across the country and around the world, the film industry is a multi-billion dollar industry. We're going to bring some of that investment to Michigan."[1] She stated that with the new laws, Michigan has the most aggressive program of its kind in the nation.

Bill package

Michigan Governor Jennifer Granholm pushed a fourteen bill package through the Michigan State Legislature until it passed on April 7, 2009. The package included House Bill 5841 sponsored by Andy Meisner, House Bill 5842 sponsored by Coleman Young, Jr., House Bill 5844 sponsored by Bert Johnson, House Bill 5848 sponsored by Robert Jones, House Bill 5852 sponsored by Dave Hildenbrand, House Bill 5853 sponsored Kathleen Law, House Bill 5854 sponsored by Ed Clemente, House Bill 5855 sponsored by Fred Miller, Senate Bill 1173 sponsored by Hansen Clarke, Senate Bill 1174 sponsored by Jud Gilbert, Senate Bill 1176 sponsored by Patricia Birkholz, Senate Bill 1177 sponsored by Jason Allen, Senate Bill 1178 sponsored by Tupac Hunter, and Senate Bill 1183 sponsored by Tony Stamas.

Hanger42

The Hangar42 is a film studio, which was previously valued at $9.8 million, was recently bought by the government for $40 million. The state has refused to answer questions about the large increase in price and the deal remained under scrutiny by the Mackinac Center.

In August of 2010 Joe Peters, the buyer of Hangar42, was charged by the Michigan Attorney General’s office with one count of attempted felony false pretenses when Peters applied for an assignable 25 percent state tax credit based on a $40 million investment in the form of purchasing the studio property, but no property transfer ever took place.[2][3]

Senate Bills 796 and 889

Would require disclosure of information about jobs, film company expenditures and state rebates to companies to the Legislature, public and media.[4]

House Bill 5841

HB5841 was sponsored by Andy Meisner.[5][6] It was a business tax credit for certain production companies for production expenditures and it amended Act 36 of the Michigan Business Tax Act by adding section 455.

House Bill 5842

HB5842 was sponsored by Coleman Young, Jr..[7] It is a sales tax exemption to provide incentives to the film production industry. It amended section 4cc of the General Sales Tax Act.

House Bill 5844

HB5844 was sponsored by Bert Johnson.[8] It is an income tax credit for "certain eligible" production companies. It amends the Income Tax Act of 1967 by adding section 367.

House Bill 5848

HB5848 was sponsored by Robert Jones.[9] It allows the State to fund loans to "qualified" film industry productions. It amends section 88d of the Michigan Strategic Fund Act.

House Bill 5852

HB5852 was sponsored by Dave Hildenbrand.[10] It is a provision to allow film industry productions to have cost-free use of state property. It amends the Michigan Military Act by adding section 337.

House Bill 5853

HB 5853 was sponsored Kathleen Law.[11] It gives the director of the Department of Natural Resources the authority to authorize free use of property controlled by DNR for film production. It amends the Natural Resources and Environmental Protection Act by adding section 512.

House Bill 5854

HB5854 was sponsored by Ed Clemente.[12] It is a provision that allows film industry productions to have cost-free use of state property. It amends Station Transportation Commission by adding section 6b.

House Bill 5855

HB5855 was sponsored by Fred Miller.[13] It creates a new act, the Local Government Filming Location Access Act, that authorizes local government units to provide film productions with free use of local government property.

Senate Bill 1173

SB1173 was sponsored by Hansen Clarke.[14] It is a business tax credit for "certain qualified" film and digital media infrastructure projects. It amends the Michigan Business Tax Act by adding section 457.

Senate Bill 1174

SB1174 was sponsored by Jud Gilbert.[15] It is intended to boost economic development by providing tax incentives for "qualified" companies in the film production industry. It amends section 3 of the Michigan Economic Growth Authority Act.

Senate Bill 1176

SB1176 was sponsored by Patricia Birkholz.[16] It provides a business tax credit for "certain" production companies for "qualified" job training expenditures. It amends the Michigan Business Tax Act by adding section 459.

Senate Bill 1177

SB1177 was sponsored by Jason Allen.[17] It provides State strategic fund incentives for those in the film production industry. It amends the Michigan Strategic Fund Act by adding ch. 2A and repealing sections 21 and 22 of the History, Arts, and Libraries Act.

Senate Bill 1178

SB1178 was sponsored by Tupac Hunter.[18] It is a provision that allows film industry productions to access state property, cost-free. It amends The Management and Budget Act by adding section 125.

Senate Bill 1183

SB1183 was sponsored by Tony Stamas.[19] It is tied to SB1177, outlining the powers, duties, and functions of the Michigan film office and the Michigan film advisory commission. It amends section 2 of the History, Arts, and Libraries Act.

Incentives

In order to be eligible for the incentives, film companies must spend at least $50,000 in the state. Meeting that criteria, they can receive an across the board tax credit of 40% on Michigan expenditures. They can receive an additional 2% if filming in one of the 103 "core communities" in the state.[20]

There is also a 25% tax credit for infrastructure investments, such as building studios or purchasing equipment.[1] Other than a $2 million salary cap per employee, there is no limit and no sunset.[21]

The Scene and the Unseen

The Mackinac Center for Public Policy, a Michigan based non-profit, began an investigation into the cost-effectiveness of MFIP, which they called "The Scene and the Unseen." Michael LaFaive, director of the Morey Fiscal Policy Initiative at Mackinac, points out that one must look at "unseen" effects of the program:

“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.”[22]

The only way to determine these effects is through information - something the Film Office has been lax in providing.

Refund estimates vary

Mackinac has found it very difficult to estimate how much in refunds the program would cost the state.

In July 2008, Janet Lockwood, director of the Film Office, estimated, “Overall, it will still be around [$]100 million or more.”[22] A few months later she told Mackinac it would be much less, “Well under $50 million maximum [in] refundable tax credits.” She then clarified that for 2008 "It may even be closer to $35 million. I’m going a bit high with the $50 million figure.”[22] In contrast, the state Senate Fiscal Agency estimated refunds would be more than $148 million, with filmmakers paying $26 million in taxes - a net loss to the state of $122 million.

Value of MFIP questioned

Prominent Michigan filmmaker Michael Moore questioned the value of MFIP to the taxpayers at a Traverse City forum, which featured Lockwood. He stated, “These are large multinational corporations — Viacom, GE, Rupert Murdoch — that own these studios. Why do they need our money, from Michigan, from our taxpayers, when we’re already broke here? I mean, they play one state against the other, and so they get all this free cash when they’re making billions already in profits. What’s the thinking behind that?”[23]

Lockwood said Moore's concerns were "a set-up deal." She later went on to say “There’s probably not parity in incentives. The MEDC [Michigan Economic Development Corporation] gives incentives to so many companies, and I’m sure there are other companies that feel this is unfair. Yes, we understand that giving incentives to filmmakers may seem — what’s the word? — shallow. But when you think of the jobs it brings into the state of Michigan, it’s not a bit shallow. It’s thousands of jobs. It gives excitement and hope to so many.”[23] However, Moore and other opponents of the program are not questioning whether it provides "excitement and hope" but rather actual economic benefit.

Annual report lacks transparency

In March 2009, the Michigan Film Office published its first annual report on the tax credit program. According to the report, in 2008 the incentive program resulted in 35 film projects shot in the state, totaling $125 million spent from the productions. It also created an estimated 2,800 jobs, with refundable tax credits estimated at just under $48 million.[24]

However, according to the Mackinac Center, the report "appears to significantly misrepresent a key figure, omits important information on Michigan job numbers, and fails to provide much of the detail the law requires, raising questions about the Film Office’s compliance with the law and its administration of the film incentive program."[25]

A longer and more detailed study of the program by Michigan State University showed that of the $125 spent, $60 million was effectively spent outside of the state on film workers who were not Michigan residents. This brings the total the films spent in the state to $65 million. The MSU report also estimated total full time jobs created at 1,100, not 2,800. They showed that jobs were short term, averaging 23 days.[25]

The Film Office report offers no details on spending for each of the films, despite the law requiring such information be produced.

AEG study

In 2009, the Michigan Education Association commissioned Anderson Economic Group to study just how effective the state's business tax incentives were. One of these was the MFIP, which they gave a failing grade to. AEG found the state pays $40,000 to $50,000 in taxpayer money for each job created through the program.[26] Patrick Anderson of AEG explained, "It's an enormous cost with no long-term benefit."[27]

They also noted that the perceived success of the program is based on the number of filmmakers the Michigan Film Office brings to the state, rather than the net benefit for taxpayers. In most cases, including MFIP, AEG found a lack of transparency.

MSU study questioned

On February 9, 2009, the MSU study, entitled “The Economic Impact of Michigan’s Motion Picture Production Industry and the Michigan Motion Picture Production Credit” was released. It was commissioned from MSU's Center for Economic Analysis by the Michigan Economic Development Corporation, which oversees the Michigan Film Office.

Despite the positives of the report, such as its estimate of actual jobs created and how much was really spent by film crews in the state, LaFaive says it is nearly useless for determining the success of the program as it leaves out significant taxpayer costs. He explained that "Ignoring these costs in the model is roughly equivalent to a certified public accountant omitting a balance sheet’s liabilities and then touting the success of the company."[28]

LaFaive questioned Steven Miller, co-author of the MSU study, on this important omission. Miller said the costs were left out because they were studying the “economic impact of the film industry expenditures, not necessarily the incentive program.”[28] Despite this, a press release from MSU's Center for Economic Analysis described the film incentive program as "a big hit."

New study needed

Owing to the flaws of the MSU report, and the lack of transparency by the Michigan Film Office, LaFaive concludes that the state needs to commission a new study using the expenditure data from the MSU report, but also factoring in the costs of the program. To be of any value, he says the new study should be commissioned by a neutral state agency and must be peer reviewed by professional economists.[28]

External links

References

  1. 1.0 1.1 1.2 Michigan Office of the Governor, Governor Granholm Signs Film Incentive Package, Sets Stage for Growing Industry in Michigan, April 7, 2008
  2. Watchdog, Mackinac Center Investigation Leads to Criminal Charge, August 3, 2010
  3. Mackinac Center, Hangar42 Deal Shows Misguided Incentive Policies, August 3, 2010
  4. Livingston Daily, State house committee approves bills to improve transparency for film tax credit, June 30, 2010
  5. HB5841 information
  6. Bills sponsored by Andy Meisner
  7. HB5842 information
  8. HB5844 information
  9. HB5848 information
  10. HB5852 information
  11. HB5853 information
  12. HB5854 information
  13. HB5855 information
  14. SB1173 information
  15. SB1174 information
  16. SB1176 information
  17. SB1177 information
  18. SB1178 information
  19. SB1183 information
  20. Michigan Film Office, Incentives - For Producers
  21. Variety, Michigan strengthens film incentives, March 18, 2008
  22. 22.0 22.1 22.2 Mackinac Center for Public Policy, Michigan Film Incentive Program - The Scene and the Unseen: Act I
  23. 23.0 23.1 Mackinac Center for Public Policy, Michigan Film Incentive Program - The Scene and the Unseen: Act II
  24. MLive, Michigan Film Incentives update: Michigan Film Office publishes annual report, March 11, 2009
  25. 25.0 25.1 Mackinac Center for Public Policy, Michigan Film Incentive Program - The Scene and the Unseen: Act III
  26. Detroit Free Press, Why are Michigan's tax incentives leaving state so poor, May 28, 2009
  27. WILX, Movie Incentives Hurting Michigan?, May 14, 2009
  28. 28.0 28.1 28.2 MacKinac Center for Public Policy, Policy Brief - Special Effects: Flawed Report on Film Incentive Provides Distorted Lens, June 12, 2009