Michigan Lawmakers Continue Efforts to Rein in Film Subsidies

Michigan lawmakers continue their efforts to rein in the state’s generous film tax credit (or movie production incentive) program, with the latest victory coming in the form of passing Senate Bill (SB) 569 into law on December 21, 2011. (Tip of the hat to I. Harry David for posting about this on the Tax Foundation’s Tax Policy Blog yesterday here).

Governor Rick Snyder explained the bill in the following accompanying press release:

(SB 569) replaces film credits that are currently hidden in the tax code with a $25 million budget appropriation for the new Film and Digital Media Production Assistance Program, which the Michigan Film Office will run. To qualify for funding, an eligible production company must have direct production expenditures and/or Michigan personnel expenditures of at least $100,000.

Under the new legislation, the Michigan Film Office must also create a publicly available performance dashboard, which will include specific measures including the amount of each incentive dispersed for each state-certified qualified production.

Jarrett Skorup of the Mackinac Center, a Michigan-based free market think tank, expressed the frustrations of many who would like to the program ended entirely (see here). Indeed, direct taxpayer subsidy of politically popular private industry is basically indefensible. However, SB 569 does represent an important step towards getting politicians out of the business of picking winners and losers in private industry.

All things considered, film tax credit policy in Michigan has undergone a dramatic about face over the last four years. As I explained in a Denver Business Journal op-ed this past August (available here):

In 2008, Michigan adopted some of the most aggressive film incentives in the country, offering unlimited credits for 30-50 percent of personal expenditures while in the state making the movie, credits for up to 42 percent of production expenditures and 25 percent of infrastructure investments.

A fall 2010 report by the state’s Senate fiscal agency found Michigan is losing tens of millions of dollars on the movies and “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.”

Saying the program doesn’t “pay for itself” is an understatement. In 2009-10, Michigan taxpayers spent a projected $100 million to generate $59.5 million in movie company activity, a loss of $40.5 million.

During negotiations for the FY 2012 budget the House, Senate, and Governor’s office wrangled over how much to cut the budget for film tax credits, finally settling on $25 million. Some lawmakers are pushing the debate further. During the debate over SB 569 State Rep. Tom McMillin, R- Rochester Hills, offered an amendment that would have required assessments of film tax credits to include the “negative impact of the tax monies taken from businesses and citizens.” Rep. McMillin’s amendment failed, but transparency measures like this cannot be overlooked when one considers where the state was as recently as 2008.

In the long run Michigan lawmakers should follow the example of states like Washington, whose lawmakers decided last year to eliminate their film tax credit program entirely.

For other recent developments in state film tax credit policy, see my previous posts here (Colorado), here (Massachusetts), and here (New Jersey and New York).