Michigan’s ‘Hollywood Welfare’ Plan: Stylish Stars Trumping Taxpayers

If you are like Mitch Albom and still find yourself star-struck and sold on saving Michigan’s 42 percent film welfare program, then consider a hypothetical: The natural gas industry proposes to spend $325 million in Detroit, but on the condition that other businesses and taxpayers be forced to subsidize $136.5 million of that cost.

Does this still sound like a good deal?

There is a difference, of course. When superstar actor George Clooney waltzed through Niles, Mich., last November to scope out a location for a new film, he was well-recognized, and the local media covered it. The potential of his film happening in that town was easy for anyone to imagine – “Look, it’s George Clooney!”  – so the prospect of paying  42 percent of his bills was apparently easier to swallow. Similar events in other Michigan towns have happened with other celebrities throughout the short life of Michigan’s film welfare program, though some of those "non-core" communities bring only a 40 percent payback to films shot there.

Would those people be so eager to fork over their tax dollars to help out Aubrey McClendon if he showed up looking to do business in a small Michigan town?

Would they even know who he is?

Do you?

McClendon is the CEO of Chesapeake Energy, one of the nation’s largest natural gas producers. Rather than take money from Michigan taxpayers, Chesapeake has reportedly paid $325 million to some of them in just the last few years for the mineral rights to pump natural gas from underneath their property.  

Like George Clooney, McClendon is an extraordinarily wealthy businessman in a very large, well-established and profitable industry. If Clooney shoots his movie in a Michigan town and spends $1,000 on catering in a local restaurant, Michigan taxpayers pay $420 of his bill. If McClendon were to open one of his gas fields in the same town and uses the same restaurant to cater an event for his employees … he pays the full $1,000.

Excepting the celebrity megawattage, what is the difference?

Bringing films to theaters and natural gas out of the ground each requires a century-old industry that provides good-paying jobs deploying state-of-the-art technology. The money flowing into local restaurants and shops spends just as well whether it comes from a gas well or a film set.  The so-called “multiplier effects" on other businesses and jobs is beneficial either way.

The situations are not identical only because no politician in his right mind would offer to pay 42 percent of Chesapeake’s spending when they start pulling gas out of the ground in Michigan. This wouldn’t happen because, absent the star power, few taxpayers would be blinded into support for it and would likely crucify their lawmakers for such massive corporate welfare payments to the natural gas industry. Substitute most other large profitable multinational corporations for Chesapeake, and the same political and economic math applies.

And the math applies even more profoundly for businessmen and women less well-off than Clooney and McClendon – or even Mitch Albom. And in this it is easy to see how morally repugnant the film welfare program really is.

Starting a small business that spends a million bucks a year is a risky and nerve-wracking enterprise for a Michigan entrepreneur – but it isn’t that extraordinary nor even a very large business. A million-dollar enterprise might fork over $10,000 in business taxes to state government, and the rest of the million gets eaten up in payroll for employees, inventory purchases, rent, utilities and other overhead. If the small businessman or woman is very lucky, some small fraction comes back as a profit. Most startups are not so lucky and end up running a deficit or closing their doors.

What does a 42 percent film welfare program mean to our entrepreneur?

Consider just one film: Have a Little Faith – a soon-to-be-aired Hallmark Channel adaptation of a Mitch Albom book. In May, the Michigan Film Office announced that it had awarded the film an “incentive” (i.e., subsidy) of $2,355,945.

Now, remember that small businessman or woman who started the million-dollar business?

Assume that this business pays about $10,000 in business taxes to the state. Those taxes are turned around and used to help give a $2,355,945 welfare check to the Mitch Albom movie. So for the state of Michigan’s treasury to break even on just this one film, something equivalent to 235 brand-new million-dollar small businesses needed to be created and paying their business taxes.

The total film welfare program had grown to handing out as much as $100 million annually when Gov. Snyder’s latest budget capped it at just $25 million. That $100 million is the equivalent of 10,000 brand new million-dollar entrepreneurs who must each start businesses that pay $10,000 in taxes just to support state government’s Hollywood welfare plan. It’s also equivalent to more than 18 such businesses being started in every single one of Michigan’s 550 school districts.

There is no question that Michigan desperately needs something akin to the economic impact of 10,000 entrepreneurs starting businesses and paying taxes. And unless you can’t see beyond the glare of the studio lights, it’s equally clear that those taxes should go toward roads, courts, schools and much else that isn’t just another new movie for the Hallmark Channel.