State Rep. Tom McMillin, R-Rochester Hills, spent four hours sifting through the bills filmmakers had chalked up while filming in Michigan and submitted for tax credit reimbursement.

For the movie "Gran Torino," directed by Clint Eastwood and filmed in the Detroit area, McMillin saw hundreds of thousands of expenses for out-of-state airline tickets, as well as salary, pension and health care costs of the cast.

He saw the entire laundry list of what the filmmakers wanted to be reimbursed for up to 42 percent. What McMillin didn't see was what the state reimbursed and if it was following its strict rules for what qualified.

For instance, Janet Lockwood, director of the Michigan Film Office, has said alcohol would not be eligible for a tax subsidy. McMillin just saw overall bills for restaurants and room service, but not the receipts to know whether alcohol was included.

Some specific politicians are eligible to review the filmmakers' requests for tax refunds allowed by the state film credit legislation enacted in 2008 to induce moviemakers to come to Michigan.

But the public, who eventually pay for up to 42 percent of the filmmakers' expenses incurred in Michigan, are barred.

Sen. Nancy Cassis, R-Novi, has sponsored two bills to try to make the process more transparent by changing the
tax laws. Cassis wants some of the information to be reported on a Web site and the more detailed information to be delivered to political committees for review.

The House Tax Policy Committee held a Feb. 10 hearing on Senate Bills 796 and 889, both of which were already passed by the Senate.

Transparency has become an issue as the Michigan film incentive program may give back $120 million in 2011 and as two other states have had problems with their film credit programs.

In Louisiana, the director of the governor's film and television office pled guilty to conspiracy and bribery charges in 2007, according to the U.S. Department of Justice. Mark Smith, former director of the governor's Office for Film and Television Development, was accused of taking $67,500 in cash from a former law school classmate in exchange for $1 million in tax credits to that classmate's film company.

In Iowa, Gov. Chester Culver suspended the state's film tax incentives progam last year. Gov. Culver stated in a letter he sent to the Iowa Economic Development Board that he was troubled that "there have been insufficient procedures in place to assure a full and accurate accounting of expenditures. ..."

Mike Tramontina, the director of the Iowa Department of Economic Development, resigned on Sept. 18. The Des Moines Register reported that a criminal probe has been opened into the operations of the Iowa Film Office. The newspaper reported that unidentified filmmakers claimed expenditures as high as $650,000 that should not have been approved.

The Michigan Film Office said it has procedures in place that provide oversight in the reimbursement of expenses.

Anything purchased must be either donated to a charity at the film's conclusion or prorated for use in Michigan.

Nothing described as "personal" is allowed. For example, if an mp3 player was purchased, it would need to be donated or prorated at the end of filming. One film company had an auction of movie memorabilia in Michigan and donated the money to the local food bank in the Grand Rapids area.

Catered meals on sets are eligible.

The cost of renting production office space and rental cars from established agencies are eligible. The rental of camera and lighting and sound equipment is also covered as is the rent for a house or an apartment for an actor staying in town.

Vehicles are covered as long as they are in the movie. 

Additional Michigan Capitol Confidential and video coverage of the film tax credit program is available at www.MichCapCon.com/9919, www.MichCapCon.com/12022 and www.MichCapCon.com/12099.

(This article was originally published in 2008 and referenced 2007 House Bill 4928, an earlier version of the proposal that Rep. Agema has re-introduced as 2009 House Bill 4185. See related article: "Public Fares Don't Cover Costs.")

Michigan State Rep. David Agema, R-Grandville, has introduced legislation that would require local bus systems subsidized by state road tax dollars to generate at least 20 percent of their operating expenses from fares paid by riders. Given that few taxpayers know much about the finances of Michigan's public bus systems, most might consider this proposal, House Bill 4928, to be a paltry and superfluous requirement. "Surely," they may think, "Michigan's public transit users pay that much and more of their own way, right?"

Wrong.

As of 2005, the latest year that reports are available from the Federal Transit Administration for Michigan's largest urban bus systems, not one of them raised as much as 20 percent of their operating expenses from fare revenues. The largest systems, those responsible for carrying the majority of Michigan's public bus passengers, fell well short.

For example, fares as a share of operating expenses for SMART, the system for the Detroit suburbs, and DDOT, the city of Detroit's system, were less than 12 percent. The figure for the Lansing area's Capital Area Transportation Authority was less than 15 percent. "The Rapid," serving Grand Rapids, was less than 15 percent; the Flint Mass Transportation Authority was less than 16 percent; and the Ann Arbor Transportation Authority was less than 14 percent.

If riders pay less than 20 percent of the operating costs, then who pays the rest?

Ahem — got a mirror?

About one-third of these total public bus operating expenses came from the state's Comprehensive Transportation Fund — a mass transit subsidy carved out of the state's annual road budget. Like the rest of this budget, nearly all CTF funding comes from federal and state motor fuel taxes and state vehicle registration fees. The money for the CTF that's taken from this pool of transportation dollars is a redistribution of wealth from the state's car and truck drivers to its transit agencies. Vehicle owners and drivers pay substantially more for rides they may never take on public buses than do the riders themselves.

The state constitution caps this diversion at no more than 10 percent, meaning that at least 90 percent of annual transportation revenues must be spent on roads. But even with this restriction, Michigan lawmakers in Fiscal Year 2005 allocated more than $161 million for local bus operating subsidies, $16.3 million for bus capital improvements, $7.2 million for passenger train subsidies, and more for various other public bus and transportation-related spending.

It is also noteworthy that FTA reports indicate that virtually all of the fare revenue for Michigan's largest fixed route bus systems is dedicated for operating expenses only. The overwhelming majority of the operating costs, and virtually all of the capital costs, come from a combination of the CTF revenue diversion, local tax revenue and federal grants. (The requirements of House Bill 4928 and the calculations above apply only to fixed-route bus systems and not dial-a-ride or other "on demand" public transit service.)

Notwithstanding the figures cited above, the 20 percent requirement of HB 4928 is not beyond the reach of public bus agencies. DDOT, by far the state's largest public transit service, covered more than 20 percent of its fixed-route operating costs with fares as recently as 1999. Elsewhere, in New York City's massive bus system, operating costs were 42.4 percent fare-supported in 2005; Chicago riders covered 34.2 percent; Toledo's paid 20.7 percent; and Indianapolis patrons contributed 22.2 percent. It's neither unreasonable nor unprecedented to expect the people using the service to pay more of the cost.

Yet testifying in favor of more taxpayer support, the executive director of The Rapid in 2007 told state legislators that his system covered only 18 percent of its 2006 operating costs with fares. He said increasing fares would mean a loss of customers. His remark reveals a skewed perception in the collective mind of Michigan's mass transit chiefs: The people forking over the vast majority of the money are not considered the real customers, while those considered the customers are expected to pay very little of the cost.

House Bill 4928 represents a helpful turn toward clearing up this confusion.