Cost to Replace Lost Jobs with Michigan Film Subsidies: $39.4 Billion

A new issue paper from the non-partisan Senate Fiscal Agency estimates that Michigan film production tax breaks and subsidies generated the equivalent of approximately 355 full time jobs in 2009, or 1,542 if “indirect” jobs are also counted. During that year the film incentives’ net cost to taxpayers was $37.5 million.

When the agency figures in other factors the cost comes to $193,333 per job created by the incentives, or $44,561 per job if one includes the estimate of “indirect jobs” created.

Michigan employment declined by 204,000 jobs during 2009. Replacing all these lost jobs with subsidized film production jobs would have cost state taxpayers $39.4 billion (or $9.0 billion if the “indirect” jobs estimate is included[*]).

The entire state budget for the 2009 fiscal year was $45.5 billion, of which $25.1 billion came from state taxes and fees (most of the rest was federal money, including “stimulus” spending). So replacing all the jobs lost in 2009 with “direct” jobs generated by film production subsidies would have required a state tax increase of 156 percent, all of which would have gone to film producers. Replacing the approximately 800,000 jobs this state has lost since 2000 would cost $154.6 billion, or almost half the state’s annual production of goods and services.

Of course, no one has suggested that all the lost jobs can or should be replaced by film production jobs. Still, it is useful to do the arithmetic just to put claims for this program in perspective. And it’s worth noting that the number of “motion picture and sound recording” industry jobs in this state actually declined between April 2008 when the film subsidy program began and September 2009 (the most recent count).

The author of the SFA paper comes to this conclusion about the program:

“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.”

Importantly, this conclusion does not include the number of jobs and wealth not created in 2009 because $37.5 million was taken from other Michigan job providers and taxpayers and given to film producers. SFA estimates that the income redistribution figure will increase $100 million in 2010.

The Michigan film incentive program was approved in 2008 by a unanimous vote in the House and just one dissenter in the Senate. It provides a “refundable” tax credit of up to 42 percent of the expenses incurred here by film producers, and various other credits for media infrastructure investments and job training.

“Refundable” means that the Department of Treasury sends film producers a check for any credit over-and-above the amount they owe in Michigan Business Tax. Due to government secrecy, the department has not revealed how much actual cash was transferred to film producers, but more than half the credits may easily have been paid out to them in cash.

[*]The leading small business lobbyist in the state calls these indirect job estimates “funny numbers they pull out their backsides.” The author of the SFA issue paper notes that “the accuracy of this estimate is essentially unverifiable.”

The original version of this story was posted online on Sept. 21, 2010.