Plot to Kill Film Credits Begins to Look Plausible

It now appears that, for the sort of reasons that often count most – political reasons – there is a realistic chance that Michigan’s film subsidy program will end soon.

When a bill to put a stop to the subsidies was introduced on Jan. 29, skepticism about its prospects seemed justified. Little more than a month earlier, the Legislature had overwhelmingly passed a measure to keep the program rolling, and Gov. Rick Snyder signed it into law.

The idea that the Legislature and governor would reverse course just weeks later seemed far-fetched. But much has changed in the brief period since Jan. 29, and even more since the program was renewed in December.

Inside Michigan Politics founder Bill Ballenger spoke about the possibility that the politicians would change course so quickly:

I think there are circumstances here that make this different. First, this is a different Legislature than we had in December, and there are a lot of new members, especially in the House.

Then there’s the situation with the MEDC (Michigan Economic Development Corporation) credits and the budget. While there are a bunch of things Gov. Snyder could do and might do to help balance the budget, obviously something like the film credits would be something that could be eliminated.

Ballenger was referring to the recent revelation that the “refundable” tax credit deals the previous administration made with corporations and developers have created an unfunded taxpayer liability of more than $9 billion, with $681 million coming due this year and $807 million projected for next year. Ballenger continued:

In addition, there is also the ballot proposal (to be voted on statewide May 5) that the governor wants to see get passed. Obviously, voters would have the right to ask why the state needs more money when it’s still paying for something like the film credits.

Clearly a major reason the film credits hadn’t been eliminated already was that (former Senate Majority Leader) Randy Richardville and some others in the Senate were strong supporters of them. But Richardville isn’t there anymore and Gov. Snyder has never liked the film credits.

In the summer of 2010, I asked Rick Snyder about the film credits and he said, “They have to go.” I was a bit amazed that Richardville had been able to get them the way he did (in lame duck); it was really quite remarkable.

I don’t know enough about what happened to be able tell you how he did it, maybe it involved what was going on with road funding or other issues; maybe it was part of a royal send-off for Richardville. What I do know is that Gov. Snyder has wanted to get rid of them and with all that’s happening now, this could be his opportunity to do it.

The bill to terminate the subsidies, House Bill 4122, was taken up by the House Tax Policy Committee on Feb. 25. It could be reported out of the committee as soon as March 4. While passage by the full House is not considered a slam dunk, neither would it come as a complete surprise. Lansing insiders consider approval by the Senate to be the bill’s biggest hurdle.

At the Feb. 25 hearing, beneficiaries of the subsidies packed the room. During the hearing, a brief debate took place over data from the federal Bureau of Labor Statistics, which shows that between 2001 and 2013 (the subsidies started in 2008), the number of permanent jobs in Michigan’s film industry had increased by just 24 jobs.

“Lawmakers have stuck with this program for seven years and devoted $500 million of taxpayer money on film incentives,” James Hohman, assistant fiscal policy director with Mackinac Center for Public Policy told the committee. “They have little to show for their generosity except acknowledgment in the [end] credits [of movies].”

Cal Hazelbaker of the Filmworkers Union in Southeast Michigan argued that seven years wasn’t necessarily a long time for an industry to take hold.

“Seven years investing in films in Michigan and you have no returns? Look at the auto industry; it’s been around 100 years and we’re still investing in it as a state,” Hazelbaker said. “Michigan has a rich history of doing films. After World War II, we were second in the nation for filmmaking. I think you should reconsider this bill.”

Another film credit advocate, Michael Grady, questioned the 24-jobs figure, saying he knew a lot of people in Michigan who work in the film industry about six months a year, earning more-than-average incomes.

But Rep. Lee Chatfield, R-Levering, said he wasn’t buying into that type of anecdotal evidence.

“If it’s from the BLS it's pretty concrete; it's 24 jobs,” Chatfield said.

Subsidy proponents have released a “public service announcement” in which they claim the program has produced 6,000 jobs.

At one point during a succession of statements by film subsidy beneficiaries, Committee Chairman Rep. Jeff Farrington, R-Utica, interjected, “Everyone likes free money.”

Tricia Kinley, director of tax policy and regulatory reform with the Michigan Chamber of Commerce, testified in favor of the bill, saying backers had already made the case for getting rid of the subsidies.

“During testimony in October, proponents suggested that it is a constant battle with other states that are far more generous,” Kinley said. “We agree: This is an arms race that Michigan will never win; the state will never keep up with the demands of Hollywood executives. This is by and large a transient industry with no loyalty to our state or our residents.”

Charles Owens, state director for the National Federation of Independent Business, asserted that programs like the film subsidy might make some people feel good, but they aren’t effective.

“Targeted tax incentives are tempting because they provide more immediate gratification in the form of press events and ribbon cutting ceremonies than substantive broad-based actions necessary to improve a state’s economy,” Owens said.

He continued, “These programs can quickly become the ‘tail that wags the dog,’ resulting in valuable taxpayer resources wasted on central planning by state bureaucrats and lawmakers trying to guess which company or industry will be the next ‘big thing.’ Meanwhile, thousands of businesses that are already in the state paying and struggling to provide jobs, without a special handout, are left to struggle in a hostile business climate.”

Rep. Dan Lauwers, R-Brockway, the sponsor of House Bill 4122, spoke to Michigan Capitol Confidential about the legislation's prospects.

Michigan Capitol Confidential: Do you believe there is enough support for the bill to pass in the House?

Lauwers: “I don’t know that, but I have heard from some members that they support it. Generally you never know what that means for certain because sometimes they’re just being polite. But it is very evident that there is a lot of support for ending the film credits among the people, based on all that I’ve heard. I haven’t seen any support for them.”

Michigan Capitol Confidential: Have you talked with anyone in the Senate about the bill?

Lauwers: “I have not spoken to anyone in the Senate, but there are a number of members over there who were in the House last term who I know are keen on balancing the budget.”

Michigan Capitol Confidential: Is the idea here that your bill would not only end the tax credit program in the future but also prevent it from being funded (currently set for $50 million) in the (fiscal year 2016) budget the Legislature will be working on this spring?

Lauwers: “Correct, this would stop that appropriation.”

Michigan Capitol Confidential: What about the governor; have you had any indication that he would sign the bill if were to get to him?

Lauwers: “Not directly; but he did cut the $25 million [for the film credits in the current-year budget] and that could be an indication he’d sign it to help balance the budget.”