http://www2.timesdispatch.com/news/2010/jul/27/ed-peirce727-ar-350957/

By NEAL PEIRCE | WASHINGTON POST WRITERS GROUP

WASHINGTON Is the film industry snookering America’s taxpayers?

We’re accustomed to state governments putting up big capital for footloose auto factories, biotech firms, even airplane assembly plants.

But what are we to make of tax credits and other state-financed breaks to such big-time production companies as Disney, Time Warner, and Sony and their filmmaking subcontractors? With most state budgets now mired in deep red ink, does this make any sense?

Louisiana, which had been attracting some filmmaking for decades, decided in 2002 to ramp up modest incentives in a really serious way, passing a bundle of subsidies for film production in the state.

The strategy paid off quickly, attracting such production firms as Disney and stars such as Dustin Hoffman. Louisiana’s move did more. It triggered, as researcher William Luther reported for the Tax Foundation, “an explosion of movie production credits nationwide” as dozens of states tried by one way or another to outbidLouisiana. By 2009, 44 states, the District of Columbia, and Puerto Rico were into the game.

Michigan, reeling under cataclysmic job losses and massive budget shortfalls, has played hard to trump the field, laying out $125 million in 2008 and $223 million in 2009. Its investment, pushed by Gov. Jennifer Granholm, has snagged such big-time films as “Gran Torino” (starring Clint Eastwood) and “Up in the Air”(starring George Clooney). Eastwood has predicted Michigan “will be the new film capital of the world.”

The hope — promoted by television commercials featuring Granholm and actor Jeff Daniels — is that the rich and famous will flock to Michigan and that filmmaking will become a magic elixir for the state’s economy and image. One wonders if such towns as Lansing and Detroit have that potential. The Tax Foundation’s wry conclusion: “The probability of such a transformation actually occurring is extremely small, but the dreams ofTinseltown can die hard for citizens and statesmen.”

The incentives, as they’ve developed in copy-cat fashion across the country, typically start with exempting film-production purchases from sales taxes, or lodging taxes for crew members in hotels. They continue with such freebies as no-fee locations and waiving police traffic control costs at film sites. South Carolina even offers 20 percent cash rebates for wages paid to local actors and stunt performers.

Next come actual state grants to filmmakers for significant shares of their local expenditures. And then the biggest and potentially most serious — tax credits that remove a portion of the companies’ income taxes due the state.

Twenty-eight states now offer the tax credits, many so generous, the Tax Foundation reports, that their value often exceeds the movie company’s tax liability in a state. But they’re structured to be transferable. Brokers are able (for a 25 percent to 30 percent cut) to sell them to companies who have nothing to do with movies or entertainment. The firms can then apply the credits like coupons on their tax returns.

So is the state really gaining much? State Rep. Steve D’Amico calculated that Massachusetts was spending$89,000 a job through the tax credits. Citing the competition from other states, D’Amico told Governing magazine: “These jobs will only persist as long as we continue to offer the credit . . . .We’re renting them. But once you start handing out money, it’s really hard to step away.”

Various estimates show overall return to states embarrassingly low – 19 cents on the dollar in South Carolina, 16 cents in Massachusetts, 8 cents in Connecticut, 28 cents in Rhode Island.

The criticisms — and actual scandals in handling the subsidies in Iowa and Louisiana — have at least tapped the brakes of the subsidy train, reports Phil Mattera of Good Jobs First. Iowa and Kansas have suspended their programs while Wisconsin and Connecticut have cut back sharply.

But Louisiana — notwithstanding the revelation that its film commissioner had accepted bribes from a film producer — actually boosted its tax credit and made it permanent. Alabama, New York, North Carolina, Ohio, and Utah have recently upped their subsidies. California Gov. Arnold Schwarzenegger favors tax credits to lure back film production that’s crept away from Hollywood.

Politicians prize, predictably, photo-ops with glamorous movie or TV stars. But do film subsidies — except in established centers like Los Angeles — actually spur meaningful economic growth? Do they improve productivity, train significant new work forces, and develop new technologies — especially when a non-ending chain of public subsidies is required to keep them in state or in town?

The raw bottom line is this: Subsidy-induced film activity may have glitz and surface appeal. But nationally, it’s a washout — film production lured from one place to another is classic “robbing Peter to pay Paul.” At the end of the day the country’s no less prosperous. The net economic impact is simply to enrich the filmmakers at the expense of state taxpayers. Even a Cecil B. DeMille would blush.

http://www.livingstondaily.com/article/20100702/OPINION01/7020305

A state House committee Wednesday took an important step in providing much-needed transparency to the workings of Michigan’s generous and somewhat controversial taxpayer-funded subsidies for the film industry.

On a 16-0 vote, the House Tax Policy Committee sent a pair of Senate bills to the full House for consideration. The full state House should take up and pass these bills quickly.

The primary sponsor for both bills, state Sen. Nancy Cassis, R-Novi, was the only member of the Michigan Legislature to vote against the huge credits when they were approved two years ago.

But the Cassis bills are not anti-filmmaking. They are pro-public disclosure. As such, they are not only good legislation, but they are long overdue.

The bills would only bring the film credits into line with public disclosure now required for most state activity by the state’s Freedom of Information Act. Exempting the film credits from the act was a big mistake. These bills would go a long way toward correcting that.

The so-called tax credits aren’t really tax breaks; they are gigantic subsidies. The program works by taking general fund money to cover up to 42 percent of a film company’s expenditures.

So if a company says it spent $10 million in Michigan, taxpayers would fork over $4 million to that company.

The idea was to make the incentives so attractive that filmmakers would flock here, thereby setting the foundation for a permanent industry.

It’s a shaky premise, since it relies on outbidding and undercutting the more than 40 states who are in a race to the bottom by offering their own form of subsidies. To work at all, the huge subsidies would have to continue indefinitely.

Pull back the incentive and the next film goes to a state with a better offer, leaving the hoped-for film-production studios high and dry.

Although some argue that the tens of millions of dollars in film subsidies are a small chunk of the budget, it is still enough to cover a large share of the Michigan (broken) Promise scholarships that the state says it can no longer afford to give to Michigan college students.

The subsidy needs close attention, both to see if it is working and to see if it is applied properly. After all, the more the film company says it spends, the more tax dollars it gets back.

That’s more than just a hypothetical temptation to cheat. In Louisiana, where the credit is about one-third of Michigan’s, a former state film commissioner pleaded guilty for accepting a $67,000 bribe in return for inflating the spending numbers for a film production.

Despite the need for scrutiny, current Michigan law actually hides critical information from the public and from lawmakers.

From the little information that the Film Office is allowed to divulge, it’s clear that about 70 percent of the subsidy covers payroll. But there is no indication as to how much of those earnings go to Michigan residents as opposed to out-of-state actors, producers and directors.

But there is a clue that the bulk of that payroll goes to the out-of-state talent, since state law limits the eligible pay per employee to $2 million.

That’s the type of pay that more likely goes a Hollywood star than to a behind-the-camera crew member from Michigan.

If lawmakers think it is good policy to pull state dollars from public schools and college scholarships and instead give them to Clint Eastwood and Hilary Swank, then such decisions should be clear to the public.

The bills reported out of committee this week will help that happen.