Mississippi experience shows economic fallout when film credits are cut
To see what effect a $25-million annual cap on film incentives would have on Michigan's movie production industry, look at Mississippi.
The southern state limits spending on film incentives to $20 million, a little less than Gov. Rick Snyder's proposal for Michigan. Mississippi offers filmmakers 20% to 25% cash rebates, depending on whether they employ state residents.
With a $20-million cap, seven productions shot scenes in Mississippi last year, compared with 58 in Michigan. That includes one night of filming for the HBO series "True Blood" and about a week of production for PBS's "Antiques Roadshow."
The state is such a small player in the movie industry that its total annual incentive spending has never come close to hitting the cap, said Ward Emling, manager of Mississippi's Office of Film, Music & Heritage. "The types of films we get are generally smaller," he said.
Mississippi's experience illustrates the dilemma that lawmakers in Lansing face as they consider Snyder's plan to put a $25-million annual cap on new incentives for production companies. At that level, Michigan would rank seventh among 23 states with spending limits, slightly ahead of Mississippi but behind Florida, which has a $53.5-million cap.
But Michigan faces a huge deficit for the fiscal year that begins Oct. 1, and Snyder wants to dramatically reduce spending on the incentives as part of a move to eliminate tax credits.
"When dealing with a budget deficit of $1.4 billion, you have to take into consideration all of the various state programs that compete for funds and make reasoned decisions of what the state can afford," Snyder spokeswoman Geralyn Lasher said.
Slashing Michigan film credits would make it tough to compete
If Snyder's plan to limit new film incentives to $25 million a year gets the nod from legislators, Michigan would fall to the middle ranks of states in movie production.
Michigan and 16 other states currently have no limits on the amount of incentives they give to filmmakers, according to data from Entertainment Partners, a California-based production management services company.
With a $25-million cap, Michigan would offer far fewer incentives than its five major moviemaking rivals. Three of them --Louisiana, New Mexico and Georgia -- keep their wallets wide open when it comes to film incentives. New York has a cap of $420 million a year -- nearly 17 times higher than $25 million -- and California won't pay more than $100 million annually.
The $25-million cap "is going to definitely limit a producer's interest in the state," said Joe Chianese, Entertainment Partners' senior vice president.
Of the 23 states that have a cap, six spend more than $25 million and 17 spend less. But none of the 17 states are big players when it comes to making movies.
Snyder wants to dramatically reduce spending on the incentives because of the state's budget woes. Chianese and others in the industry predict that the $25-million annual limit will result in only a small amount of film production lasting about three months instead of nearly year-round activity.
Loss of big projects
At $25 million, Michigan would have been able to award only 22% of the $115 million in tax credits it approved for 58 films and other projects last year. That would not have been enough to attract two big-budget films such as "Real Steel" and "Scream 4," both of which filmed in Michigan in 2010 and will receive a total of $30 million in incentives for spending $77 million in the state.
A $25-million cap also would be too small to land a huge movie like the $105-million "Oz: The Great and Powerful," a prequel to "The Wizard of Oz" that received approval for a $40-million tax credit last year.
Joe Bessacini, vice president of film and TV production incentives at Cast & Crew, a payroll services provider for the entertainment industry, said $25 million won't support a major studio, which needs to attract many movies a year in order to break even.
Michigan's first facility of this kind, Raleigh Michigan Studios, is slated to open this month in Pontiac.
"Twenty-five million dollars a year puts a state in a position not to expand the industry that much," Bessacini said.
Snyder aims to slash movie incentives as part of a plan to balance Michigan's budget and do away with all tax credits.
"In terms of economic development, the governor is looking for industries that will grow and flourish in Michigan and can do so because of a competitive tax environment -- not solely because of government subsidies," Snyder spokeswoman Geralyn Lasher said in a statement. She pointed out that the governor will honor film incentives already awarded, which will cost the state $75 million in fiscal year 2012 and $25 million in fiscal year 2013.
The Michigan film tax credit program pays production companies up to 42% of the Michigan-based costs of state-approved film or video projects. When it files its taxes, the production company applies the credit to eliminate state taxes it owes, which are usually minimal, and then the state writes the company a check for the balance.
In early 2008, Michigan legislators had enhanced the state's film incentives so that they would be the most attractive in the nation.
Pressure elsewhere
Michigan isn't the only state whose film incentives have come under pressure from budget woes. Last week, one branch of the New Mexico Legislature passed a bill that would cap the western state's unlimited movie tax credits at $45 million a year because of a $450-million deficit. Cost-cutting led New Jersey and Kansas to suspend their film incentive programs, and these kinds of tax breaks are under attack in Georgia and Missouri.
Pennsylvania's movie industry had feared that new Republican Gov. Tom Corbett would eliminate the state's film tax credit program, which is capped at $60 million. In his budget address Tuesday, Corbett kept the tax breaks despite the state's more than $4-billion deficit.
To be sure, some states, such as North Carolina and Florida, have increased their support for the industry. And Arizona has raised its cap on film incentives from $30 million in 2006 to $70 million.
Ken Chapa, director of the Arizona Film Office in Phoenix, said some states try to lure big-budget movies and others go after small productions.
"Figure out what it is you're trying to build," he said.
Contact Katherine Yung: 313-222-8763 or kyung@freepress.com