In 2008, reeling from the collapse of its auto industry, Michigan legislators began the nation’s most generous film incentive program. The state began subsidizing up to 42 percent of the production costs of movies – literally a check written from the state treasury to companies.
It didn’t work. Seven years later, Michigan has spent nearly $500 million and has fewer film jobs than before the program began.
According to the Bureau of Labor Statistics, Michigan had 1,663 film jobs in 2008 and has 1,561 today. The Michigan Film Office, which oversees and advocates for the program, reports that there were zero full-time jobs created last year by the subsidy.
The program incentivized bad decisions. The state and local governments began entering into deals to build film studios, and those deals soon ran into problems. The largest studio, in Pontiac, needed help from the state pension system just to pay its bonds. The city of Allen Park spent $30 million to build a studio hoping to lure Hollywood. It nearly bankrupted the middle-class community outside Detroit, which then required an emergency manager and severe cuts to the budget to save it.
The Great Lakes State has scaled back its incentive from a high of well over $100 million to $38 million this year. And the state House just passed a bill to eliminate the subsidy completely. That’s quite a change from when every representative and senator in Michigan, save one, voted for the original program.
Film incentive programs are widely derided by economists of all stripes. From the fiscally conservative Tax Foundation to the liberal Center on Budget and Policy Priorities – virtually every independent economist says these programs are a huge waste of money. Yes, there are studies that support film subsidies, but they are almost always paid for by the industry and heavily rely on dubious “indirect” economic benefits to make their claims.
State fiscal agencies never find a return on investment for film incentives. A few years ago, Michigan’s Senate Fiscal Agency found that the program returned only 11 cents per dollar spent by taxpayers. Louisiana spent $198.6 million and got back $27 million in tax revenue according to the state (13.6 cents per dollar spent). The Massachusetts Department of Revenue found that its incentive program generated less than 14 cents on the dollar in 2012 (the latest year figures were available).
Economic central planning is hard and government picking winners and losers is poor public policy. But incentivizing films is particularly economically destructive because the industry is so mobile. States are ramping up subsidies in a race-to-the-bottom competition with each other (New York and California upped their incentives again this year).
Since the official end of the national recession, Michigan has been among the state leaders in job and income growth. The state’s credit rating has improved. Things are getting better.
But it’s not because of film incentives. It’s because the state pursued sound policy decisions: Cutting and flattening business taxes, holding the line on spending, balancing the budget, and by becoming a right-to-work state. That’s what has moved our economy ahead.
Redistributing wealth from taxpayers to Hollywood production companies that come and go is bad public policy. Michigan learned the lesson; other states should do the same.
