September 29, 2022

Could Michigan Resurrect Its Discontinued Film Incentive Program?

Lights, camera, action!
By Craig Manning | July 23, 2022

What state is at the epicenter of American moviemaking?

If you answered “California,” you might be surprised. While California’s status as the home of Hollywood has made it the de facto filmmaking capital of the world for generations, the Golden State has been outpaced in recent years—or at least given a run for its money—by states like Georgia, New Mexico, and Louisiana. Those three states took the top three slots on a 2020 ranking of the “top locations for motion picture and TV production” from Business Facilities, a magazine that helps businesses with site selection. California and New York settled for fourth and fifth, respectively.

How, you might ask, did three seemingly random states leapfrog their way to the top of the film production food chain? Ask anyone in the entertainment industry and you’ll probably hear the same answer: robust film incentives.

Once upon a time, Michigan had a robust film incentive program of its own. Adopted by the administration of then-governor Jennifer Granholm as a means of helping the state recover from the late-2000s financial crisis, Michigan’s film incentive program took off in 2008 and, at its peak, generated nearly $300 million of film production spending in the state. In 2015, though, Granholm’s successor, Rick Snyder, signed a bill that killed the program, effectively crossing Michigan off Hollywood’s list of potential production destinations.

Now, legislators in the State Senate and House of Representatives are pushing to bring film incentives back to the Mitten State. Will their efforts put Michigan back in Hollywood’s good graces? Or will politics keep the state from getting its close-up?

Transformers, and Avengers, and George Clooney, Oh My! A Brief History of Michigan Film Incentives
According to the Detroit Free Press, just two major films were produced in Michigan in 2007, bringing approximately $2 million in film production spending to the state.

A year later, those figures shot off the charts.

In 2008, Governor Granholm approved an incentive program that Traverse City filmmaker Bill Latka says was “the largest film incentive in the country” at the time. “It was basically Granholm’s attempt to get some new activity going here in Michigan, because nobody was making cars [during the financial crisis]. So they created a 42 percent cashback incentive, where if you spent $1 million [on a film production], you’d get $420,000 back. And it instantly brought you-would-not-believe-how-much work to Michigan.”

Per the Free Press, the Michigan Film Office approved 71 applications in 2008 alone, generating $125 million of in-state film production spending and creating 2,763 Michigan jobs. Noteworthy film projects included Clint Eastwood’s Detroit-set Gran Torino and Drew Barrymore’s directorial debut, Whip It.

The ensuing years built upon 2008’s success. In 2010, Michigan had 66 approved film projects underway, generating $293.4 million in film production spending and creating 5,310 film production jobs. From the locales of Ann Arbor, which appeared in both the horror sequel Scream 4 and the George Clooney-directed political thriller The Ides of March, to the Detroit-heavy shoots of action films like Transformers: Dark of the Moon and Real Steel, Michiganders had lots of opportunities to spot their state on the big screen.

After 2010, though, the film incentive saw a major turning point in the form of incoming governor Rick Snyder. Where the film incentive program up to that point had been uncapped—meaning there was no limit on the amount of incentives Michigan could pay out in any given year—the Synder administration placed a $25 million annual cap on the program.

The change had a swift impact. Carry-over projects from previous years—such as the gargantuan $200 million Disney blockbuster Oz the Great and Powerful, directed by Michigan native Sam Raimi—meant there was still a significant amount of film production happening in 2011, including $201.9 million in spending. But the number of new project approvals dropped from 66 to 24, and Michigan lost out on some big Hollywood projects as a result—most notably, Marvel’s The Avengers.

It was a series of ups and downs for Michigan film incentives after that. 2012 was a slow year, with just 13 new projects approved and only $57.8 million in production expenditure. Then, in 2013, the program got a boost when Senate Majority Leader Randy Richardville successfully advocated to have the incentive cap doubled from $25 million to $50 million—a move that helped bring major films like Batman v Superman: Dawn of Justice, Transformers: Age of Extinction, and Need for Speed to Michigan.

In 2015, Snyder signed a bill that officially ended film incentives in Michigan. That legislation did set aside $25 million to sunset the incentive program during the 2016 fiscal year. But instead of drawing new projects to the state, the money was earmarked for either paying out incentives that had already been approved in previous years or dealing with the disastrous collapse of the state-subsidized Raleigh Michigan Studios.

Show Me The Money: An $80 Million Debacle
Based in Pontiac, inside the old General Motors Centerpoint truck complex, Raleigh Michigan Studios was, for a time, Michigan’s largest film production studio. Oz the Great and Powerful, for instance, was a Raleigh production. Viewed as a way to lead Michigan’s bid for relevancy in the film industry, the studio was able to clear its hefty $80 million in startup costs thanks to subsidies from state and local governments. The city of Pontiac waived property taxes for the Raleigh site and issued $18 million in municipal bonds, which the Granholm administration backed by using the state retirement system as collateral.

Despite a promising start with Oz, Raleigh Michigan Studios got hit hard by Snyder’s rollback of the film incentive program in 2011 and defaulted on a $630,000 bond payment the following year. The state was left to cover that payment—and other future defaults—out of its pension fund. Ultimately, Michigan cleared the debt in 2016, using $19 million of the final round of film incentive funding to settle the bill.

By 2017, there were no more film incentives to be had in Michigan. Film production activity in the state dried up and has not recovered since. In 2018, the land and building that had made up Raleigh Michigan Studios was sold off to a defense contractor.

The dream, it seemed, was dead.

There’s No Place Like Home: The Debate Over Bringing Film Incentives Back to Michigan
The cynical read on the Raleigh Michigan Studios fiasco is as a cautionary tale: a reminder of what happens when you chase a famously fickle industry with taxpayer dollars. But proponents of film incentives argue that there’s more to the story and that Michigan’s dalliance with film could have gotten a happier ending—and still might.

Much of the pushback against Michigan’s film incentive program in the early 2010s was grounded in a Senate Fiscal Agency report from 2010, which found that the incentives were generating just 60 cents of private sector activity for every dollar they cost the taxpayers. But pro-incentive advocates argued that the study was too narrow in its assessment and that it overlooked long-tail benefits, like the potential for the program to attract more young people to Michigan.

That debate is back on the docket in Michigan this year, thanks to a quartet of bills—Senate Bills 0862 and 0863 and House Bills 5724 and 5725—currently pending in the state legislature. The bills would give film production companies a base tax credit of 25 percent for in-state spending, plus another 5 percent for projects that include a “filmed in Michigan” logo in their credits. Production companies could also earn bigger tax breaks for hiring Michigan workers.

Latka sits on the board for the Michigan Film Industry Association (MIFIA), which has been advocating for the bills since they were introduced earlier this year. In his view, these bills propose a better incentive than the one Michigan let die in 2015. Instead of a cashback model, the new program would take a tax rebate approach. That distinction, combined with a smaller incentive and some additional motivation for producers to hire Michigan residents, would—in Latka’s opinion—create a better balance between the interests of the film production companies and the interests of Michigan itself.

“One of the criticisms of the last incentive was that some people said, ‘Oh, it’s just a Hollywood giveaway,’” Latka explains. “George Clooney would come to town and make a million dollars. And then the state would basically refund 42 percent of his salary back to the producers for hiring George Clooney. Well, this time, it’s not a cash giveaway. It’s a refundable tax rebate. So, say there’s a $1 million project that comes in. That would be a $250,000 tax credit that the producers of the movie will either use themselves, if they have a personal tax debt in Michigan—which is unlikely; or they would sell it to a Michigan business that does have a tax liability. So, a company like Cone Drive, or Hagerty, or Steelcase, or Ford, or General Motors, they could buy those credits at a discount, and then they get a discount on their Michigan state taxes. The money does not go out of state, basically, which was one of the big criticisms of the last incentive.”

Though he was living in California when the first incentives went into effect, Latka moved back to Michigan—his home state—as it suddenly became a film production haven. For several years, “there were all sorts of people that were working in the movie business here,” he says. “I would say three-quarters of them left when they closed out the incentive. Half of my friends moved to Atlanta, because Georgia has a big incentive program and they’ve stuck with it. These days, they do $8 billion a year in production in Georgia. That’s a substantial amount of money, and we could get a chunk of that back.”

State Senator Wayne Schmidt of Traverse City, one of the legislators leading the charge for the film incentives, says the legislation is unlikely to gain traction in the current legislative session. With the issue back on the minds of lawmakers, though, he’s hopeful that film incentives will eventually come back to Michigan.

“I don't think it’s going to get a lot of attention this year; we just wanted to make sure we raised the issue,” Schmidt says. “I know film credits and incentives in the past were kind of loosey-goosey and not always what people were looking for. We did an introduction of some bills that were smaller and more tightly focused to kind of see where the reactions were. Film is an area that we see a lot of young people getting into, and we certainly want to make Michigan an attractive place for young people—not just to stay here, but to move here. So, redoing those [incentives], refocusing them, and taking some best practices from other states and seeing if we can apply them here in Michigan, that’s the goal.”

(Pictured: A film crew shoots a commercial in Traverse City, courtesy of the Michigan Film Industry Association)

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