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Dozens of states have lured film and TV production with financial incentives. Years after gutting its program during a budget crisis, Michigan wants to rejoin the arms race.
Matt Stevens and
Matt Stevens reported from New York, and Christopher Kuo from Michigan. They reviewed hundreds of pages of studies and reports on film credits and interviewed more than three dozen people.
Michigan desperately wanted a Hollywood makeover. And for $500 million, studios were more than happy to help.
When the state started writing checks in 2008 from one of the nation’s most generous film incentive programs, productions flocked there, making box-office hits like Clint Eastwood’s “Gran Torino,” Sam Raimi’s “Oz the Great and Powerful” and Zack Snyder’s “Batman v Superman: Dawn of Justice.”
Then Michigan did the math.
After a state economist determined that “the film incentives represent lost revenue” and that their economic benefits were “negligible,” Michigan, which cut funding for the police and schools while facing a severe budget deficit, eventually decided to end its incentives.
As the program gradually unwound, “The Avengers” moved to Cleveland and “Iron Man 3” went to Wilmington, N.C. Even “Detroit” was filmed in Boston.
Now, almost a decade after the state stopped paying Hollywood, lawmakers think they can no longer afford not to.
Over the last 20 years, states have given movie and television productions more than $25 billion in filming incentives. Thirty-eight states currently offer some form of incentive. Georgia’s lauded program has poured more than $5 billion into Hollywood since 2015. New York has spent at least $7 billion, and California has dedicated more than $3 billion to try to retain productions.
Supporters of film incentives see them as an engine for job creation. After all, when productions come to town, they need electricians, hair stylists and many other crew members to make movie magic. Productions also spend money while working — money that trickles through local economies to hotels, diners and dry cleaners.
Incentives can be effective at luring projects. But economists warn that using them to do so is very expensive and offers minimal bang for your buck. Study after study has found that the tax revenue generated by film incentive programs is a quarter, or even a dime, of every dollar invested. In some programs, each job that is directly created can cost taxpayers more than $100,000.
Incentives come in different forms. Many states do offer cash rebates or grants, which are paid out directly to production companies. Other states give some form of a tax credit. Depending on the state, tax credits can be used toward tax liability, converted into a refund or sold.
Yes. Many states offer a transferable tax credit. Studios can then sell those credits to companies with high state-tax liabilities. By selling them, often at a slight discount, studios can cash out and buyers can receive modest tax relief. As a result, companies with minimal ties to the entertainment industry have become a hidden part of the incentive ecosystem.
Companies like Best Buy, U.S. Bank and Dr Pepper buy these tax credits from productions. High-net-worth individuals also sometimes purchase them. Consider one example: The production company behind “The Trial of the Chicago 7” received a $5.2 million tax credit from New Jersey that it sold to Apple Inc. for $4.8 million.
It’s hard. This process involves vast sums of tax revenue that states are owed but never collect. Because the money does not come into the state treasury to begin with, it is less obvious that the revenue has been lost. And that can make transferable tax credits politically palatable.
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