State subsidies for films 'up in the air'

George Clooney as Ryan Bingham in Up in the Air. Photo / Supplied

The new prime-time television show Detroit 1-8-7 is giving the Motor City's famous restaurant, American Coney Island, a lift.

Since the crime drama's first episode aired in the United States in September, featuring two TV cops munching on the landmark eatery's chili dogs, customers have been pouring in. "It's given the city a new buzz," says owner Grace Keros.

What's good for the restaurant, however, hasn't been so great for Michigan taxpayers. The show's producers were lured by tax credits, job-training subsidies, low-interest loans, and other aid. A state report says such subsidies are the most generous in the US, and cost Michigan taxpayers more than the economic activity they generate. The 355 full-time jobs created as a result of the programme last year cost the state about US$193,000 each, the study found.

Since 2005, states have granted US$3.5 billion in incentives to makers of films, TV shows, and commercials, according to a Tax Foundation calculation. Now, as states face a total of US$72 billion in budget deficits in their coming fiscal years, some are concluding Hollywood gets a lot more than it gives.

Kansas and New Jersey have suspended their tax credits. Rhode Island has capped subsidies at US$15 million annually, and Wisconsin's are set at a measly US$500,000 a year. Arizona's programme is set to expire this month.

Larry Brownell, head of the Association of Film Commissioners International, which represents 41 of the 42 states offering credits, predicts half will shelve their programmes within a decade.

Michigan's incentives cover as much as 42 per cent of a production's local costs, and have helped attract Hilary Swank's Conviction, Clint Eastwood's Gran Torino, George Clooney's Up in the Air, and 100-plus other films to the state.

Tax analysts say it's about time Hollywood took a back seat to more pressing needs. "We are starting to stem the tide of state government pandering to the film industry," says Bill Ahern, policy director for the Tax Foundation.

The credits also have aroused criticism because some states make them refundable. That means a production owing little or nothing in state taxes still gets a cheque for the portion of the tax breaks it didn't need. In Michigan and 13 other states the credits are also transferable and can be sold to companies looking to cut their own taxes.

Filmmaker Michael Moore attacked film tax credits in 2008, but now says the lures are important for Michigan because it's "so far down in the toilet" economically. A Michigan native, Moore says he's using the US$1 million state credit he received for last year's Capitalism: A Love Story to restore aging theatres.

Some states are staying in the game. California began offering credits last year; New York just extended its programme for five years; and Florida and Virginia recently enacted new enticements. "I think the states are recognising that they are an economic stimulus," says Vans Stevenson, a senior vice-president of the Motion Picture Association of America.

An October poll shows Michigan voters like the movie subsidies, and it's no surprise, says economist David Zin. There's a certain thrill to hosting Drew Barrymore (who shot parts of her directorial debut, Whip It, in Michigan), if only temporarily.

But the total return in tax revenue has been a little more than 10 cents on each dollar spent, Zin says, adding that Michigan will probably get some US$80 million in economic activity from productions - less than the US$125 million the state will probably spend.

Carrie Jones, the Michigan Film Office director, says Zin's numbers don't tell the whole story and that it's too soon to judge the programme's success. "We need a little more time," she says.

Time may have run out.

- BLOOMBERG