Fallout begins over proposed cut to tax incentives

The ink was barely dry on Michigan Gov. Rick Snyder’s proposed state budget last Thursday when the fallout in Hollywood began: One location manager, set to fly into the state this week to scout for a Fox Searchlight project, canceled his trip. The studio told him not to bother.

Earlier that day, the recently inaugurated Republican governor pitched dramatic cuts to Michigan’s generous film tax incentive program, part of his $1.8 billion plan to slash the state’s budget. Michigan currently offers up to 42% in refundable tax credits for projects shooting in the state, with no annual maximum — a program that authorized $163 million in incentives last year alone.

Snyder’s budget plan would put at least a $25 million yearly cap on those credits. And regardless of whether the governor can push his agenda through the Republican-controlled assembly, he has enough control to hobble the existing incentive plan.

According to a Sunday report in the Detroit Free Press, Marvel’s production of “The Avengers” cancelled planned Michigan location shoots when producers couldn’t get confirmation that they would still qualify for incentives.

“It all comes down with what the governor wants to do with the program,” said William French, president of entertainment tax credit company Film Production Capital. “Even if the law stays as it is now, the governor … can essentially mire the program down in bureaucracy.”

Michigan’s legislature won’t likely pass a budget until early summer, and even though both the state’s houses are Republican-controlled, Snyder’s gutting of the film tax credits is not guaranteed to pass; analysts say his measure cuts across party lines.

Also unclear is what’s to become of several studios that have cropped up in the state, including one, Raleigh Studios, scheduled to open in spring. The state is also home to at least two post-production houses.

Many of these facilities sprang to life after — and very likely as a result of — the incentive program that took effect in April 2008, banking on the growing amount of money the Michigan Film Office has been distributing.

The org estimates that in its first year, the incentive program brought in $125 million worth of production spending, followed by $223 million in 2009. Last year, the council says it authorized $163 million in incentives and that 48 productions brought in about $300 million.

How much of its investment Michigan’s incentives have ultimately returned to the state remains a subject of contention.

Tax credits for showbiz production have increasingly come under fire, most recently in November when research and policy institute the Center on Budget and Policy Priorities issued a report concluding that using state tax incentives to entice production hurts public services by reducing state revenue. The MPAA blasted the report as “slipshod.”

Though Michigan now has production facilities that weren’t there before the incentives were introduced, the state won’t see those kinds of growing numbers if Snyder has his way.

“It will essentially end Michigan’s film program and end filming in Michigan to any substantial extent,” French said, a sentiment echoed by location manager Robert Foulkes.

“It seems like larger productions that were hoping to get an incentive aren’t going to want to go there,” Foulkes said.

French also said he expects that the governor’s office would further whittle down the $25 million cap over the next few years, if the bill does pass. The Film Office says it will stay at $25 million in 2012 and 2013.

The Film Office issued a statement reassuring filmmakers that tax breaks already approved would still be honored even if the governor’s bill passed. The bill would take effect after the state’s fiscal year begins Oct. 1.

“The Michigan Film Office remains open for business and will continue our work to grow Michigan’s film industry,” said the statement. “We will work within this framework to make our film incentives more Michigan-friendly for homegrown businesses and entrepreneurs while continuing to attract key projects to the state.”

French, however, remained skeptical. “I think you’ve got a whole lot of people in Michigan filling out resumes and a lot of people in Louisiana celebrating like Marti Gras came early,” he said.

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