Failed Subsidy Idea Gets New Hearing Anyway

by | Feb 20, 2024 | Opinion

By Michael D. LaFaive and James M. Hohman

Editor’s Note: This article first appeared in the Traverse City Record-Eagle on February 11, 2024. 

Despite no independent evidence of their success, film production subsidies are once again on the docket in Lansing. House bills 4907 and 4908, championed by northern Michigan Rep. John Roth, would create a tax credit for up to 30% of production expenses. The company that qualifies for the credit could then sell it at a discount to another.

Providing subsidies for film production, whether here or elsewhere, is a repeated, demonstrable failure. The point of economic development programs, including ones that subsidize film productions, is to grow the economy. Economists have made many sophisticated assessments to determine whether film subsidies are worth their costs. And film subsidies time and time again come up short. These findings ought to matter to lawmakers who think that the state will come out ahead when they have taxpayers pay up to 30% of a film’s expenses.

Two studies performed or funded by Michigan’s own state government have found that a previous, $500 million program enacted here failed to generate fiscal benefits beyond those enjoyed by subsidy recipients. Other governments have likewise found little benefit from their own film programs, as have academics and other scholars. Why then risk hundreds of millions more for industry subsidies with a failed track record?

Scholars at university-based economic research centers in Georgia and New Mexico have found that programs in their own states have had net negative impacts: The film subsidies failed to generate broad-based growth necessary to justify them as an economic development program. Film subsidies also waste taxpayer dollars even after accounting for the economic benefits film productions generate by spending money in a state.

Michigan’s nonpartisan Senate Fiscal Agency found in 2010 that the state’s previous film production incentive lost 89 cents for every dollar spent. The Michigan Economic Development Corporation later hired consultants to look at the film program in 2014. They too found the program was a net negative for Michigan’s treasury. Similar negative findings have been reported from government fiscal agencies or offices in Connecticut, Massachusetts, New Mexico, Pennsylvania, California, Virginia, Arizona and Louisiana (twice!).

Producers would love to be subsidized. But this costs taxpayers and fails to deliver economic benefits worth the cost. At least seven academic studies produced since 2017 on some aspect of film production incentives fail to show much in the way of net gains from such incentives. One 2020 review by scholar J.C. Bradbury found, “[A]ny gains (from film subsidies) do not spill over into the overall economy.”

There is simply no independent evidence that film incentives have delivered good results. Indeed, the Center for Budget and Policy Priorities writes in its report on film incentives, “The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity. The most careful, objective studies find just the opposite.” Michigan is just one case in point.

If our elected officials wish to impose this expensive program on Michigan taxpayers, they ought to show some evidence such efforts work. The standard for economic development programs is that they produce economic and fiscal benefits worth their costs, and lawmakers ought to reject film subsidies if supporters cannot demonstrate their value to the state.

Despite its past folly, the idea of film subsidies has its supporters. Rep. Roth reiterated his support for the program at the 2024 Northern Michigan Policy Conference held at the Grand Traverse Resort and Spa. He noted that his daughter, who is a film production major at a Michigan college, will move away from the Great Lake State because there isn’t film production here.

Economists have shown that it is beyond state and local government’s powers to effectively spin up new industry where little or none exists. Michigan’s past film subsidy incentive is an argument against another one, as are other film programs.

Film subsidy programs are fundamentally unfair, demonstrably ineffective and expensive to boot. Economic development programs ought to develop the economy and film subsidies have failed to do that.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.

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