Sunday, May 15, 2011

Predictable Predictions: Michigan's Business Tax Incentives Will Return, and the Film Industry May Be First in Line

First of all, it's not like they completely went away. At last report, the legislature had set aside $75 million in the budget for the MEDC incentives to continue, only difference now is that companies will have to jump through hoops in front of lawmakers to get the credits. But, what is likely to happen next is that we are going to find out in short order that a cap is a bad idea, that the figure is not enough when you have states as close as Ohio throwing hundreds of millions at their economic incentives, and Michigan development officials will soon start to clamor for more money when they can't compete. Remember, Engler tried this in the 90s and quickly had to restore incentives when it became know that Michigan had "unilaterally disarmed in the war among the states for business investment". No reason to think that won't happen again.

It will soon be easy for Republicans to justify returning incentives for businesses, and interestingly enough, it may start with Michigan's now barely-breathing film industry. Make note of the bipartisan effort in this legislation, introduced just this week.

Two Michigan state senators have introduced a bill to preserve tax credits for movie making in the state that would allow the state to award filmmakers tax credits of up to 42 percent for their production expenditures, instead of an absolute 40- or 42-percent.

Senate Bill No. 383 was introduced Thursday by Sens. Mike Kowall, R-White Lake Township, and Virgil Smith, D-Detroit. Kowall, chair of the Senate Economic Development Committee, acknowledged that winning support for it is "going to be tough," but "I've got a good feeling about it."

Even though the state Legislature voted to eliminate the credits as part of a tax- reform package Thursday, Senate Bill 383 could restore some incentives for the industry.

Call it the Pure Michigan playbook. For a brief recap on how that goes: When the Democrats were in power in the House, Senate Republicans adamantly insisted the very popular advertising campaign be cut from the budget. All attempts to fund the campaign were obstructed by the Senate, and after much back-and-forth squabbling that irritated the public, funding was restored to half of what it was late last year. What happened when the Republicans took power? One of the very first things they did was to restore full, permanent funding to the campaign, under their financial terms of course, and then Gov. Snyder gleefully took credit for it. It's the perfect example of why Democrats need to go to the mat to protect popular, effective programs that work - because what will happen is the Republicans will simply put it back, and then act like it was their idea all along. Another example on the horizon: Snyder has already indicated that he is interested in some sort of college scholarship program - but you can bet it won’t have the moniker of “promise” attached to it. And so on.

The same thing might be happening now with the film industry. Although many businesses and movie industry workers have already fled the state because it was obvious that Snyder and the Republicans in the legislature were going to kill the incentives, there is the matter of the investment in the infrastructure that had already been started. For a glaringly convenient example, the very expensive Raleigh Studios in Kowall's own district comes to mind, a studio that has millions of dollars and prominent Republican names backing it, and it's doubtful they want to give up this investment so easily. And just like that, it's probably not a coincidence that bipartisan legislation for film incentives came up immediately after budget negotiations were complete.

Another big clue that the film credits may return is the involvement of the MEDC. If these incentives were truly over and done, would anyone be talking about adjusting the percentages and expanding the scope to commercials? Doubtful. Sounds like this might have been the plan all along.

Michael Finney, CEO of the Michigan Economic Development Corp., said that under these terms, he expects the state's film tax credits would vary from 10- to 30-percent. The actual number would vary depending on the state's negotiations with each production company. Kowall said he consulted with MEDC officials on the bill.

Finney also said the state would like to make TV commercials eligible for the incentives for the first time.

Republicans take away, Republicans give back, public that is barely paying attention will then thank Republicans for the effort. Will this make it through the legislature? Good question given the recent turmoil over cuts, but chances are it will eventually. The film incentives were very popular with the public, and the Republicans, who are not very popular with the public as of now, are probably looking to score some high-profile political points that they can trumpet in press releases. This would seem to fit the bill.

If other states (and nations) were discarding economic incentives, we could too. They are not. We can't either. It's an unfortunate truth, but it is a truth, and we have to play this game if we want to compete in the global economy. And, if the Democrats ever want to win the game they have to play, they better take a lesson from what is happening here. Pure Michigan alone should have clued them in. Next time, better be willing to fight for the things people like and that are effective for the state - or the Republicans will be sure to do it, and then they will take all the credit for the results.

Watch and see. What's old will suddenly be new again, but as long as incentives serve to diversify our economy and bring investment and jobs to the state, how can you argue against them?