MEDC's high-tech business tax credits, film incentives would be phased out under Rick Snyder plan
Film industry incentives and high-tech business tax credits distributed by the Michigan Economic Development Corp. would be eliminated as part of Gov. Rick Snyder's proposal to restructure the state's business tax structure, according to a Detroit News report.
Snyder wants to replace the controversial Michigan Business Tax and replace it with a flat 6 percent corporate income tax that would apply mostly to the state's bigger companies. He's said that would make the business tax structure more efficient and would be the equivalent of a $1.5 billion tax cut.
At the same time, Snyder reportedly wants to phase out MEDC's Michigan Economic Growth Authority (MEGA) tax credits and the state's film industry incentives. Critics have said the MEGA incentives are too costly and that the companies that receive them often don't add the number of jobs they promised.
For example, Google got MEGA tax credits in 2006 after promising to create 1,000 jobs in Ann Arbor by 2011. Today, the company has only 250, though the company said earlier this week that it plans to continue adding employees this year.
Eliminating the MEGA credits would help the state reduce a $1.8 billion budget deficit for 2011-12, though it's unclear how quickly the tax credits would be phased out. It's also likely that some business tax credits would survive -- including the state's battery tax incentives, for example, which Snyder has said he supports.
Companies that have already received MEGA tax credits would not lose them under the Snyder proposal, the Detroit News reported. Companies with locations in the Ann Arbor area that have received MEGA credits in recent years include firms like Barracuda Networks, Arbor Networks, Sakti3, Aernnova, MyBuys, NetEnrich, Cayman Chemical, Quantum Signal, Grand River Interactive, AVL Powertrain, Atwell-Hicks, ForeSee Results and GDI Infotech.
During his State of the State address last week, Snyder outlined a reconfiguration of the MEDC and said he wants the agency to focus on assisting local economic development groups in providing various business services.
During former Gov. Jennifer Granholm's eight-year administration, the MEGA board distributed more than $3.5 billion in tax incentives to more than 500 companies, according to a list of tax credits MEDC provided to AnnArbor.com in September.
Studies by the Anderson Economic Group and the Mackinac Center for Public Policy concluded that the MEGA program has been a waste of government resources, while a competing study by the Upjohn Institute said the tax incentives are worthwhile.
Proponents of the MEGA tax incentives pointed out that companies that received the credits only got tax relief if they actually hired the workers they promised to hire. The state does not cut a check for companies when they make their original hiring promise.
The MEGA tax incentives favored companies in specific industries, including advanced manufacturing, alternative energy and life sciences.
But Snyder has said he believes the state needs to stop "picking winners and losers" and instead make the state's overall business tax lower and simpler. During the campaign, he singled out the MEGA tax credits as an example of a place where cuts could be made.
"If you’re a business person, you like to have certainty. The fairer, simpler, more efficient system you have, the better for business in general," Snyder said in an interview earlier this month. "Now, the people who might be losing those things may not share that same opinion. But if you talk about it in a general sense, clearly that’s the direction I believe most businesses would want to go. And as a former business person with business in my DNA, I can tell you that’s sure what I would want."
Meanwhile, the state spent about $100 million in 2009-10 on its film industry incentive, which provides a cash rebate of up to 42 percent of a production company's spending in Michigan. As a result of film productions, the state got an influx of $10.3 million in additional taxes, according to a Senate Fiscal Agency study in September. Film companies directly hired 355.5 full-time workers in 2009, activity that resulted in a total of 1,542.2 overall full-time jobs in Michigan, the agency estimated.
Although the film incentives result in a net loss in tax revenue, advocates argue that the job creation and the film industry's attractiveness to young people made the incentives worthwhile.
In an interview earlier this month, Snyder indicated that he wasn't looking to remove the incentives from film companies that have already made investments in Michigan.
"I want to give them an opportunity to succeed given the capital investments they’ve made," Snyder said. "But I believe there should be opportunities to be more efficient than we are today on how we manage that program."
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Bear
Sun, Jan 30, 2011 : 10:14 p.m.
Just for the record, here is a comprehensive report, one of many, that outlines the benefits this state is receiving from the film incentives here in Michigan. Peruse it at your leisure: <a href="http://docs.google.com/viewer?a=v&q=cache:wn0PAkAsmScJ:www.filmmacomb.org/documents/MSU_Economic_Impact_Study_269263_7.pdf+investment+in+movie+production+in+Michigan&hl=en&gl=us&pid=bl&srcid=ADGEEShY4JhSS6gTnOS1LT34QpSqCKGwE1Lk9fqoSlw-AntCCLLNYHYMGBrQc8Xs7gOKMzeCbqdM9JKdLK_IKxKRebCZuYSH63ZbBpvO5lunCmVRBh1HQu13h4Fnkr7U-mLdHtFmZZph&sig=AHIEtbRCACvHyPY_Qz4BL3JJxLgz__rN5Q" rel='nofollow'>http://docs.google.com/viewer?a=v&q=cache:wn0PAkAsmScJ:www.filmmacomb.org/documents/MSU_Economic_Impact_Study_269263_7.pdf+investment+in+movie+production+in+Michigan&hl=en&gl=us&pid=bl&srcid=ADGEEShY4JhSS6gTnOS1LT34QpSqCKGwE1Lk9fqoSlw-AntCCLLNYHYMGBrQc8Xs7gOKMzeCbqdM9JKdLK_IKxKRebCZuYSH63ZbBpvO5lunCmVRBh1HQu13h4Fnkr7U-mLdHtFmZZph&sig=AHIEtbRCACvHyPY_Qz4BL3JJxLgz__rN5Q</a>
shepard145
Sun, Jan 30, 2011 : 8:33 p.m.
Gutting the MEGA grant program will only work if those who have obtained most if them in the past were losers undeserving of the incentives and better off failing in another state. If those MEGA companies are in fact successful, growing, employing and would not be here otherwise, then Michigan will suffer without them. By suffer, I mean that unless other states pull their MEGA incentives, which is possible in this economy, then Michigan will face a crippling disadvantage attracting new investment. ...in addition to all the other dumb things we do to this state's faltering economy.
Bear
Sun, Jan 30, 2011 : 9:33 p.m.
that's exactly what is happening. Snyder is bending under pressure from within his party to gut a program that is actually working. Taking hold and investing money in MICHIGAN BUSINESSES!
shepard145
Sun, Jan 30, 2011 : 8:19 p.m.
Good example of why politically schizophrenic Michigan has been BLACK LISTED by so many national businesses and investors. Regardless of it's success, some legislators hate the film credits because they are paid from the General Fund while almost all of the 2009 $300 million in film investment went to Michigan BUSINESSES DIRECTLY!! Is that hard to understand? The Film Industry is not a stamping plant. Jobs cannot be measured the same way and those fudging this debate know that. Virtually all actors and crews would show up as unemployed using this method. Is Angelina Jolie collecting unemployment in CA? The 42% number is the max but everyone knows the obtainable number is closer to 33% . The reporter sighted incentive figures paid out of the general fund while stupidly failing to state the vast dollars that came into Michigan. Film incentive programs nationally never replenish the general fund with taxes –duh. Those who object are complaining that the cash is spent with Michigan businesses DIRECTLY! This is a battle over who pays and who benefits and Lansing wants to keep our money. These days $300,000,000 is big money to this state and competing states will be happy to welcome it back. Finally - the film incentives are working EXACTLY AS PROMISED when they passed into law. I hope the new administration sends condolence cards to those communities who INVESTED BIG IN MICHIGAN'S FILM INDUSTRY. Pontiac is bankrupt. The film studio there was built with more then $20,000,000 in bonds from Oakland County and something like $20,000,000 cash from private investors. Allen Park invested $28,000,000 in the Allen Park Studio Center campus. So now that all the press conferences and hi-fives took place in another administration, what is our new Governor going to tell these folks? Sorry, forget what the last Governor said - you're screwed?
Bear
Sun, Jan 30, 2011 : 9:31 p.m.
FINALLY! Someone with a little sense and information on the real numbers and the actual economic impact!
John Q
Sat, Jan 29, 2011 : 5:29 p.m.
How many businesses will be exempt from Little Ricky's business tax scheme? Conservatives want to take away the earned income tax credit from the working poor so the poor can pay more in taxes so that businesses in Michigan can be exempt from state business taxes. Little Ricky has his priorities straight.
RobertinSaline
Sat, Jan 29, 2011 : 4:47 p.m.
If incentives are such a good idea why don't we offer them to all businesses? Let's see, if you open a Subway or any business we will pay you 42% of your costs to do business here. So what does this do for the state? It increases the taxes for everyone else to make up for the money you are giving away. Taxes are how a government gets the money to provide services. Giving away money reduces the services the state can provide. If we want long term businesses here we need low taxes, good education systems and talented workers. Film incentives don't get us any of these. They just raise taxes for everyone else. The best jobs in the film industry never come here. The film companies hire a few extras at $10 an hour. All the highly paid workers are imported from LA. They come here, work a few months and go home. So we keep a few restaurants and hotels busy for a couple of months and the citizens pay 42% of the cost of the stay. We are much further ahead to advertise Pure Michigan and attract visitors that we don't have to pay 42 cents on the dollar to come visit! We need to understand that we have limited resources. You have to spend your money wisely. Government has to make smart investments with it's money, film incentives are not a smart investment. I love movies; we just can't afford to pay film companies to make them in our state. If you went to see Cedar Rapids tonight at the Michigan Theater you might say, oh this was so great, how nice to have this movie made here! Yes, I agree but how many jobs are here in this state today as a result of the movie? None, zippo. So if your child is graduating from college and looking for a job what is the benefit of a movie studio filming here. Short lived. That's what it is. I'd much rather support business that have been here forever like the auto industry offering them lower taxes so they keep the factories open and keep our children employed. Doug Gross
Bear
Sun, Jan 30, 2011 : 9:42 p.m.
Michigan productions spent $65.4 million dollars in 2008. Of this, $25.1 million was spent on direct wages and salary and $40.3 million was spent on Michigan goods and services. Productions directly employed 2,763 Michigan residents during the duration of filming. Through a multiplier effect, film productions generated 1,102 year-round equivalent jobs in 2008 with total wage and salary income of $53.8 million. In addition, film expenditures generated $28.4 million in additional state-wide expenditures through the multiplier effect. In total, film production expenditures generated $93.8 million in state output in 2008. A far cry from "zippo". We estimate total production expenditures will grow 187 percent from 2008 to 2012 based on the experiences of Louisiana and New Mexico, who passed similar, but lower incentives in 2002. Both states continue to experience year- over-year growth in total in-state production expenditures. By 2012, we project total direct production expenditures will climb to $187.7 million. These expenditures will likely produce 2,922 jobs with annual income of $189.5 and total state output of $335.6 million, once accounting for the multiplier effect. Based on generally accepted economic theory, multiplier impacts will increase over time. This occurs as infrastructure develops around this new industry and a greater proportion of the total production budgets are captured in state. February 6, 2009 Steven R. Miller Abdul Abdulkadri Center for Economic Analysis Michigan State University Now, dispute those facts.
Bear
Sun, Jan 30, 2011 : 9:27 p.m.
Doug, you haven't a clue as to what you are talking about. There are many professionals working within the film industry that are part of the theater & stage business. Not just a few 'extras' hired at '$10. an hour', but real professionals who might otherwise not have the work to keep them going in a depressed economy. "If you went to see Cedar Rapids tonight at the Michigan Theater you might say, oh this was so great, how nice to have this movie made here! Yes, I agree but how many jobs are here in this state today as a result of the movie? None, zippo." That is an outright fabrication. Where do you get your information & facts from? Are you in the industry? I am and I can tell you that there are some exciting things happening because of the film industry in this state. "film incentives are not a smart investment." Is that just your opinion or do you have a basis in fact for such a statement. I suspect it to be the former, not the latter. Do your research. Do any of you even know how the incentive is structured? What it covers and doesn't cover? Or are we just casting aspersions because someone else told us this is 'bad'?
Richard C
Sat, Jan 29, 2011 : 4:02 p.m.
While I agree that - if things were going well for the state economy - the state government SHOULDN'T be in the business of providing incentives, that condition hasn't been true for the state since the turn of the century, and hasn't been true of most of the past 40 years. This state has been in thrall to the automotive business and has been unable to look beyond it - until it became too weak and dependent itself on implicit subsidies by the state for the the state to ignore anymore. Michigan needs to find a new set of strengths to rebuild it's economy - and that means a lot of trial and error. Governer Snyder's response to the current conditions is that he is too afraid of failure to try something that might succeed. BTW: The film "industry" credits should be considered part of Michigan Tourism promotion or support for the Arts or something like that - not on purely economic terms. That's not to say we should support film efforts that are sure to be loosers - but I don't think that film making in Michugan can ever have Hollywood effects, if for no other reason than the "extras" available in Michigan are too rotund to make "eye candy" movies.
jondhall
Sat, Jan 29, 2011 : 12:42 p.m.
Let me do a little math in my head as I can still do that we gave up $100 million and got an additional $10 million in taxes. Is that 10 to 1? Sounds like Janet was working with Bernie Maloff to me. Then we get a flat tax proposal and everyone gets a hernia, even my guppy can swallow that. So what do we have left here in Michigan a bunch of wanna be movie stars, if so move to California. I see Arnold has even went back to the movies. Wake up Michigan Rick has the best ideas I've heard for this state in many years certainly eight years. Check out the dashboard and measure him there, imagine that a way to measure the failure or success of government, who would have thought of that, key word is "measurement". Thanks Rick you have my support and backing! The rest of you find another state to do your "Ponzi" scheme.
Bear
Sun, Jan 30, 2011 : 10 p.m.
Do you want the numbers? Look at my reply to Robertinsaline. Let's see, $25.1 million + $40.3 million + $93.8 million = $159.2 million. Get with the math. In 2012 expectations are that the film industry, as it stands now, will spend in total direct production expenditures, $187.7 million. These expenditures will likely produce 2,922 jobs with annual income of $189.5 and total state output of $335.6 million, once accounting for the multiplier effect. So much for accusations of a 'ponzi' scheme. What numbers can you offer up to refute this information? I await your response.
Bear
Sun, Jan 30, 2011 : 9:18 p.m.
funny that you should pick on one single aspect and make your case upon it. And even then, misinterpret what you are reading. The positive effects of the tax incentive are farther reaching than the $10 million in additional tax revenue. Just where do you think the tax incentive money is spent? In hollywood? It is spent here in Michigan! It is spent on the restaurants, motels, technical studios and the men & women in Michigan who are directly involved in making the film. Please do a little homework before trumpeting about your goldfish. And don't pull out this trite 'dashboard' gimmick as if it's heaven sent. Likening this to a ponzi scheme proves that you are ill informed and reacting on a purely emotional basis, not on founded on fact or reason.
WhyCan'tWeBeFriends
Sat, Jan 29, 2011 : 3:07 a.m.
Thanks for not reporting that the plan also includes eliminating the homestead tax exemption for owner-occupied primary residences. People will feel that directly in the pocketbook, more in some communities than others. Our property values have been seriously deflated over the last few years and we are going to pay more in property taxes?! Maybe Governor Snyder won't notice but most of the rest of us will. This is not just a slap in the face; it is a full blown bar fight. I'd say duck and cover, Governor Snyder.
Bear
Sun, Jan 30, 2011 : 9:13 p.m.
Oh, that's a nice one from the party that boasts about lowering taxes; the hidden tax. Typical.
Ann English
Sat, Jan 29, 2011 : 12:22 a.m.
Freedom from burdensome government regulations and low taxes are better for business than incentives are. Incentives are governmental bribes;their takers are still trying to get something from government instead of taking responsibility for their own wellbeing, creating quality goods and services that others want and will pay for. Subsidies and incentives are crutches from government, free enterprise brings out the best in entrepreneurs.
Bear
Sun, Jan 30, 2011 : 9:11 p.m.
what rock have you been hiding under. Better check the corporate welfare going on in this country from both sides of the aisle and then find the cheap, low-quality goods and services that have been foisted upon people since time immemorial. Lack of regulation means freedom to cut corners. Low taxes means low level of service. Look at your history books and find what kind of snake oil was being offered before regulation called for higher standards and accountability.
Soothslayer
Fri, Jan 28, 2011 : 11:17 p.m.
I'm sure the Hollywood engine will keep coming to Michigan if we nuke the tax credit. Why not let it build up for a decade or two then slowly ease off? It's not like we would have a burgeoning movie industry here anyway if it weren't for the incentive. Think before you destroy an industry that's just starting to take off. What other business purpose would they come to Michigan to make movies? Sorry, this is a very bad idea Rick. Don't do it.
Bogie
Fri, Jan 28, 2011 : 10:53 p.m.
@Bear. There have been a lot more job losses with the current insane MBT. I am very satisfied that we finally have people in Lansing, not telling us what our "jobs of the future" are. Make the field equal, and let people do what they like to do- Make money.
Bear
Mon, Jan 31, 2011 : 4:54 p.m.
Michigan productions spent $65.4 million dollars in 2008. Of this, $25.1 million was spent on direct wages and salary and $40.3 million was spent on Michigan goods and services. Productions directly employed 2,763 Michigan residents during the duration of filming. Through a multiplier effect, film productions generated 1,102 year-round equivalent jobs in 2008 with total wage and salary income of $53.8 million. In addition, film expenditures generated $28.4 million in additional state-wide expenditures through the multiplier effect. In total, film production expenditures generated $93.8 million in state output in 2008. A far cry from "zippo". We estimate total production expenditures will grow 187 percent from 2008 to 2012 based on the experiences of Louisiana and New Mexico, who passed similar, but lower incentives in 2002. Both states continue to experience year- over-year growth in total in-state production expenditures. By 2012, we project total direct production expenditures will climb to $187.7 million. These expenditures will likely produce 2,922 jobs with annual income of $189.5 and total state output of $335.6 million, once accounting for the multiplier effect. Based on generally accepted economic theory, multiplier impacts will increase over time. This occurs as infrastructure develops around this new industry and a greater proportion of the total production budgets are captured in state. February 6, 2009 Steven R. Miller Abdul Abdulkadri Center for Economic Analysis Michigan State University Now come to me with some facts, not just opinions on whether the film incentive is working EXACTLY AS PROMISED WHEN PASSED. Show me the numbers. I don't believe you.
Bear
Sun, Jan 30, 2011 : 10:07 p.m.
Besides, I am not talking about the 'insane' MBT, I am talking about eliminating the incentives that are bringing jobs to Michigan and keeping them here. This is apples & oranges we are talking about. And what about the hidden tax imposed by eliminating homestead tax exemption for owner-occupied primary residences? How is that cutting taxes? I know a few homeowners that are able to have a house because they rent out and are able to take advantage of the homestead tax exemption. Let's screw the little guy again, eh? How insane is that?
Bear
Sun, Jan 30, 2011 : 8:58 p.m.
Seriously? Show me. Don't just talk abstractly. Scream 4 alone used around 6,000 hotel nights in order to make their film. Figure the bottom line on that. People who otherwise might not be working right now, are working because of the film industry. Not just the hands that are directly employed by the industry. And that is just ONE aspect of the benefits that the film industry has brought to town. Show me facts, not vague accusations. I find it hard to believe your statement on the face of it.
djm12652
Fri, Jan 28, 2011 : 9:35 p.m.
just wondering if a Democrat gov made these proposals would the response be the same?
Bear
Sun, Jan 30, 2011 : 9:07 p.m.
Absolutely! These proposals are stupid. And it doesn't matter which party made them. But I will tell you this, I don't know of any Democrat that would do this. It is strictly a Republican bone to pick. And the main reason, as far as I can tell, is that they are pandering to their local constituencies because there is no filming going on there and so it doesn't affect them and is therefore an easy target. I would wonder, if Republicans would be in such a hurry to trash this policy if the films were being shot in, say, western michigan or the Grand Rapids area, or other conservative strongholds, instead of in Ann Arbor & Detroit. Hmmm?
Bear
Fri, Jan 28, 2011 : 9:20 p.m.
first stupid move already happening. Eliminating the MEGA tax credits that are creating jobs, investing in infrastructure and also using a lot of resources, (such as restaurants, food caterers, hotel/motels, local food businesses, rental car agencies) that are helping people stay afloat in this depressed economy. And you wish to 'phase it out'? Well, there go THOSE jobs. BTW, I work in the industry, so I am aware of the fallacious arguments bantered about how it is a 'losing proposition', mostly by those ignorant of the bottom line facts regarding what the film industry has done for Michigan and Michigan workers. We spend our money at home, in our communities. We pay the taxes out of our paychecks that wouldn't be there without the incentives. The industry has been building infrastructure, creating jobs for more people than just those who are working on the movies themselves. It has a ripple effect. This is just dumb. And he justifies it by using arbitrary terms, rather than concrete facts. "...clearly that's the direction I believe most businesses would want to go. And as a former business person with business in my DNA, I can tell you that's sure what I would want." 'I believe'? 'what I would want'? 'business in my DNA'? Really? Are you trying to tell me you are infallible and what you believe is gospel and the only truth? I highly doubt it. Well, Mr. Conservative businessman, you are in charge. Ball is in your court. I fear that you are going take this State the rest of the way down the drain, starting with my own bread & butter. Just when I thought I might be able to make ends meet and have enough to set aside for emergencies.... Thanks alot, Rick.
rusty shackelford
Fri, Jan 28, 2011 : 9:03 p.m.
Good to know Snyder wants to eliminate the one program (film incentive) that actually brought new investment to this state.
5c0++ H4d13y
Sat, Jan 29, 2011 : 2:27 p.m.
Actually it didn't. It cost the state money and didn't create jobs. <a href="http://online.wsj.com/article/SB10001424052970204313604574328792152010638.html" rel='nofollow'>http://online.wsj.com/article/SB10001424052970204313604574328792152010638.html</a>
julieswhimsies
Fri, Jan 28, 2011 : 7:32 p.m.
Bad idea Snyder.