Michigan's Failed Movie Subsidies: A Lesson for Other States
By Richard Rider, Chairman, San Diego Tax Fighters
Click here to visit Mr. Rider’s blog
One
of the sexiest tax subsidies — one that many politicians can’t resist
– is film production subsidies. Currently 37 states provide such
subsidies (2011), down from 40 states the year before. They compete
with each other, claiming that such subsidies profit the economy and
“produce a taxpayer profit.” Not surprisingly, the film industry pays
for “studies” that confirm this is true. RIIGGGHHHHTTTTT.
For a
number of years, Michigan has been paying big bucks for this illusionary
benefit. Perhaps the politicos hoped to rub shoulders (and perhaps
more) with comely film stars. Or maybe a walk-on part.
No
matter. Finally the new Michigan governor has decided to pull the plug
on subsidizing what is already one of America’s most profitable
industries.
But there’s one additional wrinkle worth noting in
the Michigan case. A group of investors decided to build a studio to
accommodate all these profitably subsidized movies. Now they have gone
bust. But sadly their borrowed money (bonds) got an odd payback
guarantee from the state public employee pension fund. So the fund (the
taxpayers) pay off the bonds, while the investors get to walk away. As
the article says, “case of private profit, public risk.”
More
and more, politicians are thinking of using such pension money to
subsidize favored industries. In CA, the push is for “green” industry.
And when we say “green,” we are not talking about money —
profitability is not the primary factor in such decisions. And when the
investments tank — well, gosh, no one could have predicted THAT
outcome.
http://taxfoundation.org/blog/new-york-times-tells-tale-michigans-bankrupt-state-backed-film-studio
New York Times Tells the Tale of Michigan’s Bankrupt State-Backed Film Studio
a film studio in Pontiac, Michigan, that recently went bankrupt and
will bring part of the state pension fund down with it. The Times walks
through the story from the beginning, starting with then-Gov. Jennifer
Granholm (once an aspiring actress) desiring to make her state the next
Hollywood and offering what became a 50% tax subsidy for film production
in the state, followed by the decision of a group of investors to build
the studio backed almost entirely by expected revenue from subsidized
productions, the decision of new Gov. Rick Snyder to turn off the tax
spigot to one of America’s most profitable industries, and the
subsequent default of the studio which for some reason had its bonds
guaranteed by the state public employee pension fund. The investors
walked away without a shred of obligation: a case of private profit,
public risk.
can only praise Gov Snyder for ending this ridiculous subsidy for the
film industry. It was nearly a 50% subsidy. Should the government pay
for half the cost of making a refrigerator too? I am sure the
refrigerator industry would like it. Economists know that no such
enormous multiplier effects exist for such subsidies. Only those
receiving the subsidies and their accountants can create numbers showing
big returns.
2013-01-05 01:02:48
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