Snyder takes aim, fires at Michigan’s creative industry
When Michigan’s new governor Rick Snyder decided to take a shot at Michigan’s creative industry tax incentives, he wasn’t using a prop gun filled with blanks. The budget that he announced last week was a bullet right to the gut of the program, reducing a program that generated $650 million in statewide sales to barely anything at all, capping the program at $25 million per fiscal year.
Snyder makes several arguments as to why he put the program under fire – and from the earliest periods of his campaign he’s made no secret about his intentions. Snyder has often claimed that incentive programs cause the state to play favorites, and it has been his position that the government shouldn’t be in the business of picking “winners and losers.”
Except by pulling the rug out from under a developing industry, the governor has done exactly that.
Already, Michigan workers are feeling the hurt. Several films that had been slated to be produced in Michigan, including Marvel Entertainment‘s upcoming big-budget blockbuster “The Avengers” have cancelled their shooting appointments in the state, which has in turn shut down all the necessary support staff and ancillary workers that would have had work as a result. With one announcement, Governor Snyder has cost about 1,000 people their jobs.
Since April 2008, Michigan has been offering media creators up to 42% back on their Michigan-based expenditures, on the basis that the money spent would circulate through and help revitalize Michigan’s struggling economy, as well as create fantastic PR for the beleaguered manufacturing state. On Monday, a new Ernst & Young study was released which found that every dollar spent in these tax breaks in the state lead to $6 in economic activity.
About $163 million in incentives were approved for 2010 alone. Considering that the money isn’t paid out until the completion of the project, meaning that Michigan pays nothing up front, that 600% return should be looking pretty good.
Of course, Snyder and his advisors aren’t looking at it that way – critics of the program claim that the incentives cost the state more than the revenue they bring in. Perhaps in a black and white, 1-to-1 ratio of income to expenditure, that may be the case. Michigan’s program is the most generous in the world. However, without taking into account the circulation of the money that’s paid out, and the taxes paid on each transaction that money makes, it’s not the whole picture.
In 2010, the media incentives were responsible in large part for creating 3,860 full time jobs for Michigan residents.
“The caterers, the florists, the furniture providers, event companies, tent companies that were only seasonal, all of a sudden they’re hiring people,” Ken Droz, consultant for Michigan-based Maxsar Studios and formerly of the Michigan Film Office told The Detroit News. “It’s an industry that has tentacles all over the place that you don’t necessarily see, especially on a spreadsheet.”
The study was reportedly presented to Snyder before his budget presentation, but clearly its findings were considered inconsequential. Opponents of the program and the study, like Mackinac Center for Public Policy, claim that the system is altogether flawed.
“We think (Snyder) should go further and eliminate the program wholesale,” said Michael LaFaive, the Mackinac Center’s director of fiscal policy. “Every dollar used to incentify film production is one dollar deprived to entrepreneurs and other people across the state for their own use.”
This however, begs the question. Other people like whom? Like Philippe Martinez, founder and CEO of Maxsar? How about Brad Wardell at Stardock? Maybe the several investors behind Hangar 42 in Grand Rapids? Or Sean Hurwitz at PixoFactor Entertainment in Royal Oak? They’re all entrepreneurs – but of course, that’s just one industry. Mr. Snyder has said nothing about Michigan’s incentives for venture capital and angel investment, which benefits the investment groups Avalon Investments and Ardesta LLC, both of which he founded. I’m sure we’ll hear something about this sooner or later, since the governor is so very interested in creating a “level playing field” and not letting the state pick “winners and losers.”
Here’s the bottom line. Rick Snyder knows business – he would not be the successful guy he is today if he didn’t. But breaking the back of a new and booming industry in a state that sorely needs one or three, is not the way to economic recovery. Any Michigan citizen is well aware of the budget woes facing the state, and the governor is required by law to balance the budget. Certainly Snyder has some tough decisions to make in the coming months, and I for one, appreciate that he has the stones to make them. But this at least, is a move in the wrong direction, and will hurt far more than it will help.
I’m joining my colleagues in the creative media industry in urging Governor Snyder to rethink his plans regarding the incentive program. We’re all aware that it needs tweaking and can use some adjustments, but to cripple the program means crippling an industry sector in its growth stages – and in a state that is itself crippled by unemployment and a deserting population, it’s not something that we can amiably ignore.
More information and ways to take action can be found at www.rickswrong.com.
Update – July 12: According to The Detroit News, Governor Snyder has officially capped the program at $25 million across the board, starting in the upcoming fiscal year beginning this October. Moreover, a project can now be offered lower than the originally promised 42% with no floor mentioned. It will be interesting to see if the state offers anybody anything other than the generally solid percentages offered by other state programs elsewhere. This, the day after Louisiana Governor Bobby Jindal signs a bill that enhances his own state’s programs, is a clear demonstration that the State of Michigan will only work with the automotive industry.
Maybe we can arrange for them to have a chat at the next Republican Governors Association meeting or something.