TAX INCENTIVES

Michigan

February 3, 2009 - Michigan Gov. Jennifer Granholm announced the development of a new $54 million movie production facility to be built in Pontiac as part of an ambitious and costly plan to build a film business amid the ashes of the auto industry.

The studio -- to be built in a shuttered General Motors facility -- is expected to create about 3,600 new jobs, marking one of the most audacious attempts by a state to attract new industries by offering generous tax incentives.

Michigan began offering tax incentives several years ago to lure film makers away from Hollywood. But since then, the competition has increased, as states from New Mexico to Louisiana have put together their own incentive packages and added movie and television production facilities and trained local workers. Rhode Island and Georgia now offer their own incentives.

That has forced states like Michigan to try to find ways to sweeten the pot to maintain momentum in its efforts to build up an industry from scratch. The state isn't contributing cash to the facility's construction. But it is offering $15 million in film-related tax credits, plus as much as $101 million in state tax credits over 12 years, if hiring goals are met.

Michigan's efforts to lure film production have shown mixed results so far, despite such aggressive incentives as a law signed last year that offers cash refunds of 40% or more to productions that spend more than $50,000 in state. Hollywood studios have moved some individual productions to the state, such as the Clint Eastwood hit "Gran Torino," which Time Warner Inc.'s Warner Bros. shifted to the Detroit area from Minnesota to take advantage of the rebates. But few have established a permanent presence.

"People were coming in from other states and Canada to film once the new incentives kicked in," says Linden Nelson, chairman and chief executive of the new Motown Motion Picture Studios. "But it really wasn't creating the jobs and the infrastructure here in Michigan." Mr. Nelson is also CEO of Nelson Ventures, a Michigan-based developer that is a partner in the new studio. The other developers include Pontiac native Alfred Taubman and Grand Sakwa Properties LLC. The Beverly Hills, Calif.-based talent agency Endeavor brokered the deal and will represent the studio.

In addition, a new film financing fund arranged by Endeavor is planned to help pay for films that are produced on site. People familiar with the details say the studio hopes to raise upward of $100 million from private investors and banks over the next few months. The new production facility will also look to hire and train local workers to work at Motown.

The move comes as states are rushing to offer tax breaks and other incentives to companies that create jobs. But states have also begun examining whether hefty tax breaks for film and television production are a good idea in a recession. There is worry that film incentives created in recent years will end up costing states more money than they generate.

Meanwhile, California, the traditional epicenter of the U.S. film industry, has declined to enact tax incentives, a contentious issue that has come before the state legislature numerous times. It's unlikely that California, in the midst of a budget crisis, will this year pass a bill to compete with places like Michigan or New Mexico.

"People in Sacramento tend to view the industry as being specifically a Los Angeles thing, but it's scattered across the state, and the industry touches a lot of people statewide," says Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.

Los Angeles itself saw local feature-film production days drop roughly 15% in 2008, according to FilmLA Inc., the non-profit agency that coordinates filming permits in the city. Last year saw the lowest number of feature-film production days since at least 1993, when the agency began tracking the information.