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Can the Film Industry Save Detroit?

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For the past few years, it’s been nothing but doom and gloom in regards to the Motor City. It won a place on Forbes’ 2009 list of America’s 10 Most Miserable Cities. Now the latest bad news involves a massive hit to its public school system as the latest plan, aimed to eliminate the current $327 million budget deficit, will leave just 72 public schools in Detroit by 2014.

But, could Detroit be finding new economic footing in an unlikely industry? According to the Michigan Film Incentive study, conducted by Ernst & Young, there was a positive Return on Investment (ROI) from Michigan's film production tax credit, despite that the program has only been in existence since April 2008. Of course, there was the two-minute long “Imported from Detroit” Superbowl spot from Chrysler. But, that’s not all the silver screen activity the Motor City has seen of late.

Thanks to the tax credit program which provides “a refundable tax credit equal to 30% to 42% of qualifying production expenses incurred during any phase of production for films and television series produced in Michigan,” filmmakers, directors and producers have become quite fond of Detroit as a shooting and production locale. The focus of the Michigan film tax credit program is to grow the Michigan economy by attracting increased film production. Aside from the appealing revenue implications, there is also a benefit to Detroit, and the state as a whole, to attract an industry that is “clean” and devoid of the environmental implications that accompany Michigan’s historically manufacturing-heavy industry.

According to the study, the film tax credit program seems to be doing just what it intended. After subtracting the estimated new taxes, fees, and reduction in unemployment insurance benefits experienced by the state of Michigan from the earned film production credits in 2009 and 2010, the study concluded that it produced $52.5 million in 2009 and $84.7 million in 2010. Michigan residents earned $42.8 million in compensation in 2009, from participation in such productions. Increased revenue among hotels, suppliers, restaurants, retailers, and other businesses also generated an additional $66.2 million of indirect Michigan resident income, thanks to the production activity. In 2010, the program resulted in an “estimated total Michigan resident income impact of $172.5 million in 2010, a 58% increase over the prior year.”

"Diversifying Michigan's economy by investing $84.7 million - and generating over a half a billion dollars of economic activity and nearly 4,000 high paying jobs - sounds like a pretty good deal to us," said Larry Alexander, President & CEO of the Detroit Metro Convention & Visitors Bureau. Unfortunatley, one person wasn’t so excited by the numbers.

Michigan Gov.Rick Snyder revealed his latest budget proposal on Feb.17, aimed at aggressively reducing the states’ current budget. While the plan will honor already rewarded film tax credits and does include incentives for 2012, it’s a shadow of its former self. Cash incentives for filmmakers in 2012 are capped at $25 million, a drastic change from a plan that authorized $164 million in incentives in 2010 alone. Critics also doubt that any film tax credit plan will continue in years to come. So, with that sweeping change, it looks like any hope that Detroit may have had for a Hollywood ending to its economic woes has well, ended. Variety magazine reported this morning that some planned productions and location shoots have already been cancelled.
POSITION:  No positions in stocks mentioned.