Race to the Bottom

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I'm Matt Holzman with The Business Brief, a guide to what's happening in and around the business.

It seems Michigan is a hot spot for show business folks this summer. But it isn't because of the wonderful beachfront property on Lake St. Clair. It's because Michigan is throwing money at Hollywood with a gigantic 40 percent production tax rebate.

Michigan is not alone in its largess. Something like 45 states now have some form of financial incentive to attract production – and relatively high-paid production jobs – to their neck of the woods. But the competition for production is causing a race to the bottom that's putting millions of state taxpayer dollars into the pockets of film and television producers.

Production does bring money into states in the form of local jobs and spending with local businesses. And a movie or TV that showcases a state can attract serious tourism. So states tried to attract production with their natural assets – unique geography, friendly people, great BBQ or whatever.

But someone had the genius idea to add a kind of legal kickback on top of that to attract more production jobs and more production money to their state.

After all, production was running away from Hollywood anyway to Canada and beyond because of low costs and favorable exchange rates. And state legislatures figured – we're closer to Hollywood than Bucharest, and we speak English! Why don't we get in on some of that action?

According to The Incentives Office, a consulting company, one of the earliest incentive programs was Colorado's Defense against Canada Act. Oddly, California didn't seem as rabidly patriotic as Colorado even though it had much more to lose. After all, the industry was based here, and certainly the state's diverse geography, fine weather, second-to-none crew and elaborate production infrastructure would surely be enough to keep movies and TV here at home.

Besides, what self-respecting movie producer wants to spend six months in Louisiana, let alone Nova Scotia or Romania? Well, it turns out, a lot of them. Without tax incentives to keep them here, production has suffered here at home.

Though the state finally passed limited incentives recently, California's instinct to do nothing might have been right in the long run.

Because as states try to outdo each other with bigger and bigger incentives, the cost of attracting production jobs will eventually surpass what those jobs are worth. And those subsidies are under close scrutiny as the recession causes states to tighten their belts, the battles over incentives usually centers on the many conflicting reports looking at the costs and benefits of incentives. But no matter how you slice the money pie, eventually, subsidies have got to become too expensive politically.

How can you continue to sell your constituents on an endless subsidy to the largely loathed denizens of Hollywood? How long will it be politically sustainable to subsidize one mostly misunderstood industry at the expense of a state's home-grown businesses?

And no matter what local elected officials think about a sustainable production industry in their state, the minute a state's production incentives disappear, so will production. And that will leave newly trained crew in New Mexico out of work and leave new production facilities in Louisiana largely unused. Production facilities, by the way, built largely at taxpayer expense.

At when and if that happens, and as long as the dollar stays relatively weak, once again, southern California's diverse geography, fine weather, second-to-none crew and elaborate production infrastructure should be enough to bring a lot of production back home. Though we may be making Hong Kong action movies…after the state goes bankrupt and the governor sells LA to china.

I'd love to know what you think. You can comment on today's thoughts or subscribe to the podcast at KCRW.com/TheBusinessBrief. For KCRW, I'm Matt Holzman.



Matt Holzman