TROY, MICH., AND LOS ANGELES — In a Troy office building where advertising executives once courted Motor City automakers, film production workers discuss which stretch of downtown Detroit would offer the best sense of urban decay. Down the hall, in a warehouse that has been converted to a makeshift studio, dozens of prop builders are fashioning blocks of foam and stacks of plywood to build a set for a rocky mine shaft.
For the next 11 weeks, the cast and crew of "Red Dawn," a remake of the 1980s action thriller that Metro-Goldwyn-Mayer is scheduled to release next year, will be working in Michigan. The film, starring Chris Hemsworth and Josh Hutcherson, is one of dozens of Hollywood productions drawn in part by the state's generous film tax-credit program, which could shave as much as $14 million off the movie's estimated $54-million budget.
Nearly 95 miles to the west in the state capital of Lansing, lawmakers are wrestling with how to bridge a $2.7-billion budget gap -- and whether a state with the highest unemployment rate in the nation can afford to subsidize the movie business. The budget woes have hit cities across the state and have forced the layoffs of thousands of Michigan police officers and firefighters in recent years.
"We are still not sure what exactly our tax dollars are being spent on with these films," said Republican state Sen. Mark Jansen, who backs a bill that would reduce and cap how much the state could hand out in filmmaker incentives each year. "If we don't know that, how can we justify it?"
The debate in Michigan echoes around the country, from Wisconsin to Iowa to Connecticut. More than 40 states offer tax breaks or rebates for film and television production, a major contributor to the sharp falloff in industry employment in Southern California.
But as those subsidies have become increasingly generous and widespread, several states are having second thoughts. Even as some states, including Louisiana and North Carolina, expand film incentives, others are rethinking their programs in the face of budget crises.
"The bottom line is, there really aren't enough film productions in the United States for every state to play in this game, and eventually the states where it doesn't make economic sense aren't going to be players," said Peter Dekom, an entertainment industry attorney who helped craft New Mexico's successful film program.
Wisconsin Gov. Jim Doyle in effect quashed his state's tax program this summer after a report by the state Department of Commerce raised questions about money the state paid for "Public Enemies," the Universal Pictures gangster movie starring Johnny Depp.
Doyle replaced the previous program -- a 25% tax credit with no cap -- with a $500,000-a-year grant designed to bolster Wisconsin-based film production companies. That's a drop in the bucket compared with the $6.1 million the state awarded in tax credits in the last year.
As lawmakers wrestled with how to bridge a $700-million budget gap and Doyle floated the idea of closing public schools for several weeks, every state program was scrutinized.
That included the film tax credit. The state Department of Commerce, which manages the program, concluded that the crew for "Public Enemies" was in Wisconsin for 32 days, The movie, about the life of the bank robber John Dillinger, was filmed in Oshkosh, Columbus and Madison. It received about $4.6 million in taxpayer money, including payments that offset part of the $5,625.16 paid to Depp's hairstylist, $16,490 for his makeup artist and $38,771.40 for two chauffeurs, according to documents obtained by The Times.
The study said the production contributed about $5 million to the Wisconsin economy and about $270,000 in taxes, figures that are disputed by a film advocacy group that placed the movie's economic impact at $7.4 million.
"We lost a lot of money," said Zach Brandon, senior policy director at the Department of Commerce, who declined to discuss the details of the document. "We had to get off the crazy train."
Michigan lawmakers have introduced a bill that would place a $50-million annual limit on tax-credit funds and require that at least 90% of the workers on subsidized projects be Michigan residents. The current program, which gives filmmakers up to a 42% credit on qualified expenses, is not capped and has paid out $31 million for 2008 projects.
Gov. Jennifer Granholm remains a staunch supporter, noting that credits have lured dozens of projects such as Clint Eastwood's "Gran Torino." "It's an important part of diversifying the economy and creating jobs," said Granholm spokeswoman Megan Brown. "We want to continue to have the most aggressive incentive program in the nation."
But she noted that the film-credit program could be curtailed amid difficult budget negotiations to bridge the budget gap. "Clearly, we have some painful decisions ahead," Brown said