Film Tax Credit Programs Receive Terrible Reviews

Over the past 15 years, many states across the country have reduced or abolished tax incentive programs aimed at luring Hollywood films, TV shows, and productions to their communities.   Turning the faucet off on these programs became a trend after a slew of damning reports and studies demonstrated the high costs per job and highly suspect returns.

But many lawmakers have stars in their eyes again, seduced by the idea of rubbing elbows with celebrities coming to shoot films in their communities. In fact, several states in the last two years have reinstated, renewed, or expanded their film subsidy programs.

Governor Kasich of Ohio signed a bill into law just last year that doubled the credits available under their program – expanding their film subsidies to $40 million a year and removing the dollar figure cap on reimbursements to a 30 percent of all production costs.
Without scrutiny or examination, Hawaii put their program on autopilot for almost another decade – extending their program until 2026 with a $35 million cap per year. Advocates criticized the small island State for its frugalness, insisting the cap should be not lower than $50 million a year, even though the State’s program allows production companies to carry forward the rebates if the cap has been reached.

Maryland has swooned in the face of popular programs like “House of Cards” and “Veep,” shelling out $62.5 million in credits between 2012 – 2016.  Dazzled by the glamour of Kevin Spacey in their State, they extended their program after the shows threatened to jump across the Potomac River if the credits expired.  This is even after the Maryland Department of Legislative Services deemed the credit program was not worth the cost and recommended the legislature sunset the program in 2016.

And of course, there is California.  The home of Hollywood has no shame when it comes to enriching star-studded celebrities in their own backyard.  The state recently more than tripled their tax credit budget to $330 million a year. The fact that lawmakers in Sacramento are willing to spend money to keep Hollywood in Hollywood should be a red flag that this is a subsidy game that can’t be won.

There are states, however, that have seen through the ruse.  Alaska and Michigan repealed their programs in 2015, and New Jersey allowed their funding to lapse.  Alabama recently introduced a bill to abolish their six-year-old entertainment industry incentive program.  This came after their Department of Revenue contracted with an independent firm to review the program.  The study returned a scathing assessment.  They found that Alabama had awarded $26.8 million for 37 productions – at a cost of $55,874 per direct full-time-equivalent job.  The study was unable to determine how many of the actual productions were a direct inducement by the incentive program.

Massachusetts too is looking to peel back subsides for the rich and famous by reducing their $80 million program by $14-15 million.  An independent study in the State found only 13 cents per dollar was generated in revenue from 2006 to 2011.  Last year, the Department of Revenue demonstrated the State spent $106,099 per net full-time-equivalent job cost with an average salary of $20,585.  As lawmakers in Massachusetts struggle to close a $462 million budget gap, some politicians are proposing new taxes on services such as short-term rentals.  Citizens should be outraged at the idea that average home owners trying to earn a few extra dollars from their investment should be shouldering the burden of the State’s fiscal imprudence, while celebrities fly in and receive the red-carpet tax treatment.

Louisiana, which was the first State to adopt a film tax credit program in 1992, is looking to curtail its subsidies to Hollywood filmmakers by adopting more accountability measures to benefit the locals.  Their economic development office concluded the program between 2011- 2012 cost taxpayers $231 million in credits for a billion dollars in spending over a decade.  The Louisiana Budget Project called the State’s return “a flop,” concluding each job created had cost $60,000.   Their proposed changes would require the tax credits be repaid if the film makes a profit and kicks back 10 percent of the production company’s profits to the State up and above the credit amount.

The more star-struck States that fall over themselves to lure film producers, the faster the race to the bottom. The Center on Budget and Policy Priorities produced an in-depth study in 2010, comparing the different states’ programs.  The author Robert Tannenwald rightly concluded, “Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services – such as education, healthcare, and police and fire protection – or higher taxes elsewhere.  The benefits to the few are highly visible; the costs to the majority are hidden because they are spread so widely and detached from the subsidies.”

Except for studies commissioned and published by the film industry, the consensus among budget departments, economists, and researchers is clear: movie tax credits are a bad deal for taxpayers.  Arizona would be foolish to think competing with CA and NY in a film subsidy arms race would pay dividends.  But with the program’s recent comeback popularity – AZ legislators should be on guard.  It is only a matter of time before they are being courted again by dubious proposals.