State governments shrink tax-dollar giveaways to Hollywood film studios

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Michael Bastasch DCNF Managing Editor
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The Oscars will be awarded Sunday night, so it’s time to take a close look at all the blockbuster movies that received sizable tax breaks in the past year.

Nearly all the films nominated for best picture in this year’s Academy Awards received some sort of financial assistance from governments, either state or foreign, according to a Stateline report. For example, the film “The Help” received a spending rebate for $3,547,780 from Mississippi. “Moneyball” received $5.8 million in tax credits from California, which are pending review.

About 40 states offer tax incentives to television and film producers in an effort to attract production companies, and also to stimulate job growth in sectors that would service major TV and film productions like catering and carpentry.

Some states’ incentives come with transparency, but not all. Only one-third of states that offer film tax incentives disclose exactly how much individual recipients have received. For example, Texas discloses the information, but Hawaii does not.

The film industry argues that publishing how much each individual production receives is bad for business. Film studios don’t want competitors to be able to do “back-of-the-envelope” calculations to figure out their cost structures — something they regard as a trade secret.

Emily McNamara, an entertainment attorney who consults with productions in Massachusetts, says, “I can understand the interest in knowing who is doing business in the state and who is receiving benefits. … But when it gets into proprietary budget information that affects people’s ability to compete, or financial information they don’t want out there, then it is has to have more of a purpose. I haven’t heard an argument why it would be necessary to disclose at that level of detail.”

Disclosure is also a problem for independent filmmakers that produce films before they are sold. Having this information made public could hurt their leverage when there are deals to be made.

But Massachusetts state Sen. Ben Downing argues that taxpayers’ interest in transparency outweighs industry concerns. Downing says citizens should know exactly what they’re getting for their money, and disclosing recipients of tax incentives will allow the state to measure the impact of the tax breaks and compare them to other economic development programs.

Proponents of film tax incentives tend to focus on the economic benefits of inducing studios to locate their productions within a given state. For example, a 2011 study by the Los Angeles County Economic Development Corp. claimed film tax incentives injected $3.8 billion into California’s economy and created 20,000 jobs.

And a 2011 study conducted by the state of Massachusetts claimed “684 new FTEs [full-time equivalent jobs] were created by film production spending and its multiplier effects in Massachusetts and 184 Massachusetts residents employed out of state.”

The report, however, indicated that only 19 net new FTE jobs were created.

Proponents also argue that tax credits essentially pay for themselves because of increased revenue from an increase in jobs and the accompanying economic activity.

There are doubts about the economic arguments behind film tax incentives. “Every independent study has found that film tax credits lose revenue,” noted Joseph Henchman of the Tax Foundation.

“[T]hese programs lose governments between 72 and 92 cents for every dollar spent on them,” he added, “even after accounting for increased economic activity generated by film production.”

Harris Kenny of the Reason foundation reported that the state of Michigan only generated 11 cents of revenue for every dollar spent in its film tax credit program. New Mexico’s return on a dollar was just 14 cents, and Louisiana’s was between 13 and 18 cents.

And film tax credits don’t necessarily create jobs. Many of the jobs film crews bring are imported, like actors and stuntmen, and leave the state once a production is finished. Jobs created by movie spending — like caterers, hairdressers and technicians — are typically temporary.

Manipulation and fraud complicate the picture even more. Iowa found that nearly 80 percent of its transferable film tax credits were issued improperly, representing $25.6 million in misspent taxpayer dollars. Massachusetts, likewise, is involved in a $5 million lawsuit against a Los Angeles filmmaker that faces multiple counts of fraud and larceny.

Some states have already opted to scale back, suspend or even end their film subsidy programs.

“Arizona, Arkansas, Idaho, Kansas, Maine, New Jersey and Washington have recently ended, suspended or shrunk their programmes,” The Economist noted. As more states continue to struggle with growing budget deficits and shaky finances, the amount of money in these programs will continue to shrink. That total shrank from $1.396 billion in 2010 to $1.299 billion in 2011.

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