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For Release Sunday, July 25, 2010
© 2010 Washington Post Writers Group

Is the film industry snookering America’s taxpayers?

We’re accustomed to state governments putting up big capital for footloose auto factories, biotech firms, even airplane assembly plants.

But what are we to make of tax credits and other state-financed breaks to such big-time production companies as Disney, Time Warner and Sony and their film-making subcontractors? With most state budgets now mired in deep red ink, does this make any sense?

Louisiana, which had been attracting some filmmaking for decades, decided in 2002 to ramp up modest incentives in a really serious way, passing a bundle of subsidies for film production in the state.

The strategy paid off quickly, attracting such production firms as Disney and such stars as Dustin Hoffman.

Louisiana’s move did more. It triggered, as researcher William Luther reported for the Tax Foundation, “an explosion of movie production credits nationwide” as dozens of states tried by one way or another to outbid Louisiana. By 2009, 44 states, the District of Columbia and Puerto Rico were into the game.

Michigan, reeling under cataclysmic job losses and massive budget shortfalls, has played hard to trump the field, laying out $125 million in 2008, $223 million in 2009. Its investment, pushed hard by Gov. Jennifer Granholm, has snagged such big-time films as Gran Torino (starring Clint Eastwood) and Up In the Air (starring George Clooney). Eastwood has predicted Michigan “will be the new film capital of the world.”

The hope — pushed by television commercials featuring Granholm and actor Jeff Daniels — is that the rich and famous will flock to Michigan, and that filmmaking will become a magic elixir for the state’s economy and image. One wonders if such towns as Lansing and Detroit have that potential. The Tax Foundation’s wry conclusion: “The probability of such a transformation actually occurring is extremely small, but the dreams of Tinsel Town can die hard for citizens and statesmen.”

The incentives, as they’ve developed in copy-cat fashion across the country, typically start with exempting filmmaking production purchases from sales taxes, or lodging taxes for crew members in hotels. They continue with such freebies as no-free locations and waiving police traffic control costs as film sites. South Carolina even offers 20 percent cash rebates for wages paid local actors and stunt performers.

Next come actual state grants to filmmakers for significant shares of their local expenditures. And then the biggest and potentially most serious — tax credits that remove a portion of the companies’ income taxes due the state.

Twenty-eight states now offer the tax credits, many so generous, the Tax Foundation reports, that their value often exceeds the movie company’s tax liability in a state. But they’re structured to be transferable. Brokers are able (for a 25 to 30 percent cut) to sell them to companies who have nothing to do with movies or entertainment. The firms can then apply the credits like coupons on their tax returns.

So is the state really gaining much? State Rep. Steve D’Amico calculated Massachusetts was spending $89,000 a job through the tax credits. Citing the competition from other states, D’Amico told Governing Magazine: “These jobs will only persist as long as we continue to offer the credit. We’re renting them. But once you start handing out money, it’s really hard to step away.”

Various estimates show overall return to states embarrassingly low — 19 cents on the dollar in South Carolina, 16 cents in Massachusetts, 8 cents in Connecticut, 28 cents in Rhode Island.

The criticisms — and actual scandals in handling the subsidies in Iowa and Louisiana — have at least tapped the brakes of the subsidy train, reports Phil Mattera of “Good Jobs First.” Iowa and Kansas have suspended their programs while Wisconsin and Connecticut have cut back sharply.

But Louisiana — notwithstanding the revelation its film commissioner had accepted bribes from a film producer — actually boosted its tax credit and made it permanent. Alabama, New York, North Carolina, Ohio and Utah have recently upped their subsidies. California Gov. Arnold Schwarzenegger favors tax credits to lure back film production that’s crept away from Hollywood.

Politicians prize, predictably, photo-ops with glamorous movie or TV stars. But do film subsidies — except in established centers like Los Angeles — actually spur meaningful economic growth? Do they improve productivity, train significant new workforces, develop new technologies — especially when a non-ending chain of public subsidies is required to keep them in state or in town?

The raw bottom line is this: Subsidy-induced film activity may have glitz and surface appeal. But nationally, it’s a washout — film production lured from one place to another is classic “robbing Peter to pay Paul.” At the end of the day the country’s no less prosperous. The net economic impact is simply to enrich the filmmakers at the expense of state taxpayers. Even a Cecil B. DeMille would blush.

Neal Peirce’s e-mail is npeirce@citistates.com.

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