Film Tax Credit Fatigue?

Written by Amanda Maher

It was a good idea, in theory: creating a film tax credit would draw Hollywood’s elite to places like Massachusetts, Michigan, New Mexico and South Carolina. It would create new jobs in the television, production and fashion industries and those working on set would stimulate the local economy by eating at local restaurants and filling hotels. But policymakers are quickly realizing that these generous subsidies haven’t always had the intended effects.

In 2008, Michigan passed the country’s most generous film tax rebate program, a program that passed through the state legislature with near unanimous support. For every dollar that the film industry spent in Michigan, they would get back up to 42 cents. The new law attracted Hollywood’s attention. Just two years after the bill passed, the TV and film industry had poured $300 million into Michigan’s economy. But it came at a high cost to residents: $115 million in rebates were funded by taxpayers. As for the creation of new jobs: The Michigan Film & Digital Media Office found the program created no full-time jobs.

Instead, the film industry brings its own crews (often from Los Angeles or New York) to set up shop while in production, then packs up its employees and leaves once filming wraps.

Now Michigan’s program is under fire. In 2011, the state capped incentives to $50 million per year, and there’s been discussion of ending the program altogether. It’s creating worries for producers who may otherwise film in Detroit. “Films are afraid to come here because they’re afraid that it’s going to be pulled out at any minute,” said Eddie Rubin, film and TV producer based outside Detroit. Rubin argued that the full-time job statistics are misleading—many people are hired for a few days, a few weeks or even months at a time while in production. “We’re hiring carpenters, lighting technicians, all different types of skilled work,” he explained.

Maybe, then, the program did its job after all. If the goal was to stimulate the economy and create job opportunities during the recession, it seems to have done just that. Now that the economy is picking back up, states are finding less cause to offer such deep subsidies when carpenters, electricians and other skilled-laborers can find permanent employment locally. At least that’s Maryland’s rationale.

“The tax credit was never to make money for the state of Maryland, it was to help our economy and I think that’s where it’s going,” Sen. Edward Kasemeyer (D- Baltimore and Howard) argued on the Senate floor. Kasemeyer is among those who believe the state should allow the $25 million annual film tax credit program to sunset in July 2016 as originally scheduled.

“States are fiercely competing with one another to draw productions into their state,” noted a report, Evaluation of the Maryland Film Production Activity Tax Credit, by the Maryland Department of Legislative Services. “This type of competition is not only expensive, but promotes unhealthy competition among states.” In some cases, this competition is at the expense of taxpayers, who might not see much benefit from these costly tax credits.

Last month, Massachusetts State Auditor Suzanne Bump announced her intention of examining the efficacy of the state’s multiple tax incentive programs, including the film tax credit. Earlier this year, the debate raged about whether to nix the program. The Boston Globe reported that Massachusetts doled out $80 million in 2012 to the industry, but only 700 jobs were created in the process. Despite the discouraging statistics, the program survived another year.

Visits from Johnny Depp or Ben Affleck can bring attention and cachet to cities and states. But the real question is whether these subsidies are worth the high costs to taxpayers. In the midst of this decade’s recession, legislators were more eager for any sort of economic stimulus. Yet as the national economy improves, many policymakers are suggesting that the $1.5 billion in annual subsidies may no longer be a worthy expenditure.