Film Subsidies Are Real Losers
Virginia has doubled its film subsides in the last 5 years, but a new watchdog report finds they are nearly useless.
Put a question to any two economists and you will get three answers back. That old joke is not very funny, and it is even less accurate. On some topics economic analysts are, if not unanimous, at least largely in accord.
Example: sports stadiums. As the St. Louis Fed pointed out earlier this year, 86 percent of economists agree that state and local governments "should eliminate subsidies to professional sports franchises." Study after study has found that giving public money to pro sports teams brings little to no return on the investment—and sometimes actually induces negative effects on the local economy.
Another example: film subsidies, which get close scrutiny in a new report by Virginia's legislative watchdog agency. According to the Joint Legislative Audit and Review Commission: Virginia's "film tax exemption has little effect on film location decisions, a negligible benefit to the Virginia economy, and provides a negligible return on the state's investment." The film tax credit provides a return of 20 cents on the dollar; direct grants return 30 cents on the dollar.
Yet in five years, the commonwealth has more than doubled its film subsidies, from $5.8 million in 2012 to $14.3 million last year. The idea—as with so many other subsidies—is to lure economic activity. But JLARC points out that this hasn't worked—not for Virginia, and not for the many other states that have engaged in a bidding war over Hollywood during the past couple of decades:
"The percentage of nationwide film production employment located in California and New York (67 percent) in 2016 has barely changed since 2001 (69 percent)… Georgia, which offers one of the most generous film tax credits in terms of the rate, ranks third after California and New York, but its share of national film production employment is only four percent (12,500 workers)."
The JLARC report adds useful data specific to Virginia. But its overall point hardly breaks new ground.
Massachusetts has been fighting over its film subsidy since 2008, when the state issued its first critical review of the program. According to the Massachusetts Department of Revenue, each job ostensibly created by the subsidy costs the state $118,000.
"State Film Subsidies: Not Much Bang for Too Many Bucks," was the title of a 2010 study by the liberal Center on Budget and Policy Priorities. The report noted that "subsidies reward companies for production that they might have done anyway." And because most people outside California and New York don't have the requisite skills, "the best jobs go to non-residents." And "subsidies don't pay for themselves. The revenue generated by economic activity induced by film subsidies falls far short of the subsidies' direct costs to the state."
Two years later, the conservative Tax Foundation reported similar findings: "Surveying the literature, we found that aside from studies paid for by economic development authorities and the Motion Picture Association of America, an industry trade association, almost every other study has found film tax credits generate less than 30 cents for every $1 of spending."
"Film Tax Incentives Are a Giant Waste of Money, New Study Finds," ran a headline in Variety last year. The story reported on a study by the University of Southern California Price School of Public Policy's Michael Thom. He found that tax credits produced zero to minimal employment gains and zero to only short-term gains in wages. Sales tax and lodging tax breaks also accomplished bupkes, and "none of the incentives had a measurable effect on the share of the motion picture business located in each state."
To be fair, having a major motion picture filming on location in your hometown brings non-monetary benefits, just like having a pro sports team in your hometown does. Many Richmonders thought it was cool when Daniel Day-Lewis was spotted having lunch in Shockoe Bottom six years ago, dressed in character for the film "Lincoln." But was it cool enough to justify shelling out $4.6 million in taxpayer support for the movie?
The state claims Virginia more than made up for the subsidies on that one. If so, it was an unusual case. On the whole, film subsidies do little but redistribute wealth from the lower and middle classes to the Hollywood rich. Isn't it time for Virginia to yell "CUT"?
This column originally appeared in the Richmond Times-Dispatch.