Movie Industry Says Georgia's Film Tax Credits Are Great. State Auditors Say They're a Waste of Money.

Contradicting a new report funded by entertainment industry advocates, state auditors have cast significant doubts on the tax credit program's actual effectiveness.

Long before the COVID-19 pandemic ushered in a trend of remote work, the entertainment industry was increasingly decentralized. It has long been a trope that films and TV shows take place in major American cities like New York and Los Angeles but film in places like Toronto. Georgia is one of the biggest beneficiaries of the trend: In 2016, more major movies were filmed in the state than in California.

The state made itself attractive through tax incentives first passed in the mid-2000s. For film or TV productions costing at least $500,000, the state offers a 20 percent transferable credit; projects can qualify for an additional 10 percent simply by adding a peach logo to the credits.

This month, the Creative Media Industries Institute at Georgia State University released Building Georgia's Digital Entertainment Future, a report examining "how Georgia's entertainment incentive is impacting the state-wide economy." The report concludes that the incentives are a good idea and should be continued, but there's much more to the story.

The report notes that Georgia's tax incentives "not only expanded film and television production work" but "are building Georgia's statewide economy" and "rapidly making Georgia a main location for digital content creation on a wide scale."

"The production sector is boosted," the report claims, "but so too is the overall climate for business development." It further cautions, "Changes to the existing credit would create significant risks to the viability of Georgia's creative sector." If anything, "policymakers should consider targeted further investments in technology centered content creation sectors."

Much of the report is dedicated to profiling various studios and production companies based in the state, giving those sections more of the feel of a travel brochure than an evenhanded examination of the efficacy of a tax credit. Fine print on the table of contents page notes, "This report was financially underwritten by the Georgia Screen Entertainment Coalition and the Georgia Production Partnership." The former is an advocacy group within the Georgia Chamber of Commerce that represents the entertainment industry, while the latter is a coalition of companies that claims its "top priority [is] to protect the production tax incentive and strengthen our industry."

Of course, just because the film industry and its advocates funded the research does not automatically negate the report's conclusions. So how do its findings shake out?

"Incoherent gobbledygook," says J.C. Bradbury, an economist and professor at Kennesaw State University. He tells Reason, "The report includes nothing of relevant substance and contains no credible analysis." While it claims that Georgia's film and TV incentives provide a net benefit not only to the industry but to the state as a whole, "the asserted conclusions do not follow from any information presented within."

Bradbury is not alone. In fact, a 2020 audit by the Georgia Department of Audits and Accounts determined, "The impact of the film tax credit on the state's economy has been significantly overstated." The auditors calculated an "output multiplier" of 1.84, meaning that every dollar spent in Georgia by production companies creates $1.84 in total economic output. But the Georgia Department of Economic Development "has used a multiplier of 3.57 for more than 30 years without a clear source of the multiplier or evidence of its accuracy." The office's staff have previously "indicated they had no information regarding the multiplier's source or what spending was included in it."

The audit notes in a sidebar, "Eighty-three percent of Georgia's industry output multipliers are less than two; none are more than three." So not only are the state's official numbers nearly twice what they should be, but the formula it uses to calculate them is more generous than any industry in the entire state.

Not to mention that these expenditures can have negative economic effects as well. The audit notes, "The economic activity generated by the film tax credit does not generate sufficient additional revenue to offset the credit, even after considering tourism and studio construction."

In 2016, the year that more major studio movies were filmed in Georgia than in California, the audit determined that the state generated over $667 million in tax credits and "resulted in a net revenue loss to the state estimated at $602 million."

The credit's days may be numbered: Lt. Gov. Burt Jones and Georgia House Speaker Jon Burns, each Republicans, announced plans earlier this year to review "all Georgia tax credits, including Georgia's film tax credit." The lawmakers pledged "to support Georgia businesses while ensuring a significant return on investment for Georgia's taxpayers" as a goal of the review.