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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.

Photo Credit: Jonathan Kos-Read/flickr

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  • Don't look at me.||

    Buying bragging rights with taxpayer money.

  • loveconstitution1789||

    "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.

    "State Film Subsidies: Not Much Bang for Too Many Bucks,"
    People conflating cash subsidies with tax credits that just mean less tax revenue.

    If the movie was never made in your jurisdiction you would have gotten zero tax revenue from that company.

  • Magnitogorsk||

    These film "tax credits" typically ARE direct cash subsidies. They are just called "tax credits" to trick low information conservatives into being ok with it

  • Robert||

    Then why does even the critical headline in Variety call them tax incentives?

  • adrian||

    Because Variety is a trade publication that tows the line on things that are good for studios, like free cash. And while they function as cash handouts, they are technically still called tax incentives.

  • gaoxiaen||

    It's "toe the line" elsewhere and "tow the lion" here, FNGs

  • ALWAYS RIGHT||

    The ruling class makes laws that make people rich. Libertarians should be against corporations and intellectual property.

  • Cynical Asshole||

    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).

    And I'm guessing a big chunk of those are just from The Walking Dead.

  • TGoodchild||

    Wait, are you saying that Walking Dead isn't a documentary about life in post-Obama Georgia?

  • Longtobefree||

    It is about life in post Jimmy Carter, pre-Trump Georgia.

  • Finrod||

    Apparently the Hunger Games movies and a lot of the recent Marvel movies were shot in Georgia as well.

    The elevator scene from the second Hunger Games movie? That was in the Marriott Marquis which is one of the five DragonCon hotels. The scene where they're hunting in the woods and are in the shell of an old building with the stream in the background is in Sweetwater State Park west of Atlanta-- the building was a Confederate mill that was destroyed during the Civil War.

  • Rhywun||

    giving public money to pro sports teams brings little to no return on the investment

    That's not why they do it.

  • CE||

    A tax exemption is not a subsidy. It's a robbery prevented.

    Cities often pass new taxes on hotel rooms and car rentals and the like to fund new stadiums. That's a whole new level of robbery.

  • adrian||

    Film "tax" credits are not exemptions. They literally represent cash for the production...spend $100 million on a film in New Mexico and they literally write a check for $25 million because the "tax" credits are 100% refundable, even when they production pays/owes zero in state taxes.

  • John DeWitt||

    To an extent. In Georgia, for instance, it's up to a 30% tax credit on money spent in Georgia. Those production houses can then sell that, normally via a broker, to actual Georgia tax payers (usually for about 90 cents on the dollar).

    For example, Marvel spends $1M in Georgia. The state issues a $300k tax credit. Marvel sells that for $270k to Home Depot. Home Depot uses that credit to lower the amount they have to pay in corporate tax. The state is out $300k from Home Depot that they normally would have been able to steal...er, collect.

    The hope is that the amount of economic goodness generated via the $1M in spend that wouldn't have happened otherwise is worth the $300k in lost state taxes.

    When production companies get a big enough presence in the state of Georgia that they need the tax credits themselves is when the states start getting the biggest bang for the buck. Increased economic activity and no taxes lost.

  • adrian||

    When the production companies get big enough they need the credits themselves in Georgia? Never going to happen. NY has been the second biggest home to the industry in the US for 100 years and 98% of their "tax" credits are also refunded for cash as the credits exceed the taxes owed. Unless one of the major studios actually moves its HQ to Georgia (like Fox or WB), then Georgia will never be in that situation.

    Sure the boost to the economy is great, but that spending has never been enough to offset the cost of a subsidy as large as Georgia's. It's not even coming close to breaking even, especially when 30% of star salaries are being subsidized. $20 million paid to Jenn Lawrence? That's $6 million in taxpayer money out the window. Its reasons like this that I suspect Georgia has been to scared to do an actual cost/benefit analysis. They already know its a loser and Gov. Deal loves his movies too much.

  • OliveEthan||

    The negligible advantage to the Virginia economy and affords a negligible go back on the kingdom's investment. they may be simply called "tax credit" to trick low information conservatives into being ok with it. A change guide that tows the road on things which are right for flats, like unfastened cash. And at the same time as they feature as cash handouts. Online Essay Help UK Libertarians must be towards organizations and intellectual property. those manufacturing houses can then sell that, commonly through a booking, to actual Georgia taxpayers.

  • Samuel190||

    This is one of the best articles I have come across. Keep up the good work. Download ShowBox App

  • JoeBlow123||

    Good article and informative!

  • Longtobefree||

    What you overlook is the number of harrassable young actors that these subsidies bring into the state.
    Somehow, they always get introduced to the politicians.

  • Longtobefree||

    The other joke abut economists, is that all the economists in world, laid end to end, still will not reach a conclusion.

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