Are Tax Incentives for the Film and Television Industries Worth the Cost?

A number of states began to enact film and television production incentives in the early 2000s to encourage in-state film production as a way of boosting their economies. The earliest states to offer such packages were Louisiana and New Mexico, both hoping to attract film business that had begun to flee to Canada for their tax breaks and favorable exchange rates. This phenomenon of “runaway production,” grew rapidly from just a few states in 2002 to its peak in 2010, where a total of 42 states, plus the District of Columbia, were offering incentives. According to the National Conference of State Legislatures, 39 states and Puerto Rico have tax incentives of some sort provided to the film and television industries as of 2014.

Proponents of these incentives claim that the benefits they provide, such as attracting star power, tourism and jobs, rationalize these deep-pocketed programs. However, the growing debate surrounding whether they create new jobs, or merely shift work from one place to another have lawmakers asking themselves whether film tax credits are really cost effective.

More and more states are learning that these credits do not pay for themselves. Louisiana is a top film destination due to a robust tax credit program that is fully transferable and completely limitless. However a study by the state’s Department of Economic Development found that despite adding 2,760 jobs in 2013, it lost more than $12,000 for every job created by the film tax credit, according to the Los Angeles Times.

Another problem that arises for states are the bidding wars that result from the sheer amount of location options now available. This abundance of choices has created a ‘race to the bottom’ that allows studios and filmmakers to pit states against each other when looking for the best deal for a filming location. The producers of “House of Cards,” a popular Netflix Inc. series, recently threatened to leave Maryland if the state reduced tax credits. Because of this, former Democratic Gov. Martin O’Malley approved a new $11.5 million tax incentive package last April.

The past few years alone have seen a number of states altering their film tax incentives in response to the downward economic return on investments. Since 2010, Minnesota, Nevada, New Jersey, New Mexico, Oklahoma, Tennessee, Wisconsin and the District of Columbia have all drastically reduced their incentive programs. Arizona, Idaho, Indiana, Iowa, Kansas, Missouri and Wisconsin have ended their incentive programs entirely as a result of the negative return on investment.

More recently in Alaska, SB 39 was signed into law this June, repealing the film tax credit program in the state. The program will end with more that $50 million paid out in credits in 2009 and an additional $30 million in preapproved credits the state has said it would honor, according to the Washington Times. The state has cited external budgetary shortcomings, such as the decline in oil prices, as the reasoning behind dropping the program, as it is no longer affordable. Also this session in Michigan, Republican Gov. Rick Snyder signed HB 4122 into law, ending the film incentive program for the state. The law includes $25 million for the incentives for the 2016 fiscal year beginning on October 1, but $19 million of that will go towards paying off pension funds in a Pontiac film studio, and none of it can be used for new deals according to the Detroit Free Press. The Michigan Film Office will continue to run to assist moviemakers and production staff, who the governor hopes will still film in Michigan, even without incentives.

On the other hand states like California, Georgia, Hawaii, Kentucky, New York and Virginia have actually introduced or expanded their programs since 2010. Worried about Hollywood productions leaving the state, California tripled to $330 million the amount available for film tax creaks last year, according to The PEW Charitable Trusts. Louisiana Republican Gov. Bobby Jindal has signed at least 10 bills this session pertaining to the expansion of the already costly state film incentive program. As of January 2015, North Carolina has implemented a new Film and Entertainment Grant program where funds from the $10 million grant will serve as a rebate of up to 25 percent on qualified expenses and purchases of productions.

The competition among states will have film tax incentives playing a major role next legislative session. Policymakers will be forced to decide if the excitement of having movie stars on location in their state and spotted in local cafes by their constituents is worth the less exciting economic maneuvering, such as raising taxes and cutting expenditures, that brings them there.