Review Gives Two Thumbs Down to State Film Production Subsidies

Friday, November 19, 2010 at 2:21 AM by

Lights, cameras, ….fraction!  As the cameras roll, costs climb for taxpayers in the many states that pick up the tab for a large fraction of film production expenses incurred in their states. That was true for a short time in Wisconsin, but Governor Doyle and a majority of state lawmakers yelled “cut” last year after a Department of Commerce analysis found the rapidly rising tax subsidies to be an ineffective form of economic development spending.

The issue is likely to emerge again next year because some of the newly elected lawmakers would like to give the film subsidies a new run. With that in mind, it’s worth noting that the Commerce Department’s study was buttressed this week by a report from the Center on Budget and Policy Priorities (CBPP), titled “State Film Subsidies: Not Much Bang for Too Many Bucks.”  The CBPP report begins with this introduction:

“Like a Hollywood fantasy, claims that tax subsidies for film and TV productions — which nearly every state has adopted in recent years — are cost-effective tools of job and income creation are more fiction than fact. In the harsh light of reality, film subsidies offer little bang for the buck.”

The CBPP report offers the following critiques of these subsidies, which grew in 2010 to a $1.5 billion commitment of state funding in 43 states:

  • State film subsidies are costly to states and generous to movie producers. (The median state gives producers a subsidy worth 25 cents for every dollar of subsidized production expense.)
  • Subsidies reward companies for production that they might have done anyway.
  • The best jobs go to non-residents. (“Jobs for in-state residents tend to be spotty, part-time, and relatively low-paying work — hair dressing, security, carpentry, sanitation, moving, storage, and catering — that is unlikely to build the foundations of strong economic development in the long term.”)
  • Subsidies don’t pay for themselves.
  • No state can “win” the film subsidy war.
  • Supporters of subsidies rely on flawed studies.

The conclusion of the CBPP study is definitely a “two thumbs down” rating:

“State film subsidies are a wasteful, ineffective, and unfair instrument of economic development. While they appear to be a “quick fix” that provides jobs and business to state residents with only a short lag, in reality they benefit mostly non-residents, especially well-paid non-resident film and TV professionals. Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services — such as education, healthcare, and police and fire protection — or higher taxes elsewhere. The benefits to the few are highly visible; the costs to the majority are hidden because they are spread so widely and detached from the subsidies.”

The report recommends less glamorous forms of public support for economic development, “such as investment in education, job training, and infrastructure.” It also says that states should broaden the base of their taxes to create a fairer and more neutral tax system.

The question of whether Wisconsin and other states should strive to have neutral tax systems or should use the tax code to boost certain industries will stage intriguing political dramas over the next couple of years in many state capitols. The cast includes conservatives who will argue for targeted tax subsidies for the sake of job creation, and other conservatives who will vigorously oppose that sort of state intervention in the economy (see, for example, this article in the Iowa Republican).  And don’t type cast the liberals.  They are often split on the issue in much the same way, but it might be harder for them to endorse such subsidies next year as numerous state and local services are being cut significantly.

How the debate about tax neutrality plays out in Wisconsin over the next year will have a large role in determining whether there’s a sequel to Wisconsin’s film production tax subsidies.

Jon Peacock

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