Poor Reviews Prompt States to Cry ‘Cut!’ on Film Tax Incentives

Poor Reviews Prompt States to Cry ‘Cut!’ on Film Tax Incentives
June 18, 2011

A record 40 states offered $1.4 billion in film and television tax incentives in 2010. That will likely stand as the peak year, because many governors and legislators are ending their programs, preferring to use the money for other priorities or leave it with taxpayers.

All told, states have provided nearly $6 billion for such programs over the past decade, but film tax credits have failed to live up to their promises to encourage economic growth and thereby raise overall tax revenue. Supporters claim the incentives create jobs, but the jobs created are mostly temporary positions, often transplanted from other states. In addition, the competition among states transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers.

Numerous Program Cuts, Suspensions
The disappointing results from film tax incentives are causing lawmakers and governors to roll back the programs. Recent eliminations or suspensions include:

•    Arizona ended its program after 2010 and efforts to renew it have not advanced.
•    Arkansas appropriated no funds for its program for 2011.
•    Idaho appropriated no funds for its program for 2011.
•    Iowa suspended its program in 2009 after widespread fraud and abuse was discovered. A film producer was recently sentenced to 10 years in prison as a result of that scandal.
•    Kansas has suspended its program.
•    Maine appropriated no funds for its program for 2011.
•    New Jersey suspended its program, although some legislators are pushing for its reinstatement.
•    Washington legislators just dropped their program as part of a budget deal.

Other existing programs are being pared back or challenged:

•    Alaska legislators may not renew their program.
•    Connecticut reduced the generosity of its credit.
•    Georgia's tax review commission recommended eliminating the program.
•    Hawaii legislators rejected an effort to expand their program.
•    Michigan will greatly reduce its film tax credit as part of a business tax overhaul. Michigan's program was among the most generous, providing a 42 percent subsidy for qualified film and television productions. Proponents are pushing for its reinstatement but at a less generous level. Gov. Rick Snyder (R) had called for ending the program altogether.
•    Missouri's tax credit review commission recommended ending the state’s program.
•    New Mexico capped its program, compromising with Gov. Susanna Martinez (R), who had sought to scale back or end it.
•    Rhode Island Gov. Lincoln Chaffee (I) is seeking to end that state's program.
•    Wisconsin appropriated just $500,000 for its program after concluding that providing tax credits to even a blockbuster production would likely have a negative fiscal impact.

Some Are Still Trying
On the other hand, some states are betting more on these programs:

•    California's new film tax credit faces some debate over its renewal, but it will likely continue.
•    Minnesota Gov. Mark Dayton (DFL) put money for the "Snowbate" program back in the budget after his predecessor, Gov. Tim Pawlenty (R), had sought to end the program.
•    Some Nevada legislators are pushing to create a film incentive program, but it will be tough because the state has no corporate income tax from which to give a credit.
•    After early indications that he might challenge the program, Ohio Gov. John Kasich (R) sought no changes.
•    Pennsylvania Gov. Tom Corbett (R) worked to save the state’s film tax credit from budget cuts.
•    Utah made its film tax credit more generous.
•    Virginia Gov. Bob McDonnell (R) worked with legislators to add a new film tax credit.
•    Wyoming Gov. Matt Mead (R) signed a five-year extension of that state's program.

In short, whereas film incentive programs were once universally applauded as great economic development tools and tourism boosters, their merits are now being rigorously debated.

Joseph Henchman (henchman@taxfoundation.org) is vice president of legal and state projects at the Tax Foundation, where a version of this article was first published. Used with permission.

Internet Info

“More States Abandon Film Tax Incentives as Programs’ Ineffectiveness Becomes More Apparent,” by Joseph Henchman: http://www.taxfoundation.org/files/ff272.pdf