State Subsidies To Hollywood: Almost Every Program Has Been A Dismal Failure, Costing Taxpayers

Movie Industry

from the where-are-those-jobs? dept

So we’ve had a couple stories recently about the immense failures of taxpayers being forced to shovel money to Hollywood studios via various local “incentive” programs to try to convince the studios to film their movies in various locations. The studios, with the help of the MPAA, of course, continually argue that these programs create jobs, jobs, jobs. However, as the NY Times investigation pointed out, those “jobs” really don’t seem to be appearing. Instead, film crews ship in a crew from LA or NY and hire just a couple of locals for low-level jobs… which last a few months and that’s it. The impact on the local economy appears to be minimal. And, basically, the studios just keep asking for more money playing different locations off of one another.

Adding more data to this mess (which has grown massively in just the last decade), Adam Thierer points to a survey of studies looking at how successful those programs have been in various states… and found that nearly all of them have flopped. The various studies show that the return for such subsidies tends to be less than par (i.e., a loss) in nearly every state studied. There were only two exceptions: New York and New Mexico — and both of those studies were done at the behest of the local film offices. With New Mexico, in particular, a separate, independent study found the exact opposite to be true, and found that the subsidy resulted in significant costs to the economy.

“Based on fanciful estimates of economic activity and tax revenue, states are investing in movie production projects with small returns and taking unnecessary risks with taxpayer dollars,” noted a 2010 Tax Foundation study. “In return, they attract mostly temporary jobs that are often transplanted from other states.” Studies of specific state incentive programs confirm this finding, almost universally finding miniscule revenue gains for every dollar of film subsidies offered. The adjoining table, derived from a meta-survey of film incentives studies by the Center on Budget & Policy Priorities, illustrates how much revenue was lost per net job created by film tax credits as well as how little revenue each program generated for every dollar of state revenues awarded.

State	Net Revenue Foregone per Net Job Created by Film Tax Credit	Revenue Gained from Feedback Effects per  Dollar of Film Subsidy Claimed($)
Massachusetts	$88,000	$0.16
Connecticut	$33,400	$0.07
Louisiana	$16,100	$0.13
Louisiana	$14,100	$0.18
Michigan	$44,561	$0.11
New Mexico	$13,400	$0.14
New Mexico	($400)	$1.50
Pennsylvania	$13,000	$0.24
New York	($2,000)	$1.90
Arizona	$23,676	$0.28

The only two studies that have revealed positive results for such film incentive programs were both conducted by Ernst and Young on behalf of the New York and New Mexico film offices. All others have shown consistent negative returns.

In case it’s not clear, that last column shows the return per dollar spent on subsidies. If it’s less than a dollar, it means that taxpayer money is being lost and it’s not benefiting the local economy. If you’re wondering why there’s such a big difference in those two New Mexico studies, the full report goes into detail of just how weak the methodology was for the NM study claiming economic benefit. It involved massively overestimating the tourism benefits, contrary to actual data, and then double counting much of the supposed “benefit.” For example, the study claims that a significant “benefit” is the salaries provided to producers and directors… but those are rarely local residents:

As discussed above, such highly skilled talent tends to be imported from other states, especially California and New York. Consequently, these individuals likely spent a much smaller percentage of their compensation in New Mexico than resident employees did. While non-resident employees do spend money on food, housing, meals, and other items while working in New Mexico, those expenses are covered by allowances, which did qualify for the film subsidy and, therefore, whose economic impact had already been taken into account. E&Y’s apparent assumption that highly paid non-resident employees spent most of their salaries in New Mexico, on top of their living allowances, amounts to double counting.

Basically, nearly all of the evidence shows that these programs harm the economy, rather than help it. But they do seem to help studio bosses.

So why are states (and countries) so eager to hand over taxpayer subsidies to Hollywood?

Filed Under: hollywood, subsidies