Despite Losing Money Year After Year, States Still Wondering How They Can Hand Out BIGGER Subsidies To Hollywood

from the this-taxpayer-money-is-burning-a-hole-in-my-common-sense dept

Fool me once, shame on me. Fool me annually and let me get my checkbook! Losses continue to mount, but some very resilient states are still willing to throw more taxpayer money at the film industry. Michigan — a state that seems to be able to generate at least one fiscal horror story per year — is one of the nation’s most consistent losers. Two years ago, it bet the state pension fund on film-related subsidies… and lost. When the “investment” failed to generate a return, nearly $2 million was removed from the already-underfunded retirement pool. One small town pinned its hopes and dreams on a film project that promised 3,000 new jobs but instead fell apart, dragging the town towards insolvency.

Michigan has made some moves in the right direction after being burned so often by Hollywood and its fleeting, mercenary “interest” in its state. It paid out nearly $100 million in subsidies in 2011, but that number has dropped to $38 million for the coming year. Michigan House Minority leader Tim Greimel is pushing to bring that back up to $50 million, claiming that the program has been a great job creator — an assertion that couldn’t be farther from the truth.

The state has funnelled $500 million in public funds to its fledgling film industry since 2008, and has almost nothing to show for it. While some jobs were created—temporary production crews, mostly—those were offset by the losses to the sectors of the economy that had to finance the film subsidy (i.e. Economics 101).

In fact, over the past 15 years, job creation has remained almost flat. According to the Bureau of Labor statistics, there were 1,537 in-state jobs in the film industry in 2001. As of 2013, there were 1,564. And in that particular year, the subsidized industry didn’t create a single job.

This boondoggle currently costs Michigan taxpayers $50 million a year and even the state’s own economic development agency (MEDC) reported this costly subsidy failed in 2013 to create one permanent job,” said Tricia Kinley, senior director of tax and regulatory reform at the chamber, in an press release.

A study released in 2012 showed that for every Michigan dollar spent on subsidies, the film industry only generated $0.11 of in-state revenue. And yet, politicians like Greimel are still insisting the best way to make money is to spend money — year after year after year.

The same issue is under discussion in Pennsylvania, another state suffering from budget overruns and the odd desire to throw away the better part of every subsidy dollar. Despite a $2.3 billion deficit, some legislators are thinking of increasing the state’s film subsidies.

Senate Bill 218, introduced by state Sen. Wayne Fontana, D-Allegheny, would raise the cap to $125 million. It’s now $60 million a year.

Senate Bill 219, also by Fontana, would allow for “rollover” of tax credits approved for a project but not ultimately awarded.

To push for these bills in the face of some heightened resistance, Fontana is trotting out some very suspicious numbers. The Department of Community and Economic Development — an entity that sounds neutral but in reality administrates the film subsidies — claims this handout has generated thousands of jobs and billions in revenue.

Since the program’s inception, nearly $433.5 million in film production tax credits have been approved/awarded to film production companies under the program. These companies, in turn, have directly injected close to $1.8 billion into PA’s economy; generated an estimated $3.2 billion in total economic activity; and supported an estimated 21,700 jobs (based on 2014 IMPLAN multipliers).

There are big problems with the Department’s fuzzy math, as Rachel Martin at points out. For one, it grabs unfinished and pending projects and mixes them in with completed projects to up the totals for both the number of jobs and the amount of money generated. Looking at the state’s financial statements reveals something completely different.

[F]rom fiscal 2007 to 2013, only $55 million in credits were awarded and 2,700 jobs were created.

A more sobering assessment put together by the state’s Independent Fiscal Office takes a lot of the irrational exuberance out of the Department’s fluffed numbers. There’s no “anything’s possible” math to be found here. The report takes a very long and detailed look at the fiscal performance of the state’s film subsidies and finds that — much like other states — handing out money to Hollywood doesn’t make it rain locally.

In terms of budgetary return, a 2013 report by the state Independent Fiscal Office, “Uncapping the Film Production Tax Credit: a Fiscal and Economic Analysis,” found the state got a return of 14 cents on the dollar for tax credits, from state taxes generated by the program.

This pitiable return rate remains completely unchanged from the conclusions drawn by the Tax Foundation in 2010. Pennsylvania’s film subsidies hand out dollar bills to film producers and then follow along behind them to catch any change that might fall out of their pockets. It’s easy to sell subsidies to legislators, who are often more interested in the reflected glory of Hollywood projects than in safeguarding the funds they’ve been entrusted with.

The report also debunks the notion that film subsidies are job creators, much less wealth generators.

Wages constitute more than 60 percent of production expenses receiving credit under the FPTC, and the economic effects of the FPTC depend heavily on the amount of credit-eligible earnings that leave the state. Nonresidents spend only a small share of their earnings in the state while working on a production, thus limiting the impact on the state economy… According to data analyzed by the IFO, approximately 70 percent of production-related wages were paid to nonresidents.

The bottom line, according to the IFO?

The net, fully phased-in fiscal impact for the additional credits authorized in FY 2013-14 is estimated to be -$46.5 million at the lower end… and -$93.1 million at the higher end of the range.

Of course, if Pennsylvania decides to limit or dump its subsidies, it will soon discover that all the money it spent in the past has purchased nothing in the way of loyalty.

As an example of the mobility and fickleness of the industry, consider the show “Banshee.” It filmed its first three seasons in North Carolina, but packed up after that state eliminated its tax credit program and replaced it with a much smaller grant program.

The show will now film in Pittsburgh, which has a built-in irony, given that the show’s setting has always been the fictional Banshee, Pennsylvania.

Given the deficit the state is facing, you’d think legislators would be more than happy to drop the subsidy, if only to prevent the leakage of another $50-90 million. But the glamour of show business — even if only admired from afar — is tough to resist. It’s easy to mistake the busy milling around of temp workers and nonresident stars for created jobs and positive economic impact. Throwing away 9/10ths of every dollar simply doesn’t make sense, especially in a state already severely overdrawn. But nothing involving both Hollywood and accounting ever adds up.

The math is so severely screwed up that the original home of the stars is upping its subsidy ante in hopes of luring Hollywood back to Hollywood.

Between 2004 and 2012, the California entertainment industry lost 16,137 film production jobs. During that same period the state of New York increased its entertainment employment by 25 percent. The Milken Institute attributes this shift in employment to the billions of dollars in robust incentives from competitive states like New York, New Mexico, Texas, and Louisiana.

If you can keep all of the money in one place, a state might turn a profit. But with productions scattered all over the US, California will just be another state throwing money at fickle, mostly uninterested productions. A short-term “bribe” never buys loyalty, especially not in the Land of 1,000 Backstabbings. The film industry is still very cutthroat and California’s decades-long slide into legislative absurdity has made movie-making within its heavily-taxed confines very unattractive. (And then there’s the labor stranglehold, but we’ll let that go. For now…) The solution? More taxes! But this time mostly from the little people!

The legislation will increase the annual allocation of state tax credits to $330 million per year, more than triple the current amount, starting with fiscal year 2015-16 and lasting for five years. […]The legislation also provides extra incentives — beyond the current 20% — for visual effects and music scoring, as well as to producers who shoot in parts of the state outside of the Los Angeles region.

The industry is — and has been for years at this point — pay-to-play. Unfortunately, it’s the states’ long-term residents who are paying the most, and reaping none of the benefits.

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Comments on “Despite Losing Money Year After Year, States Still Wondering How They Can Hand Out BIGGER Subsidies To Hollywood”

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Anonymous Coward says:

when are people going to wake up and realise that the entertainment industries are nothing except a bunch of liars! they take as much money as people can throw at it and ensure that everyone at the top of the managerial tree will get massive salaries with even more massive bonuses yet those who invested and lent money get absolutely fuck all! and not only does the government and the various security forces, like DoJ for example, do nothing about these scams, they actually lay in waiting for the next set of instructions to get the latest targeted person in court and locked up for as long as possible, all on the whim of some old fart from Hollywood who has never done a days work in his life but has enjoyed the highest lifestyle imaginable!!
how the hell can anyone give credence to the industries or to the various security departments that they control, given the way they treat ‘them to us’?? it’s disgraceful!!

Richard (profile) says:

Looks bigger than it is

Thuis is just another example of people going on gut instincts and not realising that certain things look bigger than they really are. As a rule anything that is prominent in the media is probably less important to the economy than you think it is. Thus:

Well known branded goods
Shrink wrap s/w

are all smaller than you think whereas

Energy (oil, utilities etc)
Clothing (outside major brands)
Food (outside major brands like Coca-cola, McDonalds etc)

Are all bigger

jupiterkansas (profile) says:

States need to build local film industries the way Austin did and design everything so Hollywood can’t take advantage of them (even though they will find a way somehow). It may take a few years to establish a homegrown film community but once it is, it will attract filmmakers and offer a unique voice that isn’t filtered by big studio thinking.

Unfortunately, state governments only do these subsidies to brag about getting movie stars to visit their states, and the local filmmakers support it because they all dream of working on big Hollywood movies.

Matte Object (profile) says:

Re: Re:

Yep, the only way to build a film industry is to finance local film makers to make their own movies in the state.

It’s not glamorous and it’s slow to create jobs, but the jobs created (and any profits gleaned from the movies) are genuine and stay resident in the state.

Curiously, states like NC reduced their spending cap AND increased the minimum spend to ensure that this kind of thing is impossible, it’s like they’re saying “we don’t like giving money to Hollywood, but we’re going to make damned sure we don’t create our own permanent film industry either”.

Devonavar (profile) says:

British Columbia

I’d love to know if you found any numbers about the film industry in B.C.

We *invented* the film credit back in the ’80s … I think we’ve done well on it.

I also think the requirement that all reimbursed labour is Canadian probably helps prevent the dollars from trickling away. We only have to compete with other provinces, not every state…

BC worker says:

Re: British Columbia

BC loses millions every year. The “resident” requirement is a joke, after 90 days you are considered a resident. Most of the crews are imported from America, and they send all their wages back to the states minus a tiny amount on gas and food. I’m American working in BC, and that’s what we all do on the crew. The BC taxpayers are paying 58% of my salary. Why do you think there’s a BC teachers pension strike and new taxes for transportation? Because nearly $500 million is subsidizing usa corporations every year. It’s a huge scam , but BC is happy because its “creating jobs” , please…

techdirtresponse (profile) says:

Re: British Columbia

I think we’ve done well on it.
No you haven’t. BC is shelling out over $400 million a year! (while closing schools and reducing public support programs)
Independent studies show countries have the same issues the states have when it comes to film subsidies.
Those “Canadian’ residents come from the US and other locations and it’s rather easy to ‘qualify’ for Canadian residence to get money.
Canada pays 58% of visual effects workers wages!
BC is committing also with Montreal and Ontario which upped their subsidies recently and caused some of the work to shift. Film subsidies require more money year after year in a race to the bottom.

Matte Object (profile) says:

Re: British Columbia

BC is giving Hollywood $330m this year (a jump of $70m over last year) in order to retain those jobs, particularly the ones in post production where Canadian taxpayers cover roughly 60% of salaries (not an exaggeration, post production is eligible for a further 20% credit on top of the base 25%, then add in the Canadian Federal one and you get to 58.4%).

If you’re covering more than half of someone’s salary by mailing a check to Hollywood, how can you possibly be even close to breaking even on those subsidies?

Even California doesn’t come close to breaking even on these subsidies and all the movie studios are based here.

Anonymous Coward says:

Who's making money?

> politicians like Greimel are still insisting the best way to make money is to spend money

The subtle point you’re probably missing: they don’t say who is ‘making money’, but since the government doesn’t neccessarily ‘make money’, I personally believe it should read like this:
“The best way for Holywood to make money is for everyone else to give it to them.”

Anonymous Coward says:

It’s funny that Michigan, a state that has lost so much of it’s industrial base to other states that lavished “move-in” subsidies on Michigan-based companies, is now doing essentially the same thing in another industry.

And as usual, the taxpayers are being fleeced in this zero-sum gain that benefits only the corporations that have considerable lobbying power.

Matte Object (profile) says:

Re: Its Simple

Lord of the Rings worked well for New Zealand, but that’s really the exception rather than the rule.

NZ spent a fortune subsidizing The Hobbit trilogy which barely feature any real locations at all and they’re spending even more subsidizing the upcoming Avatar movies which feature even less.

When Cleveland acts as a cheaper stand in for New York in Avengers, does it generate lots of tourism for Cleveland or New York? When Maryland stands in for DC in House of Cards, who gets the tourist dollars? Do people flock to the fake MD Capitol Building or do they go to the real one?

The idea that just because LOTR was a good investment as advertising for NZ means that all film subsidies are an equal investment is fundamentally flawed – of course, it doesn’t stop MPAA based studies from claiming that all tourism is film related which is about the only way they can show a net positive impact from giving billions to Hollywood.

Uriel-238 (profile) says:

Isn't that the way a corporate oligarchy works?

The commoners pay taxes which then get funneled by the bureaus to their noble [corporate] masters?

Only cleansing notion of subsidies removes the implied (sometimes expressed) obligation for the recipients to fulfill a social contract.

Convenient for the topside, though the little people have been getting leaner and hungrier for a while now.

Capt ICE Enforcer says:

The reason the numbers differ.

For those who are curious why the numbers are so different when numbers should not lie. Well, it’s actually a very simple reason. The states hire people like financial advisors who have gone to somewhat higher education in order to accomplish the job, while Hollywood hires Wizards who have magic and do cool stuff, and let me tell you. Wizards always trump financial advisors… ALWAYS!

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