Md. film in­cen­tives go to ben­e­fit out-of-staters

Baltimore Sun - - COMMENTARY - By Ja­cob Bun­drick and Ra­jshree Agar­wal Ja­cob Bun­drick ( jbun­drick@uca.edu) is a pol­icy an­a­lyst with the Arkansas Cen­ter for Re­search in Eco­nom­ics at the Univer­sity of Cen­tral Arkansas and the au­thor of a new re­port: Tax Breaks and Sub­si­dies: Chal­leng­ing t

Film­mak­ers love the drama of a prisoner’s dilemma. You’ve seen the plot de­vice in dozens of movies: Two sus­pects in sep­a­rate in­ter­ro­ga­tion rooms si­mul­ta­ne­ously de­cid­ing whether to con­fess a crime.

Game theory teaches that both sus­pects would be bet­ter off stay­ing quiet, but one per­son ul­ti­mately cracks. Some­thing sim­i­lar hap­pens when film in­dus­try lob­by­ists come call­ing at the state level for tax cred­its and cash re­bates.

States win the game only if they refuse to play, but Maryland has cracked over and over again to the tune of mil­lions of dol­lars to woo pro­duc­tions like “House of Cards.” Pro­duc­ers then laugh their way to the bank, while states race to the bot­tom, out­bid­ding each other in lose-lose sce­nar­ios. As a re­sult, an en­tire cot­tage in­dus­try has emerged with web­sites show­cas­ing the fla­vor of the month — the state with the lat­est con­ces­sion or fire sale.

Maryland is one of 37 states in the mix, pro­vid­ing a re­fund­able in­come-tax credit for qual­i­fied costs of film and tele­vi­sion pro­duc­tions. Ac­cord­ing to a Septem­ber 2015 re­port from the state’s Depart­ment of Leg­isla­tive Ser­vices, Maryland has is­sued $62.5 mil­lion in tax cred­its over the past five years.

But rather than func­tion­ing as a spe­cial en­tice­ment, these pub­lic funds get in­cor­po­rated into the busi­ness model for a pri­vate in­dus­try. “What are the in­cen­tives?” is what ev­ery pro­ducer wants to know first when choos­ing a lo­ca­tion, ac­cord­ing to Maryland’s Film Of­fice di­rec­tor.

Pro­po­nents of the in­cen­tives ar­gue that is­su­ing re­bates and tax breaks to film com­pa­nies boosts the econ­omy be­cause pro­duc­tion crews must stay in lo­cal ho­tels and eat in lo­cal restau­rants. Ad­vo­cates also ar­gue that upticks in film pro­duc­tions lead to in­creases in tourism be­cause movie and tele­vi­sion buffs will travel to see where films and se­ries are made.

Un­for­tu­nately, crack­ing un­der the pres­sure has con­se­quences in a prisoner’s dilemma. Spend­ing tax dol­lars on pro­duc­tions or telling Hol­ly­wood com­pa­nies they don’t have to pay taxes means that Maryland has less rev­enue for more press­ing needs like roads and schools. By spend­ing pub­lic money on film in­cen­tives, states are sac­ri­fic­ing other, po­ten­tially more pro­duc­tive uses of tax­payer dol­lars.

Con­sider the cost of film in­cen­tives to Maryland. The state re­couped just 6 cents in state rev­enue for ev­ery dol­lar it is­sued in tax cred­its over the past five years, or a loss of 94 per­cent.

Re­sults have been sim­i­lar in Massachusetts, where the state re­couped just 13 cents in state rev­enue for ev­ery dol­lar it is­sued in film tax cred­its from 2006 through 2012. And in Louisiana, film pro­duc­tion in­cen­tives had a neg­a­tive im­pact of $168.2 mil­lion on the state bud­get in 2012 alone. These losses mean that film in­cen­tives are “in­vest­ments” that do not even pay for them­selves.

Ev­i­dence also shows that the pri­mary ben­e­fi­cia­ries of film in­cen­tives are out-of­s­tate com­pa­nies and in­di­vid­u­als. In writ­ten tes­ti­mony to the fi­nance com­mit­tee of the Alaska House of Rep­re­sen­ta­tives, Joseph Hench­man of the Tax Foun­da­tion tes­ti­fied that “while some ben­e­fits ac­crue to in-state film­mak­ers and sup­pli­ers, on the whole [film tax cred­its] are a net trans­fer from tax­pay­ers to out-of-state pro­duc­tion com­pany ben­e­fi­cia­ries.”

More­over, the jobs cre­ated by film pro­duc­tion are tem­po­rary. Cater­ing com­pa­nies, ex­tras, lo­cal prop builders and so forth are em­ployed only as long as pro­duc­tion lasts. A film pro­duced in Bal­ti­more’s In­ner Har­bor might pro­vide lo­cal jobs for a while, but when pro­duc­tion ends, so do the jobs.

Sev­eral states, in­clud­ing Michigan, New Jersey and Alaska, have re­cently put an end to their film in­cen­tive pro­grams. Other states, like Louisiana, have placed a cap on the hand­outs they are will­ing to give pro­duc­tion com­pa­nies.

Maryland would be wise to fol­low suit. The prisoner hand­cuffed to a chair, sit­ting at a metal ta­ble be­hind a one-way mir­ror, might be tempted to talk. But the best strat­egy for all states is to opt out.

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