States spend $25B to woo Hollywood
Lawmakers try to make subsidies for film, TV worth it
Michigan desperately wanted a Hollywood makeover. And for $500 million, studios were more than happy to help.
When the state started writing checks in 2008 from one of the nation’s most generous film incentive programs, productions flocked there, making box-office hits such as Clint Eastwood’s “Gran Torino,” Sam Raimi’s “Oz the Great and Powerful” and Zack Snyder’s “Batman v Superman: Dawn of Justice.”
Then Michigan did the math.
After a state economist determined “the film incentives represent lost revenue” and that their economic benefits were “negligible,” Michigan, which cut funding for police and schools while facing a severe budget deficit, eventually decided to end its incentives.
As the program gradually unwound, “The Avengers” moved to Cleveland, and “Iron Man 3” went to Wilmington, North Carolina. Even “Detroit” was filmed in Boston.
Now, almost a decade after the state stopped paying Hollywood, lawmakers think they can no longer afford not to.
“We’re not on an even playing field,” said Dayna Polehanki, a state senator and a sponsor of legislation to thrust Michigan back into fierce competition with dozens of states trying to woo studios. “We’re not even in the game.”
Supporters say a more tailored program will function better than the previous one, creating jobs and invigorating spending. But economists have doubted the value of subsidies for film and television, saying the offsets have plunged state governments into a race to the bottom where the biggest winner, by far, is Hollywood.
A survey by The New York Times found that states have distributed more than $25 billion to film incentive programs.
“You could find almost an unlimited number of better uses for the same dollars,” said Michael Thom, a tax expert at the University of Southern California whose work has been critical of incentives. “Who on Earth would say, ‘Keep giving the money to Hollywood; my kid’s school doesn’t need new books’?”
Even as officials have rethought public support of private industry, 38 states now allocate taxpayer dollars to film and TV production. Arizona, Indiana, Kentucky, Missouri and West Virginia have all introduced programs within the past two years. Like Michigan, Wisconsin has drawn up legislation that would bring back its program.
Many of those states hope to become the next Georgia, which has emerged as a dynamic film hub while spending at least $5 billion on its program. New York has handed out more than $7 billion to lure productions from California, which has dedicated more than $3 billion to try to retain them. And Louisiana, an early catalyst for this arms race, has poured in $3 billion.
But independent fiscal monitors for the states have found meager returns on investment. A recent report done for state auditors in Georgia estimated that the tax revenue returned on each dollar spent on incentives was 19 cents. A similar report from New York determined the return was 15 cents to 31 cents.
“The film production credit is at best a break-even proposition and more likely a net cost” to the state, the New York State Department of Taxation and Finance concluded.
Industry advocates say the investments are worth it.
Tax dollars can successfully attract projects, and government funding spurs other economic activity. Productions pay catering businesses to feed workers, hoteliers to house their crews and dry cleaners to do the laundry — all of which creates a ripple effect.
Outside experts say that the effects of such spending are overstated and that the initiatives are incredibly costly for state governments. But their academic papers are competing against the promises of lobbyists and the allure of Hollywood stars and exclusive parties.
After Michigan began subsidizing the film industry, some localities tried to capitalize.
The struggling Detroit suburb of Allen Park sold $31 million in bonds to turn a site that had once been occupied by an auto parts manufacturer into a movie studio that it hoped would employ thousands. When the project fell apart in 2010, the city was saddled with debt, and it wound up cutting the pay of its police officers and firefighters.
“The city got taken advantage of,” said Sgt. Grant Peace, a firefighter who took a 10% pay cut.
Independent studies have found that even when movies are made, the incentive programs have mixed to insignificant impact on job creation and economic development. Researchers say each job created by the programs can cost taxpayers more than $100,000.
The film industry argues that evaluating incentives based on a simple analysis of tax dollars coming in versus tax dollars going out fails to capture the extent of their reach. Economic development programs are not intended to raise government revenue and are seldom expected to pay for themselves.
The reports commissioned by the industry, state film offices and other economic development agencies find wide-ranging benefits on the order of $6 or $7 of “economic value” for every $1 invested into a film incentive program. Even the skeptical auditors’ report on Georgia’s program, which found it to be a revenue loser for the state, acknowledged that the program also “induces substantial economic activity.”
The competition among states intensified after Louisiana turbocharged its incentive program in 2002, when concerns were brewing about runaway production to Canada. Michigan joined the fray in 2008, attracting filmmakers with a tax credit of at least 40% of production costs.
Under that program, studios often wound up with cash from the state that they could use however and wherever they wanted. Backers of the new proposal in Michigan insist it will close loopholes and, by using an incentive called transferable tax credits, keep more taxpayer dollars at home.
Movie studios that parachute into a state to film often leave with little corporate income tax liability, meaning that a credit for state taxes does them little good. That is why several states, including Georgia, offer transferable tax credits. When studios sell these vouchers to state taxpayers, often at a discount, studios cash out while buyers receive modest tax relief. The result is that a state doesn’t collect vast sums of tax revenue it was owed.
In Illinois, public records show, Dick Wolf ’s “Chicago” franchises have earned nearly $260 million in tax credits in the past six years, with much of those being sold to Comcast.