When will states get smart and stop sub­si­diz­ing movies?

In 40 states, in­cen­tives have pro­duced a small uptick in jobs but al­most no im­pact on wages and gross state prod­uct.

Los Angeles Times - - OP-ED - Steven Malanga is se­nior ed­i­tor of the Man­hat­tan In­sti­tute’s City Jour­nal, from which this es­say was ex­cerpted. By Steven Malanga

In 2010, ac­tor Ted Dan­son, film­ing “The Big Mir­a­cle” in Alaska, set off a lo­cal ruckus when he urged fed­eral reg­u­la­tors to block oil drilling off the state’s shores. The source of the con­tro­versy wasn’t so much that a Hol­ly­wood star was pon­tif­i­cat­ing about a pub­lic is­sue; it was that the pic­ture was re­ceiv­ing nearly $10 mil­lion in state tax in­cen­tives, and many Alaskans found Dan­son’s in­grat­i­tude shock­ing. Soon af­ter, Alaska law­mak­ers re­ex­am­ined the state’s sub­si­dies for film and TV pro­duc­tions. Leg­is­la­tors first nar­rowed the pro­gram, and then, in 2015, as ev­i­dence mounted that the in­cen­tives didn’t pay off eco­nom­i­cally, they killed it.

Alaska is hardly alone in get­ting mixed up in the TV and movie biz. Start­ing in the early 2000s, states rushed to grab a piece of what they saw as a lu­cra­tive in­dus­try. By 2010, all but six were of­fer­ing pro­duc­ers spe­cial deals. But a back­lash has en­sued, with seven states ter­mi­nat­ing the deals and a hand­ful of oth­ers rein­ing them in. In a sen­si­ble world, it would only be a mat­ter of time be­fore all lo­cal gov­ern­ments deep­sixed their film ini­tia­tives.

The rise of cel­lu­loid sub­si­dies re­sulted from a sharp in­crease in the 1990s of so-called run­away pro­duc­tions — movies and TV shows filmed in for­eign coun­tries for cost sav­ings. The num­ber of U.S.-con­ceived movies and TV se­ries shoot­ing abroad rose to 285 in 1998, up from 100 in 1990, ac­cord­ing to a study by the con­sult­ing firm Mon­i­tor Co. More than eight in 10 of those pro­duc­tions were in Canada, where a roughly 20% de­cline in the Cana­dian dol­lar, plus tax re­bates that the gov­ern­ment of­fered to Amer­i­can pro­duc­ers, slashed the cost of film­ing by about one-fifth com­pared with a sim­i­lar pro­duc­tion in the United States.

Af­ter the Mon­i­tor re­port, states took ac­tion. A few had launched mod­est in­cen­tive pro­grams in the 1990s, but Louisiana changed the game in 2002 when it vastly ex­panded its ef­fort, of­fer­ing pro­duc­ers an ex­emp­tion on sales taxes and an in­vest­ment-tax re­bate. Hol­ly­wood started shift­ing pro­duc­tions to the Bayou State, lead­ing oth­ers to fol­low Louisiana’s lead. States were giv­ing away about $1.5 bil­lion to Hol­ly­wood an­nu­ally by 2010, up from less than $100 mil­lion in 2002.

Tax deals have be­come so per­va­sive that projects rang­ing from mas­sive sum­mer block­busters to the cheesi­est TV re­al­ity shows get them. In 2015, all eight Os­carnom­i­nated films, in­clud­ing the ul­ti­mate win­ner, “Bird­man,” re­ceived state tax breaks. Some­times the money goes to movies that would al­most cer­tainly be made in a state any­way. A 2014 best-pic­ture nom­i­nee, “The Wolf of Wall Street,” is a tale of New York’s fi­nance world, made by a di­rec­tor, Mar­tin Scors­ese, long based in New York; nonethe­less, the pro­duc­tion won $30 mil­lion in in­cen­tives to film in ... New York!

One rea­son the in­cen­tives have spread so quickly is that they’re easy to get. States have long of­fered sub­si­dies for in­dus­tries like man­u­fac­tur­ing, but typ­i­cally th­ese are long-term ar­range­ments that in­volve firms build­ing or ren­o­vat­ing phys­i­cal plants — bind­ing em­ploy­ers to a site for years. By con­trast, most cel­lu­loid in­cen­tives go to pro­duc­tions that shoot on lo­ca­tion, which rarely re­quires in­vest­ing long-term in in­fra­struc­ture and gen­er­ally pro­duces only tem­po­rary em­ploy­ment. Be­ing so mo­bile lets Hol­ly­wood ex­ec­u­tives shop for the best deal avail­able on one film or sea­son of a TV se­ries and then go some­where else if there’s an even bet­ter deal.

This mo­bil­ity makes it pos­si­ble for pro­duc­ers to hold a state hostage, eco­nom­i­cally speak­ing. The pro­duc­ers of the hit Net­flix se­ries “House of Cards” filmed the show’s first two sea­sons in Mary­land, and then post­poned pro­duc­tion for Sea­son 3, which was set to be­gin in early 2014, in­form­ing the state that they would move else­where if the sub­si­dies weren’t im­proved. The leg­is­la­ture caved.

Even sig­na­ture pro­duc­tions have fled their home­towns when in­duce­ments dried up. Af­ter fi­nanc­ing for Florida’s pro­duc­tion tax-credit pro­gram ran out, the mak­ers of “Ballers” (an HBO se­ries about an ex-Mi­ami Dol­phin player-turned-agent that was filmed in that city) shifted pro­duc­tion to Los An­ge­les. In­cen­tives have turned skilled work­ers into no­mads, strug­gling to fol­low the cel­lu­loid mi­gra­tion.

The ephemer­al­ity of th­ese jobs helps ex­plain why the film in­dus­try pro­duces so lit­tle lo­cal eco­nomic im­pact. Fol­low­ing the state tax-rev­enue slump that the 2008 fis­cal cri­sis caused, sev­eral states launched stud­ies of the film in­dus­try’s eco­nomic ef­fects to see if the bud­get hit was worth it — and the re­sults were dis­heart­en­ing. A Mas­sachusetts De­part­ment of Rev­enue 2013 re­port es­ti­mated that the state spent $128,575 in in­cen­tives for ev­ery film job that went to a Mas­sachusetts res­i­dent, and $68,000 per po­si­tion when jobs taken by res­i­dents of other states were in­cluded.

Much of the pro­duc­tion money leaves the state. A Michi­gan anal­y­sis of film sub­si­dies es­ti­mated that nearly half the money that pro­duc­tions in the state ex­pended went else­where al­most im­me­di­ately; pro­duc­ers, it turned out, hired ex­pe­ri­enced out-of­s­tate firms that moved work­ers into Michi­gan for the film­ing and then quickly left. In 2009, Michi­gan spent $37.5 mil­lion in tax cred- its to cre­ate the equiv­a­lent of just 216 full-time film-pro­duc­tion jobs.

A broad eval­u­a­tion of film-in­cen­tive plans in 40 states by USC re­searcher Michael Thom found that they pro­duced a small uptick in jobs but had vir­tu­ally no im­pact on wages and gross state prod­uct.

Not­with­stand­ing th­ese num­bers, ad­vo­cates keep push­ing for in­cen­tives, ar­gu­ing that a lo­cal film in­dus­try glam­or­izes a lo­ca­tion and thus at­tracts tourists and ed­u­cated work­ers look­ing to live in stim­u­lat­ing en­vi­ron­ments.

Not only are th­ese neb­u­lous claims dif­fi­cult to jus­tify, but given modern view­ing tastes, lo­cal film­ing is just as likely to re­sult in ridicule of a place and its res­i­dents as it is to glo­rify them. Just ask New Jer­sey res­i­dents what they thought of the re­al­ity se­ries “Jer­sey Shore.”

And in some places, the neg­a­tives have amounted to more than bruised egos and dis­ap­point­ing job gains.

When Michi­gan en­acted a rich film-in­cen­tives pro­gram dur­ing the na­tion’s 2008 eco­nomic slow­down, in­vestors formed Mo­town Mo­tion Pic­tures, an ef­fort to cre­ate a Hol­ly­wood-style stu­dio in down-and-out Pon­tiac. On the site of a for­mer Gen­eral Mo­tors plant, the in­vestors par­layed fed­eral tax cred­its, state in­cen­tives, and money bor­rowed through mu­nic­i­pal bonds — backed by Michi­gan’s pub­lic-em­ployee pen­sion funds — to de­velop an $80 mil­lion fa­cil­ity, which would, it was hoped, em­ploy up to 3,600 peo­ple.

But the ini­tia­tive at­tracted just one ma­jor pro­duc­tion — Dis­ney’s “Oz,” which wound up em­ploy­ing a few hun­dred peo­ple, many from out of state. Mean­time, as the pay­off from the film cred­its failed to gen­er­ate the eco­nomic ac­tiv­ity that boost­ers promised, in­vestors be­gan mak­ing only par­tial pay­ments on their bor­rowed money, stick­ing the pen­sion fund with the bill for the rest. Af­ter the state stopped the in­cen­tives in 2015, it had to al­lo­cate $19 mil­lion just to pay off bad debt from the stu­dio.

Still, some states per­sist in try­ing to lure hand­out-seek­ing Hol­ly­wood pro­duc­ers. Last sum­mer, Ohio dou­bled to $40 mil­lion an­nu­ally the film tax cred­its it of­fers. Penn­syl­va­nia, which had be­gun shrink­ing its sub­si­dies, re­versed course last year to add more.

All th­ese ef­forts face a mas­sive coun­ter­at­tack from the two gi­ants of the in­dus­try. Three years ago, Cal­i­for­nia in­creased its tax cred­its from $100 mil­lion an­nu­ally to $330 mil­lion. New York, long the No. 2 spot for film and TV pro­duc­tion, has gone fur­ther, dish­ing out $420 mil­lion a year.

Both Cal­i­for­nia and New York are, then, now pay­ing heav­ily to keep a busi­ness they once dom­i­nated with­out in­cen­tives. In­deed, one econ­o­mist de­clared that states are in “per­pet­ual com­pet­i­tive pur­ga­tory” for the film busi­ness — able to hold onto pro­duc­tions only as long as they pony up tax­payer dol­lars for them. The only way out of pur­ga­tory is all to­gether, all at once.

Wes Bau­smith Los An­ge­les Times

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