Sunday, November 21, 2010

Hollywood Handouts Revisited

It's time to revisit one of my biggest corporate welfare pet peeves: the bribes that a significant number of states pay to movie and television production companies that shoot in those states.

A few conservative think tanks have taken aim at these "incentives," including Michigan's Mackinac Center, but the critiques might get more traction with the "mainstream media" coming from a left-leaning think tank like the Center on Budget and Policy Priorities, which just published a damning analysis of the effectiveness (or ineffectiveness, in this case) of Hollywood welfare programs.

Here are the key findings:

State film subsidies are costly to states and generous to movie producers. Today, 43 states offer them, compared to only a handful in 2002. Over the course of state fiscal year 2010 (FY2010), states committed about $1.5 billion to subsidizing film and TV production — money that they otherwise could have spent on public services like education, health care, public safety, and infrastructure. The median state gives producers a subsidy worth 25 cents for every dollar of subsidized production expense. The most lucrative tax subsidies are Alaska’s and Michigan’s, 44 cents and 42 cents on the dollar, respectively. Moreover, special rules allow film companies to claim a very large credit even if they lose money— as many do.

Subsidies reward companies for production that they might have done anyway. Some makers of movie and TV shows have close, long-standing relationships with particular states. Had those states not introduced or expanded film subsidies, most such producers would have continued to work in the state anyway. But there is no practical way for a state to limit subsidies only to productions that otherwise would not have happened.

The best jobs go to non-residents. The work force at most sites outside of Los Angeles and New York City lacks the specialized skills producers need to shoot a film. Consequently, producers import scarce, highly paid talent from other states. Jobs for in-state residents tend to be spotty, part-time, and relatively low-paying work — hair dressing, security, carpentry, sanitation, moving, storage, and catering — that is unlikely to build the foundations of strong economic development in the long term.

Subsidies don’t pay for themselves. The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact.

No state can “win” the film subsidy war. Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies. Consequently, the competition from other states is fierce, which suggests that states might better spend their money in other ways.

Supporters of subsidies rely on flawed studies. The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity. The most careful, objective studies find just the opposite.

Such findings aren't sitting well with many in Hollywood, according to the Los Angeles Times, who until now could dismiss them as the nit-picking of fiscally-conservative fussbudgets. Now they simply dismiss the conclusions as "slipshod" and "politically-motivated," although most Tinseltown liberals would be hard pressed to explain how CBPP's politics differ from their own.

The truth always hurts -- but no more so than when it comes from natural allies.

Colorado legislators flirted in recent years with embracing such incentives, lead, in at least one case, by a fiscally-conservative Republican, but ultimately demurred. We ought to be glad this idea ended-up on the cutting room floor.

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