If there's anything worse than jumping on a bandwagon, it's jumping on a bandwagon after everyone else and their cousins are aboard and it's broken down in a ditch with two flat tires and a shattered axle.
Handing-out tax "incentives" (read bribes) to filmmakers was quite the fad a few years back. A bunch of states, all dreaming of becoming "another Hollywood," jumped aboard the bandwagon, each trying to outdo the other in throwing taxpayer money at television and movie producers. And this seemed to "work" well enough for some of the star-struck states, at least from the filmmaker's vantage point, since most people are more than happy to take money that's thrown their way.
But regular readers of this blog know that Hollywood handouts have been a losing long-term proposition for most states, generating little lasting return on investment and only a short-term economic bump, while lending themselves to abuse and fraud. Most "studies" commissioned by handout backers show benefits; but more objective research indicates that the primary beneficiaries are those getting the subsidies, not those giving them. Why Colorado would want to jump aboard this broken-down old bandwagon is a mystery, at a time when many states that pioneered this new kind of corporate welfare are having second thoughts and backing away. And why two Colorado Republicans would be pushing this is even more baffling, if they're hoping to rehabilitate the party's reputation for fiscal responsibility.
Proponents of the idea want to slap a tax on movie tickets to fund the subsidies, which seems self-defeating, given that higher ticket prices are likely to result in lower attendance and reduced profits for some of the same filmmakers these "incentives" are supposed to help. Filmmakers may shrewdly prefer to get some cash up-front, given the box-office bombs so many of them bring to the big screen, but forcing all movie fans to bankroll the select few production companies that would get the subsidies is unfair and counterproductive.
Even The Denver Post recognized this as a dumb idea. Let's hope a majority of legislators will too.
Showing posts with label tax incentives. Show all posts
Showing posts with label tax incentives. Show all posts
Tuesday, February 15, 2011
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.
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.
Monday, January 19, 2009
Lights. Cameras. Subsidies?
Everyone else feels entitled to a government handout; why not Hollywood?
The movie and television industry last week began lobbying Colorado legislators to subsidize filming in the state, reports The Rocky Mountain News, arguing that other states are going it and our failure to follow suit will cost us economic development dollars. But this is one idea I hope Colorado leaves on the cutting room floor.
I object to this in principle, but there are practical questions, too, about whether giving handouts to Hollywood really pays dividends. I’ve seen nothing indicating that show biz is suffering recession-related hardship. And even if it is, it ranks low on the list of American industries one might classify as “too big to fail.”
The jury is still out on whether this form of corporate welfare delivers the economic benefits that backers promise. In New Mexico, which began subsidizing the film industry in 2003, two recent reports paint starkly different pictures of the situation. One study, commissioned by the office of Gov. Bill Richardson, a film subsidy supporter, found that the strategy is paying off, bringing in an estimated $1.50 for every dollar doled out. But that’s contradicted by another analysis, done for the Legislative Finance Committee by The University of New Mexico, which found that the state gets about 14.4 cents in tax revenue for every dollar it spends on these efforts.
The study commissioned by the governor’s office might be slightly more suspect, given the political and economic capital Richardson has invested in the issue. But even that report concedes that the direct economic benefits don’t make up for foregone tax revenues, dollar for dollar. It manages to find a net benefit by estimating the present and future impact of "film tourism.”Does anyone really choose New Mexico as a vacation destination because some scene in an Indiana Jones movie was shot there? Could be. But this seems a slender thread on which to hang a program that has handed out an estimated $67 million in tax breaks since 2003 -- in a state that’s facing a $450 million budget shortfall. And does Spielberg really need the handouts? I think not.
While Hollywood welfare still has many boosters, the fiscal squeeze is prompting second thoughts in many states, according to a recent piece in The New York Times. A cost-benefit analysis of one film shot in Wisconsin (another state that offers subsidizes) found that it was a virtual wash, according to The Chicago Tribune, stirring debate about whether the program should continue. Florida slashed its subsidies, which has the industry working furiously to restore them. And in Michigan, where the economy is in the dumper and existing businesses are being pummeled by higher business taxes, some legislators want to cap the subsidies, while economically-desperate cities like Detroit and Bay City pin false hopes on becoming the next Tinseltown.
I’m not saying Detroit isn’t a suitable location for shooting movies – especially if they ever get around to making Omega Man II. But how many post-Apocalyptic backdrops does Hollywood need? Telling shell-shocked Detroiters that they’re on the brink of becoming another Hollywood borders on cruelty, given all the other empty promises they’ve endured. The Mackinac Center for Public Policy, a conservative Michigan think tank, has been asking hard questions about where the money is going -- here and here – but has had a hard time getting straight answers or reliable data from the state’s film promotion office.
How much gaming of the subsidies is going on is anyone’s guess, but it's almost certainly occurring. Manipulation of Louisiana's film-fare program already has led to one case of criminal corruption, in which New Orleans lawyer and film promoter Malcolm Petal pleaded guilty to federal corruption charges for bribing the state's top film official. “To get artificially inflated tax incentives on a festival film project, Petal paid $135,000 to Hammond attorney William Bradley, who acted as an intermediary to pass half that amount to the state's former movie-business recruiter Mark Smith,” according to the New Orleans Times-Picayune.
That's probably just a preview of coming attractions -- and potentially costly future distractions -- if Colorado legislators head down this road. Backers of film-fare promise an economic blockbuster, but, like virtually everything else that comes out of Hollywood, it's mostly fantasy and hype.
The movie and television industry last week began lobbying Colorado legislators to subsidize filming in the state, reports The Rocky Mountain News, arguing that other states are going it and our failure to follow suit will cost us economic development dollars. But this is one idea I hope Colorado leaves on the cutting room floor.
I object to this in principle, but there are practical questions, too, about whether giving handouts to Hollywood really pays dividends. I’ve seen nothing indicating that show biz is suffering recession-related hardship. And even if it is, it ranks low on the list of American industries one might classify as “too big to fail.”
The jury is still out on whether this form of corporate welfare delivers the economic benefits that backers promise. In New Mexico, which began subsidizing the film industry in 2003, two recent reports paint starkly different pictures of the situation. One study, commissioned by the office of Gov. Bill Richardson, a film subsidy supporter, found that the strategy is paying off, bringing in an estimated $1.50 for every dollar doled out. But that’s contradicted by another analysis, done for the Legislative Finance Committee by The University of New Mexico, which found that the state gets about 14.4 cents in tax revenue for every dollar it spends on these efforts.
The study commissioned by the governor’s office might be slightly more suspect, given the political and economic capital Richardson has invested in the issue. But even that report concedes that the direct economic benefits don’t make up for foregone tax revenues, dollar for dollar. It manages to find a net benefit by estimating the present and future impact of "film tourism.”Does anyone really choose New Mexico as a vacation destination because some scene in an Indiana Jones movie was shot there? Could be. But this seems a slender thread on which to hang a program that has handed out an estimated $67 million in tax breaks since 2003 -- in a state that’s facing a $450 million budget shortfall. And does Spielberg really need the handouts? I think not.
While Hollywood welfare still has many boosters, the fiscal squeeze is prompting second thoughts in many states, according to a recent piece in The New York Times. A cost-benefit analysis of one film shot in Wisconsin (another state that offers subsidizes) found that it was a virtual wash, according to The Chicago Tribune, stirring debate about whether the program should continue. Florida slashed its subsidies, which has the industry working furiously to restore them. And in Michigan, where the economy is in the dumper and existing businesses are being pummeled by higher business taxes, some legislators want to cap the subsidies, while economically-desperate cities like Detroit and Bay City pin false hopes on becoming the next Tinseltown.
I’m not saying Detroit isn’t a suitable location for shooting movies – especially if they ever get around to making Omega Man II. But how many post-Apocalyptic backdrops does Hollywood need? Telling shell-shocked Detroiters that they’re on the brink of becoming another Hollywood borders on cruelty, given all the other empty promises they’ve endured. The Mackinac Center for Public Policy, a conservative Michigan think tank, has been asking hard questions about where the money is going -- here and here – but has had a hard time getting straight answers or reliable data from the state’s film promotion office.
How much gaming of the subsidies is going on is anyone’s guess, but it's almost certainly occurring. Manipulation of Louisiana's film-fare program already has led to one case of criminal corruption, in which New Orleans lawyer and film promoter Malcolm Petal pleaded guilty to federal corruption charges for bribing the state's top film official. “To get artificially inflated tax incentives on a festival film project, Petal paid $135,000 to Hammond attorney William Bradley, who acted as an intermediary to pass half that amount to the state's former movie-business recruiter Mark Smith,” according to the New Orleans Times-Picayune.
That's probably just a preview of coming attractions -- and potentially costly future distractions -- if Colorado legislators head down this road. Backers of film-fare promise an economic blockbuster, but, like virtually everything else that comes out of Hollywood, it's mostly fantasy and hype.
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