In the era of soaring deficits and talk of imposing “austerity” on the public, one has to wonder if there are other expenditures in state budgets that could be eliminated to at least lessen the impact of cuts in wages and services. It turns out there are and one example is the film subsidies that many states including Pennsylvania hand out each year.
Missouri was the first state to explore film subsidies when it started offering $1 million in film incentives to production companies in 1999. Pennsylvania instituted similar incentives in 2004 and expanded them three years later under Gov. Ed Rendell. Under the program, filmmakers can apply 25 percent of production expenses in Pennsylvania to offset other state taxes, provided at least 60 percent of total production expenses occurred in the state.
When Gov. Tom Corbett gave his 2011-2012 budget address on March 8, he announced that he would keep the program. “The film tax credit, which we are retaining – and never thought to do otherwise – will attract jobs and pump money from outside the state into our economy.”
Corbett’s budget continues the tax credit in the amount of about $60 million. According to the governor, however, this is merely an investment that will have greater returns for the state by bringing the film business to Pennsylvania. He argues that the personnel hired and some of the taxes raised should create a net gain for the state.
It is the same argument made by the other 42 states engaged in subsidizing the film industry. Many take issue with this and consider it a fallacious claim.
The Center on Budget and Policy Priorities (CBPP) does research and analysis on fiscal policy and public programs that affect low- and moderate-income families and individuals. The CBPP recently reviewed some of the only independent and empirical studies done which found the film subsidies to be wasteful and ineffective. The report reviewed various claims that advocates often give.
Job creation for PA residents is one of the leading justifications for the tax credit program. The CBPP report found that while this is true, the hiring of Pennsylvanians is largely for menial tasks that are part-time and low-paying. The better paying jobs require skills that residents here tend not to possess. Talent from Hollywood and New York City is often brought in to fill these positions.
As a result, the portion of the payroll going to residents amounts to a relatively small amount. In a Massachusetts study, residents earned only 40 percent of the total payroll generated both directly and indirectly by the Commonwealth’s film tax subsidies. Temporary low-paying jobs are not exactly a foundation for economic growth, especially when $60 million in taxpayer money is being used to fund them.
Another oft given reason for having the subsidy is that it is a “win-win” situation for the industry and the state. The Motion Picture Association of America (MPAA) claims that governments generate enough tax revenue from film productions so that they can expand services even as they offer film producers generous subsidies.
The CPBB found otherwise though. Their report shows that Pennsylvania only recoups $0.24 for every dollar given as a subsidy. The state also loses approximately $13,000 in tax revenue for every job created.
The studies that the MPAA and others rely on were also reviewed by the CPBB. The group found that these were commissioned by either the MPAA or state film offices. These studies of course show that there is a net gain in tax revenue for the states and local governments. The CPBB found them severely flawed, however, having looked closely at their methods.
The CPBB reported that tactics such as double counting money spent in the state as well as making unexplained “adjustments” to key figures such as salaries and spending were used. The lack of transparency is telling. Many of these studies grossly overestimate tourism revenue brought in due to filming as well.
The continuation of this largess is indefensible. The truth is that this program wastes money that the state cannot afford to lose. As Nathan Benefield of the Harrisburg-based Commonwealth Foundation said, “A tax break for the film industry requires higher tax rates on everyone else, hindering job creation in other sections of the economy.”
That this film subsidy program is a waste of $60 million of the taxpayers’ money should be apparent to everyone in Harrisburg. If tax breaks are to be given out, they should be given to the hard working people of this state who are struggling through the current depression and not to film producers. Iowa, Kansas and others have dropped this program. Pennsylvania should join them.