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Economists challenge state, local film incentives

TAMPA — State and local governments around the nation are racing to outdo each other in handing out cash to lure movie and TV productions that are touted as major job creators.

Backers point to studies by the motion picture industry that report a 5-1 return in increased tax revenues for every dollar spent on these subsidies.

But some economists are challenging these claims and suggest that the billions of dollars states spend each year on incentives would provide more of an economic boost if they’re spent instead on education, infrastructure and tax breaks.

“That’s something else in government that didn’t get funded or that’s a tax cut we couldn’t give somebody else,” said Greg Albrecht, chief economist at the Louisiana Legislative Fiscal Office.

“That $200 million (a year in Louisiana incentives) would have been spent somewhere else producing income and jobs, or could have been a tax cut to someone providing jobs.”

Louisiana was the first state to offer what are known as movie production incentives in 1992 and now puts $200 million a year toward them. Today, 44 states, including Florida, offer some type of incentives to lure movie, television or other video production.

Florida, like Louisiana, offers tax credits to movie companies, which can sell the credits to brokers or in-state companies for cash. The credits are given to defray a percentage of production costs spent in-state.

The Florida Legislature appropriated $296 million for these credits in 2010. The money has been spent or committed.

Two bills that would revive the tax credits are pending in the Florida Legislature, one providing $200 million a year for the next five years and the other $50 million.

Hillsborough County commissioners also jumped on the film incentive bandwagon last year, appropriating $500,000 to reinvigorate a moribund local film office and to hire a film commissioner. This year, commissioners OK’d another $250,000 in hopes of luring production of “The Infiltrator,” based on a true-life story set in Tampa.

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Commissioner Ken Hagan, the board’s leading proponent for establishing a film industry here, said there is room for debate about the actual cash return from movie and TV incentives.

But those calculations don’t factor in the exposure a major motion picture can shed on a community, he said.

“I guess the reason why states offer such significant financial incentives to attract film and digital media … and the reason why dozens of cities across the country bid on Super Bowls and political conventions, is that you also have the significant exposure and increase in tourism as a result of these events,” Hagan said.

Hagan cited a study by the Motion Picture Association of America that found each dollar the state spends on tax credits for film companies yields from $5.60 to $20.50 in state revenues.

These figures are disputed in studies by Louisiana’s Albrecht and Frank Hefner, director of the Office of Economic Analysis at the College of Charleston.

Hefner, in a 2008 study for the South Carolina government, concluded that every dollar paid out in tax credits to motion picture companies yielded just 19 cents in taxes returned to South Carolina taxpayers.

Hefner’s work largely confirmed Albrecht’s 2005 study for the Louisiana Legislature that showed a return of 16 to 18 cents.

Albrecht dismissed the Motion Picture Association’s finding as a “typical advocacy position” disproved by his office in a number of studies.

“Does the public fiscal (position) benefit?” Albrecht asked. “Does it receive more tax receipts back, either directly or indirectly, than what we’re paying out? The answer is definitely no.”

Louisiana does benefit from thousands of jobs created by the film industry, Albrecht said. The state is unique because its program has been in place so long it has become a hothouse, producing workers and physical infrastructure to serve the many movies produced in the state.

An example is Hollywood Trucks, a company that sprang up in the Bayou State in 2007 to service the film and digital media industry. Several sound stages and studios have been built as well.

The cost to state taxpayers to grow the industry infrastructure has been huge: Nearly $1 billion in movie incentives in the last five years, Albrecht said.

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South Carolina has also developed an in-state movie production workforce, Hefner said, such as lighting crews who mostly live in the state.

“The question is: Is it worth it?” Hefner said. “For the person doing the job, it’s very important to them. But in terms of economic development policy, is the money better spent elsewhere? Does it work? I think the answer is no.”

That’s the same argument made in a 2010 report by the Tax Foundation, a non-partisan research think tank based in Washington, D.C.

According to the report, the film industry has an economic impact multiplier of 1.92, which means every dollar spent on incentives yields $1.92 in additional economic benefit.

That’s low compared to the multiplier effect for other industries, such as automotive manufacturing, 2.25, or a nuclear power plant, 2.51, the foundation study found.

Instead of targeting some industries for success with cash subsidies, the foundation suggested states should reduce tax rates on industries across the board and get rid of burdensome regulations.

The foundation also questioned the degree to which movie-making generates tourism for the state that hosts the production. Proof of the disconnect, critics say, are all the movies produced in locations far removed from the story’s setting.

“There is no reason or evidence that this correlation is very powerful,” the foundation report said.

Hefner agreed that the tourism correlation is exaggerated, though sometimes it works, as with “Midnight in the Garden of Good and Evil,” shot in Charleston. Other movies filmed in South Carolina, such as “The Prince of Tides,” don’t have the same effect.

“Nobody goes to the beach just because the guy was suicidal there,” Hefner said.

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Another common criticism of film incentives is that movie companies often bring their skilled workers with them from out of state when they go on location. That dilutes the multiplier effect commonly used by economists to measure the positive impact of an industry.

“The problem with the film industry is, you have to wonder if you’re subsidizing a percentage of the salary of the people in the film,” said Hefner, the Charleston economist. “You realize most of them are not state residents. How do you get an impact that way?”

Dale Gordon, Hillsborough County’s film commissioner, agrees that movie crews bring most of their higher-skilled, higher-paid employees with them, but she puts that figure at 20 percent of a film crew.

Gordon said it behooves movie companies to hire locals because Florida’s incentive system only gives tax credits for 20 percent of their in-state expenditures, capped at $8 million per project.

Companies can earn bonuses up to 10 percent for showing family friendly movies, shooting during hurricane season to offset higher insurance costs, and locating in “under utilized regions,” which means the whole state outside the Miami and Orlando areas.

The budget for “The Infiltrator,” the story set in Tampa, is $47 million. Of that, $19.1 million is budgeted for in-state expenses that are eligible for tax credits.

“The Infiltrator” will have a crew of about 175 people, Gordon said, but only 20 to 25 will be so-called “above the line” employees who make the highest salaries, including the director and star actors.

The rest of the film’s employees will be hired locally, she said.

“Our state tax program is considered the most fiscally responsible program in the country,” Gordon said. “We have qualifiers that have to be met. No expenditure is considered unless they’re in the state of Florida.”

Hagan, the Hillsborough commissioner, said he thinks the truth about the economic benefits of movie incentives lies somewhere in the middle between supporters’ and critics’ arguments. But he insists there is no denying the “wow factor” of a Robert Downey Jr. or Jennifer Aniston coming to Tampa to make a movie.

“Anytime you have an opportunity to showcase your community, I think you need to take full advantage of it,” Hagan said. “Whether it’s the Super Bowl, a political convention, Bollywood or any TV production or film based in your community, I think that’s a prudent investment.”

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Economists challenge state, local film incentives