This article first appeared in the November 25, 2014 edition of State Tax Today.
Proponents of tax credits for film productions faced a tougher panel than anticipated November 21 when they spoke before a National Conference of State Legislatures task force.
At the NCSL Executive Committee Task Force on State and Local Taxation meeting in Scottsdale, Arizona, few lawmakers sounded fully persuaded that film incentives were smart policy, with most questions and comments falling somewhere between reservedly supportive and deeply skeptical.
Illinois state Sen. Pamela Althoff (R), a co-chair of the task force, opened the discussion by saying she had "done a 180" and now believed her state's program provided a great opportunity. But she acknowledged that she wasn't sure she could attribute that to the program itself.
"I don't know again if that's because the city of Chicago offers so much in and of itself as a location, or if it's because Chicago Fire filmed in my district and it was really good for my district," Althoff said.
After three panelists laid out the case in favor of the incentives -- focusing primarily on economic development and efforts to keep jobs in the United States -- Joseph Henchman of the Tax Foundation offered an alternative perspective, questioning the research underlying the supporters' claims.
When one of those supporters -- Pat Swinney Kaufman, a retired New York state film commissioner -- broke in to defend a paper that she had worked on during her time, task force members began jumping in with more questions about the study's methods, which Henchman had called "unrealistic."
South Dakota state Sen. Deb Peters (R) asked Kaufman how her study, which found that the program had a multiplier effect of more than 20 to 1 and that 91 percent of the production spending was done in New York, reached conclusions so much more favorable even than other studies that were funded by the industry.
"You would think a benefit is a benefit is a benefit and it's going to have the same type of extrapolated results," Peters said. "This one is an anomaly . . . so why is it different?"
Kaufman noted that different studies focus more on direct spending by the recipient of the credits, while others use "more dynamic modeling."
Louisiana state Rep. Julie Stokes (R) pointed to the same consideration, citing various types of indirect employment effects that may not be considered in some studies -- such as CPAs hired to audit a project's spending reports for the credits -- but she still seemed unsure of the results.
"There's just a whole lot of peripheral work that doesn't get picked up," Stokes said. "I don't know that it's warranted to be as vastly different as it is, but that's why you see the difference."
Utah state Sen. Curtis Bramble (R) returned to that point later on, questioning the value of analyses that try to gauge the value of outgoing tax dollars by measuring something other than incoming tax dollars.
"I think it would be far more applicable for policymakers to look at apples to apples, because when you compare $335 million in tax credits to $7 billion in economic activity, that $7 billion in economic activity tells you absolutely nothing about the value to the state," Bramble said. "That could just be churning dollars, and so that's very difficult as a CPA to wrap my arms around it."
Massachusetts state Rep. Jay Kaufman (D) said that using either metric, film credits weren't worth pursuing in his state. "If you're doing this strictly on a matter of tax revenue, debate over," he said. "This really ought to be about the returns on the investment to the commonwealth, and they are not there."
Even Stokes, who is a reliable supporter of Louisiana's film industry and film incentives, said she had concerns about the program, citing a report finding that the state's return on investment was about 9 cents on the dollar. "There's hardly any way you can look at that and think that's pretty," she said, but she was heartened by the new film-related jobs, infrastructure, and in-migration.
"That being said, if I could go back to 2002 when we enacted it, should we do it? I don't know. Have we actually created as much business as we've put cash out? I can't honestly tell you that, but at this point we're 12 years into the dance," Stokes said. "Think before you enact it, because once you're in it, you're in it."
Stokes offered several recommendations to lawmakers as they consider programs for their own states:
- transferable credits should be bought back by the state rather than third parties;
- ensure withholding for workers paid on Form 1099s; and
- establish consistent audit procedures for auditing credit applications.
The panel ended with a task force decision to establish a subcommittee that would examine the issue more closely and present recommendations to help states evaluate whether a program would be appropriate in their circumstances.