The Legislature earlier this month approved the state budget, resisting calls from Governor Charlie Baker and leading fiscal analysts on both sides of the aisle to abolish the state’s film tax credit.
While there is broad agreement that an active film industry benefits our state economy, less attention has been paid to the costs of this program, which was established in 2006 to encourage film productions in Massachusetts.
Last fall, the state Department of Revenue issued the latest in a series of detailed reports evaluating the costs and benefits of the film tax credit program. Its analysis raises some very inconvenient questions for program advocates and deserves the careful consideration of state leaders as they continue to debate the program’s future.
At first blush, the program looks like a winner. The revenue department documents more than 800 productions and $1.6 billion in eligible expenses during the program’s first seven years. And there can be little doubt that many of these productions were attracted here by our very generous incentives — which include a 25 percent credit for eligible payroll expenses, another 25 percent credit for certain production costs, and a sales tax exemption.
But after discounting the film productions that would have occurred without the tax credits, the more than $700 million in wages paid to out-of-state workers, and the nearly $275 million to out-of-state vendors, in-state spending drops below $500 million. When the revenue department considered opportunity costs, such as the effects of taking funding from other state programs, net in-state spending fell to just over $260 million.
So what did it cost taxpayers to generate this $260 million? More than $400 million, according to the revenue department.
But what about the jobs created by the industry, you ask? Even when you consider the “multiplier effect” — or how money ripples through the economy as workers and vendors spend their earnings on local goods and services — the state’s cost per film production is extremely high.
The state Department of Revenue estimates that each full-time Massachusetts job supported directly or indirectly by the film tax credit cost taxpayers an average of $118,873. This is more than twice the state’s median wage and over 10 times the average cost per job last year in another state tax credit program, the Massachusetts Economic Development Incentive Program last year.
These facts make it clear that the return on the state’s investment in film tax credits is extremely low and, at a time of budget scarcity, an extravagance the state can ill afford. But recent state budget debates suggest there is little political appetite for eliminating the program and redirecting the tens of millions of dollars it costs annually into much needed investments in our people and infrastructure.
If politics will not permit the elimination of these credits, then lawmakers should at least stop allowing them to be refundable. Under state law, if production companies don’t use all the tax credits awarded to them, they can cash them in with the state for 90 cents on the dollar or sell them at similar discounts to rich people and corporations looking to lower their taxes. So far, over 80 percent of film tax credits have been used this way, at a cost to taxpayers of more than $300 million.
This simple reform would significantly reduce the state’s costs and would strengthen the incentive for film producers to spend more in Massachusetts by only providing credits for in-state spending and ending subsidies for the hiring of out-of-state workers and vendors.
To be sure, eliminating or reforming the film tax credit program would reduce the number of major productions here. But it need not be the death knell for “Hollywood East.” If we are serious about developing a film industry in Massachusetts, then we should target incentives to homegrown productions.
This would support local talent and encourage the development of a self-sufficient film production industry in Massachusetts. And it would free up state funds that could be used to address some very real threats to our economic competitiveness and more wisely use the resources entrusted to our state government by taxpayers.
Michael D. Goodman is the executive director of the Public Policy Center and an associate professor of public policy at the University of Massachusetts Dartmouth. Follow him on Twitter @Mike_Goodman.