State Subsidies for Hollywood Dying in Iowa and Drawing Fire In Missouri and Michigan

Once seen as a way to bring Hollywood glitter to your state, some states are now having second thoughts about film tax incentives. Iowa is cancelling its program as the state owes movie makers more than $200 million, a spokesman for the incoming governor said. And a Missouri state commission recommended ending their program in 2011.

In Michigan, Governor-Elect Rick Snyder has said that film credits aren’t sustainable and need to be restructured.

The Missouri Tax Credit Review Commission released a report on Nov. 30 that recommended ending its film incentives. The report stated: “This tax credit serves too narrow of an industry and fails to provide a positive return on investment to the state.”

Tim Albrecht, spokesman for Iowa Republican Governor-Elect Terry Branstad, said the film credit in their state will not be continued. That program, which was created by Branstad in his previous tenure as governor, was suspended last year. Albrecht said the state is still “on the hook” for more than $200 million in tax incentives even though the program has been suspended.

“He doesn’t support the film tax credit,” Albrecht said of Branstad.

Offering incentives to movie studios is a recent trend. According to The Tax Foundation, there are 44 states that offer significant incentives. In 2002, there were five.

The Tax Foundation did a study of film credits nationwide and found that the incentives “often escaped routine oversight about benefits, costs and activities” and that “spurious research” was common in the promotion of film tax credits. For example, in Pennsylvania, one study concluded that the film tax credit produced a net benefit of $4.5 million, but did so using the assumption that any business interacting with the film industry would not have otherwise existed if not for the film credit.

Mark Robyn, staff economist for The Tax Foundation, said many pro-film credit reports have been debunked through more accurate studies.

The Mackinac Center for Public Policy also found questionable data in reports on Michigan’s tax credit. For example, the Michigan Film Office appeared to include money spent outside the state when it estimated that 35 films spent $125 million in Michigan. A Michigan State University study found 32 films had spent $65.4 million. But that MSU study didn’t calculate the film subsidy’s costs into its economic model.

Michael LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative, said that not adding the cost of the program to the other taxpayers who don’t get special breaks was comparable to an accountant leaving the liabilities off of a company’s balance sheet and then saying that it had a higher net worth.

But Robyn said it’s harder to refute a debate about film incentives that doesn’t rest on facts at all: the glamour of Hollywood coming to town. A mostly anonymous local businessman who must pay all his taxes and make payroll every week is a poor match against a silver screen celebrity who signs autographs while standing on a town street corner for a day or two.

“It’s a feel-good argument almost,” Robyn said.

“State governments are competing to pay film production companies increasingly large amounts to shoot TV shows and movies in their states,” Bill Ahern, spokesman for The Tax Foundation, wrote in an e-mail. “Most of the payoff consists of super-generous, resellable tax credits declared on corporate income tax returns, but forgiveness of sales taxes is common, too. The Tax Foundation urges states to compete by lowering tax rates for everyone, not by granting targeted credits to one favored industry. We suspect that joint public appearances by politicians and movie stars are one of the major reasons these tax giveaways exist, but even the few jobs created by a film production are mostly temporary and contribute little to the state economy.”