Special Report

Losing It at Subsidizing Movies

Republicans of all people want to bribe movie makers to make movies in their state.

By 2.9.11

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Two Colorado Republican legislators, State Senator Nancy Spence and State Representative Tom Massey, are sponsoring HB 11-1207, which would impose a 10-cent per ticket tax fee on movie tickets in Colorado, with the money to be used to incentivize/bribe movie production companies to make films in the state.

The details of the incentives/bribes were laid out in a bill in last year's legislative session, HB 10-1180, which Massey and Spence also sponsored, essentially a gift from Coloradoans to cover 10% of the film's spending in Colorado, including up to $3 million for any one employee or contractor, as long as at least 25% of the film production's work force used in Colorado is made up of Colorado residents.

It doesn't matter that the movie business is "cool," or that other states are getting more movies made on their soil by offering various incentives/bribes ranging from "transferable tax credits," to rebates that sound like the latest Groupon (make a movie, pay no sales or hotel tax!), to New Mexico even offering "a 0% loan, with backend participation in lieu of interest." It matters that this is the worst sort of corporate welfare and exactly the sort of thing Republicans should oppose tooth and nail.

Perhaps Senator Spence didn't notice, but of the 14 other State Senate sponsors of HB 10-1180, only two were Republicans -- and one, Al White, is Colorado's prototypical RINO. So here she comes, playing a game that we usually expect from Democrats, supporting a tax increase under the guise of a "fee" in order to avoid the headache of allowing voters to decide on a tax hike as required under our Taxpayer Bill of Rights (TABOR).

Perhaps Spence and Massey didn't notice, but a new study by the Center on Budget and Policy Priorities concludes that state film subsidies offer "Not Much Bang for Too Many Bucks." The study makes a few key points:

• Since 43 states have film subsidy programs, "no state can 'win' the film subsidy war."

• Subsidies cost states more than they generate in revenue, not least because they "incorporate one of two rare features into their film tax credits -- refundability or transferability -- that makes them especially generous and therefore costly to sponsoring states." States "must therefore cut spending or raise revenues elsewhere."

• Because most film production talent is in people who live in Los Angeles and New York, "the best jobs go to non-residents," leaving for in-state hires "spotty, part-time, and relatively low-paying work that is unlikely to build the foundations of strong economic development in the long term."

If Spence and Massey had done a little homework, they might have found the latest report by the State of Massachusetts on the impact of its Film Industry Tax Incentives. Some lowlights:

• "In 2009, the cost to the state per Massachusetts resident job created was $324,838…. For the period 2006 to 2009 the cost per Massachusetts resident job created was $133,055."

• From 2006-2009, the state took in 14 cents of revenue for each $1 of tax credit generated and the total cost to the state was $224 million.

• Supporting the point made by the CBPP study, from 2006-2009, more than twice as much of the film making-related spending which the state's tax subsidy applied to went to non-Massachusetts residents and business than to in-state residents and businesses.

Perhaps the most incredible outcome from Massachusetts, and one that should keep all legislators, but especially Republicans, from supporting film industry tax subsidies is that the program has compelled the state to reduce spending on other areas, presumably including health, education, and safety, by over $135 million in order to offset the film subsidies' net cost to the state and allow the state to maintain a balanced budget.

And finally, perhaps Spence and Massey didn't notice that quite a few states, including the film subsidy pioneer New Mexico, have or will soon curtail their film subsidy programs. In her recent State of the State address, New Mexico Governor Susana Martinez called for "reducing the state's film subsidy from 25% to 15%," noting that:

This has been incorrectly referred to as a tax credit. It has nothing to do with taxes. The way it works is when a film is made in the state, New Mexico taxpayers cover 25% of the costs. It's a simple and straight-forward subsidy -- 25 cents on the dollar. And it's been taken advantage of.... One film company spent $100,000 chartering an actor's private jet and New Mexico taxpayers paid $25,000 of it.

According to the Albuquerque Journal, Martinez also pointed out that "a state that faces a $200 million revenue shortfall can't afford to give a single industry the $65.9 million [the film industry] received in the last fiscal year."

A separate bill introduced by New Mexico State Representative Dennis Kintigh to completely eliminate the taxpayer subsidy of film making in the state was killed in the legislature's Labor Committee on a 5-4 party line vote. (Again, perhaps Spence and Massey might note that every Republican in that group voted to kill an existing subsidy.)

States that have eliminated or reduced their film subsidies include Arizona, Iowa, Kansas, New Jersey, Wisconsin, and Rhode Island. Others, including Michigan and Pennsylvania, are taking a hard look at the issue, recognizing that gifts to Hollywood are even more inappropriate during periods of huge state budget cuts and shortfalls.

The movie industry is of course arguing for the taxpayer gifts to continue, with the president of the Motion Picture Association of America suggesting that states with budget problems might follow the federal government's example of destroying their economic futures in order to put lipstick on the economic pig of today, helpfully pointing out that tax subsidies usually mean "no cash payment on the credit until productions are completed and audited up to two years later."

Other movie industry shills are threatening that film production will go elsewhere. The New York Times quotes an employee of Entertainment Partners -- a company whose business includes helping production companies get as much taxpayer money as possible -- as saying that "the industry is so mobile, it can go anywhere." If the cost of the industry going somewhere else is that the state saves millions of dollars, Colorado can only hope to be thrown into that briar patch.

Another point regarding Spence and Massey's specific proposal: Their filmmaking slush fund is to be bankrolled by a 10-cent tax/fee on movie tickets. However, movie ticket sales have been flat to declining for about a decade, with attendance down 5.3% in 2010 from 2009. (Although movie ticket revenue tends to increase, it's generally due to higher ticket prices rather than more ticket sales.)

Since the current Colorado bill is for a per-ticket tax/fee rather than a percentage of the ticket price, and since the cost of making movies will continue up each year without a corresponding increase in the number of tickets sold, Spence and Massey's proposal creates an impending fiscal train wreck from day one. This means that the next step will either be cutting the subsidy or raising the tax fee. Aren't Republicans supposed to be smarter than this when it comes to creating government spending programs, especially after the spanking that the Tea Party gave to big-spending Republicans just three months ago?

Given the results in Massachusetts and New Mexico, Coloradoans -- and especially my state's Republicans -- must be scratching their heads at hearing of Republican legislators aiming to (1) subsidize an industry by (2) raising taxes while (3) calling it a "fee" to circumvent the state constitution even as (4) state after state is moving in exactly the opposite direction having seen their own subsidy programs generate far more cost and economic pain than benefit.

Maybe Senator Spence and Representative Massey desperately want to meet Johnny Depp or Angelina Jolie. If so, they should spend their own money on plane tickets rather than making the rest of us spend more on movie tickets.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.