Wednesday, March 25, 2015

A different kind of cap hell

Here's yet another study of Louisiana's "Hollywood South" film tax credit program.. this time by a usually business-friendly economist.. which finds that the program is a significant net loss to the state.
The study, by LSU economist Loren Scott, concludes that for every $1 in tax credits Louisiana issues to film producers, the state gets back between 18 and 24 cents in tax revenue.

The findings are nearly identical to those in earlier economic-impact studies of the film program, through which state taxpayers cover 30 percent of the cost of any movie made in Louisiana. The Legislature requires that such a study be done every two years.

Perhaps the most surprising finding in the report — though industry insiders had predicted it — was that Louisiana issued about 10 percent less in film tax credits in 2014 than it did in 2013. The drop, from $251 million to $226 million, came after years of steady growth in the program. That decline, Scott concludes, “seems to indicate that the program is leveling off to some degree.”
"Leveling off" means that several other states (including California) are engaged in a perpetual bidding war for these highly mobile productions.
"It is unclear how these sorts of competitions end," the legislative analyst's office said in a report this spring. "In responding to other states increasing subsidy rates, California may only stoke this race to the bottom."

What is clear is that filming is highly mobile, and studios and producers increasingly rely on this so-called soft money to lower their production costs. They routinely expect taxpayers to offset as much as 30% of their qualified production costs. States now pay out about $1.5 billion in film incentives each year, up from a few million dollars a decade ago.

"All you're doing is moving jobs from California to other states," said Joe Henchman, vice president for state projects for the Tax Foundation, a Washington organization and frequent critic of tax credits. "We've just thrown a lot of public dollars to make that happen. There is no net national gain."
This is not too different from the way state and municipal governments are held hostage by pro sports teams.  Only in this case, you don't have that whole angry sports fan base thing to contend with.  It's just a boring old case of politicians being used by industry lobbyists.
When producers of the Netflix Inc. series "House of Cards" threatened to leave Maryland if the state reduced tax credits, Gov. Martin O'Malley in April approved an $11.5-million package to keep the show in the state.

"They say, 'You need to match this, or you don't have a prayer of getting production in your state,'" said Henchman of the Tax Foundation.
Some states are starting to back away from this con.  Louisiana lawmakers are considering tweaks. Although, in some cases, they might need to tweak harder.
Two state lawmakers, Sen. J.P. Morrell, D-New Orleans, and Rep. Julie Stokes, R-Kenner, have proposed legislation for the upcoming session that would, among other changes, institute for the first time a cap on the value of the tax credits that could be issued in a year. Morrell has proposed setting the cap at $300 million, which is 20 percent above the program’s maximum cost to date.

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