Show Them the Money: Film Industry Incentives a Bottomless Pit

Updated June 10, 2009

Targeting the Subsidies
As North Carolina abandoned its traditional policy of (more or less) treating taxpayers equally in the 1990s, Hollywood eagerly grabbed onto the state government’s largesse. In 1997, while other businesses continued to pay full freight on their costs of doing business, the legislature passed a sales tax exemption for buying audiovisual master tapes used in film production.

Three years later, the legislature enacted another favor for the film industry – a 15-percent kickback of the costs associated with producing a film in the state up to a maximum of $200,000.

Of course, it wasn't enough to satisfy the hungry film industry.  Enter Raleigh’s number one fixer – then-lobbyist Don Beason, whose services were procured by the North Carolina Production Alliance for $50,000 in 2005.  Beason helped the movie producers win the blessing of the legislature for a refundable tax credit equaling 15-percent of production expenses up to a maximum of $7.5 million. Since a refundable tax credit means that the taxpayer gets money back regardless of whether or not taxes are owed, the new cap allowed movie studios to become firmly ensconced in North Carolina’s climate of corporate entitlement, pocketing over $15 million in the last three years alone.

Jobs, Jobs, Jobs?
In 2004, on the 25th anniversary of the Film Office’s establishment, the Commerce Department boasted that North Carolina ranked third in the nation in film production for the twentieth year in a row with 20,000 production related jobs.  But their numbers don't jive with those of the Employment Security Commission. According to the ESC, jobs classified as motion picture, TV & record production, and distribution (excepting theaters) total fewer than 1500 annually. Here is a sampling:

• 1990 – 163 jobs
• 1996 – 1278 jobs
• 1997 – 1350 jobs
• 2004 – 1186 jobs
• 2006 – 1024 jobs
• 2008 – 1177 jobs

Clearly the Commerce Department is using a super-sized, blockbuster multiplier of jobs in restaurants, car rental agencies, and other businesses serving transient movie crews to come up with their 20,000 figure. But experts dismiss those bonanza claims. Jennifer Weiner, a policy analyst for the New England Public Policy Center at the Federal Reserve Bank of Boston, discounts the oft-repeated argument that these tax credits “pay for themselves.” In a January 2009 report on Connecticut’s incentives programs, Weiner wrote, "Increases in economic activity spurred by the film credit generate some additional tax revenue for the state from a variety of sources. This additional revenue is likely to offset some, but not all, of the initial cost of the credit."

In New Mexico, the Arrowhead Center concluded the state receives fourteen cents for each dollar of film tax credits the industry gets.

Nevertheless, in classic political fashion, while the state seems to inflate jobs in the movies, Wal-Mart, which employs 53,000 actual people in North Carolina year-round, is slapped with much higher taxes.

Some Exceptions Apply
Last year, a brouhaha ensued when news surfaced that under current law, taxpayers had been forced to pour $387,000 into Hounddog, a film featuring child rape. As a result, in 2009, Senate Republican leader Phil Berger, an opponent of film subsidies, sponsored legislation denying funding for movies rated NC-17, meaning no children under 17 because of violent or sexual content (current law prohibits only those films deemed to be legally obscene, i.e. those with no artistic value, from getting the cash).

Show Them More Money
Currently, the movie producers, along with the taxpayer-funded NC Film Office, have invested in a $60,000 economic study by incentives-proponents Ernst & Young which, they hope, will give them the ammunition they need to plead for more subsidies after some other states increased their incentives packages. The film industry points to Disney’s recent choice of Savannah, Georgia for a new Miley Cyrus movie – a move which surprised Governor Perdue, who planned a trip to Wilmington to announce that the film would be produced there. Seems that Georgia had upped the ante, increasing its own tax credit to 20-percent and promising to add another 10-percent if the production includes the use of Georgia’s logo.

Now, despite a shortfall that is causing furloughs and costing jobs across the state, lawmakers are stepping up to fork over even more tax dollars to the film industry. Bills have been introduced in both the House and the Senate to fatten the filmmakers’ pockets, including a measure by Wilmington Senator Julia Boseman, a beneficiary of industry campaign contributions. If passed, the legislation will increase North Carolina's refundable tax credit to 25-percent.

Additionally, under current law, the 15-percent tax credit for filmmakers is disallowed for the salaries of actors whose compensation exceeds $1 million. Senator Boseman’s proposal allows producers to take the tax credit from North Carolina taxpayers for the first $999,999.99 of a star’s salary.

Talk about trickle down.

It’ll Never Be Enough
North Carolina began to flex its filmmaking muscles long before the incentives game began, and the industry grew for years without incentives. Many productions chose to come to the state because of its skilled workforce, low wages and scenic beauty. But once the “Economic War Between the States” revved up, North Carolina’s filmmaking fortunes began to decline. And while the state acknowledges that filmmaking has never been a major player in the state’s economy, lawmakers can’t seem to resist the temptation to step up to the plate and give away the taxpayers’ money anyway – even in desperate economic times.

As for the Cyrus movie, even the state that won the production appears to have misgivings about the wisdom of the tax breaks. According to Jay Self, director of Tourism and Film Services for the City of Savannah, "North Carolina will never be able to do enough for them. Neither will Georgia. ... The more you give them, the more they want."