News Coverage on Unfunded Mandates
Andrew Cuomo: Subsidizer to the StarsPatrick Brennan
This week, Governor Andrew Cuomo signed a bill providing new tax credits for film editing and post-production, expanding upon existing credits available for work done in New York state. Unfortunately, this new law isn’t even like a failed movie sequel that tries to imitate the success of the original: The original bill bombed, too, partly because film subsidies are a very bad idea in the first place, and partly because they were giving away taxpayer money without even attracting any significant amount of business. The governor’s press release explains the new policies:
Since being established in 2010, New York State’s post-production incentive program has been underutilized, as the 10 percent credit offered by the program resulted in only 19 applications in two years.
The law signed today by the Governor increases the percentage of tax credits available for projects that did not film in New York but will now qualify for credits for post-production work done in New York. Under the new law, the qualified film and television post production credit increases from 10 percent to 30 percent in the New York metropolitan commuter region, including New York City and Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester counties. An additional five percent (for a total of 35 percent) in tax credits would be available for post-production expenditures in locations elsewhere in the state. The additional five percent in tax credits for upstate post production is designed to encourage investment in and construction of new facilities in Upstate New York.
The plan comes on top of the existing movie-production credits, which actually have attracted real amounts of business (727 applications since 2004), though at a huge cost ($1.04 billion), because it has always been set at 30 percent. The fact that a 30 percent-of-budget credit was successful, while a 10 percent credit was not, demonstrates just how absurd the levels of subsidies have gotten, and how generous states have to be to attract the business.
This particular plan is rife with unique flaws, such as Cuomo’s intentional privileging of Upstate New York over ten or so arbitrary counties (we all know Putnam County post-production studios don’t need the business as much as their Ithaca counterparts).
Conveniently, the Tax Foundation came out with a comprehensive study about the failure of these types of programs just this April. Their main conclusions:
- Film tax credits cost states revenue and require either higher taxes or lower government spending elsewhere.
- At best, film tax incentives largely shift production from one sector to another without producing a net increase in economic activity or employment.
- However, the program is unlikely to produce a self-sustaining state film industry.
But despite that, these credits remain politically popular — more than 40 states have them (including a generous program in Alaska, as if The Deadliest Catch might decamp to film in Malibu). There are a few reasons for this: There’s an intuitive economic appeal, unfortunately with little real justification, for the idea of outsiders coming in to spend money in one’s local economy (unfortunately, given that staff take their salaries with them when they go home, film production is actually one of the worst ways to promote this already-fanciful dynamic). Further, film and TV production is a cool, sexy industry to attract. In more than one way, being the site for film production and being featured as the setting for Hollywood films is flattering for states and cities. Seeing Cameron Diaz at your local dive bar, though, isn’t really worth taxpayers ponying up 30 percent of her salary for a given flick (but don’t worry, the credits offered for actors’ salaries are sometimes limited or excluded).
Another pernicious aspect of these policies is that, because they’re “tax credits,” people think of them as basically giving film companies a break on their taxes, and what’s the harm in a little tax incentive to encourage economic development? But that’s actually not what happens at all: Instead, they’re 100 percent refundable tax credits; a 30 percent credit, like New York now has for production and post-production, means that if a studio spends $100 million on a movie in New York State, Andrew Cuomo writes the company a check for thirty million dollars. This isn’t forgone revenue; it’s a government-spending program, and a lavish one, too.
That confusion also can be twisted to suggest that they’re the kind of tax breaks that might actually increase revenue: The theory goes the subsidies will generate so much economic activity that increased tax revenues on that business will actually pay for the huge subsidy checks they cut for production companies.
But, predictably, they never do. A study by the State of Michigan on their subsidy program, implemented in 2008 and one of the nation’s most generous, found that “under current (and any realistic) tax rate the State will never be able to make the credit ‘pay for itself’ from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred.” Numbers-wise, it’s not even close: The 2010 study estimated that the subsidy would cost the state $135 million in FY2010, while the resultant business would generate just $23.2 million in tax revenue, for a net program cost of $132.3 million. And that study was working assuming a 2.00 economic multiplier (meaning that each dollar in film spending would translate into another whole dollar in related economic activity), which is laughably generous (estimates for the right number usually range from about .5 to the high 1s). Suffice it to say, if any tax cuts “pay for themselves,” it’s not these ones. Rather, they’re just extraordinarily generous subsidies to an industry with no particular social value. Michigan will spend $25 million of their strained budget on doing just that this year.
This is also hardly Cuomo’s debut to the world of dead-beat economic-development ideas: This January, he announced that New York State planned to build America’s largest convention center in Queens. Convention centers were a flawed economic stimulus program even 20 years ago when conventions were booming; and since then, available convention space has gone from 40 million square feet to 70 million square feet, while convention attendance was actually dropping over the same period. Thankfully, unlike Boston or Chicago’s boondoggles, Cuomo didn’t propose that the state or city actually pay for the project, but hoped to attract a private investor that would also be allowed to construct a massive casino. His chosen partner, a Malaysian group, pulled out eventually anyway.