Upon review, shine comes off glowing report on film tax credit
The great thing about hiring an economic consultant to support your position on a public issue is that it’s never hard to find one who will take your money to parrot your talking points.
That’s obviously the principle underlying a recent finding by the consultants at the Los Angeles County Economic Development Corp. that California’s film production tax credit, which doles out $100 million a year, purportedly to keep Hollywood productions from leaving the state, has been a huge economic boon. The LAEDC report couldn’t have described the film credit program in more glowing terms: After only two years and $200 million spent, it says, the program has produced $3.8 billion in economic gains and supports more than 20,000 jobs.
Those findings would be impressive, if they were the product of an objective analysis. But the LAEDC’s report was commissioned by the Motion Picture Assn. of America, which is Hollywood’s leading lobbying group and which favors more and better public subsidies of its members’ productions wherever it can get them.
The MPAA’s sponsorship is mentioned nowhere in the LAEDC report that I could find, but was confirmed for me by the lead author, Christine Cooper. Of course, knowing of the MPAA’s involvement makes it no harder to guess that the report was destined to salute the California subsidy with a big huzzah than it was to guess that at the end of “The King’s Speech” His Majesty would shed his stutter.
The report comes at a critical moment, because the state Senate is about to vote on a five-year extension to the program, which provides tax credits of 20% to 25% of qualified production expenses and is due to expire in 2014. The Assembly has already voted its approval and the Senate is almost certain to follow. Film subsidies are popular among politicians everywhere, who appreciate the glamour and glitz of the movies. The trouble is the weight of the evidence — the LAEDC report notwithstanding — shows that these programs almost never pay for themselves.
Let me stipulate that I am not questioning that runaway film production is a big problem for California. As my colleague Richard Verrier has documented, the draining off of location shooting to other states and countries, often due to production subsidies they offer, has cost this state thousands of jobs and etched deeply into our status as the worldwide capital of filmed entertainment. The laborers and technicians whose jobs have fled are every bit as much victims of the economic race to the bottom as the dispossessed BMW employees I wrote about recently.
California was a late and reluctant passenger on the film incentive bandwagon, and only clambered aboard in 2009 as a defense against other states bidding to take our jobs away. Louisiana launched the first program in 2002, and by last year it had been joined by 41 other states. The pitch was always the same: incentives for film production will bring good jobs swarming into the state, they’ll incubate new industries, they’ll pay for themselves in new tax revenue, etc., etc.
Unfortunately, the reality outside California is always the same, too. The jobs attracted by these subsidies are mostly temporary and low-paid, with the best positions going to non-residents who come in for a few weeks during a shoot and then go home; the promised industrial infrastructure stays in California; and the economic activity generated by the lavish tax incentives handed over to film companies almost never produces a net gain in tax revenue.
Louisiana, for instance, estimates that for every dollar it paid out in tax incentives for film projects over the last three years, it got back tax revenue of 24 cents. Still, the state’s analysis shows that film jobs in the state rose from about 900 in 2001 to about 5,000 now, so although the Big Easy’s state loses money on every job, it presumably hopes to make it up in volume.
Since other states are continuing their film programs despite such baleful outcomes, the question for California remains what to do about runaway production. For policymakers in Sacramento, this is really two questions. First, what is the best way to spend $100 million a year in taxpayer funds? Second, if you’re going to spend it on film credits, how can you target productions that are most at risk of being lost to other states?
The LAEDC, which was created by the county in 1981 as an economic development arm and has since turned itself into a kind of economic think tank, could have made itself useful by addressing these questions. It doesn’t, plainly because its patrons at the MPAA wouldn’t want to hear the answers. Can $100 million in spending on film subsidies be justified when we’re jacking up tuition at the University of California and turning students away from Cal State? Would $100 million generate more tax revenue if it were directed at hiring software engineers in Silicon Valley rather than gaffers in Burbank? Would it improve the quality of life more if it went toward hiring more nurses in public hospitals?
We don’t know, because no one’s done the studies. That’s an enormous vacuum in our knowledge because the essence of public policy is to choose from among alternatives. These choices are especially stark for states facing an implacable fiscal crisis, like California.
Last month, for example, The Times reported location managers fears’ that the budget-related closing of more than a dozen state parks that counted for 1,000 days of shooting in 2009 would drive more productions out of California. The cost of reversing the proposed closing of those parks and others: $33 million. The day before, the state Assembly had voted to extend the $100-million film tax giveaway for five more years.
What about targeting the film subsidy at productions that are most at-risk? As currently structured, the California subsidies focus on the sorts of productions likeliest to run off, such as television series and movies of the week; but within those categories they are doled out on a first-come-first-served basis.
That’s not a targeted subsidy, it’s a gimme. The danger is that if you hand a chunk of coin to a production that would have stayed put regardless, you’ve deprived yourself of any ability to retain a production that will run away without it.
Yet the LAEDC’s analysis, which was based on examining the budgets of nine unidentified productions out of the first 77 to receive the state handout, gives an equal economic weight to every dollar of subsidy. This overlooks the fact that a subsidy awarded to a production that doesn’t need it has an effective added economic value of zero — in fact, less than zero, because the second, unsubsidized, production will now leave California.
The shame of the LAEDC’s bogus study of the film program is not only that it sold its reputation for objective analysis for a mess of MPAA pottage, but that it leaves us in the dark about whether an obviously flawed program can be made to work. When I first raised questions about film subsidy programs exactly one year ago, I mentioned that I would love to see a single independent study — as opposed to those turned out by state film officials handing out the money or by industry shills — showing that they produced more in benefits than they cost. I’m still waiting.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at email@example.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.