Film tax credits are ineffective

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Legislators are considering a bill that would more than triple the state's film production tax credit cap to $25 million in fiscal year 2014. The bill would also extend authorization of credits up to the current level of $7.5 million through fiscal year 2016. Productions have to spend at least half a million dollars in Maryland to qualify. The credit was created in 2011.

Maryland, and Baltimore in particular, has received significant attention for the recent filming of HBO's Veep and House of Cards, the first production by Netflix. Supporters of the state film production tax credit argue that these high profile productions create jobs and improve the economy in ways that offset lost revenues. These benefits would be forfeited to states with better incentive programs if the credit is allowed to expire, they argue.

However, film production tax credits are problematic for a variety of reasons. The Center on Budget and Policy Priorities handily summarized the issue thus:

• State film subsidies are costly to states and generous to movie producers. ...Over the course of state fiscal year 2010 (FY2010), [forty three] states committed about $1.5 billion to subsidizing film and TV production...money that they otherwise could have spent on public services like education, health care, public safety, and infrastructure
• Subsidies reward companies for production that they might have done anyway. Some makers of movie and TV shows have close, long-standing relationships with particular states. Had those states not introduced or expanded film subsidies, most such producers would have continued to work in the state anyway. But there is no practical way for a state to limit subsidies only to productions that otherwise would not have happened.
• The best jobs go to non-residents. The work force at most sites outside of Los Angeles and New York City lacks the specialized skills producers need to shoot a film. Consequently, producers import scarce, highly paid talent from other states. Jobs for in-state residents tend to be spotty, part-time, and relatively low-paying work — hair dressing, security, carpentry, sanitation, moving, storage, and catering — that is unlikely to build the foundations of strong economic development in the long term.
• Subsidies don’t pay for themselves . The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact.
• No state can “win” the film subsidy war . Film subsidies are sometimes described as an “investment” that will pay off by creating a long-lasting industry. This strategy is dubious at best. Even Louisiana and New Mexico — the two states most often cited as exemplars of successful industry-building strategies — are finding it hard to hold on to the production that they have lured. The film industry is inherently risky and therefore dependent on subsidies. Consequently, the competition from other states is fierce, which suggests that states might better spend their money in other ways.
• Supporters of subsidies rely on flawed studies. The film industry and some state film offices have undertaken or commissioned biased studies concluding that film subsidies are highly cost-effective drivers of economic activity. The most careful, objective studies find just the opposite.

Even the Tax Foundation agrees that film subsidies make little policy sense. Maryland should let the state film production tax credit expire at the end of this fiscal year, as scheduled.