The issue: Many states offer financial incentives to attract film and television production companies in hopes of creating jobs and encouraging spending in local communities. In 1992, Louisiana became the first state to adopt a movie production incentive, also called an MPI. As of 2016, 37 states offer MPIs, which vary considerably from state to state, according to the National Conference of State Legislatures (NCSL). A 2016 NCSL report shows that, for example, Colorado and Arkansas offer rebates to offset a portion of production costs. Connecticut, on the other hand, offers tax credits as well as exemptions on hotel and sales taxes.
Over the years, several states, including Florida and Michigan, have cut or chosen not to renew their MPI programs. Programs in some states have been heavily criticized for lacking oversight or being linked to fraud.
Individual cities have begun to offer their own incentives. In October 2016, San Antonio City Council members voted to provide a tax rebate to movie studios for films shot there. In November 2016, East Baton Rouge’s Metro Council approved a tax rebate on movie production-related purchases.
A study worth reading: “Preliminary Evidence on Film Production and State Incentives,” published in Economic Development Quarterly, 2016.
Study summary: Charles W. Swenson, an accounting professor at the University of Southern California, sought to fill a void in research on MPIs. “Despite billions of dollars in incentives given by states, no academic studies have been done to examine whether such incentives are effective,” he writes. Swenson provides a multi-state analysis spanning from 1998 to 2011. He looks specifically at how MPIs affect movie production employment. The analysis does not consider indirect employment in industries ancillary to movie production.
- The analysis generated “mixed” findings. According to one examination of the data, California and New York “significantly” increased direct employment after adopting financial incentives. Other states showed moderate growth or no growth or lost jobs after introducing MPIs. When the author examined all states using a model that controlled for certain factors, the results generally “indicate insignificant increases in direct employment.”
- Program effectiveness might be influenced by the fact that so many states offer competing financial incentives to movie production companies. This finding seems consistent with the findings of an earlier study that focused on tax incentives for manufacturers. That 2008 study, published in the Journal of Public Economics, suggests that manufacturing incentives “were something of a zero-sum game between states over time.”
- Between 1998 and 2011, film production incentives cost states hundreds of millions of dollars in potential revenue. In Louisiana, the estimated annual cost of film incentives was as much as $236 million. In New Mexico, Maryland and Georgia, it was $25 million each. New York had the highest estimated annual cost – as much as $420 million.
Helpful resources for journalists:
- Some states have created agencies to promote themselves as location destinations for the film industry. Louisiana Entertainment and the Massachusetts Film Office are examples.
- A September 2016 report from the California Legislative Analyst’s Office found that about one–third of the film and TV projects made with tax incentives there probably would have been made even if California’s MPI program did not exist.
- The Tax Foundation, a conservative-leaning think tank in Washington DC, has described film tax credits as “bad policy.”
- The Motion Picture Association of America has criticized academic research about film tax credits. It relies partly on economic impact studies, which scholars have argued are problematic, to demonstrate the film industry’s economic contribution in certain states.
More research on this topic:
- A 2016 study in American Politics Research, “Fade to Black? Exploring Policy Enactment and Termination Through the Rise and Fall of State Tax Incentives for the Motion Picture Industry,” considers the factors that led most states to create and some to repeal their Motion Picture Incentive programs.
- A 2016 study in The American Review of Public Administration, “Lights, Camera, but No Action? Tax and Economic Development Lessons From State Motion Picture Incentive Programs,” suggests that “most of the incentives included under these programs had little to no sustained impact on employment or wage growth.”
- A 2015 working paper from Tulane University economics professor Patrick Button, “Do Tax Incentives Affect Business Location? Evidence from Motion Picture Production Incentives,” examines how these incentives influence filming and employment in New Mexico and Louisiana.
Keywords: Tax cut, Hollywood, taxes, jobs, tax incentives, economic development