What are they and how do they work?
I guess the first question to tackle is if the government influences such a decision. Coming across an interview about state tax stimulus packages, stimulated me enough to do a little digging. Basically, states are now in competition to lure productions their direction by offering tax incentives. According to the Film Tax Incentives website, tax incentives are the new backbone of film financing equations and can be offered as tradable tax credits, refundable tax credits, film tax rebates and reductions in state taxes. To put it more simply, if producers find it economically beneficial to film in a particular state because they have to pay less money to the government and therefore have more money to put towards their project, chances are, they’re going to take the state up on its offer. In 2008, productions that were shot in Michigan could be reimbursed by the state for up to 42% of their expenses. That’s like making a movie for half price. All of a sudden, filming in Detroit versus Los Angeles doesn’t seem so bad.
How they started
These tax incentives originally came about in order to lessen the number of “runaway productions”- projects that went overseas to film because it was cheaper. Although not overseas, Canada was the most successful, which built Vancouver and Toronto into major North American Production Centers. The States started coming up with tax based incentive programs in order to keep the jobs at home. What ended up happening was states like Louisiana, Michigan, and New Mexico began making it seem so appealing to bring a project to their state that they saw an influx of applications by producers desperately trying to get ahold of some of these tax credits. Although the state governments were offering hundreds of millions of dollars in incentives, the benefit and effect of luring these productions their way began paying off dramatically in the long run, at least for the most part, but we’ll get to that later.
The benefits of local production
The rapid influx of millions of dollars into local economies served as lucrative economic stimulants that the governments, film industry, and local beneficiaries of the tax incentive found highly desirable. For instance, Louisiana has established themselves as a top competitor and has landed tons of deals, third only behind Los Angeles and New York City. And because of the experience they are gaining from having so many films produced in their state, more than 50% of projects are local productions, using Louisiana film crews and facilities, which shows what kind of impact the tax breaks can actually have. Nick Paleologos, former head of Massachusetts’ Film Office until December of last year, pointed to the $452 million spent by movie productions in the state in 2008, but says that’s not even close to capturing their full impact. In addition to the jobs they generate, he talks about the “multiplier effect”- the money spent by film crews on hotels and restaurants and other services that keeps cycling through the local economy. He also talks about the interest generated for a particular location if a film is produced there. The trailers and lights and cameras and “movie stars”… it’s all very exciting, especially if you’ve never experienced it before.
Poor California
So, as states wave incentives under the noses of producers, we can’t forget about the people being left behind- the original film crew- those in California. Although Hollywood and cinema go hand-in-hand, 40 other states are after the industry due to the economic gain it brings. Ironically, California had to follow suit and offer tax incentives so films would stay. The program in California began three years ago and is up for renewal this month. The Motion Picture Association of America commissioned a study that determined that California’s tax breaks generated 20,000 jobs and contributed $200 million in state tax revenue. With the state’s deficit however, some people wonder if it’s worth it to set aside $100 million in tax breaks.
Are they worth it?
Several other states have scaled back on their packages as well because facing unprecedented fiscal pressures, some lawmakers question whether handing out dollars to Hollywood is the best use of increasingly limited public funds. According to the Associated Press, all totaled, states issued $1.8 billion in incentives and tax credits from 2006-2008. That’s a lot of money on the table, especially since there have been some issues about how the money actually was spent. For instance, currently, Tom Wheeler, once head of the Iowa Film Office, is on trial for allowing the misuse of funding. He inadvertently cost the state millions in legal liability and lost economic development. And remember Nick Paleologos? He is now the former head of the Massachusetts’ Film Office after being booted due to controversy and abusing his position. Some people just can't seem to handle all of the money and subsequent power that comes with it, which has proven to have devastating effects on certain states.
The downside
But there’s a major downside to pulling the funding. After creating all of these jobs, if a state stops offering incentives to production companies, causing movies go to cities that are offering incentives, all of the local people relying on working on those projects will be jobless. And here's the irony: You'll have these people standing in line at the unemployment office, collecting government dollars, instead of paying taxes and working on a project that could be generating significant money for the government instead.
Where do we go from here?
So, as our country continues to battle the impending doom of the national deficit, each state’s decision as to whether or not to offer generous tax breaks, and if so, for how much, remains a debate. Although I personally think it’s exciting and healthy to see productions spread throughout the nation, there is still just something that makes movies and Hollywood seem right. But, these tax incentives seem to be too enticing for many states and most producers to pass up. I’m going to have to fit my clients with radio tracking devices just so I can locate them while they’re working. Either way, I’d like to think it’s safe to say that Hollywood will always remain the entertainment hub of the world, which means managers like myself will still have a home base. With technology these days, all communication can be done remotely, but I’d much rather have a reason to live by the beach than to bare a Midwestern winter.
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