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Show Me the Taxpayers’ Money

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Show Me the Taxpayers’ Money

Hollywood is seeking ever more generous giveaways from local governments—though some are having doubts. Summer 2017
Economy, finance, and budgets

In 2010, actor Ted Danson, filming The Big Miracle in Alaska, set off a local ruckus when he urged federal regulators to block oil drilling off the state’s shores. The source of the controversy wasn’t so much that a Hollywood star was pontificating about a public issue; it was that the picture was receiving nearly $10 million in state tax incentives—equal to one-third the cost of filming it—and many Alaskans found Danson’s ingratitude shocking. Soon after, Alaska lawmakers took a hard look at the state’s rich subsidies for film and TV productions. Legislators first narrowed the program, and then, in 2015, as evidence mounted that the incentives didn’t pay off economically, they killed it.

Alaska is hardly alone in getting mixed up in the TV and movie biz. Starting in the early 2000s, states rushed to grab a piece of what they saw as a glamorous, lucrative industry. By 2010, all but six states were offering producers special deals. But Hollywood has turned into its own worst enemy in perpetuating these plush arrangements. Producers have proved notoriously disloyal, shifting locations constantly as they play state programs off against one another, looking for the sweetest breaks. And Hollywood’s most prominent players have become politically hyper-partisan—more than ever, in the new Trump era—pushing for major tax hikes and other left-wing policies, even as the industry shakes down states for taxpayer money. A backlash has ensued, with seven states terminating the deals and a handful of others reining them in.

In a sensible world, it would only be a matter of time before most local governments deep-sixed their film initiatives. But the Hollywood attraction remains powerful, and some politicians are viewing the retreat of other states as an opportunity to start or recharge their own incentive programs. And now lobbyists are pushing similar deals to attract musicians and digital-game designers.

The rise of celluloid subsidies resulted from a sharp increase in the 1990s of so-called runaway productions—movies and TV shows filmed in foreign countries for cost savings. The number of U.S.-conceived and -developed movies and TV series shooting abroad rose to 285 in 1998, up from 100 in 1990, according to a study by the consulting firm Monitor Company. More than eight in ten of those productions were in Canada, where a roughly 20 percent decline in the Canadian dollar, plus tax rebates that the government offered to American producers, slashed the cost of filming by about one-fifth compared with a similar production in the United States. After the Monitor report, states took action. A few had launched modest incentive programs in the 1990s, but Louisiana changed the game in 2002 when it vastly expanded its effort, offering producers an exemption on sales taxes and an investment-tax rebate. Hollywood started shifting productions to the Bayou State, leading others to follow Louisiana’s lead.

For some states, it wasn’t only a matter of economic opportunity but also of pride. After Chicago filmed in Toronto, for instance, Illinois lawmakers started granting producers a 25 percent tax credit on wages paid to Illinois residents for movies filmed there. No sooner did that program go into effect in 2004 than high-profile productions, including Batman Begins and Ocean’s Twelve, arrived in the Land of Lincoln. In a tax-incentive version of the line “I’ll have what she’s having” from When Harry Met Sally, the number of states offering inducements grew from six in 2002 to 44 by 2010. States were giving away about $1.5 billion to Hollywood annually by then, up from less than $100 million in 2002.

Tax deals have become so pervasive that projects ranging from Oscar-worthy productions to massive summer blockbusters to the cheesiest TV reality shows get them. In 2015, all eight Oscar-nominated films, including the ultimate winner, Birdman, received state tax breaks. Sometimes the money goes to movies that would almost certainly be made in a state anyway. A 2014 best-picture nominee, The Wolf of Wall Street, is a tale of New York’s finance world, made by a director, Martin Scorsese, long based in New York; nonetheless, the production won a whopping $30 million in incentives to film in . . . New York! More recently, Utah awarded about half a million in incentives for location filming of a documentary about an artist who lives in Utah.

The special deals have helped conjure new genres that might never have existed otherwise. Television viewers wondering about the recent spate of reality shows depicting rugged life in Alaska need look no further than the state’s film program. Begun in 2008, the initiative has dished out tens of millions of dollars already. In 2014 alone, some 29 “unscripted” TV shows—Hollywood-speak for reality TV—applied for Alaska tax credits. “Out near my cabin in the remote Wrangell Mountains last summer, a friend and I counted four shows being filmed within a 60-mile radius,” author Tom Kizzia wrote in 2015. “A friend in my hometown who runs a cute bakery by the beach turned down six different producers in the last year.” The phenomenon hasn’t been limited to U.S. states. Canada’s generous film rebates made possible a spate of cheaply made movies, including Black Christmas and Rituals, of such dubious quality that critics coined the phrase “Canuxploitation” to describe them.

One reason the incentives have spread so quickly is that they’re easy to get. States have long offered subsidies for industries like manufacturing, but typically these are long-term arrangements that involve firms building or renovating physical plants—binding employers to a site for years. By contrast, most celluloid incentives go to productions that shoot on location, which rarely requires investing long-term in infrastructure and generally produces only temporary employment. Being so mobile lets Hollywood executives shop for the best deal available on one film or season of a TV series and then go somewhere else if there’s an even better deal.

“Most incentives go to productions that shoot on location, which rarely requires investing long-term in infrastructure.”

This mobility makes it possible for film producers to blackmail a state, economically speaking. The producers of the hit Netflix series House of Cards filmed the show’s first two seasons in Maryland, and then postponed production for season three, which was set to begin in early 2014, informing the state that they would move elsewhere if the subsidies weren’t improved. “In the event that sufficient incentives do not become available, that gives us time to break down our stage, sets and offices and set up in another state,” a vice president of the production company told Maryland lawmakers. Series star Kevin Spacey even showed up at an Annapolis meet-and-greet with state pols to lobby for the credits. The legislature approved them several months later.

The television and movie industry’s peripatetic nature means that some states’ film business will rise or fall depending on the deals offered. Thanks to some of the most generous breaks in the nation, Louisiana hosted 1,100 location shoots between 2008 and 2015. But after doling out $1.4 billion to Hollywood during that period, lawmakers capped the state’s film-incentive program—and the number of productions slumped 90 percent within one year.

Even signature productions have fled their hometowns when inducements dried up. After financing for Florida’s production tax-credit program ran out, the makers of Ballers (an HBO series about an ex–Miami Dolphin player-turned-agent that was filmed in that city) shifted production to Los Angeles. And though Maryland held on to House of Cards, it lost another series about the nation’s capital, the HBO comedy Veep, when California offered producers even more to move the show to Los Angeles. Incentives have turned skilled workers into nomads, struggling to follow the celluloid migration. The International Alliance of Theatrical Stage Employees reported that, between 2010 and 2014, nearly 1,700 of its members left California for states that had launched incentive plans. Many landed first in Louisiana, but the hot destination now is Georgia, which has retained its openhanded subsidies. A few years ago, California production workers showed up at the Oscars to protest this state of affairs, chanting “chase talent, not subsidies.”

The ephemerality of these jobs helps explain why the film industry produces so little local economic impact. Following the state tax-revenue slump that the 2008 fiscal crisis caused, many governors considered trimming their film efforts. Most of the incentives are tax credits, the governors recognized, which producers can turn around and sell to local businesses that want a break on their own taxes. Firms cashing in those credits can rob a state budget of hundreds of millions of dollars in revenues yearly. Several states launched studies of the film industry’s economic effects to see if the budget hit was worth it—and the results were disheartening. A Massachusetts Department of Revenue 2013 report estimated that the state spent $128,575 in incentives for every film job that went to a Massachusetts resident, and $68,000 per position when jobs taken by residents of other states were included. In 2011, the program generated just 1,236 new full-time positions. A 2012 report by the left-leaning Louisiana Budget Project estimated that the state paid $60,000 for every movie job that its program created.

Much of the production money leaves the state. A Michigan analysis of film subsidies estimated that nearly half the money that productions in the state expended went elsewhere almost immediately; producers, it turned out, hired experienced out-of-state firms that moved workers into Michigan for the filming and then quickly left. Additionally, the Michigan study found, when researchers accounted for the part-time nature of much of the work, the number of new jobs generated shrank considerably. In 2009, Michigan spent $37.5 million in tax credits to create the equivalent of just 216 full-time film-production jobs. Counting positions created in other industries thanks to the film work, total state employment grew by just 973 positions. Similarly, a New Mexico study reported that only 35 percent of “key creative” positions on films shot in the state went to residents. A broad evaluation of film-incentive plans in 40 states by University of Southern California researcher Michael Thom, published in the American Review of Public Administration, found that they produced a small uptick in jobs but had virtually no impact on wages and gross state product. Nor did incentives help create a permanent concentration of film jobs in most states.

Notwithstanding these numbers, advocates keep pushing for incentives, arguing that a local film industry glamorizes a location and thus attracts tourists and young, educated workers looking to live in stimulating environments. “The film industry is a creative-class industry whose value to the state goes beyond the dollars and cents returned to state coffers,” one booster enthused after studies questioned the effectiveness of North Carolina’s program. Cutting back the handouts made North Carolina “a less interesting state,” supporters contended. Or, as a Houston Chronicle editorial framed the case: “Just as the Super Bowl provided a global platform for promoting Houston, movies set in Texas are essentially advertisements for our state” and “have helped define Texas in the international arena.”

Not only are these nebulous claims difficult to justify (especially in tough economic times), but given modern viewing tastes, local filming is just as likely to result in ridicule of a place and its residents as it is to glorify them. Just ask New Jersey residents what they thought of the reality series Jersey Shore. More recently, the run of Alaska-based reality shows has left some state residents cringing at the collection of “bug-eyed bear-shooters” and other eccentrics who star in these series, as Kizzia wrote. It’s bad enough to endure “this mortifying era of northern overexposure,” he notes, but that state taxpayers have subsidized it all “in the name of promoting tourism” is particularly galling. In recent years, Boston has also emerged as a Hollywood favorite for dark crime stories like The Departed, The Town, and Black Mass. At least some critics have had enough. “The Legislature’s refusal [to end the state’s film incentives] amounts to nothing less than throwing tens of millions of dollars’ worth of good money after bad,” the Boston Globe editorialized.

In some places, the negatives have amounted to more than bruised egos and disappointing job gains. At the beginning of the incentives era, advocates laid out a vision in which film shoots led to waves of investment in production facilities and the growth of permanent, state-based celluloid-industry employment. Towns and local investors, including some in out-of-the-way places, naively thought that they could emerge as the next Hollywood and poured money into speculative building efforts in search of a business that never materialized.

While filming a movie subsidized by state tax credits, actor Ted Danson angered Alaska residents by testifying against offshore oil drilling at a public hearing. (MICHAEL DINNEEN/AP PHOTO)

When Michigan enacted a rich film-incentives program during the nation’s 2008 economic slowdown, state officials thought that they had scored a bonanza, as some two dozen productions declared that they would come to the state. Promoters ludicrously argued that Hollywood jobs might replace the auto industry as a signature state business. Within months, investors formed Motown Motion Pictures, an effort to create a Hollywood-style studio in down-and-out Pontiac. On the site of a former General Motors plant, the investors parlayed federal tax credits, state incentives, and money borrowed through municipal bonds—backed by Michigan’s public-employee pension funds—to develop an $80 million facility, which would, it was hoped, employ up to 3,600 people. Then-governor Jennifer Granholm touted the project in her 2009 State of the State address and later celebrated the studio as a “phoenix rising from the ashes.” The initiative attracted one major production—Disney’s Oz, which wound up employing a few hundred people, many from out of state. Meantime, as the payoff from the film credits failed to generate the economic activity that boosters promised, investors began making only partial payments on their borrowed money, sticking the pension fund with the bill for the rest. After the state stopped the incentives in 2015, it had to allocate $19 million just to pay off bad debt from the studio.

Even as Motown Motion Pictures struggled, investors somehow induced the state, the federal government, and local development agencies to contribute to another moviemaking studio, in Caseville on Lake Huron—previously known best for an annual “Cheeseburger in Caseville” festival. In all, taxpayers anted up about $1 million for a project that never made a movie and, at its height, apparently employed no more than seven people. Today, a chiropractor occupies the facility.

Hollywood’s increasingly partisan liberal advocacy, intensifying as the Trump era began, has also irritated policymakers and the public, especially when it is surrounded by perceived hypocrisy. Left-wing populist filmmaker Michael Moore, a Michigan native, decried the state’s film-subsidy program just months after it passed, telling a local film-festival audience, “These are large multinational corporations—Viacom, GE, Rupert Murdoch—that own these studios. Why do they need our money from Michigan, from our taxpayers? We’re already broke here.” Yet Moore himself soon applied for, and received, tax incentives from Michigan for his anticapitalist documentary Capitalism: A Love Story.

Television comedian Stephen Colbert excoriated Americans in 2013 for selfishness. “If this is going to be a Christian nation that doesn’t help the poor, we either have to pretend that Jesus was just as selfish as we are, or we’ve got to acknowledge that he commanded us to love the poor,” he intoned. The next year, though, as Colbert took over as host of The Late Show, his producers shook down New York State for $13 million in taxpayer money to stay in Manhattan. Director Rob Reiner, an ardent political activist, has led several campaigns to raise taxes in California. “We are going to fight to make sure we lift everyone up, we fix our education system, we improve our economy,” Reiner said of one push to hike levies on high earners. But Reiner has been happy to take millions in taxpayer funds to subsidize his own work—whether from the Michigan film program (for the movie Flipped) or from New York (for The Magic of Belle Island). Meanwhile, director and actor Ben Affleck, in a speech to People for the American Way, said that he was against tax cuts, “even if I save a million bucks” because of them. Affleck has subsequently accepted much more than that in government handouts, however—about $25 million, in fact, just for his latest movie, Live by Night. With zero irony, Affleck helpfully explained his political philosophy to the Los Angeles Times in 2014: “You just follow the money.”

Clueless celebrities rarely grasp the relationship between the virtuous-sounding, but often naive, positions they propound and the government money that subsidizes their lavish lifestyles. When Danson attacked Alaska’s oil industry, he zeroed in on the one business most responsible for producing the bounty in tax revenues that made the state’s film incentives possible. After oil prices fell and the industry slashed production—as Danson and his environmental allies hoped for, though on different grounds—Alaska’s tax collections plummeted, and it ended the film program.

Still, some states’ withdrawal has only inspired others to try to lure handout-seeking Hollywood producers. Last summer, Ohio doubled to $40 million annually the film tax credits it offers, following questionable promises by the head of the Greater Cleveland Film Commission that the money would “bring thousands more jobs” to the state. Pennsylvania, which had begun shrinking its subsidies, reversed course last year to add more.

Sometimes frustrated that state leaders refuse to provide more tax dollars for filmmakers, cities have started their own subsidy efforts. In Texas, for instance, mayors, backed by starstruck media, seem irked that film companies would take narratives based in the Lone Star State and shoot them elsewhere. The producers of Hell or High Water, a 2016 Oscar-nominated movie about Texas bank robbers, said that they “reluctantly” had to film in New Mexico because Texas refused to fork over tax money. San Antonio now offers some $250,000 in film-shooting incentives annually, while Austin has designated a more modest $60,000. Houston, suffering a serious pension crisis, is nonetheless looking for ways to make deals with filmmakers, including letting them film for free on government-owned property.

All these efforts face a massive counterattack from the two giants of the industry. Hollywood’s actual home, California, now spends a whopping $330 million a year to retain a business that it once ruled without incentives. New York, long the Number Two spot for film and TV production, has gone further, dishing out $420 million a year.

Some states are expanding incentive programs beyond film and TV to other forms of entertainment. Earlier this year, Georgia’s legislature passed the Music Investment Act, providing tax credits for music producers to score films and video games or record albums in the state, or for bands that begin a concert tour there—as long as they spend at least $300,000 on travel and staffing before leaving. One purpose of the bill: to stop an exodus of Georgia musicians to Nashville, now challenging Los Angeles and New York as a recording capital. Tennessee is responding with its own subsidy plan. For its part, New York State has enacted a small tax credit to encourage music-theater companies to mount Broadway-bound productions first in regional theaters across the state. Legislators want to add similar incentives for video-game makers to develop, design, and produce their products in New York. The whole package would be worth about $50 million in credits. Though Governor Andrew Cuomo vetoed the expanded plan this year, he didn’t oppose the incentives themselves, objecting only because its costs hadn’t been figured into budget negotiations. The program will likely win approval soon.

Even as some states tell Hollywood that, frankly, they don’t give a damn anymore, others continue to view the movie industry as the stuff their economic dreams are made of.

Top Photo: The Discovery Channel’s Deadliest Catch benefited from a generous Alaskan television-production incentive, helping create a whole genre of reality TV series. (DISCOVERY CHANNEL/PHOTOFEST)

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