Colorado Peak Politics

Picture This: Film Tax Credits Demonstrably Wasteful, Ineffective

As most states wind down film tax credits, Colorado might expand them.

Journalists assigned to the capitol beat must feel like they’re stuck in the film Groundhog Day. Many important political battles take years before they’re resolved. Sadly this is also true of inane political battles that shouldn’t happen in the first place. Issues like film tax credit legislation embody the latter category. The fight over film tax credits resumed in Colorado last week in the form of House Bill 12-1286 sponsored by state Reps. Tom Massey (R-Poncha Springs) and Mark Ferrandino (D-Denver).

For starters, check out Melanie Asmar’s cover story in the latest of issue of Westword magazine entitled, “Colorado hopes to lure filmmakers with a new plan.” Colorado’s film tax credit fund currently holds $400,000. But HB 1286 and Gov. John Hickenlooper’s proposed budget each respectively appropriate $3 million to the fund, meaning the coffers could be flush with $6 million in taxpayer money in 2012.

Ironically, as Colorado attempts the most aggressive expansion of this program yet, many states are going in the opposite direction. 2010 is widely considered the peak year for states paying out aggregate dollars for film tax credits. Last summer The Economist described this trend bluntly saying, “After a decade of escalation, a stupid trend may have peaked.”

Over the last few years states like Washington and Arizona have phased out their programs, and others refused to appropriate them money. Meanwhile groups like the Center on Budget and Policy Priorities and the Tax Foundation have effectively discredited film tax credits through comprehensive national studies. The details are especially grisly when honing in on specific states.

Let’s start with the “high flyers”: Michigan, New Mexico and Louisiana. For years film tax credit proponents cited these states as success stories. A 2008 New York Times article critical of film tax credits (considered contrarian at the time) has proven prescient. Author Michael Cieply wrote, “(S)tates are moving to rein in their largess that has allowed producers to be reimbursed for all manner of expenditures, whether the salaries of stars, the rental of studio space or meals for the crew.

Michigan’s bipartisan Senate Fiscal Agency found the film tax credit program generated 11 cents in revenue for every dollar spent. Last year Gov. Rick Snyder worked with the legislature last session to slash the program and cap spending at $25 million as a part of a broad tax reform initiative.

New Mexico’s Legislative Finance Office found its program generates 14 cents in revenue for every dollar spent. Last year New Mexico capped its program at $45 million with Gov. Susana Martinez saying the state can’t afford to “subsidize Hollywood on the backs of our schoolchildren.”

In Louisiana two studies found the program generates between 13-18 cents for every dollar spent.Louisiana’s program remains in place but has been hit with several scandals including one where the former top film office official received a two-year prison sentence in 2009 for abusing the program.

Now for the horror stories: Iowa and Massachusetts. The Iowa Office of Auditor of State found that nearly 80 percent of the transferable tax credits issued by the state ($25.6 million of nearly $32 million) were issued improperly. The program was suspended in 2009 after becoming embroiled in controversy. And there have been many successful convictions of filmmakers, officials and tax credit brokers in the ensuing years. The Massachusetts Department of Revenue found its program generates 16 cents in revenue for every dollar spent. Massachusetts Attorney General Martha Coakley is currently prosecuting a nearly $5 million lawsuit where a Los Angeles filmmaker is facing multiple counts of fraud and larceny.

Colorado’s Joint Budget Committee demonstrated leadership on this issue during a December 2011 meeting when Sen. Kent Lambert (R-Colorado Springs) and Rep. Claire Levy (D-Boulder) questioned whether this film credit program was the best use of taxpayer money. It may be easy for some lawmakers to rubberstamp bills like HB 1286 that are popular under the Gold Dome, but it would be a mistake for them to whistle past the graveyard of failed film tax credit programs.

Harris Kenny is a Denver-based policy analyst at Reason Foundation (reason.org), a nonpartisan public policy think tank. This piece originally appeared on Colorado Peak Politics on February 14, 2012.

Harris Kenny is Policy Analyst





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