MARCH 13, 2019
Hollywood has long dominated film and television production in the United States, but in the 1990s many producers were lured to Canada and other U.S. states with taxpayer sponsored incentives.
Over the last twenty-five years, several states have developed significant production infrastructures that have drawn producers from California and around the world, including Louisiana, New Mexico, New York, Georgia, Illinois, Hawaii, Ohio, and North Carolina.
However, in recent years 13 states have ended their film incentive programs. This retreat marks a larger trend of states re-evaluating and reducing film incentive programs.
In 2010, state production incentives hit a high-level mark. Tax incentives for productions were available in 44 states, Washington D.C., and Puerto Rico through either a tax credit, rebate, or grant.
However, by 2018 only 31 states maintained their incentive program, and many of these were reduced in structure or amount.
As state tax credit programs grew more popular over the last decade, many fiscally prudent governors and legislatures are resisting the use of taxpayer funds to facilitate production activities. Similar to taxpayer-funded sports stadiums, these programs are seen as unneeded welfare for the most well-off.
Criticism is only snowballing as many states struggle to plug funding gaps for basic services. Taxpayer rights groups led campaigns to reduce tax programs in New Mexico, North Carolina, Michigan, and Louisiana.
Of all the states offering incentives, only Utah and Virginia made small increases to the funds available for incentive programs.
North Carolina, which switched from a tax credit to a grant program in 2015, increased its annual program cap to $34 million for 2018 and eliminated the program’s July 1, 2020 sunset date.
… And Fall
State legislators are seeking to balance supporting an industry that has long been subsidized with unclear economic outcomes that these incentives are designed to produce. For instance, in a recent study, Louisiana taxpayers only get a return of less than 25 cents on the dollar from its incentive program.
A few minor states have eliminated incentive programs in recent years. Most recently, Wyoming and West Virginia eliminated their incentive programs. Wyoming allowed its program to expire, and legislation to resurrect it failed in 2017.
Likewise, in January 2018 West Virginia’s Legislature eliminated the state’s tax credits. This law that eliminated the program was the result of a report released by the state’s auditor citing ‘minimal economic benefit to the state’.
Besides states eliminating their programs altogether, several states are tightening the requirements for qualifying expenses and reducing per-project and annual program caps.
In 2018, Colorado, Maryland, and Texas reduced the annual appropriation available for film incentive programs. Oklahoma reduced its annual program cap from $5 million to $4 million. Below is a breakdown of production incentives in several U.S. states.
In 1992, Louisiana was the first state to implement state tax incentives for film and television productions. Following its lead many states rushed to pass tax incentive legislation.
Louisiana introduced a $150 million cap on the amount of credits that can be issued each year. This change was enacted due to increasing budgetary pressures in the state and the uncertainty uncapped film credits can create in budgeting. As stated above, taxpayers are only getting around 25 cents back on each dollar spent through the program.
Georgia ranks in the top three states for film and television production, behind New York and California. According to a economic impact report, filming contributed $7 billion to the local economy in 2016.
In contrast to many state reductions, lawmakers in Georgia are doubling down on these programs in an effort to build out the production industry which is coined Y’allywood and to subsidize the restaurant and hotel industry.
Once the third largest production hub behind California and New York, Florida is currently the only Southeastern state without a incentive program after its legislature ended the program in 2016.
The state allocated $296 million worth of taxpayer funds, which was expected to last until 2016. However, by 2014 the funds had been allocated. Besides the burden to taxpayers, many criticized the first-come, first-served nature of the program rather than judging the perceived value of the project to the state.
An Office of Economic and Demographic Research report claimed Florida only received 43 cents return on each dollar spent on tax credits.
Given New Mexico’s proximity to Hollywood, the state has long been a magnet for film and television productions. However, after New Mexico passed an annual $50 million limit on film payouts, claims continue to outpace what’s available under the cap.
The cap passed by lawmakers in 2011 has produced a massive backlog of about $180 million in film incentives to pay out, as of the last fiscal year.
The debt obligation is projected to rise to $250 million by the end of the current fiscal year in June 2019. If current trends continue, these obligations will reach $700 million by 2023. According to chief economist for New Mexico’s Legislative Finance Committee, a film company claiming a credit in 2023 would have to wait 14 years to get reimbursed under the projected backlog.
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Financiers are already reducing exposure to tax credits in New Mexico as old debts continue to mount.
There are a number of studies that show production incentive programs are not a net win for the state in the long run. State legislators on the both sides of the aisle believe the tax credit system needs revamped, but cannot agree on specific solutions.