States are fighting to bring Hollywood to Main Street – and paying big

While 35 states now have some form tax breaks for movies, studios often go to the highest bidder, industry officials said. And the studio buying spree has prompted some states in recent months to increase tax breaks to outsmart their neighbors, drawing significant criticism for the huge amount of public money intended to offset the costs of a lucrative industry.

“The only thing they look at is their spreadsheet and where they’re going to save money,” said Laurent Rejto, director of the Hudson Valley Film Commission in New York, estimating last year that the region was considered for 20 productions but ended up with only two.

And there’s plenty of taxpayer money available for studios to film the next show or movie, especially as states are now overflowing with cash due to higher-than-expected tax revenues as the coronavirus pandemic Covid-19 is decreasing.

Georgia issued a national record of $1.2 billion in tax credits last year, far exceeding any state, but has also faced calls for the program to be curtailed. A move along these lines in the Legislative Assembly failed, a sign of the power of industry in state houses where it lobbies and enjoys strong union support.

Georgia’s ability to attract the best shows and movies — like Netflix’s “Stranger Things” and Marvel’s “Black Panther”has made increasing efforts to cap its spending and also no longer subsidize “over the line” costs, which include a portion of actors’ salaries.

And unlike many states, Georgia does not disclose how much each production receives in tax breaks, which the state claims is confidential information.

“It cannibalizes the state budget,” said Danny Kanso, a policy analyst for the Georgia Budget and Policy Institute, a left-leaning group.

“First, we need transparency. We need to know where these credits are going and how much these productions are earning. And two, we need to reorganize credit to incentivize companies that are actually based in the state, that hire workers in the state, rather than offering that credit to everyone equally.

A battle of states

States have defended their movie subsidy programs, saying the tax breaks create thousands of jobs — whether on set or in the form of spin-off economic benefits, like local stores that make food and sell supplies for productions.

In 2019 and 2020, New York — which has one of the largest programs — generated $10 billion in total spending from its productions, according to Empire State Development, the state’s economic development arm. The state reimburses 25% of production costs to studios and 35% to those filming outside the New York area in order to get the work out in other parts of the state.

Studios submit their expenses after productions have finished and then get reimbursed for a portion of their eligible costs.

“The New York State Film Tax Credit Program supports the livelihoods of production workers, caterers, hospitality workers and many others in our local communities and boosts jobs and investment that, as several states that have halted their tax incentive programs have learned, would otherwise disappear,” agency spokeswoman Kristin Devoe said in a statement.

When New York boosted its schedule to $420 million a year about 12 years ago, productions jumped from 62 a year to 216 in 2021, and that fueled more physical studios. The state now has 130 production sites, primarily in New York City, but also in other areas further upstate, where additional savings are available.

The tax benefits add up: ‘The Irishman’ on Netflix starring Robert De Niro received $35 million last year. The most was a few years ago, when Columbia Pictures’ “Amazing Spider-Man 2” received $46 million.

The debate over tax breaks for movies is one of the few issues that often unites conservative and liberal advocacy groups in state capitols: They typically scoff at programs as unworthy freebies.

One point of contention is that some shows and movies would still be filmed in New York, for example, regardless of the incentives. “Saturday Night Live” stands out: He receives millions of dollars every year for being in Manhattan, even with his “Live from New York” moniker. Last year, the NBC show received $18.6 million for season 44.

“I don’t think people fully understand what an outrageous and egregious giveaway this is. It is not tax relief. This is a subsidy, pure and simple,” said EJ McMahon, the founder of the Empire Center, a fiscally conservative group based in Albany.

Fueling the TV and Film Industry

Tax subsidies have created a scenario of haves and have-nots in states.

When Florida ended its movie tax credit about six years ago, cameras packed up and moved to other states, illustrating how portable productions can be. For example, the HBO show “Ballers”, with Dwayne “The Rock” Johnson, was based in Miami from 2015 to 2019 and filmed the first two seasons there. But when the tax credits dried up, he moved to California and used sparkling South Beach archive footage for future seasons.

“Budget is everything,” said Sandy Lighterman, the film commissioner in Broward County, Florida. “It’s like looking at your grocery store and your rival grocery store. If one bought one, got one for free and the other didn’t, where do you go? It’s the same concept.

In New Jersey, former Gov. Chris Christie, a Republican, canceled the state’s film tax credit program in 2010 amid complaints that MTV’s reality show “Jersey Shore” had benefited from it. Democratic Gov. Phil Murphy signed legislation that brought the program back in 2018 and has since strengthened the initiative. The state is now offering up to 35% reimbursement on expenses, including up to $500,000 for each actor’s salary.

The tax breaks are part of a perfect storm for the industry, said Steven Gorelick, executive director of the New Jersey Motion Picture and TV Commission: Streaming services have created unprecedented demand for new content in recent years, and states are looking forward to the business.

Streaming services and cable channels “not only try to fill themselves with productions, but you have an audience that has an endless appetite for content,” he said.

California, where most of the top studios have been based since Hollywood’s heyday in the 1920s, has struggled to keep up as it lost its position as industry leader to the Georgia and other states.

Last year, the state legislature added an additional $75 million to its $330 million-a-year schedule, as well as an additional $15 million a year to coax television broadcasts into the state.

The extra money “provided significant and much-needed funding for our program because our program has been oversubscribed for a long time,” said Colleen Bell, executive director of the California Film Commission.

“We had to turn down qualified productions because we didn’t have enough tax credits to allocate, and then those productions will go to other states. There is a lot of competition there.

A March status report found productions that applied for tax breaks in California but were denied between 2015 and 2020 spent $2 billion in 18 different states, including $552 million in Georgia and $250 million in New Mexico, which also has strong incentives.

Economists and state officials favoring tax breaks have long been at odds.

A report 2012 by the California Legislative Analyst’s Office found that several government-commissioned studies exaggerated the program’s benefits, concluding that “state and local tax revenue return would be less than $1.00 for every tax credit dollar ” issued.

Meanwhile, two years ago, a state audit in georgia also accused the state of “an inflated multiplier to calculate credit-related economic activity and flagged misleading employment numbers.”

“While the Georgia Film Tax Credit has increased the production of film, television and interactive entertainment in the state, the information available to policymakers regarding the impact of the credit is incomplete and inaccurate,” revealed auditing.

But lawmakers have defended the program, and New York recently extended its tax breaks through 2029.

Georgia House President David Ralston this year rejected efforts to cap the program, which allows productions to sell unused tax credits to other companies to reduce tax liabilities.

Simply, he said Variety“I’m not ready to take this industry out of Georgia.”