Hollywood tax incentives come under fire

Actor-director George Clooney, center, works on the Cincinnati set of his political thriller "Ides of March," which got a $1.2 million Ohio state tax credit. AP file

Hollywood has enjoyed soaring tax incentives over the past decade as states vie with one another to attract the glamorous moviemaking industry. But now some state officials are beginning to rethink the costs of becoming part of Hollywood’s dream machine.

States offered nearly $1.3 billion in incentives to lure film and television productions in 2011, up from just $3 million in 2000, according to the Tax Foundation, which expects the figure to continue to rise this year. And it’s not just California and New York underwriting the industry: About 40 states now offer some form of incentives, making them an integral part of the entertainment business.

“The beginners of this were Louisiana and Hawaii,” said Joseph Henchman of the Tax Foundation, in an interview. “They were successful at it.”

So successful, in fact, that states with healthy entertainment industries initiated credits to prevent productions from fleeing to lower-cost states. “That’s when the money exploded,” Henchman said.

Henchman and other tax experts argue that Hollywood tax credits are not worth the money because the economic benefits created by these productions are fleeting.

"I think states are realizing that they are not worth the cost,” Cara Griffith of State Tax Notes said in an email. “The reality is that most states have not seen a corresponding increase in jobs created or dollars of revenue brought into the state.”’

Still, only a few states have been willing to give Hollywood a cold shoulder. The reasons are many. For one thing, there is civic pride. Henchman notes it’s “irritating” for people to see a film that is supposedly set in their town that was shot elsewhere. Not to mention the desire of politicians to bring some Hollywood glamour to their communities.

“Creating a great business climate is a great way to create jobs, but you don’t get to take photos with celebrities.” Henchman said.

Some states are less eager to roll out the red carpet for Hollywood.

Efforts in Hawaii to expand the credit last year failed to get approval from the legislature, according to Georja Skinner, a state official. New Jersey Gov. Chris Christie suspended the Garden State’s tax credit in 2010, saying the cash-strapped state could no longer afford it. Arizona’s lapsed in 2010, and Iowa ended its program in 2009 after $26 million in state money was misused, resulting in criminal charges.

But the majority of states still offer incentives. California Gov. Jerry Brown recently signed a two-year extension to the state’s film tax credit, and New York recently sweetened its incentives. Pennsylvania Gov. Tom Corbett saved his state’s incentive from the budget ax last year, and Georgia’s program also was spared.

Industry officials say tax incentives can be a critical factor in deciding where to locate a production.

“It’s extremely important,” said Joseph Chianese, executive vice president at EP Financial Solutions at Entertainment Partners, “I can’t believe that 40 states and 30 countries are doing it just to do it.”

Many states also reap other benefits from TV and movie shoots such as increased tourism, according to the Motion Picture Association of America, an industry trade group. Studios in New York, Connecticut, .New Mexico and Michigan have made significant investments their infrastructure and equipment because of the incentives, according to the MPAA.

California’s program is relatively modest in scope at $100 million, compared with the $400 million New York spends. And California’s is targeted at smaller productions, with big-budget movies, network television and premium cable programs ineligible.

Nonetheless, the program is hugely popular. The state got 176 applications for the credit on the first day to apply for the program last year, more than double what was received in 2010, according to a study by the Milken Institute. Other states have reaped benefits as well.

Pennsylvania officials estimate that $334 million was spent in film production across the state, creating 2,159 full-time jobs in its latest fiscal year. The state has $60 million in film tax credits budgeted for fiscal 2012-13, unchanged from the previous year.

Georgia estimated the economic impact of the entertainment industry at $3.1 billion in the state in the last fiscal year from 333 productions. The Peach State, where filmmaker Tyler Perry shoots most of his movies, had a record year in 2011.

There is no direct cost to taxpayers since the state’s incentive is a refundable tax credit, according to Lee Thomas, director of the Georgia Film, Music & Digital Entertainment Office. Henchman disputes this view arguing that the 30 percent credit is transferable and is being sold to entities that owe the state money. He estimates that the state’s annual film tax incentives cost $200 million.

More business news:

Kutcher, Sheen among highest paid in Hollywood