How Hollywood Handouts Got Their Groove Back

Thanks for nothing, Georgia.

Photo credit: Jernej Furman

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With most state legislative sessions winding down for the year, it’s possible to get a sense of the trends occurring across the country. There’s always good and bad, but I’m going to go ahead and give a big thumbs down to one trend in particular: Handouts for Hollywood have their groove back, and it’s a real problem.

I’m talking about tax subsidies for film and TV production, which are back in vogue in a major way. This year alone, at least six states — Maryland, New Mexico, Minnesota, Arkansas, New York, and Oklahoma — increased or expanded their programs. In addition, Missouri’s legislature passed and the governor is expected to sign a revival of its program that was repealed in 2015, Louisiana is a governor’s signature away from extending its program again, and there’s a push on in Michigan to bring back the program legislators eliminated in 2018. Nevada’s governor was even reportedly mulling over a special session to pass a film tax credit bill that died in committee.

And there’s surely more I missed. Gross.

I’ve written plenty of times before about why these programs are a bad deal economically, which you can go read here, here, and here. One of the most compelling stats: A 2018 survey of studies by economist J.C. Bradbury found that film tax credits return an average of only 27 cents per dollar invested. There’s simply no evidence subsidizing film or television production pays off for the general public, and plenty of evidence that it sucks away funds that could go toward productive uses.

Between 2009 and 2018, lots of lawmakers acknowledged that reality, and so things were trending in the other direction, with 13 states abolishing their film tax credit programs. So why the reversal recently? I have three theories, all of which likely contributed in some way.

The Studio Subsidy Scam: One of the most potent (and accurate) criticisms of film tax credits over the years has been that they don’t so much create jobs as rent them for a while, due to the transitory nature of filmmaking and the fact that anywhere in the country really can stand in for anywhere else on the silver screen, which allows movie production corporations to easily play states off against each other and move projects elsewhere when they don’t get what they want. As the Maryland Department of Legislative Services put it in a 2015 report, “the credit does not provide any sustainable employment; the economic activity is dependent on continued productions each year and does not provide long-term economic development.”

To best this argument, film studios started pledging to build actual, permanent studios in places that opened the tax break spigots. Netflix, for example, built a studio in New Mexico to qualify for extra tax breaks, while New Jersey’s big film tax break expansion went along with a Lionsgate studio landing in Newark. Nevada’s bill that didn’t (yet) pass was pegged to the construction of a Sony studio.

The idea is that these studios create a more permanent level of employment than do random film productions, and lawmakers are buying that argument, hard. However, there is simply a finite amount of film production going on in the country, and building studios in order to steal it from other states is still a race to the bottom that will result in states spending money on studios that are underused or ultimately close, or overpaying to ensure that productions keep coming in to utilize what the public has helped build. But for now, the tactic is working and working well.

Building Better Lobbyists: The appeal to legislators of being able to hobnob with famous actors has always been a part of the film tax credit sales pitch, but Hollywood clearly realized that the look of state legislators handing public dollars to wealthy producers and actors wasn’t exactly a good one. Stories like Missouri tax dollars being used to install satellite TV in Ben Affleck’s hotel room while he filmed “Gone Girl” (really, it’s true!) helped speed some of the repeals. So Hollywood, as it does so well, fired up the marketing machine.

Specifically, film credit proponents got actors and other industry insiders to lobby on the explicit promise that they wouldn’t benefit from new tax handouts, but that the credits will trickle down to local businesses and workers. A shining example of the genre is this ridiculous video produced in support of Texas expanding its film credit program. It features Dennis Quaid, Owen Wilson, and Matthew McConaughey arguing that Hollywood subsidies would be very good for the Lone Star State, but not at all useful monetarily to them. Jeremy Renner pulled out similar rhetoric in Nevada (while admitting that he wanted his state to create a tax credit because it would allow him to work closer to home, as if that should be a public policy goal).

Even when they don’t involve famous faces, lobbying efforts in recent years from the film industry have focused very much on the local businesses that would supposedly benefit from tax credits, a case bolstered — as with stadium subsidies — by faux economic impact studies that are bought and paid for by the industry itself.

To be clear though: Public money spent on these programs leaks out of the community and into the bank accounts of wealthy producers and actors all the time — even when its not explicitly being paid to them — and there’s very little policymakers can do to prevent it. Most movie productions are structured as individual limited liability corporations, and they often have no tax liability, so the “tax credit” is really just a check that gets dispersed amongst the various investors.

Money is also simply fungible, so inevitably some portion of the payouts from these programs contributes to the high salaries and other perks bestowed upon the fancy people hanging out on movie sets, because they lift overall movie budgets. And even efforts to explicitly fund small, independent moviemakers run aground, as they did in Pennsylvania when a pot of money meant to support smaller films was sucked up by M. Night Shymalan, of Sixth Sense fame.

I imagine there’s also lawmaker turnover affecting the dynamic here: Newer elected officials who haven’t seen this song and dance before are wowed by star power — explicitly when actors lobby them, or the implicit association with something that will bring Hollywood to their state — and they weren’t around when previous programs went sour, so they’re more willing to listen to a sales pitch based on fantasy.

The Big Three Dragged Everyone Else Along: I think the biggest factor at play, though, is that the big three when it comes to film and television subsidies — Georgia, New York, and California — have truly massive programs and sophisticated PR campaigns to justify them, and that’s dragging loads of other policymakers across the country along in the wake. Georgia now tops $1 billion annually in film/TV tax handouts, New York increased its program to $700 million per year, and California is up to more than $300 million per year (and I’d bet good money on the Golden State upping that amount to keep up with the first two soon). All three earn tons of good — if not at all accurate — press for being at the forefront of a movie-driven economic renaissance.

That’s a dynamic that plagues all sorts of economic subsidy debates: Political capital is built on the impression of creating jobs and celebrating what looks like new economic activity, with that capital turning into votes later on down the line. And then other political actors want a piece of the action.

There’s also simply a lot of trouble building a coalition to oppose film tax credits. They split the labor movement, with some backing the programs because on-set jobs are unionized, and they also win the support of urban liberals and rural conservatives who live in the kinds of picturesque places filmmakers want to set up shop. And the fact that state budgets are relatively flush right now helped too, as there wasn’t much pressure this year to find things to ditch in order to balance the books, and there was spare cash to splash bringing back a program that pays political dividends.

I tend to think history will repeat itself here and that states will, once again, wise up in a few years and realize they’re playing a game they can’t win. In the meantime, enjoy all the movie and TV options out there — you’re already paying for them.

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UPDATE: Some good news out of New York: The legislature there has passed a full ban on non-compete agreements, sending it over to Gov. Kathy Hochul. That’s the second state legislature this year, after Minnesota, to approve an across-the-board ban, and hopefully many more will follow. I was on Capitol Pressroom a few weeks ago discussing the New York bill, which you can go listen to here.

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— Pat Garofalo