Left and Right agree: Film subsidies won’t create ‘useful industry’ in Silver State

LAS VEGAS — As Nevada lawmakers weigh different ways to attract new industries to the state, analysts on both ends of the political spectrum agree that one policy that shouldn’t be attempted is film subsidies.

“I don’t think they’ll create any useful industry in the state,” said Joe Henchman, vice president of the Washington, D.C.-based Tax Foundation, a right-leaning organization that published a highly publicized study on film subsidies.

And in Louisiana, a report from a left-leaning watchdog organization, the Louisiana Budget Project, calls film tax credits “Costly Giveaways to Hollywood” that “Louisiana lawmakers ought to rein in.”

Affiliated with the liberal Center for Budget and Policy Priorities in Washington, D.C., the Louisiana Budget Project is directed by Jan Moller, a former reporter for the Las Vegas Review-Journal and the New Orleans Times-Picayune.

Says the Project’s film tax credits study: “Unfortunately, the returns to the state on this investment, like many of the movies made here, have been a flop.” Using data from the Louisiana Economic Development Office, the report concludes that Louisiana taxpayers spend $7.29 for every $1 in revenue.

The current film subsidy bill being discussed in Carson City, SB 165, would establish a 23 percent tax credit handed out to a film company for its cumulative expenditures and production costs, with additional tax credits available if over 50 percent of the production’s “below-the-line” crew are Nevada residents and over 50 percent of the production was filmed in a Nevada county.

The bill was introduced by Sen. Aaron Ford, D-Las Vegas, and has picked up several Republican co-sponsors. During the bill’s presentation at a Feb. 21 Senate Committee on Revenue and Economic Development meeting, several exhibits were submitted on behalf of the film industry to show that the bill’s potential economic effect on Nevada would be positive.

According to the Nevada Film Incentive Executive Summary, which used data compiled from the Nevada Film Office and Motion Picture Association of America (MPAA), Nevada could earn $1.58 in tax base revenue for every $1.00 credited, and receive an estimated $846 million net economic impact.

The problem with these projections, says Henchman, is that they tend to be overly optimistic and assume one state will have results similar to those of another state.

“Every state is different, so for one state to look at New Mexico or Louisiana and say what’s working for them will work here is risky,” he said. “Hollywood knows where the incentives are at, so even if you pass a credit at 23 or 25 percent, [film producers] are still going to look at places like Louisiana and New York that offer much larger credits.”

Nevada Journal contacted the Nevada Film Office and the Nevada Governor’s Office of Economic Development multiple times seeking comment, but received no response.

Even without the film tax credits, however, Nevada competes well against other states with credits. According to the MPAA, the film and television industry is responsible for 2,975 direct jobs and $135.7 million in wages in Nevada. In New Mexico, a state with a 25 percent credit and where the television program “Vegas” is filmed, film and television are responsible for 3,268 direct jobs but only $131 million in wages.

Arizona, neighboring both Nevada and New Mexico, outdoes both states, according to the MPAA, with 9,285 direct jobs and $355 million in wages. Arizona, like Nevada, doesn’t have a film incentive program, although legislation establishing a 20 percent tax credit has been introduced in the state legislature.

Even if Nevada does look at other states as examples, adds Henchman, most state film incentive programs aren’t models of success. Louisiana, for example, currently has a 35 percent tax credit, but a 2011 report commissioned by the Louisiana Economic Development Office showed the state’s taxpayers lost $157.6 million on the program.

A comparative study submitted by the Nevada Film Incentive Task Force, an organization advocating for Nevada film subsidies, also concluded a program with a 35 percent credit like Louisiana’s is unsustainable:

A Nevada program at 35% would likely draw $500M ‐ $1B in productions. It would, however, likely have a negative fiscal impact and prove unsustainable. It would attract the wrong kind of productions (i.e. mega‐budget blockbusters) to Nevada, and we would not have the crew base to handle the business. It would also set off a bidding war against NM and UT (a “race to the bottom”) that we could not win and therefore should not wage.

In Louisiana, both the political Left and Right join in criticizing that state’s program.

Jeffrey D. Sadow, an associate professor of political science at Louisiana State University, Shreveport, wrote on his right-leaning blog that the subsidies amount to “corporate welfare.”

Moller, director of the Louisiana Budget Project, told Nevada Journal that, “Tax credits are essentially spending by another name.”

“Conservatives tend to hear ‘tax credit’ and think they’re giving a company a break on its tax burden,” he said, “and liberals tend to think they’re bringing in good, creative jobs. But the reality is you’re spending money that could’ve been spent on things like schools or other government services.”

In New Mexico, the state’s 25 percent film incentive structure is subsidizing the production of the CBS network television show “Vegas.” But that incentive program itself — frequently mentioned at the Nevada Legislature — is also the subject of debate.

One study, conducted by Ernst & Young for the New Mexico Film Office, claimed New Mexico’s film incentives generated $1.50 for every dollar in tax credit. A separate study, however, by New Mexico State University, found the credits generated only $0.14 per dollar in tax credit — an 86-cent-per-dollar loss.

Nick Johnson, vice president of state fiscal policy at the Center on Budget and Policy Priorities, a left-leaning think tank located in Washington, D.C, told Nevada Journal that Nevadans “should be thankful New Mexico’s paying to produce a TV show that gives Vegas free publicity” and look for different ways to diversify the state’s economy.

“If a state’s determined to pursue the film industry, an alternative approach could be to have a university or the state itself invest in workforce training specific to the film industry,” said Johnson.

“All these states [with film incentives] hope for a permanent industry, but they never get it because Hollywood imports the talent and isn’t confined to one state.”

Francisco Menendez, professor and chair of the University of Nevada, Las Vegas’ film department, disagrees, saying film incentives could help the state and that talent wouldn’t be a problem.

“[Las Vegas is] a 24-hour town. There’s much more for stars to do here than in states where all they can do is just go back to their trailer when they’re not filming,” said Menendez. “We have all sorts of local and imported talent here, but right now [production companies are] skipping over us for other places.”

Moller acknowledged that some permanent jobs have been created in Louisiana, but added that the state program still loses money for state taxpayers in the long-run.

“We recognize that people have invested and started businesses here,” Moller said, “but Hollywood is a very mobile industry, and most of these productions aren’t set up for long.”

The Tax Foundation reached a similar conclusion, noting that film incentives could spur short-term growth but are a bad long-term policy for any state:

While broad-based tax competition often benefits consumers and spurs economic growth and development, industry-specific tax competition transfers wealth from the many to the few.

Kyle Gillis is a reporter for Nevada Journal, a publication of the Nevada Policy Research Institute. For more in-depth reporting, visit http://nevadajournal.com/ and http://npri.org/.