Tax incentives face scrutiny

Breaks to be extended, but climate cools

Production tax breaks, which have bloomed across the country over the past decade, have shown surprising resiliency in the face of state budget cuts. In California, which some observers says is on the brink of bankruptcy, Gov. Jerry Brown is set to extend the state’s $200 million in production tax incentives.

But the question is, what happens next? This year’s presidential campaign has been tinged with talk of tax reform and, if there is a genuine drive in this direction on the part of Washington as it grapples with the so-called “fiscal cliff” later this year, it is not too much of a stretch to think that talk of reform could extend to other levels of government, including the 38 states that have some form of production sweeteners.

Pressuring states against further incentives are two orgs on opposite ends of the spectrum, the left-leaning Center on Budget & Policy Priorities and the right-leaning Tax Foundation, which have for several years challenged the benefits as little more than giveaways that don’t return lasting jobs.

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“When it comes to film credits, it is better to receive than to give,” says Jon Shure, director of state fiscal strategies for the Center on Budget and Policy Priorities.

The MPAA, meanwhile, has countered with its own reports and research, and characterizes the tax orgs’ premises as misleading. It points to states like Michigan, which, after having scaled back its incentives significantly, restored $25 million to the program for fiscal year 2013. Even in Iowa, where a criminal investigation surrounding abuses of incentives ensued, there is some talk of re-starting a program in limited form.

Incentive programs grew over the past decade, often because states without tax credits feared that they would lose out on productions.

Yet some of the strongest advocates of credits say that more state film offices face a growing burden of transparency — to show where jobs are being created, or whether money is being spent in-state, as a way of ensuring that the benefits aren’t being enjoyed elsewhere.

Earlier this year, Ernst & Young released a study commissioned by the MPAA that was, not surprisingly, generally supportive of the idea of incentives. But it also cautioned that programs shouldn’t be measured just by how much state and local government coffers recoup, but rather via a host of other factors that boost the private sector.

The Ernst & Young research states: “If a film is successful in generating tourism, the economic and fiscal impacts can be substantial. For example, if a successful $10 million film production induces 100,000 visitors to a state over several years, these visitors would spendmately $34 million during their visits on lodging, meals, entertainment and other purchases. In a typical state, this spending would create 310 direct and indirect jobs and $1.2 million of additional state and local taxes.”

The tax orgs question the assumptions of a ripple effect from Hollywood production. But no matter whose statistics are more correct, it’s hard to imagine that more indiscretions like the one in Iowa, in which production money ended up helping to buy a filmmaker’s Land Rover, will be tolerated at a time when the issue of fiscal reform may soon hit the front burner.

MTV’s “Jersey Shore” once again put New Jersey on the map, but last year, Gov. Chris Christie blocked nearly a half-million dollars in production tax credits, perhaps seeing the political danger of the words “Snooki” and “snookered” in the same headline.

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