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Will Coronavirus End Hollywood’s Lucrative Tax Breaks?

The Walking Dead BTS
Gene Page/AMC

Hollywood has enjoyed a symbiotic relationship with state governments for years. In return for shooting movies and shows in Louisiana or New York City, it received generous tax incentives that allowed producers to shave millions of dollars off their budgets. These states got something for their generosity too. Not only did they have the thrill of seeing their local communities used for the backdrop of, say, a zombie apocalypse in the case of the Georgia-shot “The Walking Dead,” but they also were able to provide residents with thousands of good-paying jobs.

Due to the coronavirus, that could all change. Across the country this summer, state officials are slashing billions in spending as they grapple with a shrinking tax base brought on by the economic collapse. Without assistance from the federal government, leaders like New York Gov. Andrew Cuomo have even raised the prospect of laying off firefighters, police officers, health care workers and teachers as they look to get costs under control and plug budget shortfalls. That has put increased pressure on film and television tax breaks, which states have long used to entice production jobs.

“In today’s environment, film production incentives are a luxury, and no states are looking for budget luxuries,” says Greg LeRoy, executive director of Good Jobs First, a nonprofit advocacy group focused on government and corporate accountability.

In Georgia, lawmakers reined in spending by $2.6 billion, instituting tough measures that included more than $1 billion in cuts to K-12 education. In a Senate Finance Committee hearing last week, two lawmakers discussed capping the state’s tax credit, which pumped $860 million into the entertainment industry in 2019.

“It’s much more on the table than it has ever been,” says J.C. Bradbury, a professor of economics at Kennesaw State University.

Bradbury notes that two audits exposed lax controls in the program and raised doubts about whether the state was getting a return on its investment.

“What really brought it to the forefront is the state budget crunch,” Bradbury says. “The governor has said we have to cut 14% across the board.”

So far, no bill has been introduced to cap the program. And any such bill would likely meet stiff opposition from the Georgia-based entertainment industry, which has become a vocal constituency over the past decade. Insiders are also confident that Gov. Brian Kemp, a Republican who is eager to burnish his pro-business bona fides, would veto any bill that tried to cut incentives. They also believe that the GOP-controlled legislature would kill efforts to end the benefits before a vote was even cast. Studios expect that states will be in such dire need of returning people to work that they will have no choice but to preserve these measures. They point to the billions in economic activity that Georgia-shot productions such as “Stranger Things” and “Avengers: Endgame” are estimated to have contributed to the local economy as evidence that the incentives are paying for themselves. Other factors may help protect the credits from lawmakers and citizens who would like to see them scaled down or excised entirely.

“The health emergency shut down production, so a much lower amount [of credits] is going to be paid out,” says Hilde Patron, a professor at the University of West Georgia’s Richards College of Business. “It’s also a popular program. People like having the film industry here. They think it’s exciting to have ‘The Walking Dead’ shoot here.”

However, Patron and other experts think that opposition to the tax incentives could build if social programs keep being impacted. In that kind of atmosphere, anything that could be perceived as a corporate giveaway could become politically toxic.

“Many budgets are in flux due to pandemic-related uncertainty, but it would surprise me if states did not use this opportunity to revisit corporate welfare, including what they offer for film and television production,” says Michael Thom, associate professor at the University of Southern California’s Sol Price School of Public Policy and the author of studies that are critical of production incentives. “Peer-reviewed studies are clear, and so are analyses from quite literally every state that’s run the numbers: These incentives drain money from budgets. Cutting them solves that problem; expanding them makes it worse.”

Similar debates could arise in New York, where Cuomo has said the state faces across-the-board cuts of 20% if the federal government does not come up with a relief package.

“Right now the stage is being set to cut aid to cities and towns, which employ emergency workers and first responders,” says Dave Friedfel, director of state studies at Citizens Budget Commission, a New York-based civic organization. “So I don’t know how you can justify sending hundreds of millions of dollars to Hollywood. Ideally this credit should be eliminated, but a solid first step would be to reduce the amount.”

The state’s film incentive, considered one of the most generous in the country, is capped at $420 million per year, and has drawn criticism in the past for massive subsidies for major TV shows. “Blue Bloods,” the CBS drama, was subsidized to the tune of $80 million over a four-year period.

“Does a production like ‘Blue Bloods’ really need New York’s money at a time when the lines at food pantries are at record levels?” asks Ron Deutsch, executive director of the Fiscal Policy Institute. “I don’t see how you can justify spending this much money in this way when you’re pulling teachers out of classrooms and nurses out of hospitals.”

New Mexico’s lawmakers have long supported that state’s film and TV production credit, which is set at around $100 million. In recent years, there has been talk of lifting the cap to compete with more generous credits elsewhere.

But the state legislature recently ended a session where it had to cover a $2 billion shortfall, and came up with $600 million in cuts. More are expected in the next legislative session. Sen. John Arthur Smith, who chairs the Finance Committee, says the film credit could well be up for discussion.

“I strongly suspect the next legislature will probably be talking about that,” Smith says. He argues that the benefits of the credit have mostly been felt in the Santa Fe area, and lawmakers there are likely to defend it the most.

“It has not been widespread throughout the state,” he adds.

For states like New York, Louisiana and New Mexico, film and television shoots have kept thousands employed as lighting technicians, makeup artists, caterers, grips and other critical below-the-line jobs. Casts and crews have also patronized hotels and restaurants, creating a spillover effect that results in millions, even billions of dollars in economic activity.

It’s possible that instead of being forced to simply defend existing tax incentives for film and television productions, state lawmakers may find themselves being lobbied to come up with other breaks to lure movies and shows to their borders. To shoot safely during COVID-19, film productions are expected to outfit staff in protective equipment, provide frequent testing and mandate social distancing. These measures could cause budgets to swell and contribute to costly production delays. There’s a world in which states could be asked to help defray these bills.

“Given their track record, it would not surprise me if the industry asked for additional taxpayer support,” says Thom.

In the coronavirus era, however, Hollywood may not like the answer it receives.