Are Mass Movies a Sound Investment?

Massachusetts communities are painted in many ways on the big screen – from intellectual and prestigious to downright dangerous. But while these sketches may make for sexier entertainment, in reality we all want our neighborhoods to be healthy, safe, and stable. In order to maintain – and in some cases rebuild – cities and towns, we need to look closely at the investments we make in our state and how they are paying off, both in the long and short term.

This is even more vital in the face of what is currently estimated to be a 1.8 billion dollar structural deficit – created by a decade of tax cuts and worsened by the national economic downturn [MassBudget Report].

So let’s take a closer look at our state’s investment in those local films we all love:

What do we net on film tax credits?

Beginning with the start of this program in tax year 2006 through June 30, 2010, we approved 259.8 million dollars in film tax credits– with a goal to boost tourism, provide jobs, and increase spending within Massachusetts. Like all investments, this is only a wise decision if it is creating more value (be it financial or otherwise) than is being poured in. Unfortunately, we only gain an average of 14 cents in tax revenue for every dollar we issue in film tax credits [DOR Report].

How do film credits impact our short and long-term goals for the state?

As opposed to other tax credits such as the research credit, low income housing tax credit and life sciences tax credit, the film tax credit strategy is not making a long term investment in MA. The impact of films dries up pretty much as soon as the shoot ends. These aren't lasting jobs. 

Hollywood East? Film Tax Credits in New England, a policy brief from the New England Public Policy Center of the Federal Reserve Bank of Boston, discusses the impact the film tax credit has on key areas:

“As more evidence becomes available, policy analysts and policymakers should evaluate the cost-effectiveness of film tax credits relative to alternative policies designed to promote job creation and economic growth. They should also take into account the economic effects of measures needed to offset the revenue losses incurred by film tax credits in order to maintain balanced budgets.

…because employment in the film industry consists mostly of a series of short-term discrete projects, analysts have difficulty determining the extent to which each part-time job is filled by a different person, or the same worker moves from project to project … many jobs in the film industry are temporary and sporadic. Production of Mystic River, for example, lasted just eight weeks on location in Massachusetts.”

According to Building a Strong Economy: The evidence on combined reporting, public investments, and economic growth,

“Research shows an emerging consensus that public investment in infrastructure either stimulates or supports economic growth and activity. In the leading reviews of this research, not every study on the issue has found such an effect in every case, but most have shown a positive relationship between investment in public infrastructure and positive economic outcomes.”

Wouldn’t it be wiser if the strategy was to use the money instead to grow industries that are more firmly anchored here, or to invest in entrepreneurs who are already working in MA?

How does the film credit compare to other investments?

According to the Massachsuetts Budget and Policy Center,

“The 25 percent rate is significantly higher than most credits in the state tax code…  [including the] Economic Opportunity Area Credit that provides a credit of 5 percent of the cost of property a business invests in within an economic opportunity area.” [Full Report]

How do Massachusetts residents benefit from film tax credits?

In Cloak and dagger, Bruce Mohl explores the film tax credit and wonders where the upside is compared to that of alternative investments: 

“There is no application process, no job-creation requirements, and no disclosure of who is receiving what...

State issued $165 million in film tax credits over the previous three years, which attracted $676 million in spending and generated the equivalent of 3,177 full-time jobs. Only 1,876 people worked directly on films, and they were paid a total of $429 million. Massachusetts residents held roughly 40 percent of the jobs but received only 18 percent of the wages. Nonresidents pocketed the bulk of the money, with $177 million going to just 37 out-of-state actors, directors, and producers. [That translates to an average of $4.8 million per person.]

By contrast, $50 million in life sciences tax credits have now been issued and they are expected to generate 2,000 jobs in Massachusetts. Those jobs will probably create jobs in other businesses that support the life sciences sector. One can quibble with issuing tax credits to companies like Sanofi-aventis, which has a market value of $85 billion and is in the midst of trying to buy Genzyme Corp. of Cambridge. But at least the Massachusetts Life Science Center makes its tax credit awards at public meetings and lets people know which companies are receiving the money.”

What is the bottom line on our state’s ongoing investment film tax credits?

As a state, we must decide whether providing large tax subsidies for small returns to a relatively small sector of the state economy – one with such shallow ties to our community  – is the best use of economic development resources. Leaders with vision should have no problem with this question.