Hollywood Heist: Subsidies to the entertainment industry continue to fleece taxpayers

By David Sirota , written on February 20, 2014

From The News Desk

Now that California has a budget surplus, the question for the state's lawmakers is pretty simple: Should they use all the new money to reverse recession-era cuts to social programs. Or, should they spend up to $400 million a year of the new resources on more taxpayer handouts to the film industry?

Yesterday, 59 California state legislators called for the latter, sponsoring a bill to increase tax credits to the film and television industry. Call it yet another Hollywood heist, this one engineered with a double-shot of chutzpah.

Consider the context of this latest proposal. For one thing it is being championed by state lawmakers even though one of their own is right now embroiled in an FBI corruption investigation surrounding - you guessed it! - tax subsidies for the entertainment industry. According to court documents uncovered by Al Jazeera America, that probe involved law enforcement officials posing as film executives, allegedly bribing a powerful California state senator to expand tax subsidies for their movie project.

The case generated big headlines only weeks after a joint New York Daily News/PIRG investigation uncovered a legalized bribery scandal on the opposite coast. There in New York, the newspaper reported that the "film and television industry has lavished Albany pols with more than $900,000 in campaign donations...while (they) were pushing to expand a production tax credit program" for the industry. And that scandal was preceded by other film-subsidy-related corruption scandals in Iowa, Massachusetts and Louisiana.

Evidently, the California lawmakers pushing to expand their state's slush fund for Hollywood studios aren't deterred by the negative publicity surrounding all this naked corruption. As I said: pure chutzpah. That chutzpah (and, perhaps, campaign contributions) also lets them ignore all the data showing these subsidies are often big losers for taxpayers - including California taxpayers.

As the Center on Budget and Policy Priorities reported back in 2010, states have been collectively spending roughly $1.5 billion a year just on subsidies to filmmakers. That's roughly equivalent to "the salaries of 23,500 middle school teachers, 26,600 firefighters, and 22,800 police patrol officers," according to the watchdog group.

Though shrouded in the argot of helping the arts, many of these subsidies are not Works Progress Administration-style programs tailored to support struggling indy filmmakers - they aim to subsidize studio conglomerates' big-budget enterprises.

Perhaps diverting so much money from basic public services and giving it to wealthy media conglomerates might be justifiable if doing so was a proven way to create jobs and generate a net tax revenue gain. But in its state-by-state analysis of the subsidies, CBPP notes it is quite the opposite: "The revenue generated by economic activity induced by film subsidies falls far short of the subsidies’ direct costs to the state(s)."

Individual examples among the 45 states that offer film subsidies tell that larger story.

In Louisiana, which offers some of the most lucrative tax giveaways to Hollywood, the Legislative Auditor's Office reported that the subsidies cost the state $170 million in lost tax revenue in a single year. By one estimate, the state is handing $70,000 per episode to the cast of Duck Dynasty - all while pleading poverty to justify deep cuts to public health care programs and to retirement benefits for police officers, firefighters and teachers.

Similarly, a 2009 analysis of data from the Connecticut Commission on Culture and Tourism found that state lost $113 million in revenue thanks to film tax credits. Additionally, according to the analysis by Connecticut Voices for Children, only 11 percent of the money was classified as "actual Connecticut expenditures," meaning Connecticut taxpayers have "largely been subsidizing out-of-state personnel and businesses."

It's the same story across the border in Canada. There, British Columbia's massive film subsidies appear to be generating about $100 million a year in net revenue losses, all while the province reduces funding for basic government services.

If California had a different experience with its existing tax credits, maybe these losses could be ignored. But guess what? It's the same predictable tale in the home of Hollywood. Though one of the bill's sponsors insists "Every single economic analysis of the program shows that it’s a net economic generator for the state" that "creates revenue," that's belied by the state's nonpartisan Legislative Analyst's Office. In 2012, it reported that California's existing credit program "appears to result in a net decline in state revenues."

Of course, all this data has prompted pushback from the entertainment industry. Fearing that legislators might come to their senses - or that rising public anger against ongoing bailouts will force a change - the industry has deployed groups like the Motion Picture Association of America to try to preserve the subsidies by arguing that they encourage tourism.

As CBPP points out, the problem with that particular claim is that "the empirical evidence upon which these conclusions (regarding tourism) are based is weak."

That's putting it mildly wen you consider the hilarious "evidence" the MPAA cites as its proof that the tax subsidies boost tourism in states like Massachusetts. Yes, you read page 17 of that MPAA report correctly: the organization actually claims that films like "The Fighter" and "The Town," which take place in some of the most rundown parts of Boston, encourage - rather than deter - tourism to the Bay State. That's almost as absurd as claiming HBO's "True Detective" (whose creator says it was filmed in Louisiana specifically because of the tax credits) is likely to encourage tourism to bayou country.

Not surprisingly, some states aren't buying the tourism talking point. Instead, some of them are slowly but surely beginning to reduce or eliminate their film subsidies. Meanwhile, some in the visual effects industry - which has been upended by these subsidies - are exploring a legal strategy involving challenges to foreign tax subsidies.

California lawmakers hope to capitalize on those trends by going in precisely the opposite direction. If their bill to expand the state's subsidies is passed and signed by the governor (a big "if"), it would certainly be a giant gamble with a huge amount of taxpayer cash.

The proponents of the scheme would no doubt be hoping for the kind of return a successful Hollywood blockbuster generates. However, the evidence suggests that from a public investment perspective, the current proposal being discussed in Sacramento looks far less like "Avatar" and far more like "John Carter."

[illustration by Brad Jonas for Pando]