Last week the auditor for the state of Georgia released a report calling into question the value of the state’s popular film and television production credit program.
The report from the Georgia Department of Audits and Accounts states in no uncertain terms that the state’s tax credit is far less than reported by the industry-friendly Department of Economic Development.
The report asserts that “the economic impact and jobs attributable to the credit have been overstated, even before considering the cost of the credit.”
By The Numbers
Georgia ranks in the top three states for film and television production, behind New York and California. According to an economic impact report, filming contributed $7 billion to the local economy in 2016.
In contrast to many state reductions, lawmakers in Georgia are doubling down on these programs in an effort to build out the production industry, which is coined Y’allywood and to subsidize the restaurant and hotel industry.
The production credit is Georgia’s largest tax credit by industry. More than $3 billion in production credits were generated from 2013-2017; each year, the amount increased. In 2016, more than $667 million in film and television tax credits were generated, which ballooned to $915 million in 2017.
The report claims that the Georgia Department of Economic Development, which is a proponent of the credit, has used an inflated multiplier to calculate credit-related economic activity and has reported misleading job numbers. The report estimates that the multiplier used for the last 30 years doubles the actual impact of the credit. The report also calls on lawmakers in the state to initiate more oversight.
Not So Peachy
Most alarming to the Auditor and taxpayers alike was the significant proportion of the credit that was accrued to other states.
According to the report, “The film tax credit is not designed to incentivize hiring residents over nonresidents; it provides the same credit regardless of workers’ residency. While Georgia residents held most of the jobs (80%) associated with the credit, most wages (53%) were paid to nonresidents. In 2016, nonresident labor accounted for $245 million in credits or 37% of the total credit amount. Of the 31 other states with a production tax credit or rebate, 20 (65%) have residency requirements or provide higher incentives for hiring residents, who are more likely to spend their wages in their home state.”
The report includes several recommendations for the legislature’s consideration, including that the production credit per year is capped. Also, it calls for adding provisions to reduce credits for wages paid to out-of-state workers, requiring periodic evaluations of the credit, and allowing public disclosure of credit recipients and amounts.
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Production Incentives Wane
Over the last twenty-five years, several states have developed significant production infrastructures that have drawn producers from California and around the world, including Louisiana, New Mexico, New York, Georgia, Illinois, Hawaii, Ohio, and North Carolina.
In 2010, state production incentives hit a high-level mark. Tax incentives for productions were available in 44 states, Washington D.C. and Puerto Rico, through either a tax credit, rebate, or grant.
However, by 2018 only 31 states maintained their incentive program, and many of these were reduced in structure or amount. In recent years, 13 states have ended their film incentive programs. This retreat marks a more significant trend of states re-evaluating and reducing film incentive programs.
Similar to taxpayer-funded sports stadiums, these programs are seen as unneeded welfare for the most well-off, especially when Hollywood studios and Netflix are the biggest recipients. Criticism is only snowballing, as many states struggle to plug funding gaps for basic services. Taxpayer rights groups led campaigns to reduce tax programs in New Mexico, North Carolina, Michigan, and Louisiana.
State legislators are seeking to balance supporting an industry that has long been subsidized with unclear economic outcomes that these incentives are designed to produce. For instance, in a recent Louisiana study, taxpayers only received a return of less than 25 cents on the dollar from its program.
RELATED: The Film Tax Credit Program, approved by the New Mexico’s legislature in 2002, allows film and television companies to be reimbursed for 25% to 30% of qualified taxable expenditures. However, after New Mexico passed an annual $50 million limit on film payouts, claims continue to outpace what’s available under the cap.
There are a number of studies that show production incentive programs are not a net win for the state in the long run. State legislators on both sides of the political aisle believe the tax credit system needs to be revamped, but cannot agree on specific solutions.
Increased scrutiny in Georgia is only exacerbated by the rhetoric from several Hollywood studios, directors, and actors attempting to boycott production in Georgia unless the state’s legislature reverses a decision regarding reproduction rights. Combined these matters could result in taxpayers souring on the production credit program altogether.