Not a wrap: Why the legislature should pull back on the film tax credit

MassINC Research Director Ben Forman testified today before the Joint Committee on Revenue regarding the fate of the state’s film tax credit, which grants tax breaks to moviemaking companies that shoot in Massachusetts.  The incentive costs taxpayers approximately  $125 million annually, and the Massachusetts legislature is considering capping the measure.

Thank you Chairman Kaufman, Chairman Downing, and members of the Committee for an opportunity to speak briefly about the merits of this legislation.

MassINC is a non-partisan think tank focused on promoting the growth and vitality of the middle class. We receive no financial support for our work on film industry incentives, but this is still a very compelling issue for us because job creation is clearly the number one problem facing middle class families across the state.

With 300,000 residents now out of work – nearly 60,000 of them in the Gateway Cities that have been our focus – we need to ask whether $125 million a year, our largest economic development tool, should be a film incentive that has been shown to be ineffective.

The motivation behind the film tax credit is well directed. Massachusetts needs to find new ways to spur job growth in industries that offer good wages and opportunities for people who aren’t going into science and engineering.

Film fits this description. And because moviemaking is by definition a fleet foot industry, it appears that the film incentive can give us jobs. But it’s increasingly clear that the film tax credit can’t create nearly enough jobs for Massachusetts residents to justify the large sums we devote to it.

It’s hard to say exactly how much each film job is costing us. In large part this is because the industry has successfully lobbied against reporting requirements that should be standard practice whenever such significant taxpayer investment is at stake. But if you do the math the way you would for a standard economic development project – that is weighing the costs over an extended period, say 10 years – I think it’s likely that we’re paying well over a million dollars per job.

That’s a shocking sum, particularly when you consider the subsidy limit for federal economic development dollars, which is just $50,000 per job.

Is there a way to get better returns on our economic development spending for the Massachusetts taxpayer? Every independent economist I have put that question to over the last two years has said absolutely yes.

The Historic Tax Credit offers just one example of how our economic investment could be better spent. When evaluating economic impacts, you’ll see a lot of studies with economic multipliers, and I think the right thing to do is ignore those hugely unreliable numbers. Just think instead about how those dollars, our public investment, really circulates through the local economy.

With film, we know that too many of our scarce dollars go out-of-state the minute they’re wired to an actor’s bank account. An economic development tool like the historic tax credit, on the other hand, produces economic gains in at least three ways.

  • First, the restoration work is performed by local craftsman. Many products, such as period windows and reclaimed wood flooring, are also produced locally.
  • Second, when we put an older building back online, we add commercial or residential space. That’s critical because our state’s growth is constrained by high costs. The historic tax credit restores buildings in our older urban areas, reopening these communities for more efficient high density growth. In addition to improving the state’s cost structure, long-term strategies to reinvest in our older urban communities also preserve the quality of life in our suburbs, while enhancing the quality of life in vibrant historic cities that are a truly unique asset.
  • Third, the historic tax credit is better targeted to the people and places most affected by this downturn. Unemployment in the building trades is disproportionately high. And in many of our cities unemployment rates are nearing 20 percent.

If we do nothing to address the film tax credit, before long we will have lost more than half a billion dollars. If we had the will, that type of spending could leverage real private investment and truly transform key regional cities like New Bedford, Springfield, and Worcester.

But this is just one example. I think the key is to recognize the disproportionate spending we’ve devoted to an ineffective program. This is a real demonstration of why government should perhaps stay away from incentive spending altogether, and instead focus on its true economic development role, such as helping to prepare the workforce. It’s truly remarkable that we spend three times more on the film tax credit than on all of our work force development programs combined.

To close, I just want to add that we are hopeful that a number of provisions in pending economic development legislation will lead us toward more rational investments with our economic development resources in the future:

  • First, is economic development planning. A clear, well thought out, and coordinated statewide economic development plan could help create better alignment between where we want the state to go, and the tools we have to make progress.
  • Second is transparency. The state should not make highly speculative investments with taxpayer money. Without data, it is impossible to analyze economic development spending and calculate return on taxpayer investment.
  • And third is efforts to do more to support small businesses. In our visits to Gateway Cities, where many of the state’s entrepreneurs creating new jobs are working, we often hear that the state has less capacity to provide assistance. At a time when private financing is difficult for small businesses to secure, a helping hand from government could really make a difference.
I thank you again for your time and the Revenue Committee’s efforts to closely examine these critical economic development issues.

Benjamin Forman is the Research Director at MassINC

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