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Hollywood Handouts! Part Deux

Why are states ignoring New Mexico’s debacle, and reviving studio subsidies?

All the President’s Men had a classic catchphrase: “Follow the money.” Nearly a half-century later, it’s good advice for understanding how the film-and-television industry responds to state “support.”

As HBO’s executive vice president for production put it, during a recent panel discussion sponsored by The Hollywood Reporter: “I don’t know if I’d be able to persuade my leadership [to shoot] in a place that didn’t offer robust incentive and resources.” Studios are now so used to subsidies, it’s all but unthinkable to consider doing business without them.

Sigh. Not too long ago, a refreshing burst of common sense afflicted solons in a number of states, and Hollywood handouts were either eliminated or strongly curtailed. Alaska, New Jersey, Michigan, Florida, Wisconsin, and Louisiana were among the states where elected officials put taxpayers ahead of photo ops with starlets and action heroes. But the die-hards did not give in, and flush with budget surpluses from federal “relief” and post-lockdown economic rebound, many states are looking for ways to enhance perhaps the least-effective “economic development” ever devised by corporacrats. Sadly, the American Southwest is not immune.

By tomorrow, New Mexico’s governor must decide whether to sign legislation that would “increase the benefits of the film tax credit, including raising the cap for films not by New Mexico film partners, expanding subsidies for nonresidents, and enhancing the benefit of filming in rural locations.”

To the west, Arizona, which usually pursues the opposite of New Mexico’s policy model, has blundered quite badly. Last year, it went big with a subsidy sequel, making productions “eligible for a refundable tax credit of 15 to 20 percent of expenses” — by 2025, $125 million will be made available.

Even taxpayers in Texas, where state coffers are bulging with cash the likes of which Austin has never enjoyed, are at risk. Legislators are considering a

bill introduced … to supplement Texas’ existing grant program with a new, uncapped scheme targeted at big-budget projects of at least $15 million. Eligible productions would get a 30 percent base transferable tax credit that could reach as high as 42.5 percent, depending on the type of project and if it shoots in economically distressed areas.

What’s so maddening about the renewed race to reward Tinseltown is how sharply it contrasts with the facts. From auditors to legislative researchers to think tanks across the ideological spectrum, one would be hard-pressed to find agreement so deep — and so long-lasting.

New Mexico is the poster child for failure. Since the early 2000s, Santa Fe, with strong bipartisan backing, has showered Hollywood with goodies. Yet as the chart below indicates, after an initial upsurge in employment, job creation has leveled off, with increases and decreases year-to-year, but no overall trend. Studios greatly appreciate the cash the state provides, but a self-sustaining industry presence has proven illusory.

Source: Quarterly Census of Employment and Wages, U.S. Bureau of Labor Statistics (full-year total for 2022 is not available; average of the first three quarters was calculated)

New Mexico is hardly alone. A 2016 study by the University of Southern California’s Michael Thom concluded that “the only benefits” of states’ largesse to Hollywood “were short-term wage gains, mostly to people who already work in the industry. Job growth was almost nonexistent. Market share and industry output didn’t budge.” (Three years later, the economist authored a peer-reviewed study that “found no significant contribution to job growth as a result of [motion picture incentives] in the five most highly incentivized states.”)

In 2017, Virginia’s Joint Legislative Audit and Review Commission concluded that despite a decade and a half of expensive efforts by dozens of states, the “percentage of nationwide film production employment located in California and New York (67 percent) in 2016… barely changed since 2001 (69 percent).”

In 2020, economist John Charles Bradbury found “no link between incentives that promote in-state filming and states’ economic growth or level.” (“Film incentives represent another example of an economic development strategy that fails to promote growth, which provides further evidence that industry-specific incentives to lure business offer an uncertain path to economic improvement.”)

From the sleaze-o-rama of refundable credits to extortion by entitled auteurs, everything about the Hollywood-handout game is a sham. Wise stewards of public revenue, and clear-eyed advocates for job- and wealth-creation, want nothing to do with such a tawdry gimmick.

For now, at least, subsidization is doing boffo box office at state capitols. But should fiscal sanity make a comeback, don’t feel too bad for studio moguls. After all, there’s always the United Kingdom. Or Thailand. Or Italy. Or Spain. Or Turkey. Or Czechia. Or Ireland. Or Saudi Arabia. Or Iceland….

By D. Dowd Muska

Dowd brings nearly 30 years of research and writing experience to the Institute. A veteran of several think tanks, he is an expert on government at the municipal, county, state, and federal levels.

Raised on an apple orchard in the Connecticut River Valley, D. Dowd Muska is a researcher, writer, editor, and commentator. His focus is the nexus of fiscal policy, economic development, and technology.

Mr. Muska is the author of numerous policy studies, and his writing has appeared in newspapers throughout the nation, including the Las Vegas Review-Journal, The Detroit News, the Orlando Sentinel, the Cape Cod Times, the Santa Fe New Mexican, the Hartford Courant, the Waco Tribune-Herald, the Albuquerque Journal, the New Haven Register, and The Oklahoman. A graduate of The George Washington University, he lives in the Albuquerque metro area, but has started (very) early planning for a relocation to the Sierra Blanca in Lincoln County, New Mexico. He recently launched the Substack platform No Dowd About It.

3 replies on “Hollywood Handouts! Part Deux”

Why the hit job? Why do you refer to a debacle? This is such yellow journalism. There is no fairness in you depiction, much less a serious discussion. I thought I might learn something but this article doesn’t illuminate anything. It’s just a biased rant about an issue that has already been decided upon. You don’t even bother to justify your bias. Obviously you are singing to the choir. No critical thinking required. Why am I getting emails from you?

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