Budget & Tax , Family & Community

Ray Carter | May 7, 2021

Other states repeal film subsidies

Ray Carter

The most recent evaluation of Oklahoma’s film-subsidy program, conducted by the state’s Incentive Evaluation Commission, found that for every $1 in film subsidies issued from 2013 to 2019 enough new economic activity resulted to recoup between three cents and 13 cents in state tax collections.

In contrast, a 2018 analysis by the John Locke Foundation found the state of West Virginia’s film-subsidy program generated a far-higher return—recouping 41 cents for every $1 in state-funded film support.

That was still a net loss, but not as large as in Oklahoma. Even so, West Virginia officials concluded the program was not worth maintaining and repealed it in 2018.

“It wasn’t anything against the credit for film but was more in line with looking at all the tax credits we had across the board, (finding) which ones were producing the least and just getting rid of them,” said West Virginia state Sen. Sen. Dave Sypolt, a Republican. “And it was found in that category that it didn’t really benefit the state any.”

When he signed the repeal, West Virginia Gov. Jim Justice made a point of highlighting it in a press release.

“We recognized that the West Virginia Film Tax Credit program was not performing the way that it should and the right thing to do was move in another direction,” Justice said. “Tourism has advised us without question that these funds will be better spent somewhere else.”

West Virginia is not alone in repealing or reining in state film-subsidy programs.

The Incentive Evaluation Commission report on Oklahoma’s film program noted 44 states had film-subsidy programs in 2009, but just 33 did by January 2020.

“Tourism has advised us without question that these funds will be better spent somewhere else.” —West Virginia Gov. Jim Justice

In both Oklahoma and West Virginia, state film-subsidy programs were heavily criticized by evaluators. In 2016, consultants hired by Oklahoma Incentive Evaluation Commission urged lawmakers to eliminate state film subsidies, declaring associated job creation “is neither stable nor sustainable absent state support.”

Oklahoma lawmakers ignored that recommendation and this year are even considering super-sizing the program to give away as much as $50 million annually, despite the program’s record as a net drain on state finances.

The response in West Virginia was different.

A legislative audit in West Virginia found that state’s film program had issued more than $15 million in tax credits over 10 years for film production companies that incurred more than $49 million in direct and post-production expenditures. But after deducting expenditures that went out of state, the cost of projects that did not qualify for the program but received funding anyway, the cost of tax credits, and the cost of maintaining the state’s film office, the report found the film-subsidy program generated total economic impact of $8.6 million over 10 years, or less than $1 million annually on average.

The evaluation concluded the program provided “minimal” impact to the state’s economy.

A similar process played out in Michigan, where a 2010 report found that in 2008 the “cost to taxpayers of employment associated with the tax credit ranged from $186,519 per job to $42,991 per job, depending on whether only direct jobs or total employment impacts are examined.” The report reached similar conclusions for 2009, reporting that the cost to taxpayers ranged from $193,333 to $44,561 per job.

The Michigan evaluation found that state’s film-subsidy program spent $37.5 million in FY 2008-09 to generate just $21.1 million in private sector activity that produced only $3.7 million in additional tax revenue.

Michigan is among the states that repealed its film-subsidy program and had not renewed it as of early 2020.

Such outcomes are not unusual.

“State reviews of their own film incentive programs—and independent analyses—have often calculated a negative return on investment,” the Oklahoma Incentive Evaluation Commission’s 2020 report noted. “As one example, a 2018 analysis by the John Locke Foundation of 15 state film incentive evaluations found that return on investment ranged from $0.07 to $0.45 for every state dollar spent ...”

The report noted a 2012 evaluation in Louisiana found a return on investment of just 14 cents per state dollar, and that an updated 2019 study found taxpayers were still “losing roughly two-thirds of the money they put into the state’s film tax credit program.”

The Incentive Evaluation Commission report also pointed out a March 2019 study by the IZA Institute of Labor Economics, which estimated the impacts of U.S. state film incentives on filming location, film industry employment, wages, establishments, and spillover impacts on related industries. While the IZA analysis found TV-series filming increased when incentives were provided, it also concluded that there was no meaningful effect on feature films and related employment.

West Virginia taxpayers were footing the bill for film and TV productions that may have actually deterred tourism and business recruitment.

“These results suggest that the ability for tax incentives to affect business location decisions and economic development is mixed, and even with aggressive incentives, and ‘footloose’ filming, incentives may have little impact,” the Oklahoma Incentive Evaluation Commission’s 2020 report stated.

The poor returns in both Oklahoma and West Virginia occurred even though both states provided some of the most generous subsidies regionally and nationally.

“Compared to other states, the value of Oklahoma’s incentive is among the highest in the nation,” the Incentive Evaluation Commission report stated. “Just two other states—Montana and Washington—offer incentives up to 35 percent.”

West Virginia’s tax credit was worth 27 percent of the amount of expenditures incurred in the state with an additional 4 percent allowance for hiring 10 full-time West Virginia residents for a possible total tax credit of 31 percent of expenditures.

That was a larger incentive than those offered in four of the five states that border West Virginia, and only one percentage point lower than the maximum credit offered in Kentucky. The West Virginia film credit also allowed productions that spent as little as $25,000 to qualify, a much lower threshold than in most states.

Officials in West Virginia found that they were also funding many productions that did little to benefit the state’s national image. Sypolt recalled the credit helped fund “a couple programs that highlighted West Virginia in a not-so-flattering manner.”

“It would be different if we could get some attention from National Geographic or someone like that to do some positive pieces on our natural beauty and that sort of thing, but when you have programs on Bigfoot and that kind of thing and ‘Buck Wild’—a bunch of post-high-school kids that were into mischief all the time—it didn’t really paint our state in a very positive light,” Sypolt said.

The end result was West Virginia taxpayers were footing the bill for film and TV productions that may have actually deterred tourism and business recruitment.

“I don’t think any of those programs really entice people to come here to West Virginia,” Sypolt said, “whether to live here or to come and visit.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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