Tuesday, January 11, 2011

The Mass Film Tax Credit - Cost vs Benefit. What the numbers really tell us, and why:


1) DOR estimated the cost-per-job at more than $70,000. The actual number is substantially lower. What is wrong with DOR's cost-per-job calculation?

The following four assumptions and omissions by DOR are the most problematic:

a) DOR found the actual number of new private sector jobs created by the film tax incentive between 2006 and 2009 to be 6,154. But this year's report, for the first time ever, arbitrarily slashes that number down to 3,171 claiming that state “spending cuts” (which they directly attributed to the film credit) resulted in the “elimination” of 2,982 state jobs during that period. Because DOR "offset" or reduced the real number of new film-related jobs created by what they called "lost" state jobs--their cost-per-job estimate is vastly inflated. As it turns out, contrary to DOR's assertion, not a single state job was eliminated during the first four years of the film tax credit. The US Census Bureau reports that the number of state jobs in Mass actually increased by 5,876 between 2006 and 2009.

b) DOR did not account for the economic impact of direct payments to state and local government agencies by film production companies. For example, the Town of Essex, received $250K from the producers of Grown Ups, and the Franklin Park Zoo, collected $350K from the producers of Zookeeper.

c) DOR did not account for the economic impact of Massachusetts companies that purchased film tax credits and used the savings to preserve or create non-film related jobs in other sectors of our economy.

d) Finally, DOR continues to assert that it is “impossible to estimate” the economic impact of local film production on tourism--despite the fact that respected analysts such as Ernst & Young have done so in other state studies. The film industry brings national and international attention to Massachusetts. And tourism is our state's third largest employer---accounting for over 100,000 jobs.

2) DOR certifies non-resident star salaries as qualified local expenditures for the film tax credit and yet subtracts those figures from their benefit calculations as having no measurable impact on our local economy. Which is it? Are they good or bad for business?

A handful of movie star salaries will always distort the in-state vs. out-of-state wage totals. The reason why Tom Cruise’s salary is a “qualified expenditure” even though he is not a Massachusetts resident is because a) he earned his money in Massachusetts, b) he lived here while he was working on the film, and c) he paid Massachusetts income taxes on his salary---in fact, he paid more income taxes for two months of work in Massachusetts than most residents will pay in our entire working lifetimes! 

Attracting movies with big stars gives Massachusetts bang after bang after bang for every buck we spend on tax credits. First, when the film is being made, we get the benefit of millions of dollars in direct and indirect production spending. Second, when the film is later released, we get the benefit of millions of dollars of marketing and promotion paid for by the studios. Finally, if the film is nominated for awards, we get the benefit of millions more dollars worth of advertising for our state. 

The bigger and better the talent we attract, the more likely their films will be paying dividends to Massachusetts long after the stars have left the state. The best example of this phenomenon will be this year’s Academy Awards where (for the first time ever) Massachusetts-made pictures will not only lead the parade of nominees, but also enhance our state's cinematic legacy for years to come.

3) In determining net cost of the credit, why should we focus on credits paid instead of credits issued?

Because we will not know the actual net cost of unredeemed credits until we know whether they are sold or taken as a rebate (at 90% of their value) and until we know by how much they are offset with future taxes collected on such things as residual payments to actors, which the Dept of Revenue has yet to calculate. In order to make a fair and accurate cost/benefit analysis, we must compare apples to apples (ie; actual costs vs. actual benefits for the period in question).

4) In determining cost-per-job, why should we count all jobs created instead of just those jobs filled by Massachusetts residents?

Because these new jobs were all created in Massachusetts. In the first few years of the program, jobs were being created faster than we had qualified workers to fill them locally. But every year, our labor force grows to meet the increasing demand. Having more jobs than we can fill is a good thing--especially in a bad economy. The more movies that come here, the more jobs that come as well.

5) What about the 2010 University of Massachusetts report on the economic impact of the Mass film industry since 2006?

The UMass report speaks for itself regarding the unprecedented growth of the MA film industry since the passage of film production incentives in 2005. Their study also documented the many economic benefits of this industry which are not currently being captured by the methodology used by DOR. But even using DOR’s existing numbers, the benefit to the state’s private economy by any measure (direct spending, GDP, or economic output) still vastly outweighs the public cost of the program.