Saturday, March 14, 2015


These days, it’s hard enough for elected officials to make rational, fact-based, public policy choices without the institutions on which they rely peddling questionable data. Case in point: the Massachusetts Department of Revenue’s Annual Film Tax Credit Report. Every year since the inception of the current film tax credit in 2007, DOR has issued a report detailing the number of tax credits issued and the number of new jobs created by the credit in Massachusetts.

Since 2010, those reports have featured an eye-popping, headline grabbing (and consequently much quoted) “cost-per-job” number. In their most recent report, DOR pegged the cost per job at a hair-raising $118,873. Predictably—as they have every year since 2010--critics of the credit have seized upon that number as proof positive that the benefit of the film tax credit to the state’s private economy is simply not worth the cost to the state’s taxpayers.

In order to see why DOR's cost per job figure is wrong, you must first understand what they got right. In their latest report, DOR documented the fact that the film tax credit (since it was enacted) has created nearly 10,000 jobs in Massachusetts (9,616 to be exact), which sounds pretty good—especially since most of that job creation took place during a crippling recession. In fact, film jobs were pouring into the state so quickly that there weren’t enough qualified residents to fill all of them. Even so, DOR themselves concede that more than two-thirds of the jobs created were indeed filled by Massachusetts residents. 

So far, so good.

Now, how much did those film industry-related jobs actually cost Massachusetts taxpayers? Let’s take a closer look.

During the period covered in their latest report, DOR said the film industry spent $1.66 billion in Massachusetts on which $55 million in taxes were collected and $411 million in tax credits were issued. So the cost to taxpayers for bringing $1.66 billion of new private sector spending to the state was $356 million ($411 million in tax credits, minus $55 million in taxes collected).

Put another way, taxpayers laid out a little over 20 cents from the state coffers for every dollar of direct spending that the credit brought into the state’s private economy—not including all the indirect and ancillary benefits.

In order to calculate the true “cost-per-job”, you simply have to take the net cost of the credit ($356 million) and divide it by the 9,616 jobs created---which gives you a cost per job of $37,011. Even if you only divide by the number of jobs filled by Massachusetts residents (6,523), the cost per job is still only $54,561--which is less than half of the headline-grabbing numbers that DOR has been pushing since 2010.

What the heck happened in 2010?

In order to answer that question, you have to go back to DOR’s first two film tax credit reports (2008 and 2009) in which they accurately reported the number of new film industry-related jobs created. Simple. Straightforward. No sleight of hand.

(Pg 17, Table 7):

By 2010 something very weird happened to these reports. DOR started claiming that “State Spending Cuts”--which they directly attributed to the film tax credit--resulted in state "Jobs Lost” that must be accounted for by reducing the actual number of new film industry-related jobs created, by a manufactured number of “jobs lost” due to "state spending cuts."

(Pg 19, Table 6):

To this day, the practice continues. The true number of new film tax credit related jobs is being arbitrarily reduced in these reports---which in turn makes the true cost-per-job appear to be much higher than it really is. No satisfactory rationale was ever given for why DOR's method of reporting new film job creation was quietly and inexplicably changed four years into the program.

(Pg. 18, Table 6):
But here’s the crazy part. Between 2007 and 2012—contrary to DOR’s assertion---state spending was not cut at all. It actually increased every year. See for yourself:

No jobs were lost. In fact, according to the US Census Bureau, during the time the film tax credit was bringing nearly 10,000 new private-sector jobs to Massachusetts, the number of full time state employees also increased from 84,603 in 2007 to 86,528 in 2012. And the most recent figures available from the federal government (2013) place the number of Massachusetts state employees even higher--at 88,761.

So why does DOR keep talking about "Jobs Lost” when in fact no jobs were actually lost? The answer goes something like this: If the state eliminated the film tax credit, it would have spent the savings on programs that would have created other jobs in the state.

But we know that isn’t true.

Governor Baker proposes to eliminate the film tax credit and he has no intention of spending that money on new jobs. Instead, he proposes to use the savings to double the earned income tax credit for people who already have jobs. That, at least, is an honest choice between two successful tax policies: the film tax credit which has already created about 10,000 new jobs; and the earned income tax credit which would increase the spending power of thousands of Massachusetts citizens who are already working.

He could have also proposed putting the savings into the state's rainy day fund, or reducing the state's long term debt, or increasing state aid to cities & towns, or any number of other worthy public policy choices---none of which would necessarily create new jobs

That is why the real number of film jobs originally certified and reported to the public by DOR should never have been retroactively reduced in 2010, and every year since. Because no plausible justification for this change has ever been offered.

So, let the debate continue. 

But a word to the wise: part of the reason why the film tax credit enjoys such widespread public support is because so many people, or their friends and families, have experienced first hand the benefits of a growing local film industry. 

Critics of the film tax credit (including our friends over at the Department of Revenue) would do their own credibility a big favor by dialing back those phantom cost-per-job numbers for one important reason. They are demonstrably false. 

There may be legitimate philosophical reasons to oppose the film tax credit, or any other tax credit for that matter. If so, critics should state those objections honestly and shouldn’t have to fudge the numbers to bolster their argument.