UPDATE: Mr. Paleologos took the time to respond to this story last week. Please read the comments below for our exchange. While I was happy to take and respond to his comments, the dialogue ended with virtually all of the questions I raised still unanswered (including any explanation regarding the massive discrepancies he cites from a 2009 report and the actual numbers in that same report)….
Variety’s January 25, 2010 article on increased scrutiny in multiple states with generous film incentives, available HERE, drew the ire of Nick Paleologos, the Executive Director of the Massachusetts Film Office (which has my favorite state film office web site). Paleologos posted a comment to the article and pointed to the July 2009 Mass. Dept. of Revenue Report which, according to Paleologos, was earning his state a dollar for every dime spent:
The author’s are mistaken about Massachusetts. The July 2009 MA Dept. of Revenue Report, to which they referred, found that new direct spending generated by the film tax credit in Massachusetts between 2006 and 2009 exceeded one billion dollars, at a net cost to taxpayers of $108 million during that same period. Or, more simply stated, the cost to taxpayers vs the benefit to the Massachusetts economy was roughly a dime for a dollar. That’s how economic development is supposed to work.
Not so fast. It seems Mr. Paleologos is himself “mistaken”, according to very Mass. Dept. of Revenue report (which is available in the Report Library HERE) he claimed supported his numbers. The cost of the credits, according to the report, were $166 million for the period, with an estimated $98 million granted in 2009:
For productions completed between calendar years 2006 and 2008, a total of approximately $166 million in film tax credits were granted to 267 individual productions. Production activity generated tax credits of $16 million in calendar 2006, $38 million in 2007, and $113 million in 2008. Another 30 projects currently in pre-production, production, or post-production are expected to generate at least $98 million in additional tax credits.
The report’s finding on “reduced tax collections” because of the incentive was illuminating, but the excitement is on pages 14 & 15, where the report makes Paleologos’ claim about benefit to the state of “new direct spending” to the tune of “exceeding one billion dollars” is misleading at best, if not disingenuous. First, TOTAL spending by the credit recipients was $675 million for the period–far short of the one billion Paleologos claimed. And of that amount, just $302 million of the spending was for the benefit of the state.
Starting from 2006-2008 total credit-eligible spending of $675.9 million ($428.8 million in wages and salaries and $247.1 million in non-wage spending), wes subtract $45.0 million for productions that would have occurred in the absence of tax incentives and$328.6 million in wages paid to non-residents (the entire $177.3 million in payments to non-residents earning more than $1 million per production and an additional $151.3 million, which represents 95% of under $1 million wages paid to other non-residents for feature films all other productions), which leaves a total of $302.3 million in net new Massachusetts spending activity ($75.5 million in wages and salaries and $226.8 million in non-wage spending).
In a video available in the Video Library, Paleologos made a questionable assertion that, based on how long film subsidies has been available in Canada and elsewhere–which had been “studied”– “if they [film incentives] were such a crappy idea, I think somebody would have figured it out by now. “ Arguably, the very report he cites suggests his own state’s incentive might be a “crappy idea”; it certainly has a MUCH lower return on investment than he claimed ($10 return for each dollar spent, according to Paleologos)…but the report he cited found the return was just 14 to 16 cents for each dollar spent–a major discrepancy. Major. And the kicker? The report also summarizes other state’s findings, the accuracy of which are very questionable:
Other than those carried out by the consulting firm Ernst & Young, the studies estimated that state revenues generated by new film production activity ranged from $0.07 to $0.28 per dollar of tax credit granted, although some of the studies did not assume that film tax credits needed to be funded by spending cuts or revenue increases, despite balanced budget requirements in virtually all those states. Because those studies do not account for the negative multiplier impacts of required state spending cuts or revenue increases, they tend to overestimate net economic activity and state revenue generated by the tax incentives. In calculating multiplier impacts, some of the studies also appear not to have made adjustments for wages paid to nonresident employees.
Also finding that state film incentives are, or are likely, “crappy ideas” is the recent (soon to be published) law review article “Down the Rabbit Hole: The Madness of State Film Incentives as a ‘Solution’ to Runaway Production”–which I love, wink wink–and Cornell University’s Susan Christopherson, who co-authored a recent study critical of state film incentives.
Dear Adrian,
In Massachusetts, the cost of the film tax credit to taxpayers is literally pennies, for every new dollar generated in our economy. That fact is not in dispute. But your readers don’t have to take my word for it. Take a look at what Massachusetts newspapers are saying. Liberal and conservative, business journals and broadsheets alike, acknowledge the program’s success. And these sources have no particular agenda. They’re not bought and paid for by the industry. They are simply calling it as they see it. They just don’t see it your way. Check them out: http://www.mafilm.org/2010/02/12/is-the-massachusetts-film-tax-credit-working/
Dear Nick,
Thank you for your response, I wanted to make sure to approve it as quickly as you were able to make it. And I took the time to look at your link and did not know about the new UMass report. I will try and read it over the weekend and comment on its findings, which sound positive for the program.
I’m not sure what you think “seeing it my way” might be regarding film incentives. In fact, I have been a pragmatic believer in the concept of using film incentives–as a weapon to stem and/or prevent runaway production. However, I am a product of how the runaway production issue was framed in the past. I think of runaway production as a national problem. And when there were just a handful of states offering Canadian-style incentives, it was much easier to justify them. The race to the bottom, however, and the grossly excessive spending on newer and bigger programs as almost every state got into the game has created a situation that cannot be justified from a national level policy perspective. If the film & television industry is viewed as a national industry, then any incentive or subsidy scheme to support should be at the Federal level to compete in a global economy. One nation, one film policy. With the current state schemes, however, we are basically acting as 50 individual nations competing with each other.
The only reason US state film incentive programs have become so generous and expensive is because they had to compete with the next Iowa, Michigan, Georgia etc. We could achieve the same level of success of retaining film & television production in the US with a much more modest federal incentive and an invalidation of the competing state incentives, under the Commerce Clause perhaps.
Aside from this, I also take no issue with state officials, Louisiana comes to mind, who readily admit the cost of their incentive is not recovered by increased production spending and any indirect gains it generates. I totally respect the notion that, so long as there is meaningful job creation, the cost can be justified on those grounds alone (to what point is up to them). Therefore, I do not need to be sold with potentially skewed or inflated projections. So when it is reported that 82% of all wages spent of film & television productions brought into Massachusetts because of its incentive program is spent on out-of-state residents (and not Massachusetts taxpayers subsidizing those non-resident wages), I think it would be more prudent to address it when spinning more positive data.
Finally, I do discuss Massachusetts at length in my recent publication. The story behind the incentive program and the filming of “The Departed” is what motivated me to write the new piece. Its been some time since I read it myself, but I am fairly certain I portray the Massachusetts film incentives in a positive light.
I think this presents the perfect opportunity for a substantive exchange on this evolving issue of runaway production, which matters so much to so many Americans.
Look forward to any comments from you in the coming days.
Dear Adrian,
Couldn’t agree more with your “race-to-the-bottom” analysis. Which is why Massachusetts’ film tax credit has remained in the moderate middle at 25%, while many of our competitors have gone higher. As you know, Connecticut is 30%, Michigan is 42%, and Iowa (before their problems) jumped to 50%.
In the long run, only a handful of states can realistically expect to become regional centers for film, television & digital media production in the US. A shake-out will inevitably occur. Its happening right now. In Massachusetts, as last week’s UMASS study points out, 25% has proved to be a good deal for taxpayers and filmmakers alike. But ultimately, our success will depend not just upon the stability of our credit, but also the diversity of our locations, the depth of our crew base, the dependability of our infrastructure, and the overall desirability of our state as a place in which to live and work. –Nick
PS: The percentage of wages paid to non-residents will always be distorted by literally a handful of big star salaries. And you certainly must realize that by citing that statistic out-of-context, you’re the one who’s actually spinning–in the negative! The same report you cited also found that two-thirds of all new jobs created in Massachusetts went to residents, and that this number will increase as the local industry matures, and that the average film job pays $67K per year—with benefits. So whenever you decide to focus on star salaries, please be sure to remind your readers that big stars are also required to pay Massachusetts taxes on their incomes–not just on their salaries today, but on their residual income for years to come (see the UMASS report). Tom Cruise will likely pay more Massachusetts taxes for two months of shooting here, than I will pay in an entire working lifetime. The only difference is that I live here and will be using state services for my entire life. He uses no state services. He just pays taxes! —NP
PSS: Thanks for the positive comments on our website. We view it as a work-in-progress, and we always welcome input on how to make it better. —NP
Nick,
Great to hear back from you. I just downloaded the UMass study and will digest it, but take my time before commenting on it. At 64 pages, its no quick read. And I was happy to get the download from your office’s site, which, as you noticed, I am a big fan of. Don’t be modest. I have spent hours on such state sites and your was hands down the most engaging. Maybe someone has stepped up their game to match, but I have not seen it yet.
I do want to address your last message. Regarding the wage payments to residents vs. non-residents, touche. You have a valid point for the most part. The main part of the wage data I quoted from the report came from the key findings, which did not delve into the specifics of who, from out of state, was getting a large portion of such wages. So while I should have gone deeper into the report, the key finding I quoted was, arguably, itself the “out of context” information. That said, it’s not really fair to say I was citing it out of context. So I decided to look at your point and include the more detailed analysis on page 12 of the report. It provides:
So you are correct that a handful of actors got more than half ($177 million of $332) of the wages paid to non-residents, but that still leaves roughly $160 million for out of state “below the line” (a phrase I do hate) workers (and that includes the $30 million for non-headline or super-star actors). I would still point out that the now undistorted amount of $160 million is still close to being twice the amount of wages paid to residents, at roughly $97 million.
I know that your aim, over time, is to foster a home-grown pool of workers that can take over the jobs now performed by many non-residents. And that’s great. But how long will this realistically take? It seem like it would be better, from a policy perspective, if the $177 million spent on just 36 out of state actors/directors etc. had instead been used to establish training programs at community colleges. Perhaps even offering grants to students to enroll in such programs. Maybe follow New Mexico’s example and offer incentives to productions who hire in-state residents to give them valuable training. This way the money directly benefits Massachusetts residents, local community or state colleges and fosters education.
Moving forward, many states have reformed their incentives to prevent such high-wage talent from reaping such a huge proportion of the tax benefit. Given what that money could be used for to also foster the industry, I don’t see how not correcting this can be defended as sound policy. I hope you agree, as I know you did not draft the legislation–so I do not blame you–you work with what they pass.
You might want to propose something similar to what some parishes in Louisiana are doing: offering assistance to California-based industry workers moving incentives and assistance with purchasing homes in Louisiana to relocate skilled labor and, in effect, make them in-state residents.
As for your point on Tom Cruise and taxes…his one check giving more to the state than you over your life. Valid point. Smart. But this also seems to come accross as an attempt to sell the idea that incentive programs are big revenue producers for the state…I don’t know what the UMass findings were, but the DOR report found your program was making about 18 cents on the dollar….and why knock that? It’s still great return. It’s a return, period. As I said, I think these incentives can be justified even if revenue neutral or maybe even modest revenue drains if the result is significant job creation.
This brings me to your comment in response to the article in Variety. You claim the reporters were “mistaken” about Massachusetts. Unless I am reading an corrected version, the article only mentions the DOR report with the following:
What exactly are they mistaken on when it comes to Massachusetts? They don’t seem to say anything about your program and only mention the DOR report. Even then, they only mention the DOR report to point out how critical it was of other state’s economic impact claims, which are grossly out of proportion with many other findings, including their own for Massachusetts—but that’s not in the article. Basically, the DOR report resulted in a plug mention for Massachusetts and a way of knocking down your competition.
What I fear, and please tell me if I am wrong, is that you made your comment because you perhaps took issue with the DOR’s critical evaluation of New Mexico’s incredible claims of return…which now are very questionable, if not fictional. I only say this because you did claim, in the Variety comment that Massachusetts was essentially getting the same kind of return reported in the New Mexico and New York reports, which were scrutinized by the DOR. In short, do you agree or disagree with the DOR’s findings concerning New Mexico and New York? It seems like you agree with the claims from those states, because they mirror your own optimistic investment return claims.
I think, given the findings of the DOR report regarding the fantastic claims by New Mexico & New York–which have now been criticized by many reports and studies in addition to the DOR–that policy makers should disregard the notion that they will see the kind of economic benefit and revenue producing claims made by NM & NY as total myth. Until their projections were studied and seemingly discredited, its easy to understand why we have witnessed the race to the bottom catastrophe I was happy to see you and I agree was not the ideal, to say the least. And if the race to the bottom is going to end, which it has been shockingly slow to do, or even begin to recede, then isn’t it important to refrain from making such fantastic claims of economic benefit to the point of selling the notion film incentives are even revenue producers? If the incentives made money for the state, why would your Governor want to limit how much it spends?
What I am trying to say is you can still sell these incentives, but the pitch needs to be totally overhauled.
[...] (In case you missed it, be sure to read my exchange with the Massachusetts film office director HERE.) This brings us to the next problem which I discuss at length in my two law review articles on [...]