Incentives Watch: Time for a Re-Write on Film Credits?

Louisiana produced more films than any other state in 2013, according to Film L.A. Inc., but will that era soon be coming to a close? The Louisiana Department of Economic Development recently released a report entitled “The Economic Impact of Louisiana’s Entertainment Tax Credit Programs.” The report looked at six tax credits in Louisiana: production credits for film, sound recording and live performances and their corresponding infrastructure credits. Although the production credits are all still available, the film and sound recording infrastructure credits sunset in 2009 while the live performance infrastructure credit sunset in 2014.

The vast majority of entertainment credits awarded in Louisiana are film production credits. According to the report, $251.1 million in tax credits were issued under the film production program in 2013. In 2014, the amount of tax credits issued was $226.4 million. Adjusting these numbers for tax credits sold back to Louisiana and taxes received as a direct result of the credits, the report estimates that Louisiana spent $189.9 million and $171.4 million on tax credits in 2013 and 2014, respectively. This translates to the state spending a little over $14,000 for each new job created in Louisiana, according to the report.

The report is more optimistic when estimating the economic impact on Louisiana. Film production companies spent $809.8 million in 2013 and $727.1 million in 2014 in Louisiana. This figure doesn’t even measure indirect spending. The report estimates that the film production credit, in 2014, indirectly led to over $1 billion in business sales and over $760 million in household earnings by Louisiana residents, which amounts to $4.63 in sales generated in Louisiana for every tax credit dollar spent.

However, the report admits that it is difficult to estimate the indirect economic impact of tax credits due to the high salaries commanded by people who are not residents of Louisiana. For example, Green Lantern was one of the most expensive films made in Louisiana, according to the Advocate, and Ryan Reynolds received several million dollars to play the titular hero. His salary was likely partially offset by the $35 million in tax credits that the film received. Reynolds, at the time, was a resident of California, meaning that though he likely spent some of his salary while on set in Louisiana, most of his money went back home.

The report comes at a time when there is already a larger conversation in Louisiana about scaling back the film credits, both due to the expense and the potential for fraud. This discussion is part of a statewide debate over all tax credits in Louisiana. In his latest budget, Gov. Bobby Jindal (R) proposes converting many refundable tax credits into nonrefundable credits.

The debate over the effectiveness of film credits extends beyond Louisiana. Even though California increased its film credit last year, most states are eliminating or scaling back their film production tax credits. Last year, Maryland found that the state only generated 10 cents in revenue for every $1 in film production tax credits awarded. In Massachusetts, Gov. Charlie Baker (R) has proposed to gradually eliminate the film credit, which Baker hopes will free up budget space to double the Earned Income Tax Credit. In Michigan, the House of Representatives voted to repeal their film tax credit program.

Continue the discussion on LinkedIn:  Are film production tax credits worth the cost?

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