States Say 'Hooray for Hollywood' with Huge Tax Breaks

North Carolina Rep. Susi Hamilton (D) complained to reporters Feb. 3 of a “large sucking sound” when thousands of film and TV production jobs left her state because a film tax credit program had expired.

Her state is not alone. Hollywood was part of tax and budget debates playing out in state legislatures across America in February.

And now incentives for Broadway producers could be part of the federal tax code.

Some lawmakers in Michigan are wondering how their state government, with more than $500 million less income than was predicted eight months ago and a $323 million budget deficit, could still offer $50 million worth of tax incentive packages to Hollywood filmmakers.

“We paid for Ben Affleck’s housing, and that’s a bad way to do public policy,” Jarrett Skorup, a policy analyst with the Mackinac Center, told MiBiz. “Do you want to spend $50 million on films or roads?”

How can it be that California, the home of Hollywood, needs to spend more than six times as much as Michigan to pay off movie producers?

Even the left-leaning Center on Budget and Policy doesn't like state governments doing film incentives. The think tank released a study in 2010 showing the best jobs on film productions usually went to out-of-state residents.

This trend of tax breaks for Hollywood on the state level is hot and relatively new.

Only a few states offered film project tax incentives in the early 2000s, but now movie producers are offered tax breaks and incentives in most of the states in America. The National Conference of State Legislatures lists 39 states and Puerto Rico as having film incentive packages on their books.

Some states — Arizona, Idaho, Indiana, Iowa, Kansas, Missouri and Wisconsin — have thought better of their tax-breaking ways. They have stopped baiting Hollywood with incentive programs, or have decided not to fund those programs in the future.

Others have scaled back their Hollywood tax incentive packages. For instance, Connecticut has scratched film production from its list of tax incentives, but still offers tax credits for other types of media.

North Carolina House Democrats launched a drive Feb. 3 to bring the tax breaks for Hollywood back. Republicans in the state successfully campaigned to make their state’s tax code simpler by eliminating more than 250 tax breaks.

Democrats countered that no one had ever determined which tax incentive programs were working in North Carolina and which were not. But they were certain that the elimination of the film tax credit program hurt the state.

“We’re devastated by the upheaval and destruction of a thriving industry here,” Katy Feinberg, a spokeswoman for the North Carolina Production Alliance, told the Los Angeles Times.

Bad news for Ms. Feinberg in North Carolina might turn out to be great news for states like California that are doubling down on their bets. Rather than slashing the budget for film production tax incentives, California politicians decided to triple their TV and film tax credit program to $330 million.

In 2014, California was like a woman with a Virginia ham under her arm crying the blues because she didn’t have a loaf of bread.

State officials figure California lost $9.6 billion in film products, in 2014, to states that are now investing tens of millions of dollars to compete for TV and movie work.

The California Film Commission approved 26 projects for the July 2014 tax credit allocation out of the 497 projects that applied for the credits.

Good news, right? More than two dozen film and TV projects should bring $802 million into California, including $230 in wages.

Here’s what had California crying the blues.

A Film & Tax Credit Program Progress report released in July 2014 by the California Film Commission showed 84 percent of the 471 film and TV projects that lost their bids to win state funding moved their work to other states and countries.

Those projects accounted for nearly $2 billion in production spending that moved outside California in 2014.

Gov. Jerry  Brown (D) signed the $330 million film production tax package into law at TCL Chinese Theater in Hollywood.

“Yes, it’s taxpayers’ money, but it’s taxpayers’ money going to build jobs for the future,” Brown told Variety as he was surrounded by legions of politicians and movie stars who filled the forecourt of the landmark theater.

Los Angeles officials said the tax program should bring more than 10,000 jobs back to L.A. by leveling the playing field with other states.

Perhaps tax incentives for movie and TV production are not wasted, after all.

A film and TV production tax incentive program is working in the state of New York. The Wrap, a publication focused on the business of shows, reported the state of New York grants $420 million in tax breaks every year to producers.

The payoff is close to 30 TV series and more than 200 films produced in the state of New York every year. That is a $7.1 billion industry. Who would turn off the spigot of cash?

State Rep. Dan Lauders (R) would in his state. He is arguing against tax incentives for Hollywood in debates with his colleagues in the Michigan Legislature.

"If you've got to pay someone to go out with you, the relationship is going to end when you quit paying,” said Lauders. “That's the problem.”

Sen. Chuck Schumer (D-N.Y.) isn’t on Lauders’ side of this debate. Schumer introduced bipartisan legislation Feb. 5 to extend the federal government’s tax breaks for TV and movie production to Broadway and other venues of live theater production.

“New York is home to the culture and entertainment capital of the world, but without critical tax incentives, many production companies are moving elsewhere,” said Schumer in a statement.

“(This) will finally put an end to the disparate tax treatment in the entertainment industry, which will mean more shows on Broadway, and more jobs and more investment in and around the Great White Way."