Movie production incentives are tax benefits offered on a state-by-state basis throughout the United States to encourage in-state film production. These incentives came about in the 1990s in response to the flight of movie productions to other countries such as Canada. Since then, states have offered increasingly competitive incentives to lure productions away from other states. The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks. Proponents of these programs point to increased economic activity and job creation as justification for the credits. Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crew members. The 12 most recent, independent cost-benefit analysis studies of US state film tax incentive programs show consistent benefits.
The development of movie production incentives stems from the perceived economic benefits of filmmaking and television production in the US. In 2010 revenues from television production in the US were estimated at $30.8 billion while revenues from movie and video production in the US were estimated at $29.7 billion in the same year.
As the TV and film industries grew through the 1990s, so did concern over runaway productions, TV shows and films that are intended for a US audience but are filmed in other countries in order to reduce production costs. The issue of runaway productions gained further traction after Canada adopted a movie production incentive program in 1997.
Overall economic losses to the US due to runaway productions are difficult to measure, as the perceived economic benefit of film production could include benefits from tourism in the short and long-term, local job creation, and any number of other benefits. Most methods of measuring such economic benefit apply a multiplier to production costs in order to account for the lost opportunities from taxes not collected, jobs not created, and other revenues that are lost when a film is made outside of the US. A 1999 study by The Monitor Group estimated that in 1998 $10.3 billion was lost to the US economy due to runaway productions.
Also in the 1990s, U.S. states saw the opportunity to launch their own production incentives as an effort to capture some of the perceived economic benefits of film and TV production. Louisiana was the first state to do so in 1991, and in 2002 passed legislation to further increase the scope its incentives. Over the next three years Louisiana experienced an increase in film and television productions some of which were nominated for Emmy Awards. The perceived success of Louisiana's incentive program did not go unnoticed by other states, and by 2009 the number of states which offered incentives was 44, up from 5 in 2002. Critics have suggested that the increase in states offering incentives mirrors a race to the bottom or an arms race because states continue to increase the scope of their incentive packages to compete on a national level to not only maximize their individual benefits but also to stay ahead of their competitors.
States offering movie production incentives by type as of December 2009
|[hide]||MPIs||Tax credit||Cash rebate||Grant||
|New Hampshire||(No tax)||(No tax)|
|South Dakota||X||(No tax)||X||X||X|
|District of Columbia||X||X|
*As of November 24, 2009, Iowa has suspended new registration for incentives pending a criminal investigation into the handling of past film tax credits.
**Maine's wage rebate is effectively a cash rebate and is considered as such in this table.
Proponents of production incentives for the film industry point to increases in job creation, small business and infrastructure development, the generation of tax revenue, and increased tourism as positive byproducts of the incentives. Supporters also maintain that MPIs are a net benefit to the states because they attract productions that would have gone elsewhere did they not exist and that they pay for themselves with the increased tax revenue that they foster.
In Louisiana, for instance, after the production incentive bill was passed in 2005, the industry grew from supporting 5,437 jobs and having $7.5 million in output in 2003 to supporting 18,882 jobs and producing $343.8 million in output in 2005. Similarly, according to comptroller Thomas DiNapoli, New York has seen a $7 billion influx into the state's economy between 2004, when the incentives were instituted, and 2008. During that same period, the number of motion picture, video production, and post-production jobs also rose by 14.2%.
Those who oppose movie production incentives offer arguments that refute those made by supporters of the programs.
Critics propose that unilateral or multilateral moratoriums and federal intervention be used to solve these economic inefficiencies. For example, in a 2009 article, entertainment attorney Schuyler M. Moore proposed a federal tax credit combined with completefederal preemption of all state-level tax credits in order to halt the states' race into insolvency.
Some states have attempted to evaluate the economic impact of their movie production incentives to establish whether the benefits outweigh the costs.
In 2008, the Connecticut Department of Economic and Community Development released a report on the economic impacts of the state's film production tax incentive program. The report concludes the tax incentive program has a "modest" impact on the state's economy, returning $1.07 of real gross state product (RSGP) for every dollar spent (or tax revenue dollar foregone). The report also finds that the program in FY2007 stimulated $55.1 million in film production spending, generated $20.72 million in new RGSP, and created 395 full-time equivalent (FTE) jobs.
An analyst at the Federal Reserve Bank of Boston reached a different conclusion when reviewing the tax incentive program in 2009, finding that the program does not pay for itself and that the economic benefits are short-lived and easily lost if the program is discontinued.
In the face of 2011 budget shortfalls, Connecticut state legislators are considering ending the tax incentive program to balance the budget.
In January 2011, the Massachusetts Department of Revenue released its third annual report detailing the impact of the state's film tax incentive program, specifically focusing on the productions and tax credits of 2009.
The report's key findings for 2009 showed:
At a 2011 legislative hearing on the film tax credit program, policy analysts from Massachusetts think tanks criticized the film tax incentive program. Critics have also complained that much of the tax credit money goes to cover the pay of celebrity actors. Debate within state government over the value of the tax credits in the face of budget shortfalls led Governor Deval Patrick to attempt to cap the tax credit in 2010. Although this effort was not successful, some point to it as a reason for a decline in film productions in Massachusetts in recent years.
A September 2010 report by the Michigan Senate Fiscal Agency detailed the economics underlying the state's incentive programs. In particular it found that:
Supporters of the film tax credit in Rhode Island are urging state officials to maintain the program, pointing to a study showing the program created more than 4,000 jobs in the state between 2006–2009. Critics of the program say the ubiquity of incentives in most states have diminished Rhode Island's competitive advantage and that the funds would be better spent elsewhere.