Film Subsidies are the Real House of Cards
This post is written by guest blogger Ann Blyberg
The tax credit that Maryland offers for film production – which was recently criticized as ineffective in a legislative report — is merely one example of the many business subsidies Maryland offers, most of which get very little scrutiny from legislators. Yet this shadow budget obligates spending just as much as the rest of the budget. While some tax credits, such as the Earned Income Tax Credit for working families, are highly effective, others are less so. Greater scrutiny and more regular awareness of the costs and benefits of every credit would benefit all Marylanders.
House of Cards, a prominent beneficiary of the film tax credit, is the biggest film or TV series to be made in Maryland in recent years. So it’s not surprising that it is touted as an example of why Maryland should extend the tax credit provided by the Maryland Film Production Employment Act of 2011 to induce film companies to produce movies or TV series here past its 2016 expiration. But the Department of Legislative Services (DLS) in-depth draft report to the legislative committee charged with reviewing the tax credit concludes with a recommendation that the film tax credit be allowed to expire as planned in 2016, because it has not and will not produce the economic development benefits originally envisioned by its proponents.
DLS concluded that the tax credits Maryland now provides ($62.5 million since 2012) for film production do not generate a return in income, jobs or taxes that justify their cost. It found that for every dollar provided to the film industry by the tax credit, the state government receives only 6 cents in return, while local governments receive 4 cents.
As DLS notes, since the 1990s the number of states offering various forms of financial incentives to entice the entertainment industry to film outside of California has grown dramatically. As more states compete for film business, the incentives have gotten heftier and heftier. Maryland has tried to keep up, by growing its own incentives since they were first enacted in 2001.
Proponents of the Maryland credits prefer to cite a different study: an analysis by the Regional Economic Studies Institute (RESI) at Towson University that concluded the state gets $1.03 in income, jobs and other benefits for every dollar invested via the credit—in other words, a 3% return. As DLS points out in its report, however, RESI failed to take into account the requirement that Maryland must balance its budget. This means that if Maryland foregoes $62.5 million in revenue as a result of the film tax credit, it has to cut expenditures to match that revenue loss. Since state spending is heavily directed to labor, the incentive has meant that numerous jobs have had to be eliminated or not created to help balance the budget, thereby wiping out any income and jobs benefits the film industry might have brought to the state.
DLS points out as well that the film tax subsidy (which provides a credit of 25% of production costs for movies, 27% for television) is unlike other tax incentives. Most are designed to encourage, for example, a manufacturer to build a plant in the state. Because it is immobile, a plant constitutes a long-term investment, one that promises jobs for a number of years. The film tax incentive, by contrast, is simply a payment related to a particular film or season of a TV series, and this allows the film company to easily move to a different state if it isn’t happy with the size of a given year’s tax credit.
Incoming Governor Larry Hogan, who made cutting state spending a focus of his campaign, described as “outrageous” the fact that lawmakers would divert money from the arts and “give it to Hollywood millionaires to produce subscriber-only TV shows.” He thus could see the film tax subsidy as an easy item for the cutting board. However, since elected he has made no comment on the issue, which has its defenders in Annapolis.
