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Four things to know about film subsidy reform

Posted on April 28, 2015

By Steve Spires

 

Louisiana taxpayers have spent more than $1.5 billion over the past decade subsidizing film and TV production. Various independent studies over the years have given different estimates of the industry’s fiscal impact, yet they have one thing in common: All have found that each dollar the state spends on film production returns only a few pennies to taxpayers. With Louisiana facing unprecedented budget challenges, legislators have filed more than two-dozen bills that attempt to reform the film program. Some proposals, like improving audit procedures to prevent fraud and requiring tax withholding from actors and directors, are non-controversial. But others are sure to spark heated debate. Here are some things to know as the bills start moving through the Legislature.

 

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1) It’s all about the caps
The most important issue for legislators is how to cap the state’s financial exposure. Various caps have been proposed—some that cap the amount of credits that the state can issue in a year, others that cap the amount of credits that can be claimed against state revenue in a year.

 

Industry-friendly Senate Bill 96 and 104 by Sen. J.P. Morrell of New Orleans establish $300 million caps (one for the amount of credits certified and the other for the amount claimed by taxpayers in a given year), with any unused portion adding to the cap the next year. This would give taxpayers no protection and do nothing to actually control costs considering the program’s most expensive year came in around $250 million.

cert caps

 

Other bills propose more meaningful caps of $50 million, $100 million, $150 million, $194 million, $200 million, $208 million and $226 million on either certifications or claims. Rep. Lance Harris has even proposed ending the program at the end of 2018 and Sen. Jack Donahue has proposed a 2021 sunset.

 

Regardless of any other bills that pass this session impacting the movie program, without a meaningful cap that actually controls cost growth and frees up money for other critical priorities there will be no real reform.

 

2) Film subsidies mostly benefit one region
Taxpayers in every Louisiana parish pay for movie subsidies, but most of the filming—and economic benefits—is clustered in a few cities. More than two-thirds of the movie subsidies examined in an LBP analysis flowed to projects in and around New Orleans. Productions in the Baton Rouge and Shreveport areas each picked up another 12 and 11 percent of subsidies, respectively. Lafayette clocked in next with less than 2 percent. The rest of the state sees virtually no benefit from the film program—even though their tax dollars are paying for the subsidies.

 

While most parts of the state sees no benefit from the film program, all are feeling the pain of deep budget cuts to colleges and universities and struggling with crumbling roads and bridges—problems that are harder to address when tax dollars are being siphoned away to pay for movies instead.

 

3) Film subsidy dollars don’t always stay in Louisiana
While there is no doubt that movie subsidies are a cost to taxpayers, it also is true that the industry supports some localized economic activity and jobs, mostly in New Orleans. But we only get the benefit when movie dollars are spent here in Louisiana, and unfortunately, the most recent independent study of the program found that as much as 25 percent of subsidies go to pay the salaries of actors, directors and producers who don’t live here and don’t spend much money here. Those dollars are going back to Hollywood instead of supporting local businesses, which means the jobs numbers touted by industry boosters are inflated.

 

It doesn’t make sense for Louisiana taxpayers to subsidize Hollywood salaries when Louisiana residents have to absorb 100 percent of the pain of budget cuts to colleges, hospitals and road maintenance caused by budget shortfalls.

 

A good way to ensure that more of our dollars stay in the state is to limit subsidies for “above the line” salaries. For example, offering subsidies for only the first $1 million of an actor’s or director’s salary—as House Bill 633 by Rep. Ted James proposes—would still provide the industry with taxpayer money, while also keeping more of our tax dollars at home in Louisiana. An industry-friendly alternative—Senate Bill 102 by Sen. Morrell—excludes movies from the subsidy program when above the line costs make up more than 50 percent of production costs, which doesn’t go far enough to protect taxpayers.

 

Additional proposals to restrict subsidies for so-called “soft costs” like airfare and insurance fees that similarly do nothing to boost the Louisiana economy are less controversial (and less lucrative for the industry). While these measures should be supported as well, real reform requires reining in out of control “above the line” spending.

 

4) Timing is everything
The Legislative Fiscal Office has said it will be difficult to make changes this legislative session that will free up significant state dollars next fiscal year because of how the film subsidy program is structured. Given the $1.6 billion shortfall facing the state next year, this is surely a disappointment to many legislators who are trying to avoid decimating higher education.

 

But far from being a reason to abandon reform, this illustrates the urgency of reforming the program now so that Louisiana can start to get its fiscal house in order. Reforming the program now will help the Legislature to undo some of the most damaging cuts to higher education and re-invest in priorities like early childhood education and infrastructure in the coming years. Those investments are the key to supporting long-term economic growth. We can’t afford to wait another year to put Louisiana on a stronger path to prosperity and economic opportunity, and reforming movie subsidies is a key part of that effort.

 

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