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March 14, 2014
Another view: Time to say no to Hollywood on tax subsidies

Hollywood_sign.jpg(March 14 - By Christopher Thornberg, Special to The Bee)

Recently, Milken Institute researchers released a report supporting the effort to increase California's $100 million tax credit program for film production. They paint a bleak picture of the industry's future here unless the state keeps up with New York's nearly half a billion dollar annual giveaway ("New York is taking California's films," Viewpoints, March 4). Their primary evidence is based on the fact that between 2004, when New York's tax credit program began, and 2012, California lost 16,000 jobs in the film industry, and New York gained slightly more than 10,000.

But correlation does not equal causation, and when you dig a little deeper, the argument quickly unravels. In reality these credits are a nine-digit boondoggle and a complete waste of taxpayer funds. They should be ended, not increased.

First, let's accept the idea that tax credits can explain the changes in employment levels in New York. Is the money truly worth it? New York has always been an important place for film production. Many currently planned productions may have been filmed there regardless of the tax rebate, something the Milken researchers never acknowledge when listing off all the various projects taking place there. Any true analysis must consider the marginal impact of the credits - production that occurred only because of the credit program.

The state government in New York has dished out more than $2.5 billion in film industry tax incentives since the program began in 2004. And for that they have added roughly 10,000 jobs. Do the math! Even after including a generous job multiplier effect of 2.5, New York has more or less paid $100,000 for each new job. And the money being used to subsidize the film industry must come at the expense of higher taxes or reduced public spending on other things, reductions that also have multiplier effects.

But it is a stretch to even assume that the changes in employment are due to the tax credits. Film industry employment is notoriously volatile from year to year. If we look at the share of industry employment in each state over a longer period of time, a different picture emerges. California used to hold about 45 percent of the nation's film industry employment. Today, it holds about 40percent. But most of that change occurred between 1999 and 2003, before New York's program went into place. And after then-Gov. Arnold Schwarzenegger enacted California's own film credit program in 2009, little changed.

As for New York, for all the money it spent has only recovered the share of industry jobs it had at the beginning of the 1990s, roughly 16 percent of overall industry employment nationally. Moreover, its initial program was expanded sharply in 2008 to its current $420 million in available credits, yet most of the recovery in market share occurred prior to 2008. Since then, New York's share has barely budged.

In all, the doom and gloom stories seem, charitably, hyperbolic. California still has almost three times the market share of industry employment in second place New York, and is still home to an even larger share of nonproduction jobs, arguably the economically valuable part of the industry. And according to the limited data available from Film LA, days of production in California were up sharply in 2013, despite the tax credit programs elsewhere.

There are many potential reasons why California has lost some market share, even as simple as the fact that it is cheaper to shoot on location now than it used to be because of reduced travel costs and modern production environments. Something has happened to move jobs around in the industry, but tax credits by themselves clearly don't appear to play a major role.

Really, there are few justifiable reasons for any private industry to be subsidized with taxpayer funds, and film production is no exception. Ultimately, the only real argument the industry has for receiving a handout is that other states are pursuing such wasteful public policies. But as always, two wrongs don't make a right.

Christopher Thornberg is an economist and founding partner of Beacon Economics (