By Rep. Denise Provost

(The opinions and views expressed in the commentaries of The Somerville News belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville News, its staff or publishers.)

There has been an active discussion in the press lately about the Massachusetts film tax credit. Since that program’s start in 2006, we taxpayers spend hundreds of millions of dollars rewarding film companies for doing business in Massachusetts. The allure of Hollywood is undeniable – but are film subsidies good economic development policy?

How Massachusetts Tax Credits Work:
A tax credit is a direct subsidy to of up to 25% of the expenditures that film productions make in our state – for instance, the cost of shootings scenes here. A form of an “IOU” from the state, credits may be redeemed by recipients for a face value credit against taxes owed to the Commonwealth.  But what if a film producer doesn’t owe taxes in the Commonwealth, or owes an amount of tax less than the value of the credit?
No worries for the film produced, because these tax credits are also “transferable” – they can be sold. There is an active market for these tax credits, which buyers can then redeem by applying them to their own taxes. The Boston Globe recently ran a story about how these credits benefit banks, WalMart, and other big businesses – but do the credits also benefit us?
How Our Film Tax Credit Has Worked Out:
The Massachusetts Department of Revenue (DOR) has good data on the film tax credit for Fiscal Year 2009. Massachusetts taxpayers spent $100 million on subsidies for the film industry in that year. While this expenditure has undoubtedly led to both direct and indirect jobs, it only generated $17.5 million in tax revenue.   The result was a loss to the state of $82.5 million.
According to DOR, the 2009 employment attributed to the tax credit, including temporary and part time jobs, amounted to the equivalent of 1,064 full time jobs for Massachusetts residents.  DOR recently estimated that the net cost to us as taxpayers to generate each full-time-equivalent (FTE) job was $88,000. Film-related FTE jobs paid, on average, about $68,000 to Massachusetts residents – meaning that taxpayers were spending $20,000 per job more than each such job paid – even if offset by new tax revenue.
DOR estimated that the amounts Massachusetts would be obliged to pay out for film tax credits that had already been issued.  Moreover, our investment in these job subsidies only maintained FTE jobs for the equivalent of one year – it hasn’t created permanent, full-time jobs, and every dollar spent on these temporary jobs from the film industry is one less dollar the state has to invest in creating permanent jobs for Massachusetts residents, or educating our people to fill jobs that exist.
DOR data from July 2009 show that, for the $113 million in spending for the film tax credit the previous year, 18% of wages were paid to Massachusetts residents and 82% to out-of-state workers.  Additionally, 27% of wages that qualified for tax credits went to people who earned more than $1 million annually.  It is hard to justify the investment we are making in the film industry when our state gets so little benefit – in addition to the tax credit, for instance, film productions are exempt from paying any sales tax.
Where Next?:
Film tax credits are the only tax credits issued by Massachusetts that are not subject to a cap, making them a serious budget liability, especially at this precarious stage of economic recovery. There are probably situations where state investment can leverage job creation – but we need to make sure that the investment doesn’t exceed the benefit.  The data coming in from DOR helps us to evaluate the effectiveness of this program, which appears to need considerable adjustment.
Declining state revenue due to the recession has forced us to make painful cuts to nearly every area of state government, and our tax dollars must be spent wisely and effectively.  Given the soberingly small benefits from our film tax investment to date, the legislature should reconsider the amount of credit, and bring it more in line with our life sciences tax credit and clean energy tax credit programs.  In my view, state subsidies should be creating sustainable employment – not generating bonuses for the wealthy.