Are Georgia Film Backers Lying About Film Incentive?

Are Georgia Film Backers Lying About Film Incentive?


Last Monday, I was interviewed by Rodney Ho of the Atlanta Journal Constitution for an online article about the Georgia film incentive.   It was a delightful conversation.  Rodney is a very intelligent and competent reporter, which I find a rarity these days–especially when it comes to film incentives.  Over the next couple of days, I had a engaging and civil exchange in the comments section with several people, some of who work in the Georgia film industry.

I think the debate will prove useful to an uninformed outsider wishing to see both sides of the argument about the value of film incentives.  I encourage everyone to read the comment thread (see the link above).

One of the final responses in those comments stated:

Adrian makes some compelling arguments about why the motion picture industry is a challenge for the state of Georgia, though his motives have little to do with the welfare of the state of Georgia…

This person felt that because I now work in LA trying curb runaway production, I was just as biased against the Georgia film incentive as industry workers in Georgia are biased in favor of it.  This is a totally reasonable and valid point.  And I disagree with it.

I am not in LA because I am pro-California.  Had the film industry settled in Atlanta over a century ago, I would be in Atlanta making my arguments.  I often advocate for the protection of the industry cluster in New York as well.  How would bias apply to that?  It wouldn’t.  Most of the content on this blog and both of the law reviews on the topic of runaway production were written while I lived in Houston, Texas.  I had no connection to the industry and was not working for or being paid by anyone.  In fact, it costs me money to pay for this site each month.  I do not write about runaway production for financial gain.  I write about it because I am a concerned American who did not want to stand by and watch another US industry get dismantled.  My motives have to do with the welfare of all of us, whether we reside in California, Georgia or any other state.  If I am guilty of bias, I am biased in favor of the United States, emphasis on united.

I do care about the welfare of the State of Georgia, because the welfare of Georgia is the welfare of America.  We need to stop acting as 50 states operating as though we are competing nations and act as a single nation in the global economy.  I advocate for a “one nation, one film incentive” policy solution, but I know the chances of this happening are slim to none.  If state film incentive are here to stay, I think it’s essential the public is made aware of the costs associated with film incentives in addition to their benefits.  Film backers have managed to limit most of the public discourse to talking about the benefits only.

In Georgia, some film backers, either knowingly or unknowingly, have been lying.  According to them, there are only benefits.  They claim the program is making more money in tax revenue than it costs.   In 2008, when the Georgia film incentive was increased to 30% of production expenditures,then-State Senator Mike Seabaugh said Georgia’s film incentive was “not costing taxpayers a dime”:

Each bill that affects the state’s revenue must have a “fiscal note.” That’s a study showing what the costs will be to the state.

At the time, there wasn’t enough data on the economic impact that film and video productions have on the state, Seabaugh said. So to ensure that the plan wouldn’t hurt state revenues, the incentives were less than he’d hoped for. But they were enough to bring in enough productions to illustrate the economic impact….

And a company is only getting back some of what it spent, so it’s not costing taxpayers a dime, Seabaugh said.

But, after a 2010 report from the Special Council on Tax Reform and Fairness for Georgians said the state was losing more in tax revenue than it was getting back, the council recommended eliminating the costly program.  The Special Council, however, said additional study of the cost vs. benefit was warranted.   This news sent Seabaugh and film backers in Georgia into panic mode.  Fortunately for the Georgia film backers, the MPAA had commissioned the Meyers Norris Penny group to prepare an economic impact report that would show, of course, Georgia was making money on the program. Seabaugh was confident the report would verify his prior claims:

Seabaugh said he is “very confident” the report will show the film tax incentives have been “overwhelmingly positive for the state of Georgia.”

He hopes the report will convince the tax council to change its recommendation.

“This report, I believe, will show that this really does create jobs, and has a positive economic impact on the state of Georgia, and so, therefore, they wouldn’t want to recommend something that would be getting rid of job creation in Georgia.”

Regrettably, Seabaugh is now a deputy state treasurer.

Those in the film industry are also doing their part to perpetuate the revenue positive myth. The head of Raleigh Studios Atlanta said the purpose of the program was “to save money for the state” and insisted the film incentive was “revenue positive”:

The tax council study was “a well-intentioned effort,” said Scott Tigchelaar, president of Raleigh Studios Atlanta (formerly RiverWood Studios) in Senoia. “However, what the tax council seemed to come up with … was too much of a blanket recommendation,” he said.

The whole idea is to save money for the state, Tigchelaar said.

There are certain incentive programs, including the film incentive, “that are revenue positive and would be having a big positive impact on the state,” he said. “It would just be counterproductive to eliminate those.”

Given that every credible economic impact assessment of state film incentive programs had shown precisely the opposite, it’s not clear what Tigchelaar could have been basing his ridiculous claim on.  I suspect it was based purely on self interest, not state interest.

When the severely flawed and incredibly biased MNP report was presented to Georgia lawmakers in March 2011 showing a return of $1.24 for each dollar spent, the safety of the program was ensured.  I had my suspicions about the report’s credibility, which I dissected in the previous link.  When the Georgia House of Representatives Committee Staff sent me the report, it was clear that at least some lawmakers knew the program was losing money despite the public claims otherwise:

I will be faxing it to you, right now.  I needed to wait and get permission before I sent it. But I have been asked to tell you, “for all purposes.. please, please keep this under your hat as currently we are giving more credits than we are getting.”

The emphasis was in the original email and not added by me.  In addition to my own analysis of the report, I also sent it to David Zin, an economist with the Michigan Senate Fiscal Agency who authored, in my opinion, the best analysis of state film incentive programs yet.  Zin was kind enough to assess the MNP report, which I strongly encourage everyone to read.  In short, Zin said the MNP report was “unbelievable”.

Despite the shady methodology, the unreasonable assumptions and the inherent bias and conflict of interest concerns with the MNP report authors themselves and the people who paid for it (the MPAA), the report’s findings are still being relied on as fact.

In late 2011, EUE Screen Gems vice president Kris Bagwell said Georgia’s film incentive bill was crafted “in a way that the state is making money”:

“We did a return on investment study on tax credits,” says Bagwell. “Some states only break even or worse, but in Georgia the bill is crafted in a way that the state is making money. While some states do rebates – say you spend $10 million, they will write you a check for $2- or $3-million back. Tax credits are a more defensible way of doing business. It’s kind of astonishing. I only wish this model could work for any industry; it’s created 10 times [the] economic growth in three years, based on a smart government public-private partnership.”

What the Hell is Bagwell talking about?  Which states break even?  At best, only California breaks even (and only when the bulk of the projects are big budget).  None of the other leading incentive states come close to breaking even.  Bagwell should look at Louisiana for having a better film incentive.  Louisiana offers a quasi-rebate in the form of a film credit buy back, which allows producers to sell unused credits back to the state for 85-cents on the dollar.  This allows Louisiana to recover 15% more revenue than if the credit had been sold to a resident taxpayer who could use it for 100% of face value.

Louisiana is running a more defensible film incentive for another major reason: they are not lying to themselves.  The state is well aware it’s losing money on the program.  Louisiana is able to justify their program on other grounds, such as job creation.  Louisiana sees their film incentive as an investment that will one day pay off.  I have serious doubts it ever will, but I respect them for being honest.

Film backers in Georgia, however, are resorting to indefensible tactics to lobby for their film incentive.  They are lying.  Georgia’s film incentive, like almost every other film incentive program that has been carefully studied by objective parties, is likely getting a similar return on each dollar spent of 12-20 cents.  From 2005-2010, Georgia had issued $331 million in production tax credits.  Estimates are an additional $200 million was handed out in 2011, bringing the total cost to $531 million in just six years.

As I explained to one Georgia-based producer in the comment thread of last week’s article (who, to her credit, admitted the program was net cost), Georgia could have put that $530 million to better use:

Assuming the $200 million in credits issued for 2011 is accurate, the total number of tax dollars Georgia has “lost out” on is just over $530 million since 2005 (over $454 just since 2009). As a result, the number of production jobs increased from roughly 2000 to about 9000. It’s not clear how many were for out-of-state residents. Even if all of them are Georgia jobs, that’s about 7,000 new jobs.

But, had the state used the $530 million to fund education, Georgia could have hired and sustained over 13,000 additional teachers. Teachers will educate Georgia’s children and produce a more educated workforce. Teachers, like film crew workers, also shop in grocery stores, visit Georgia attractions, patron your friend’s flower store and contribute in many, if not more, of the ways you mention above. It doesn’t have to be teachers, of course, and I mention them only as an example. Higher education, health care and public safety could also have substituted. The point is, shouldn’t public money be used for things that benefit the entire public? Film crews will not teach a classroom of kids, treat sick residents or rescue someone from a burning building.

To me, the better bang for the buck is pretty clear….

If a film worker can justify why their job is more important than hiring a new teacher to an overcrowded classroom of elementary school children, I would be very surprised. I urge you to stop overlooking or marginalizing the costs of these programs. I would also ask you to consider how long Georgia will need to offer the incentives. When, if ever, can the state stop footing the bill? If even locations with HUGE film infrastructure and local talent need to offer incentives, what makes anyone think they will be different? The state should invest in things that will one day payoff. When a film wraps, nothing is left. When a road is built, the state has long-lasting infrastructure. America is crumbling, yet we waste public money on remakes of “Footloose”. How does this make sense to anyone?

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