Arizona Bill Would Cost Staggering $2.1 Billion for Hollywood

Arizona Bill Would Cost Staggering $2.1 Billion for Hollywood


A film incentive bill that was expected to die in the Arizona Senate will now head to the House after the bill’s sponsor, Senator John Nelson (R), overcame procedural rules with the support of fellow republican senators.  The new bill comes just two years after lawmakers axed Arizona’s previous film incentive because it was clear the program cost more than it made back.  In 2008, the program cost $8.6 million and returned just $2.3 million in state and local taxes.  In other words, for each dollar spent on the program, Arizona got back just 26-cents in combined state and local taxes .  Since thelocal share of Arizona’s tax burden is roughly 30%, the actual return to the state coffers that funded the program was just 19-cents for each dollar spent (an 81% loss).

Under the old incentive, Arizona offered a 30% transferable tax credit for all production spending on projects with budgets over $1 million.  Under the proposed bill, Senator Nelson made the incentive even more appealing to filmmakers by changing the credit from transferable (allowing filmmakers to sell it to Arizona residents) into a direct cash refund of 20% on all spending over $250,000 and up to 30% if producers hire Arizona labor and shoot at approved production facilities.  Thus, had “Piranha 3D”, filmed in Arizona under the proposed incentive rather than the old, state taxpayers would have paid for $6.6 million of its budget with a direct cash payout rather than a transferable credit that could have been sold to residents.

Under the new bill, the incentive would be offered for 30 years with an annual cap of $70 million. Total cost: $2.1 BILLION in direct cash payments for Hollywood productions.  Used differently, that amount of money could pay for the annual tuition of over 216,000 Arizona residents to attend Arizona State University for the first year of college or paid the annual salaries of over 44,000 Arizona school teachers.

Senator Nelson said the new incentive was modeled on New Mexico’s program:

“New Mexico, in a similar timeframe, and currently they’ve raised about 9,000 jobs and have become very productive in providing income to the state.”

Nelson’s comment is troubling for several reasons.  First, the job numbers he mentions are inaccurate.  The 9,000 number came from the discredited 2009 Ernst & Young report for New Mexico.  Of those 9,000 jobs, 1,153 were temporary construction jobs for the construction of a movie studio and 3,827 were attributed to the ludicrous film tourism impacts, which even the New Mexico Motion Picture Association said should not be included.  The actual number of direct and indirect film production jobs in New Mexico is around 3,829.  Second, New Mexico’s program was recently capped by the state because it was more “productive” in costing the state treasury money than providing it.  In short, Nelson is woefully uninformed about facts and reality.  No wonder he loves Hollywood movies.  For Nelson and his film backer supporters, facts do not seem to matter.

In an effort to oppose this outrageous giveaway of taxpayer money to fund movies like “Piranha 3D”, the Arizona Free Enterprise Club created this hilarious movie trailer parody about the program:

Sadly, Nelson and Arizona film backers are insisting the incentive is “fiscally responsible” and a money maker for the state coffers, according to their “talking points”:

It’s FISCALLY RESPONSIBLE: – Not ONE penny, not one incentive, is issued by the State until AFTER the private producer/developer spends hundreds of thousands, if not millions of dollars, of private money IN ARIZONA

A 2010 ESI Corporation Economic Impact Analysis of our prior incentive program bill forecasted an actual 8% in PROFIT for the General Fund.

The talking points are ridiculous.  First, spending $2.1 billion on a cash handout to pay for Hollywood movies with taxpayer money is NOT fiscally responsible.  Second, who cares when the state cuts the check?  Whether it reimburses the producer on the back end to repay investors or on the front end to finance the project, the point is that the money from the state covers 20-30% of the budget.  For a $100 million movie, the actual cost to the producer is only $70-$80 million because the Arizona taxpayers are covering the rest (and they don’t even get royalties).  Further, the credit applies to wages paid to non residents and expenditures to out-of-state vendors.

The claim about the incentive making an 8% profit is total horse shit.  The ESI Impact Analysis used the combined tax impacts of: 1) ALL production spending in a single year (rather than just the projects that got the credit) and; 2.) ALL income taxes generated by the self-employed industry workers living in Arizona, which ESI generously assumed represented 25% of the entire industry workforce in Arizona (rather than limiting it to income taxes for the people working on projects that got the credit and only the portion of their annual income earned on that project):

The ESI report also used a economic multiplier of 3.2 for the motion picture industry in Arizona, which is ridiculously high given the Los Angeles Economic Development Corporation (LAEDC) only uses a multiplier of 2.95 for the industry in California where most of it is clustered.  In short, the ESI report made shameful distortions of data to make the program appear profitable.

Remarkably, even if you include the taxes generated by all production spending (including incentivized projects and non-incentivized) the combined $40 million in spending only generated $3.4 million in tax revenue.  Even in a scenario where the credit is 15%, the cost is $4.5 million and exceeds the new revenue by over $1 million.  So why the shameful distortion of data and questionable methodology?  The Bruce Bodner Company, which wants to build a large movie studio in Arizona, paid for the report.  Got bias?

Even though the film backers in Arizona can read in black and white from the ESI report and see for themselves the program does not generate more in taxes than it costs, they will still insist otherwise.  Even though 2+2=4, film backers say it’s 5.  In response to claims the Arizona film incentive was making more than it cost, I emailed the Director of the Tuscon Film Office to caution against making such a claim because it had been proven false in the annual reports from the Arizona Commerce Department.  The reply I got was unsettling.

The director said she had read all of the Arizona Commerce Dept. reports, in addition to the ESI study and “several other studies too”.  Further, she flat out said she could not be convinced the production spending from incentivized projects “does not benefit the local taxpayer”:

You cannot convince me that putting hundreds and potentially thousands of residents to work and spending millions of dollars on services from local vendors does not benefit the local tax payer.

Concerning the reports that show the exact opposite of her claims, the director said they were “very limited in scope”:

Most of the studies that I have read look at a dollar for dollar return on what comes out of the state’s general fund in the form of rebates/credits and the ‘qualified production expenditures’ spent by the studio/production company. They often do not quantify indirect and induced revenues…nor do they quantify ‘non-qualified production expenditures.’ Nor do they quantify Hotel bed taxes, city and county taxes  and more…they are very limited in scope.

Perhaps she needs to read the Arizona Dept. of Commerce reports again, because they include city and county taxes and they do “quantify indirect and induced revenues“:

Economic impacts may be direct, indirect, and induced, and are related to employment, industry output, and new earnings in the economy, among others.

True, the commerce department reports did not include the projects that did not get the credit, because such spending should NOT be included in a cost benefit analysis.  If the government reduces my taxes to $0, I cannot claim the state is still making money off of me because of the taxes someone else is still paying.  Not that it matters, because as pointed out above, even when all production spending is included the state still loses more than it makes.  As for hotel taxes, unless they are over 20%, they will be wiped out by the credit as it covers lodging expenses.

Most unsettling is the frank admission from a film backer that even when confronted with concrete factual proof the program makes less than it costs, they will willfully ignore reality.  Madness.

But Arizona, thank you the $6.6 million you spent to make “Piranha 3D” possible.

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