Study Uses Spin to Fool Ohio Taxpayers about Film Incentive

Study Uses Spin to Fool Ohio Taxpayers about Film Incentive

from: Stop-Runaway-Production.com

Ohio study contains numerous factual errors about findings in other state reports

Here we go again. Another economic impact study paid for by the film industry is being inappropriately touted as showing a return on investment for the state.  This time, the report is for the Ohio film incentive.

The report was paid for by the Greater Cleveland Film Commission and authored by Candi Clouse, a graduate student working towards her Ph.D. from the College of Urban Affairs at Cleveland State University.  The 26-page report took five months to prepare.  Despite having five months to fact check the material, the report is riddled with mistakes and incorrect data.  Before addressing those mistakes (see email at end of post), let’s see how the report was being spun in the press today.  From Cleveland’s The Plains Dealer:

Today in Columbus, State Sen. Tom Patton, a Strongsville Republican, and State Rep. Mike Dovilla, a Berea Republican, will announce a proposal to extend and revise the credit, now limited to $10 million annually. The legislators are expected to propose doubling the cap to about $20 million. In years past, they would have been armed with financial information that was largely anecdotal. But a new economic impact study being released today suggests that the tax credit incentives are paying dividends for the state.

“The main thing is that for every $1 that the state spends on the tax credit, $1.20 is returned to the state,” said Candi Clouse, who prepared the study for the Center for Economic Development at Cleveland State University’s Levin College of Urban Affairs. “That’s 20 cents above the investment that’s being returned into the economy in jobs in the film industry and ancillary jobs that support the film industry.”

So, does the report actually show the program makes more in new tax revenue from the economic impact than it costs?  Because of the fact most people will not read the actual report and rely solely on the soundbite from Ms. Clouse, to the average person in Ohio the answer is yes.  (Sigh.) Note that Clouse said the investment was being “returned into the economy”, not the state government in new taxes. What matters is the return to the coffers.  So, what does the report actually show?  Let’s look:

The state of Ohio’s total investment on the Ohio Motion Picture Tax Credit between 2009 and 2012 was $28,288,119 on 27 projects. Because the dollar does not hold an even value, the inflated total value of the credit, in 2012 dollars, was $29,857,035.” (page 27)

“Based on the IMPLAN model, there was $12.9 million in tax revenue associated with the filming in Ohio. Of this, $7 million was federal tax revenue (54%) and $5.9 million was state and local tax revenue (46%). (page 25)

For the taxpayers in Ohio who fund the program with public dollars, the public cost (in 2012 dollars) of the film incentive was $29.8 million and the return was just $5.9 million in state and local taxes.  Since the incentive is funded with state money and not local, the return to the state will be even less (the share for local vs. state was not given).  Even assuming all $5.9 million was state taxes only, the Ohio taxpayers lost $23.9 million on their $29.8 million investment.  Rather than a return on investment, it was a HUGE loss.  To get around this reality, the report simply redefines what return on investment means.

Instead of a ROI based on money returned to the state in taxes, the report bases the ROI on the entire economic impact from the direct, indirect and induced spending (i.e. all spending and the multiplier effects).  That impact was $34 million in output in the economy.  That output ($34 million) was divided by the cost to the state ($28 million) and, presto, the return is $1.20 for each $1 spent.  The report uses private benefit to hide and replace public costs when discussing the return on investment. And if that were not disgusting enough, the report then goes on to say Ohio’s refundable film tax credit “can be considered a successful incentive”:

Given the total indirect and induced benefit to the state of $34.3 million and the $29.9 million direct cost of the Ohio Motion Picture Tax Credit, the return to the state, again assuming that all of these projects would have filmed elsewhere but for the credit, is $1.20. Each dollar the state spends on the tax credit returns $1.20 to the economy, for a net gain of 20¢ per dollar spent. Given the positive return to the state, the Ohio Motion Picture Tax Credit can be considered a successful incentive.

Here again, they were careful to say the return was “to the economy”, not the state taxpayers.  Given that the Ohio taxpayers lost over $23 million of their $29.8 million investment I would consider it costly, not successful.  I engaged in an exchange with several readers in the comments to the news article.  I don’t know if it was pure ignorance or an unwillingness to deal with reality, but the resistance to accepting the factual truth was staggering.  Once again, even though 2+2=4, they insist it’s actually 5.  In one of my comments to the article, I offered this simple and true explanation about what the report actually contained:

Better reporting in this article would have cut through the spin. The state is NOT making money on the program. The ROI spun in the article is looking at the economic activity generated in the private economy, not a return of new taxes to the state coffers that fund the program. The report shows a total loss for the state.

Total cost to the taxpayer was $29.8 million paid out to the productions from 2009-2012. Total new state AND local tax revenue from the direct, indirect and induced (i.e. all of the trickle down stuff) was only $5.9 million. The local share of that is probably around $2 million, and since its only state tax revenue that pays for the program, the return to the state taxpayers who foot the $29.8 million was, at best, $3 million.

In response, someone said:

So, if I understand you correctly, The Greater Cleveland Film Commission commissioned a study to support their claim that the tax incentive financially benefited the state. The result of the study showed the exact opposite, but they released it anyway and hoped no one would notice its results were the exact opposite of what they were trying to prove? Don’t you think they would have suppressed the study if that was the case? Or at least, wouldn’t they have played with the numbers to show what they wanted?

Do you really think they’re that dumb?

No, those behind the report are not that dumb, but they think the average person is.  And, based on recent history, the film backers in Ohio could expect the public and the press to be just “that dumb.”  Remember Michigan?  The Ernst & Young report contained virtually the same talking point: for each $1 spent, almost $6 in economic activity was created.  Even though the report, like this one for Ohio, showed the state took in less taxes than it paid out, the talking point was the only thing that the press focused on and film backers remained blissfully ignorant of reality.

Spin aside, as mentioned earlier there are a number of factual inaccuracies contained in the report.  Specifically, there are many mistakes in the following part of the report:

Below is the email I sent to Ms. Clouse (the author) pointing out the many mistakes I noticed (I have yet to hear back).  The Ohio film backers were willing to listen to a report that spins, but let’s see if they are as willing to listen when they learn the report makes so many basic factual errors:

I just read the economic impact study you prepared on the Ohio film incentive and noticed multiple problems.

On page 27, you list the UCLA report in  the chart of other reports and to list the ROI the respective state for each dollar spent on the credit.  The ROI in the UCLA report is the actual return in state and local taxes to the State of California.  The “ROI” you list for the other reports is the amount of economic output for each dollar spent on their respective program.  The reports from the other states you list (Michigan, Louisiana, Pennsylvania and Massachusetts) all show those states are losing money on the program.

If you intend to define the ROI as economic activity spurred in the private economy, you may want to list the numbers from the LAEDC report so the accuracy of the California numbers is in line with the other reports. From page 11 of the LAEDC report:

For each tax credit dollar allocated:

• Total economic activity in the state will increase by $20.11.

Labor income (including to the self-employed) will increase by $7.41

• Total GDP in the state will increase by $8.48

The actual number of credits issued for the period of the LAEDC studied was $198.8 and the direct production spending by the projects that got those credits was $970.3 million.

The data you cite from the BoxStarr report is not correct.  The $1.057 billion was not the amount spent in the state, it was the combined budgets of the projects.  BoxStarr reported that, at the time of the writing, a total of $898.8 million in certified spending had initially qualified and just $674.1 million was finally certified in-state spending.

The Massachusetts data is also incorrect.  You list $82.4 million in credits issued (which is correct), but then list spending at $110 million, which is not correct.  The $110 million listed in that table was the amount of credits actually used by that year.   The total in-state spending was actually $329.7 million, though just $107 million went to state residents or in-state business (see page 15 of the DOR report).

As for the Michigan report, can you tell me which report you are referencing?  None of the film office reports I looked at had the numbers you list.  Were they from the Ernst & Young report?  The Michigan Senate Fiscal Agency report?

Also can you tell me what portion of the $5.9 million in Ohio taxes were state only vs. local?

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