Boost Virginia Film Incentives? Bad Idea.

“More. More, I say. More!”

The state of Georgia is throwing $500 million a year down a film-subsidies rat hole. Virginia throws only $14.3 million down its own film-subsidies rat hole. If we want to stay competitive with Georgia, we need to up our game and flush even more cash down our rat hole.

Essentially, that is the argument of Virginia Film Office Director Andy Edmunds in defense of Virginia’s film incentive program.

Boosting tax credits for film production in Virginia could help boost the number of productions, create infrastructure and cement the state’s place as a filming destination, Edmunds says in Inside Business, the Hampton Roads business journal. “Demand is growing exponentially,” he said. “This creates an opportunity.”

Demand is growing exponentially for free money? Wow, let’s jump on the bandwagon!

Sure, with the emergence of Netflix, Hulu, Amazon Prime and other streaming media services, film producers are cranking out more movies and series than ever before. Everyone wants a piece of that pie. And many states are willing to give something away to get it. Georgia spent $500 million in tax credits in 2015, awarding up to 30% of a movie’s production cost. The film industry spent $2 billion in the Peach State in 2017.

In Virginia, qualifying film producers get a 15% base tax credit — 20% if the project is filmed in an economically distressed area. In fiscal 2016 the state handed out $14.3 million in tax credits and grants. (I’m not sure how that squares with another statement in the article that there is a $6.5 million cap on incentives.) According to a 2017 Joint Legislative Audit and Review Commission (JLARC) report on film incentives, the film industry supported 580 jobs and $51 million in state GDP.

Not mentioned in the article, the JLARC report also concluded: “The film tax exemption has little effect on film location decisions, a negligible benefit to the Virginia economy, and provides a negligible return on the state’s investment.” Moreover, the subsidies were not spread evenly throughout the state: 90% of the tax credit and 80% of the grant funding was awarded to productions in the Richmond area.

Nationally, the overwhelming majority of movie-making activity takes place in California and New York where the infrastructure and crew skill sets are located. Other states are competing at a huge competitive disadvantage. Concludes JLARC: “Stakeholders reported that although the state has seen a modest increase in some film industry infrastructure, including production and post-production activity, Virginia still lacks crew depth (availability of skilled film production staff) and has significant gaps in areas such as preproduction, production design, script supervising, and wardrobe.”

Economists have articulated the concept of alternate opportunity cost. What would have been the impact of investing the $14.3 million in a different set of economic development incentives. Film and TV production constitutes a tiny percentage of total “film production” in Virginia. But there is a non-insignificant activity in filming commercials, corporate videos, and the like. Could Virginia get more bang for the buck by targeting commercial film-making sector? Could it reap greater rewards targeting tourism? Would we be better off by letting the money circulate untaxed in the economy according to the wishes of Virginia consumers and businesses?

The “film production” industry is broader than movies and television, incorporating corporate and commercial video and film production. in Virginia movies and television comprise a small fraction of the whole. Source: JLARC

The overall impact of movie making on Virginia’s economy has been minimal. “Since 2012—when the tax credit took effect and available grant funding increased—Virginia’s film industry employment has been slightly higher (100 additional jobs per year on average) than estimates of what it would have been if Virginia did not have the incentives,” JLARC concludes.

Do the math: $14.3 million a year in incentives, 100 jobs created that wouldn’t have been created otherwise. That’s $143,000 per job created. Even if the numbers are off by an order of magnitude, that’s still a huge sum of money to create jobs that are inherently temporary in nature. The the movie wraps, the jobs disappear!

Sure, it’s fun to be able to say you got to see Claire Danes, the star of “Homeland,” while working as an extra. But is that a legitimate investment of tax dollars? Is Hollywood even an industry that Virginians want to be subsidizing? I don’t think so.

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7 responses to “Boost Virginia Film Incentives? Bad Idea.”

  1. Steve Haner Avatar
    Steve Haner

    A couple of the very small business incentive programs mentioned in this more recent JLARC report seem like good candidates as better alternatives. I have to confess that since the Laburnum House on Westwood is ground zero for some of this, it has been fun to watch productions from our balcony. I did have an excellent chance (which I didn’t take, to my regret) to meet Mary Elizabeth Winstead. She was walking back and forth from her trailer or hanging around the food tent for weeks. Now when I see her in other things I just kick myself…..

    Some business decisions are not really about the incentives and at least some of this work will come here for the scenery, or to use our Capitol as a substitute for the other one. In those cases, some financial sweeteners will seal the deal. But if this is a bidding war we should not play because we won’t win at a fair price.

  2. djrippert Avatar

    I guess that I’m not really getting this. A tax credit is a credit against taxes that would have otherwise cost more (without the credit). Since Virginia has virtually no moviemaking industry isn’t anything we get a net add? If these movies should have paid $15m in taxes but only paid $700,000 after the $14.3m tax credit … isn’t that still +$700k? I also think Virginia has a geographic advantage. I get the opinion that DC has no interest in letting film crews shut down streets, etc. So, the amount of a politically themed movie of TV show filmed in DC is minimal. The rest has to be filmed somewhere else. Baltimore and Richmond look enough like DC that they become obvious choices – no? Richmonders have always secretly wished they were DC residents and now they can pretend to be DC folks. A “win-win” I’d say. Lol.

    BTW – How is that Redskins’ camp idea progressing? If we do go forward with more movie deals … maybe let people outside of Richmond handle the negotiations. Ha ha.

    1. LarrytheG Avatar

      re: ” isn’t that still +$700k?”.. yep… it’s 700K we might not have got but I suspect somewhere in Bacon’s philosophy he feels that all businesses should be taxed the same and giving some of them a break is unfair.

      but as you say 700K for Virginia rather than for some other state… like it or not – we ARE in competition for jobs and taxes and we cannot set the terms – we have to compete in those markets..

    2. Having a film company come to Virginia is not free! All that closing of streets etc. costs public money, which could easily exceed the benefits in taxes, especially when those taxes are subsidized by the public. It sounds like the principal benefit is just rubbing shoulders with all that film royalty. Big deal!

  3. LarrytheG Avatar

    re: ” Would we be better off by letting the money circulate untaxed in the economy according to the wishes of Virginia consumers and businesses?”

    Not that it’s not real money but it’s a drop in the bucket overall, but you actually introduced a major premise which is – are taxes better off repealed to let the money be spent in the economy. That argument could be made – across the board for a lot of things unless one wants to editorialize about what are “good” taxes and what are not – all depending on what they are spent for.

    Some Cynics and contrarians would point out all the different ways that people CHOOSE to spend their “untaxed” money rather than the govt – don’t exactly spend it for good purposes themselves either – like saving for their retirement or college … pay off their debt…. etc… especially when they’re counting on the govt to take care of their medical when they retire…

    Who would have thought – a decade ago – that most of us would be paying out the nose for something called “data” on our cell phones? !!!

  4. I think it works as a transferrable tax credit. So if the production spends $10M in the state they can get a credit of up to $3M. They can sell that credit to an entity in the state that needs it. So it reduces tax income, but they get the economic activity of the production. There is actually a market for these credits.

    1. djrippert Avatar

      Ahhh, that is very interesting. So, more of a gift than a tax credit against your own taxes. That certainly changes things.

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