Film credit review must not reverse progress

When Gov. John Bel Edwards announced earlier this month he would launch a review of Louisiana’s Motion Picture Investor Tax Credit, policy-makers should have responded by telling him to cut to the chase in making the program efficient with its state subsidization.

We don’t need to study the issue more; we already know the film tax credit wastes taxpayer dollars – a lot of these. Unusual among any of the other hundreds of such breaks, the law requires biannual reporting of these and the related music, sound, and digital credits. Every report since introduction of these has found a tremendous negative return on investment for the state, although the last of those, through 2014, revealed the least bad news ever – credits now only lose 77 cents for every buck given out (maybe 10 cents fewer if including local tax revenues, although local incentive programs also affect this number).

That loss, about $172 million in fiscal year 2014, will find itself trimmed over the next three years, due to legislation that tightened up program eligibility rules and put a cap on reimbursement – which differs from issuance as reimbursement may occur at any time in the indeterminate future – at $180 million annually (although a halt in automatic state buyback of credits at 85 percent for FY 2015 crowded that figure a bit) through FY 2018.

The cap turned out a roaring success for FY 2016, which saw a total claim of only about $120 million. Next fiscal year the Department of Revenue forecasts claims of nearly $80 million over, but a much smaller amount for FY 2018 well under the cap. But nobody knows exactly how many credits remain unused, so when the cap disappears, it could balloon even higher than the $300 million range just prior the 2015 changes, which also limited during this period any single production to $30 million ($100 million spent on production if all on refundable items).

Yet Edwards asked for yet another review of the numbers, even though by law a report covering 2015-16 must come out next spring towards the start of the legislative session. Further, his comments and those of his Secretary of Economic Development Don Pierson came off as bullish on the program, with Edwards promising to have “one of the most attractive incentive programs in the world,” despite that generosity causing the extremely negative return on investment, and Pierson alleging the “program produces a tremendous return for small businesses,” ignoring the numbers saying that comes at expense of the state.

Also of note, in the confabulation to vet the program, which Edwards claims will have wide representation, likely from his office Commissioner of Administration Jay Dardenne will lead the charge, who moaned and complained about the cap’s imposition; Dardenne authored the program’s initial legislation. With him likely helming the effort, that brings into question whether the effort for efficiency won’t take a step backwards, even as many other states ramp down or eliminate their subsidization.

Still, Edwards pledged “sustainability” resulting from the revisions, which ideally would center on making the spending more local as this pumps more of the gifted money back into the state’s economy and uses, if not builds up, its resources in this area. Only dollars spent in state production studios, many of which suffer significant capacity slack with production down about two-thirds in monetary terms this past year, and on local labor should continue eligible for funding. However, because of the skewed nature of filmmaking – much spent on salaries (except for contingency deals) and generally almost all to a few actors and top production staff – some accommodation may go to making some portion of nonresident salaries reimbursable.

Or, reform could pursue the idea floated by Lt. Gov. Billy Nungesser that the state takes a cut of the profits of a production. Given the complicated nature of Hollywood financing this would require close scrutiny in lawmaking, but actually might turn Louisiana a profit.

Whatever approach, it must not turn back the clock to the previous arrangement that merely transferred wealth from taxpayers to people producing media, including some never-broadcast television and Z-list movies, in a way that made fraud all too easy. Making widgets might have produced a better return on investment. Legislators must keep this goal in mind when assessing whatever comes of this effort.