Economic impact exceeds expectations–at no cost to Mass. taxpayers through FY 2008.
The MA Department of Revenue (DOR) has reported that new direct spending on film and television production generated by the film tax credit in Massachusetts is $676 million since 2006. That figure, included in the annual report required under the film tax credit law, is over $100 million higher than the agency predicted in its March 2008 report. When DOR’s “ripple effect” multiplier is factored in, the total economic output tops $870 million.
These 2009 figures, the most detailed to date, show that $167 million in film tax credits were issued in the first 3 years of the program (2006 to 2008). When comparing the total credits (adjusted for new taxes collected) with the total economic output projected by DOR, this translates into a cost of 16 cents for every new dollar generated—once all the credits are ultimately redeemed.
Other key findings in the report are as follows:
*The $676 million in new direct spending, as of the end of FY 2008, came at no cost to Massachusetts taxpayers. DOR reported that the state collected $3.6 million more in taxes than it paid out in credits during that three year period—because the law requires that filmmakers must first spend money in Massachusetts, and then pay taxes on that new spending, before they can receive or redeem any tax credits.
*Since 2006, direct employment of Massachusetts residents in film production increased by 537%.
*Since 2006, over 3,000 new direct and indirect jobs have been created. Sixty-two percent of those jobs went to Massachusetts residents. DOR predicted that this percentage should rise as the industry matures and the crew base expands with the construction of new sound stages in Massachusetts.
*The median annualized wage for Massachusetts residents employed by film productions was $67,775.
Industry advocates welcomed the new results, which seemed to underscore the rapid expansion of local direct and indirect economic activity resulting from the film tax credit. The Massachusetts Film Office reports that more than two dozen major productions have been shot here since 2006.
“The DOR report clearly shows that the benefits of the film tax credit to our economy are real and far-reaching” said Joe Maiella, President of the Massachusetts Production Coalition. “The report shows the film tax credit is a good investment for Massachusetts — creating thousands of new jobs and infusing much needed spending into cities and towns across the Commonwealth at a time when it is desperately needed.”
DOR’s analysis comes on the heels of an economic impact report issued in April by the Motion Picture Association of America (MPAA) that ranks Massachusetts among the top ten film production states outside of California and New York, and the only New England state to earn that distinction.
The MPAA report also spotlighted two major productions shot in Massachusetts last year. According to the MPAA, Disney’s THE SURROGATES spent close to a million dollars per week on Massachusetts goods & services during a six-month stretch in 2008, and Paramount’s SHUTTER ISLAND spent a quarter million dollars a day in the local economy when they were shooting in Medfield and other south shore locations last year.
On May 5th of last year, the Boston Globe reported that California Governor Arnold Schwarzenegger publicly complained that Massachusetts is luring away tens of thousand of jobs.
The local impact of film and television production has also been widely reported in many cities and towns across the Commonwealth including Boston, Salem, Lynn, Burlington, Hull, North Andover, Plymouth, Gloucester, Worcester, Taunton, Medfield, Milton, Essex, and most recently, Lowell.
In developing their economic model, DOR chose to discount or omit several additional factors contained in three other recent 2009 film tax credit studies by Ernst & Young (for New York & New Mexico) and Economic Research Associates (for Pennsylvania)–leaving many industry observers speculating that the actual economic impact in Massachusetts could be even greater than reported, and that the actual cost of the credit may be as low as a nickel for every new dollar generated.
Factors discounted or omitted from DOR’s calculations:
1) The impact of local taxes and fees paid by film and television productions,
2) The impact of state savings on unemployment compensation & health care,
3) The impact of income tax collections from residuals paid to actors,
4) The impact of the development, construction and operation of new sound stages,
5) The impact of film related tourism and the marketing and promotion of Massachusetts,
6) The impact of new Unitary Tax Reporting requirements.
The Massachusetts Film Office reports that a half dozen major productions have already been slated to shoot in Massachusetts during the first six months of 2009. Ben Affleck & Kevin Costner recently completed filming COMPANY MEN, written and directed by John Wells (ER, WEST WING). Also, following up on their success with last year’s MALL COP, Adam Sandler’s company begins shooting the first of two more films he is making in Massachusetts this year.
HOW DO EXPERTS FIGURE OUT THE COST TO TAXPAYERS?
In order to figure out the “cost to taxpayers” for every dollar of new economic impact generated by the film tax credit, analysts need to agree on two important variables:
1) An “Economic Impact Multiplier” — which helps predict what kind of ripple effect the new direct spending is having in our economy. Economic impact multipliers in this industry range anywhere from 1.5 to 5 or greater. Mass DOR used 1.29. Arthur Anderson used 2.69. Cornell University used 3.10.
2) A blended “Tax Rate Multiplier” — which helps predict how much money Massachusetts will collect in new taxes on all the new spending generated by the credit. The biggest chunk of new revenue collected will be from income taxes (tax rate: 5.3%). The balance of taxes collected are from gas (8%), hotels (11%), and corporations (9.5%), among others. DOR uses a blended tax rate of less than 3%. The Film Office models use 3.5% and 5%.
As you can see from the chart above, the “cost to taxpayers” (in cents) for every new dollar of economic activity generated, depends almost exclusively on what number for each of these two multipliers (economic impact and blended tax rate) you believe is the most reasonable and appropriate:
But even DOR—using a very conservative multiplier and blended tax rate—still puts the “cost to the taxpayer” as low as 16 cents for every new dollar generated in the economy.
In the Film Office’s first model–using Arthur Anderson’s economic impact multiplier and a relatively low blended tax rate–the cost to the taxpayer is only 5 cents for every new dollar generated in the economy.
In the Film Office’s second model–using Cornell University’s economic impact multiplier and a slightly higher blended tax rate–the cost is even lower (3 cents).
AT THE END OF THE DAY—NO MATTER WHAT MULTIPLIERS ARE USED—THE COST TO TAXPAYERS (IF ANY) VS. THE BENEFIT TO THE STATE’S ECONOMY, AMOUNTS TO PENNIES ON THE DOLLAR.
For a more detailed year-to-year cost/benefit analysis of the 2009 DOR report, click here.
Common Questions about the 2009 DOR Report
1. How come such a high percentage of wages went to non-residents?
As most people know, a handful of big stars on major motion pictures routinely earn much more than the average salary of everybody else–which always distorts the wage percentage. However, nearly two-thirds of all the new direct and indirect jobs created since 2006 went to Massachusetts residents.
2. Why should big stars be getting a tax break?
Big stars don’t get any tax break under this law. Quite the contrary. They are required to pay 100% of all Massachusetts taxes due on their salaries, before the production company that hired them is eligible to receive a film tax credit. Big stars must also pay Massachusetts taxes on any residual income they receive in the future for work they performed here. So the state will be collecting income taxes from them for years to come.
3. Is it true that big stars—mostly non-residents—have no local economic impact?
Of course not. When Leonardo DiCaprio, or Kevin Costner, or Bruce Willis choose to work in Massachusetts, they live here while they are working. They spend money here while they are living here. And, most important, they pay taxes to Massachusetts on all the money they earn here—not just while they are working, but for years to come on all residual income they earn from that project. Stars also validate the local industry for major private investors. Does anyone seriously believe that the four different groups currently planning to spend over a half-billion new dollars in Boston, Lowell, Plymouth and Weymouth (on the construction and operation of new state-of-the-art sound stages) would be investing that money in Massachusetts were it not for the frequent presence of big stars living and working in our state?
4. Does the film tax credit cost us too much for the benefits we receive?
According to DOR, the Massachusetts economy received somewhere between a half-billion, and a billion dollars worth of new economic activity between FY 2006 and FY 2008–at no cost to the taxpayers. That is because filmmakers are required to spend money in Massachusetts and pay taxes on that spending before they can receive or redeem any tax credits. When all the tax credits issued are ultimately redeemed, the cost to the taxpayers—according to DOR—could be as little as 16 cents for every new dollar generated.
5. Does DOR’s cost/benefit calculation include such things as local taxes and fees paid by film production companies?
No. If you included that factor—plus several other factors which are now routinely utilized by other industry experts such as Ernst & Young, and Economic Research Associates—the actual cost of the credit would be closer to a nickel for every new dollar generated.
But even accepting DOR’s conservative assumptions of both tax collections and economic impact, their report clearly indicates that:
A) The film tax credit program, through FY 2008, has generated well over a half-billion dollars in new economic activity, at no cost to Massachusetts taxpayers.
B) The ultimate cost to taxpayers, when all credits are redeemed, will be pennies on the dollar.
6. How does the film tax credit differ from traditional “economic stimulus” packages such as the one recently passed by the federal government?
The film tax credit is much better. Traditional economic stimulus packages call for the taxpayers to lay out millions (sometimes billions) of dollars in the hopes that those tax dollars will eventually produce new spending and other economic activity in future years.
The film tax credit takes exactly the opposite approach. It requires the new economic activity to happen first—before any tax credits can be earned and redeemed. That’s why, during the first 3 fiscal years of the program in Massachusetts, the $676 million in new economic activity has come at no cost to local taxpayers.
7. But these jobs aren’t really permanent, are they?
What’s a “permanent” job today? Lehman Brothers? General Motors? Circuit City? AIG? The Boston Globe? Massachusetts residents employed in the film industry (and related fields) have been working non-stop since the tax credit was passed. The fact is that this sector of the Massachusetts economy–because of the film tax credit–is expanding dramatically. Our growing industry has provided well-paying jobs (with benefits) for carpenters, painters, electricians, hairdressers, and countless other citizens who have been otherwise hammered in a terrible economy. Today, there are many more jobs being created in this sector, than there are qualified people to fill them. Its a nice problem to have.
8. One critic said that this program costs taxpayers $88,000 per job. True or false?
False. Be very careful when critics start throwing numbers around willy-nilly. For example, the FY 2010 state budget is approximately $27 billion. There are around 100,000 state employees. If you divide the number of state jobs into the total state budget, you would think that taxpayers are paying $270,000 per job. Of course they are not. Why? Because a big chunk of the state budget pays for things that have nothing to do with state jobs (local aid, etc). Same with the film tax credit. It does many other different and important things—all at the same time. It is a catalyst for new private infrastructure investment (sound stages, etc), it supports hundreds of local businesses preserve existing jobs, and it generates substantial payments not only to individual property owners, but also to state, county & local governments.
Taking all of these factors into account, the Massachusetts Film Office estimates that the approximate cost per new job is closer to $22,000. DOR has indicated that the median annual salary for Massachusetts residents working on films is $67,750.
But the most important fact of all is that the 3,177 new jobs created by the film tax credit, during the first three years of the program, have–according to DOR–come at zero cost to Massachusetts taxpayers through the end of FY 2008.
9. I heard that if Plymouth Rock Studios gets built, it could cost the state $3.5 billion over 30 years. Is that accurate?
Absolutely not. On June 11th of this year, the Massachusetts Department of Revenue reported that the proposed sound stages at Plymouth would actually generate $826 million in new state taxes over the period in question. And when DOR’s own 2009 ratio of economic output vs. net cost of the credit (6.2 to 1) is applied to the number of credits they predict will be earned by all the movies shooting at Plymouth Rock Studios during that same period, the total economic output generated in Massachusetts by movies shot at Plymouth Rock Studios will be more than $25 billion!
FOR A PRIMER ON TAX CREDITS, CLICK HERE.