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Film spending flows mostly out of state

222 jobs for Mass. residents cost the state $325,000 apiece

BY: Bruce Mohl

The state’s film tax credit generated $319 million in new spending on movies, TV shows, and commercials in 2009, but only a third of the money went to Massachusetts residents or businesses, according to a long-delayed report from the Revenue Department.



Of the $195 million paid out in wages, 78 percent went to nonresidents, with $82 million going to a handful of actors like Tom Cruise who earned more than $1 million per production.



The Revenue Department said 222 of the 586 film industry jobs went to Massachusetts residents at a cost to the state of nearly $325,000 apiece, although state officials said that figure is inflated somewhat because the cost includes tax credits issued in previous years but not cashed until 2009.



The Revenue Department estimated the film tax credit caused spending to increase in Massachusetts in 2009 by $32.6 million, boosting the state’s gross domestic product by $167 million. But state government lost a lot of money on the credit. The state collected 13 cents in new tax revenue for every dollar it spent on the film tax credit, the report says.



The disappointing numbers are sure to rekindle the debate about the state’s ability to use tax credits and grants to spur economic development, particularly at a time when Massachusetts is facing a budget gap of more than $1.5 billion. The release of the film tax credit report coincided with an announcement by Evergreen Solar that it was closing its plant in Devens and letting go 800 workers over the next few months to cut costs. The state had provided more than $58 million in state aid to the solar company to help it open the facility on the former military base.



Greg Bialecki, the state’s secretary for housing and economic development, said he was not frustrated by the disappointing news on Evergreen and the film tax credit. He said state officials will be looking for ways to get more bang for each buck spent on film tax credits and characterized the plant shutdown by Evergreen as the sort of thing that can happen when states try to kick-start economic activity.



“I don’t find it frustrating because we knew that nothing was guaranteed,” he said of the Evergreen announcement.  “If you’re going to try to take some bold steps to get the economy going, you’re not going to bat 1,000 all the time.”



The state’s investments in Evergreen were an attempt to help a company launch a Massachusetts manufacturing facility in the highly competitive solar panel industry. By contrast, the state’s investment in film tax credits represents an attempt to launch a new industry in Massachusetts.



Now in its fourth year, the film tax credit offers producers who film in Massachusetts tax credits equal to 25 percent of whatever they spend. The tax credits are refundable and transferable, meaning they can easily be converted to cash by selling them back to the state or to another taxpayer.



The Patrick administration is divided on the tax credit, with budget officials worried about the low bang for the buck and economic development officials hopeful that the tax credit will eventually translate into an on-the-ground, year-round business. Twice over the last two years the administration has sought to scale back the film tax credit. One effort went nowhere and the other was approved, only to be erased as state officials backpedaled in the face of opposition from the producers of the Tom Cruise film Knight & Day, which was scheduled to start shooting in Massachusetts.



Bialekci said the Patrick administration is seeking ways to steer more film jobs to Massachusetts residents, and he didn’t think the tax credit would be scrapped. ”We still think that the film tax credit is an important tool to help grow a new industry in Massachusetts,” he said.

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thackerj
Says on 01.17.2011
at 11:01 PM
I'm curious how many firms in MA are able to provide the services that the film industry needs. For example, in the Back Story companion to this article, the author writes:

"Of the $7.1 million spent on cameras and film, 92 percent flowed out of state. The same was true for the $6.7 million spent on special effects (87 percent went out of state), the $6.4 million spent on producer fees (90 percent went out of state), and the $3.3 million spent on costumes, clothing, and props (86 percent went out of state). Firms outside Massachusetts also pocketed 91 percent of the $2.9 million spent on trailers and mobile dressing rooms, 95 percent of the $1.8 million spent on animals, and all of the $1 million spent on insurance."

I wonder if there are any -- or enough -- of those types of service providers in state to support all the movies being filmed here. If not, it would explain, at least in part, why so much of the film money flows out of state.
Nick Paleologos
Says on 01.15.2011
at 7:16 AM
DOR estimated the cost-per-job at more than $70,000. The actual number is closer to $20,000. What is wrong with DOR's cost-per-job calculation?

The following four assumptions and omissions by DOR are the most problematic:

a) DOR reduced the number of new private sector jobs created by the film tax incentive claiming that state “spending cuts” which DOR directly attributed to the film credit resulted in the “elimination” of 2,639 state jobs between 2006 and 2009. As a result, they proceeded to "offset" or reduce the real number of new film-related jobs created by the amount of "lost" state jobs--thereby vastly inflating the cost-per-job. As it turns out, the state did not have to eliminate any jobs during the first four years of the film tax credit. According to the US Census Bureau, the number of state jobs in Massachusetts during that period actually increased by 5,399.

b) DOR did not account for the economic impact of direct payments to state and local government agencies by film production companies. For example, the Town of Essex, received $250K from the producers of Grown Ups, and the Franklin Park Zoo, collected $350K from the producers of Zookeeper.

c) DOR did not account for the economic impact of Massachusetts companies that purchased film tax credits and used the savings to preserve or create non-film related jobs in other sectors of our economy.

d) Finally, DOR continues to assert that it is “impossible to estimate” the economic impact of local film production on tourism--despite the fact that respected analysts such as Ernst & Young have done so in other state studies. The film industry brings national and international attention to Massachusetts. And tourism is our state's third largest employer---accounting for over 100,000 jobs.

As far as the money "flowing out of state" is concerned, DOR certifies non-resident star salaries as qualified local expenditures for the film tax credit and yet subtracts those figures from their benefit calculations as having no measurable impact on our local economy. Which is it? Are they good or bad for business?

A handful of movie star salaries will always distort the in-state vs. out-of-state wage totals. The reason why Tom Cruise’s salary is a “qualified expenditure” even though he is not a Massachusetts resident is because a) he earned his money in Massachusetts, b) he lived here while he was working on the film, and c) he paid Massachusetts income taxes on his salary---in fact, he paid more income taxes for two months of work in Massachusetts than most residents will pay in our entire working lifetimes!

Attracting movies with big stars gives Massachusetts bang after bang after bang for every buck we spend on tax credits. First, when the film is being made, we get the benefit of millions of dollars in direct and indirect production spending. Second, when the film is later released, we get the benefit of millions of dollars of marketing and promotion paid for by the studios. Finally, if the film is nominated for awards, we get the benefit of millions more dollars worth of advertising for our state.

The bigger and better the talent we attract, the more likely their films will be paying dividends to Massachusetts long after the stars have left the state. The best example of this phenomenon will be this year’s Academy Awards where--for the first time ever--Massachusetts-made pictures will not only lead the parade of nominees, but also enhance our state's cinematic legacy for years to come.

For a summary of what the DOR numbers actually tell us:

http://nickpaleologos.blogspot.com/2011/01/mass-film-tax-credit-cost-vs-benefit.html
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