North Carolina loses 54 cents for every dollar it allocates to the state film production credit, and the actual return on investment might be even worse, concluded a memorandum from the General Assembly’s Fiscal Research Division.
The memo, dated April 3, summarizes findings of a preliminary review requested by state Rep. Rick Catlin, R-New Hanover, who sits on the House Commerce and Job Development and Appropriations committees.
At issue is a battle over a 25 percent refundable tax credit on film production expenses, which is scheduled to expire at the end of the year. The film industry claims the credit more than pays for itself and should be renewed to protect film-production jobs and maintain the positive publicity Hollywood productions can bring to North Carolina. State Commerce Secretary Sharon Decker has said she wants to preserve subsidies in some form. Critics have argued that the credits are a loser for taxpayers and the industry has wildly exaggerated any benefits to the state.
A group of North Carolina film commissions and the Motion Picture Association of America commissioned A Supply Chain Study of the Economic Impact of the North Carolina Motion Picture and Television Industry from Robert Handfield, distinguished professor of supply chain management in N.C. State University’s Poole College of Management. The industry-funded study hailed the benefits of maintaining the credit.
The Handfield report estimates the state gains a net $5.2 million impact from the incentive, or $1.09 in benefits for every $1.00 it gives out in credits. When combining state and local fiscal impacts, the net benefit is $25.4 million, or a $1.42 return on $1.00 investment.
But in a blistering rebuttal, Fiscal Research found the state actually loses $45.3 million, which amounts to 54 cents for each $1.00 invested. Even after adding local tax collections, the net loss is $33.1 million, or a 39-cent loss for each dollar invested.
“[Fiscal Research] concludes that the reported positive return on investment is based on a series of misunderstandings of the state’s tax laws, invalid or overstated assumptions, and errors in accounting,” the memo stated.
Memo authors Patrick McHugh and Barry Boardman of Fiscal Research noted in several parts of the memo that glaring errors and mistaken assumptions were brought to Handfield’s attention prior to publication of his report, but he did not change his findings.
“We have not, to date, received satisfactory responses from the author on many of the questions related to the methodology and assumptions used in the report,” the memo stated.