by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor | John Locke Foundation
Time Magazine writes glowingly about Georgia’s film production incentives, entitled “How Georgia Became the Hollywood of the South.” The Twitter account G.H. Davey asked me about it: “Having seen some of you[r] criticism re film incentives in other states, what about GA, where it helped bring in an estimated 7 billion in 2016?”
It’s a fair question.
So where does that figure of $7 billion come from? From the Georgia Film, Music and Digital Entertainment Office.
The raw numbers are these: In 2016, Georgia issued $338 million in tax credits for which film production companies reported $2 billion in spending.
How is that turned into $7 billion? Does the film office rely on an off-the-shelf, proprietary input-output modeling software like IMPLAN — i.e., the sort of “economic impact” nonsense exposed in Dr. Roy Cordato’s report, “Economic Impact Studies: The Missing Ingredient Is Economics”?
No, it actually uses an even cruder metric. The film office simply takes the amount of spending reporting by film production companies in Georgia and multiplies it by 3.57. That’s how they arrive at the “economic impact” number. Really.
Where does that 3.57 multiplier come from? The answer is: We don’t know, but we’ve been doing it this way since 1973.
Kid you not. Lee Thomas, head of the film office, told Politifact Georgia that
the state doesn’t know what sorts of spending that multiplier originally counted, or why the 3.57 estimate was used. But keeping the same multiplier allows to track progress over time, comparing apples to apples, she said.
The Atlanta Business Chronicle reported that “Thomas said it’s the same formula the film office has used since it opened in 1973.”
Unlike many other states with programs to incentive film productions within their borders, Georgia has avoided rigorous review of its program. In May 2017, Pew Charitable Trusts released a report that identified Georgia as a “trailing” state in evaluating tax incentives. The report noted that although Georgia has one of the most generous program in the country, “Georgia lacks a process for evaluating the film tax credit and other incentives.”
Georgia officials could have a very good reason to skip review. States that review their film production incentives programs tend to find that their returns on investment are poor. Each dollar of state revenue they give up returns only pennies to state coffers. Some states have ended their programs for that reason, the most recent being West Virginia earlier this year.
A proper study of the effects of such a program is rather difficult, as economists for the Fiscal Research Center at Georgia State University explained in the conclusion of their February 2016 paper discussing Georgia’s program:
Notwithstanding, the relative costs and benefits of Georgia’s film tax credit are uncertain. Conducting an overall cost-benefit analysis of the incentive program requires the ability to isolate the costs and benefits that derive solely from the film tax credit from other factors, such as overall growth in the economy or the film industry, that may also influence the level of activity occurring in the state. Furthermore, determining the degree to which the incentive is effective in bringing projects to the state that would not have otherwise occurred is very challenging.
Many factors, in addition to financial incentives, influence the locational choice of a film project, including climate, suitable landscapes, availability of skilled labor and accessibility to a major airport. Discerning the impact of the financial incentives relative to the presence of the Hartsfield-Jackson Atlanta International Airport or the cooperating climate, for example, is not a trivial task.
Lastly, there is a larger question of whether the economic benefits associated with increased film industry activity represent a larger return on the state’s investment than other policy choices, such as lowering the income tax rate for all individuals or allocating additional funds to education. These are important questions requiring more data and research on the nature of the film activities in the state.
That’s a markedly different process from simply taking a spending amount, assuming every dollar owes to the existence of the film incentives, pretending there are no opportunity costs involved, multiplying the spending amount by 3.57 “the way we’ve always done,” and putting out a glowing press release.