Carolina Journal’s Barry Smith details the state House budget proposal. Among the most interesting items to me is that it ends the state’s 25 percent refundable film credit.
Other provisions include:
• Transferring the SBI from the Department of Justice to the Department of Public Safety, a provision included in the Senate budget but opposed by Attorney General Roy Cooper. In addition, the state ABC Commission would be moved from the Commerce Department to the Department of Public Safety.
• Adding 25 positions in the Department of Environment and Natural Resources to oversee coal ash management and clean up, at a cost of $1.8 million.
• Providing a 1.44 percent cost-of-living adjustment to state retirees.
• Appropriating $2.5 million to the One North Carolina business incentives fund, as well as $3.6 million to the N.C. Biotechnology Center, and $2.3 million to the Rural Economic Division. The budget provides no funds or tax breaks for film incentives, which are set to expire at the end of this year. The Senate has adopted a separate incentive plan, based on grants, for the film industry.
No doubt, House budget writers will be accused of being meanies who don’t want the film industry to thrive in our state. That would be wrong, of course. The fact is, the film tax credit is poor policy for a number of reasons.
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.