John Locke Update / Research Brief

Film Grants and Creeping Cronyism Only Help Outside Film Production Companies

posted on in Economic Growth & Development, Rights & Regulation, Spending & Taxes
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Cronyism got a boost last week in the General Assembly. Dan Way reports for Carolina Journal:

State Rep. Ted Davis, R-New Hanover, bucked conservative critics who strenuously objected to making a $30-million taxpayer subsidy to Hollywood a permanent annual state allocation.

In fact, he helped lead the charge to approve Senate Bill 582, an omnibus measure that repealed a sunset provision for the Film and Entertainment Grant Program that was scheduled to end in July 2020.

“I asked for this to be put in the bill,” Davis said of the permanency provision. Indeed, he said, $30 million “is not as much as I would have liked to have seen.”

Some takeaways:

After the vote to remove the film grant sunset, Donald Bryson, director of Americans for Prosperity–North Carolina, issued the following notice on Twitter:

The #NCGA should anticipate @AFPNC holding some members accountable for their support of subsidizing Hollywood. #NoHollywoodHandouts

He’s right to bring accountability to the issue. This is one of those issues where special interests win out easily over working people and small local business enterprises because they don’t have the time nor the money to lobby legislators to protect their interests.

The squeaky wheel gets the grease. The squawking rent-seeker gets public funds.

The idea behind the North Carolina Film and Entertainment Grant is simply this: Lower costs of doing business are good for business. What’s good for business is good for job creation, investment, and the state’s economy.

The message behind the film grant fund, however, is this: We only want this industry to enjoy lower costs of doing business.

The irony of it is, it means slightly higher costs of doing business for all the other local businesses to pay for special treatment for the outside film production companies. That isn’t good for job creation, investment, or the state’s economy.

The race to the bottom

The biggest beneficiaries of the film grants are outside film production companies — even if they don’t produce in North Carolina.

The film grant in this state provides one “bid” for film productions in an incentives bidding war among the states (and foreign nations, too). It pressures policymakers in other states to up their incentives bid for fear of losing productions.

Providing a way to improve the state’s overall economy was the original intent behind film incentives. That goal often gets forgotten in the bidding war with other states. It makes policymakers start thinking the goal is actually just to win productions, regardless of cost.

So it turns into a race to the bottom. Pressure is always on to increase state incentives for film productions (you can see that process happening in North Carolina). They are never the “right” amount. Meanwhile, outside film production companies increasingly benefit. Sometimes they even use relocation threats to extort even greater incentives amounts from states.

The Economist called it “a stupid trend” and a “beggar-thy-neighbor trade war.” And the only way to win one of those is to get out of the losing game entirely. Several states have, in fact, stopped offering film incentives altogether.

And why not? Many state governments studied the returns on their film incentives and found they were net money losers — including North Carolina, where the state was getting a return of just over 19 cents per dollar of tax credit given. (That was on the state’s original, bigger incentives program.)

In a 2016 study in the academic journal The American Review of Public Administration, Michael Thom of the University of Southern California found that state film incentive programs have no impact on their states’ economies or industries. Thom researched several economic factors surrounding state film incentive programs. As he showed, basically film incentives programs only benefit outside film production companies and current workers.

We don’t need film grants; we have more effective, broader, real incentives

North Carolina simply doesn’t need film grants. Thanks to major reductions in tax burdens, spending growth, and bureaucratic red tape, North Carolina boasts a freer business climate, a vibrant economy, and lower costs of doing business.

Those are appealing factors that can also supplement the state’s many natural amenities in attracting outside film productions. More importantly, they’re already attracting hosts of business endeavors that are coming here for the long haul.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. As director of regulatory studies and research editor at the John Locke Foundation, Jon gets in the weeds of all kinds of policy… ...

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