By: Shu-Yi Oei
I’ve been thinking a lot about movies lately, partly because this pesky sign appeared outside my house a couple of days ago, and partly because of the Louisiana film tax credit, which has been all over the local news.
A couple of days ago, an Associated Press article reported that Louisiana’s motion picture industry was down by 90% this year as filmmakers moved production to states with more generous tax incentives. (I guess that puts the filming outside my house in the 10%?). It was also reported that Governor John Bel Edwards and the Louisiana Economic Development agency are going to commence an examination of the film tax credit and its economic impact in Louisiana. As the news reports indicate, the decline in movie production activity is undoubtedly due to the fact that, facing a state budget deficit, legislators placed caps and limitations on the credit in legislation passed last year. The most material change was an aggregate $180 million cap on the credit for tax years 2015-18, which will then sunset. RS: 47:6007(C)(1)(d)(ii). As a result, movie production has reportedly moved to states with more generous film tax incentives.
The Louisiana film tax credit is a complex beast, and I can’t cover all its intricacies here. But some broad policy points are worth mentioning. The credit is actually a motion picture production tax credit (a credit for movie production expenditures) and an employment tax credit (an additional credit for productions hiring Louisiana residents). At the height of the credit’s generosity, qualifying productions could obtain a combined credit of up to 40% (30% production and 10% employment). Unused credits could not only be transferred (sold) to other taxpayers but could also be transferred back to the state for up to 85% of the credit’s face value. RS: 47:6007. The generous credit and its transferability feature lured a good deal of movie production from Hollywood to New Orleans—hence “Hollywood South.” But now the credit is capped for a bit, and many productions have gone elsewhere.
The credit–like many other similar state programs–is undoubtedly costly. One study reports that the state certified $251.1 million of movie credits in 2013 and $226.4 million in 2014. Another indicates that the state has spent over a billion dollars on films between 2002 and 2012. The big question, of course, is what the state gets in exchange for the amount it spends. Here, I think many (most?) economists and other commentators argue that the answer is “not very much”, especially once opportunity costs, quality of local jobs actually being created, and other considerations are factored in. Others are more sanguine about the credit’s benefits—particularly when indirect spending, multipliers, effects on tourism, and other ripple effects are taken into account. This report from Gordon Russell of The Advocate does a nice job discussing some of the arguments on both sides in a fashion friendly to the general reader.
Interestingly, the sense I get from many locals I’ve spoken with seems to be that the credit and its effects are a good thing for New Orleans. (Not a formal study of course—just sitting around chatting.) For example, friends and others I’ve talked to who work in the hospitality, restaurant, and related industries tend to comment positively on the effects of the credit on tourism, on the food and beverage industry, and on the availability of jobs in the film industry itself. As for myself, even though Tax Expenditure Analysis 101 means I am cognizant of the credit’s cost as an indirect spending program, really, who doesn’t get excited when 22 Jump Street is being filmed at Tulane University, or when one spots Chris Rock strolling down Frenchmen Street?
And herein lies an interesting point: The film tax credit is a tax incentive where, more than most, the positive effects are highly visible, salient, and emotionally resonant. For a city like New Orleans in which tourism is a big deal and revitalization a constant refrain, having celebrities at local hotels and restaurants and seeing movie crews and tourists spend money and be excited to be in the city is very tangible and instantaneously rewarding on a psychic level. On the other hand, the costs (particularly the opportunity costs) of the credit are not quite so obvious. I think many locals would acknowledge that funding for infrastructure, education, and other things remains short. But the logic train of “Hmm look, another pothole! Higher education budget cuts! I wonder if we should prioritize those items over movie production?” is not necessarily one that many would instantaneously jump on. The thrill of catching a glimpse of Brad Pitt [fn1] in the Quarter vastly outweighs the less obvious direct and indirect costs of the credit.
My sense is that the credit’s extremely salient upsides (and the highly observable negative effects when caps and limits were instituted) paired with its harder-to-appreciate costs may help explain the mixed reactions locally to its existence. I also suspect that this feature may add to the popular and political pressure to revisit the caps and limitations as the state’s review of the credit’s costs and benefits moves forward.
[fn1] To be fair, Brad Pitt was already in New Orleans, probably independent of the credit. And this relates to another issue that’s debated: Do tourists come to New Orleans because of the movie industry? Or even independent of it?