Opinion: Film tax credits in spotlight now

Thanks in significant part to Georgia’s generous film tax credits, our state’s peach logo appears repeatedly on millions of screens large and small around the world. That’s the publicly visible part.

Behind the scenes, across the past decade, Georgia has substantially grown our share of the industry producing the TV shows and movies that entertain us, and even the interactive games we play.

Like all else in economics, that comes at a cost. And the price of subsidizing the film business’s surge here is up for consideration in a serious way at the Gold Dome this year. That might seem an ironic move for a low-taxes-above-all state that proudly markets itself as the nation’s best state for business.

Yet, cost again comes into play here; specifically, the income side of the ledger that the Georgia General Assembly must balance with expenditures each fiscal year.

Drooping state tax revenues of late and predictions of a possible recession in the near future have driven state lawmakers to consider reining in film tax credits. They’re understandably seen as an easy target for reductions, given Georgia’s incentives are more generous than those offered by any of the other 30-odd states that provide them to the film industry.

We believe there’s likely room for improvements in fiscal efficiency, but caution the Legislature against any ham-handed moves that would put our film future and its economic upside at risk.

The opening rounds of this budgetary fight have created unusual stances, such as some Republicans apparently being in favor of taking a hard look at trimming Georgia’s generosity to the entertainment sector. And dueling studies analyzing the pros and cons of film tax credits are making the rounds of public policy and political circles. A report by the Georgia Department of Audits and Accounts even contains an extensive economic back-and-forth of pointed criticism of the tax credits and equally sharp rebuttals by the Georgia Department of Economic Development.

Such jousting is understandable, given the dollars involved. Growing Georgia into Hollywood South pretty quickly did not come cheaply. The various analyses differ significantly on the full cost of the subsidy, and comparisons can be confusing, given different years highlighted in the reports.

That all noted, state auditors put the cost at $667 million of tax credits in 2016, based on spending of $2.2 billion by production companies. A sharply critical report by Kennesaw State University Professor J.C. Bradbury puts the amount of foregone tax revenue from the credits at $800 million in 2018.

Similar numerical differences are in play over how many film jobs are created, the amount of private-sector spending by production companies here, and so forth.

Since economists very often disagree on the scope of a problem and best practices for solutions, the disparate viewpoints are understandable.

What’s common across this landscape of spreadsheets and bar charts is that, by any measure, Georgia now has become a world-class player in film, TV and interactive entertainment production since the tax credits were passed into law.

Although much of the filming action takes place away from the public eye in studios, or at secured locations across the state, this industry is still highly visible. It’s pretty hard to look at a screen now without frequently seeing the Atlanta skyline or even familiar storefront signs of businesses we all patronize. And the little yellow placards with arrows and cryptic names or initials of production companies seem to be on as many street corners as political signs.

Even accounting for Hollywood-style hype that seems in play in some of the stats, the numbers of jobs created and economic ripple effects resulting directly from the tax credit seem undeniable. It’s fueled a sizable industry and ancillary economic growth.

And Georgia is positioning itself to take even further advantage of this boom by doing such things as creating educational programs to train a homegrown workforce to step into more entertainment industry jobs that often pay pretty well. The Georgia Film Academy and a new master’s degree program at UGA are a couple of these high-profile initiatives. There seems ample economic justification to push these endeavors. A 2016 report by Georgia State University’s Fiscal Research Center points out that, “Wages paid to film workers are typically higher than the average wage across U.S. industries: in 2014, the nominal per worker wage in the film industry was about $95,305, compared to $51,296 across all U.S. industries.”

At its core, economics is about scarcity. As in resources are finite, meaning a dollar spent on one thing is unavailable for other uses. That’s the underpinning behind the current hard look being taken at the tax credits that have cost more than $3 billion from 2013 to 2017, according to state auditors.

In our view, there’s nothing inherently wrong with taking a close look at Georgia’s film tax credit operation. Like much else in state government, it’s very loosely regulated. The auditor’s report notes that, “Despite granting more credits than any other state, Georgia requires companies to provide less documentation than any of the other states with a film tax incentive.”

Other states are more stringent in other requirements too. The auditor’s report says Georgia’s one of only three states offering incentives that doesn’t require audits by either the state or a third party, and even the other two in this camp require more documentation of eligible expenses than does Georgia.

There thus seems ample policy room to discuss reasonable modifications that would reduce the risk of misrepresentation or outright fraud in the use of Georgia’s film tax credits, and thus better ensure that foregone tax dollars yield the most benefit for Georgians. Included in that work should be agreement on a reasonably accurate economic multiplier formula to help assess performance of the credits and industry.

We believe all this can be done without damaging the future prospects of a growth industry here that’s played a significant role, no pun intended, in putting Georgia on the global map while creating jobs and economic growth that would likely not have otherwise been drawn to this state.

Andre Jackson, for the Editorial Board.

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