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Iowa Film Incentives Are Likely, But Are They Worth It?

Written by Jeff Ignatius

River Cities’ Reader

www.rcreader.com

Wednesday, 14 March 2007

Film incentives in Iowa are likely to become law this legislative session after being approved by a house committee last week.

But it remains an open question how much of a boost House File 411 - which would create three types of incentives for film production in Iowa - would provide to the state's motion-picture industry, and whether the state would benefit financially from the incentives.

Nationally, there's been little study about whether tax revenues generated by increased film production offset the costs of incentives. And with an increasingly competitive incentive climate, such programs are only going to become more expensive for states.

The rationale for film incentives is simple: If a state doesn't offer incentives to filmmakers, they'll film in states or countries that will make it financially worth their while to do so.

But the evidence to support incentives is primarily anecdotal. Tom Wheeler, the manager of the Iowa Film Office, said last week that four productions are currently considering the state for shooting this summer, possibly contingent on the passage of incentives.

Wheeler said the Iowa legislation - which was passed unanimously out of the House Economic Growth Committee last week - has three types of tax incentives, available for production companies, investors, and Iowa-based vendors associated with certified film projects that spend $100,000 or more in the state. He described them in an e-mail:

• "25-percent transferable income-tax credit based on in-state expenditures at or above $100,000 (cumulative) to Iowa-based companies or Iowa resident individuals";

• "25-percent transferable income-tax credit based on direct investment into a certified project"; and

• "100-percent income exclusion for Iowa-based companies or Iowa resident individuals on income from certified projects."

The credits would be awarded post-production - after the money has been spent.

Wheeler said he expects the film-incentive bill to become law this spring. The legislation's main obstacle, he said, would be higher-priority legislative items pushing more-minor bills off the agenda.

Wheeler also said that his goal with the incentives would be to nab two or three feature films a year with budgets of $4 million to $6 million each.

Representative Tyler Olson, who shepherded the bill through the Economic Development Committee, called the legislation "an important part of an economic-development package."

Olson said he didn't have a target for how much film production the incentive would bring to Iowa. But he said that "I think it'll be better than break-even" in terms of costs and revenues to the state. Furthermore, he said, film-production spending helps local economies, generates positive public relations for the state, and helps build a "creative infrastructure" of crew and support services.

The fedgazette - a regional business publication run by the Federal Reserve Bank of Minneapolis - last year wrote that film-industry incentives are popular, and "you won't find many opponents to this economic development strategy. But neither will you find much evidence that, as a strategy, incentives do any better than break even at the public box office." (The article can be found at http://www.minneapolisfed.org/pubs/fedgaz/06-09/film.cfm.)

Wheeler said the incentives are a "no loss, all gain" proposition. "I don't think it's likely to cost the state anything," he said.

The fiscal-note worksheet prepared by Wheeler for the legislature estimates first- and second-year costs to the state of $20,000 a year and revenue to the state of the same amount. And

Wheeler claimed that the General Assembly is "not going to legislate giving money away."

Yet the fedgazette said that such calculations are incomplete. A 2005 report on Montana film production, for example, estimated that in 2006 the state would receive $600,000 in new tax revenues beyond what it spends on its new incentive program. (The costs were estimated at $1.62 million, while the tax benefit to Montana was calculated to be $2.22 million. The study can be found at http://www.montanafilm.com/incentive/MTFilmReportApril202005.pdf.)

"But such assertions fail to consider the full costs and benefits of these incentives, and as such fall well short of offering anything close to the real return on this public investment," the fedgazette wrote. "For example, there's no telling how many Montana productions are the sole result of incentives, and how many would have occurred with no such handout. ... In fact, just how much film incentives cost and how much is gained remain a mystery in most programs."

That's true in Illinois, where the state has never studied tax revenues stemming from increased film production in comparison to the cost of incentives, according to Andrew Ross, spokesperson for the Illinois Department of Commerce & Economic Opportunity. On Monday, Ross said he could provide the cost of Illinois' film incentives but had not done so by late Tuesday afternoon.

The New England Public Policy Center at the Federal Reserve Bank of Boston claimed in an October 2006 report (http://www.bos.frb.org/economic/neppc/briefs/2006/briefs063.pdf) that film incentives are difficult to analyze for several reasons: "First, some credits can end up going to film and television production that would have happened locally without added financial incentives. Second, even though tax credits can lead to more local production work, the financial incentives may be larger than needed to attract producers."

Furthermore, the center said, while film incentives often achieve their primary objective, they don't generate much business outside of film production: "The little evidence available suggests that film tax credits do attract film production and create jobs in states that have little or no film industry. However, they also cost states considerable foregone tax revenue. The film production stimulates little additional economic activity in other industries. Consequently, film tax credits do not ‘pay for themselves' by indirectly generating additional corporate income, sales, and property-tax revenues."

The report recommended that "as more evidence becomes available, policy analysts and policymakers should evaluate the cost-effectiveness of film tax credits relative to alternative policies designed to promote job creation and economic growth. They should also take into account the economic effects of measures needed to offset the revenue losses incurred by film tax credits in order to maintain balanced budgets."

Yet state officials are quick to point to the success of film incentives, and the case - while circumstantial - is strong. Illinois created film incentives in 2003, and spending on film production in the state jumped from $26 million in 2003 to $94 million in 2005, Ross said.

In Louisiana - which has one of the most aggressive incentive programs in the United States - film production grew from $11.8 million in 2002 (when incentives were enacted) to $514 million in 2005, according to the Governor's Office of Film & TV Development in Louisiana.

Wheeler admitted that the kind of growth experienced by Illinois and Louisiana is unrealistic for Iowa. "You're not going to have the same upturn as Louisiana and Illinois did," he said. "We're realistically going to go from zero."

It also seems unlikely that Iowa can keep up in the incentive race. Illinois last year sweetened its incentive program, expanding it from tax credits for film-production wages to tax credits for total production spending in the state. "The film industry is an incredibly competitive business," Ross said. "This needed to be expanded for us to keep up."

New York, Wheeler said, has been able to lure film production away from Canada, but our neighbors to the north "continue to increase what they offer."

So how can Iowa compete? "We are late in the game," Wheeler said, "and I have always been afraid of a race to the bottom."

But Wheeler also suggested that Iowa's move at this point is not to be more generous than other states, but to create something approximating a level playing field. "We have to get projects to at least consider Iowa instead of Illinois," he said.

"We don't necessarily need to be better than surrounding states if these work for us." Olson said.

Olson's sentiment was echoed by Ross, but he said that Illinois has several strategic advantages over other states, such as the diversity of its locations, the iconic nature of Chicago, and the experience of its crews. "We offer things that other states just don't have," he said.

That, of course, didn't stop the state from making its incentive program more generous last year.