News: CJ Exclusives

Bills would expand taxpayer subsidies to film industry

Three years after tax credits expired, lawmakers looking to nearly double amount of direct handouts to film productions

The EUE-Screen Gems Studio complex in Wilmington. (CJ photo by Don Carrington)
The EUE-Screen Gems Studio complex in Wilmington. (CJ photo by Don Carrington)

Film director Rob Reiner and other Hollywood notables have railed against North Carolina, threatened not to work in the state again, and raised the possibility of economic boycotts because of House Bill 2, the so-called bathroom bill.

And yet separate but identical bills have been introduced in the House and Senate that would try to entice those same filmmakers back to North Carolina at taxpayer expense. The measures would nearly double the state’s taxpayer-subsidized handouts to the film industry.

House Bill 473 was filed on Thursday, a day after Senate Bill 358 was introduced. The identical bills call for $55 million in annual appropriations from the General Fund to the Department of Commerce. The money would be allocated to the Film and Entertainment Grant Fund effective July 1.

The state had a robust 25 percent refundable tax credit on film production expenses that expired at the end of 2014. The next year a $10 million grant fund was established. That fund was expanded to $30 million for both the previous and the current fiscal years.

A group of North Carolina film commissions and the Motion Picture Association of America fought vigorously to preserve the lucrative subsidy in 2014. They commissioned a study that concluded the tax credit had a positive effect on the state economy.

The General Assembly Fiscal Research Division did its own study that came to a different conclusion: The tax credit lost 54 cents for every dollar allocated.

Jon Sanders, director of regulatory studies at the John Locke Foundation, said lawmakers should not return to the costly practice of shelling out tax subsidies to one of the richest industries in the world.

“From a policy standpoint, it’s a bad idea. The incentives program that we used to have, as an economic driver, the state was getting about 19 cents on the dollar invested, which is well in line with what many, many other states have found when they investigate their own film incentives programs,” Sanders said.

While states all have different parameters and mechanisms in their film subsidy programs, “Repeatedly these things are found to be net money losers in a big way,” Sanders said.

Is it the cachet of Hollywood that induces lawmakers to want to entice its presence in a state?

“That’s part of it. There’s a cool factor,” Sanders said. And lawmakers like the notion of being able to point to a program they fund with other people’s money and claim credit for creating jobs.

“They say this money has this many direct effects on employment, so many indirect effects on employment, and so many induced effects on employment,” Sanders said. But what they don’t look at is the other side of the ledger, which is how that money might have been better spent, and created more jobs, left to free market uses rather than distributed for political purposes.

Some advocates of film subsidies claim there are intangible benefits to the outlays that are impossible to measure, such as enhancing the state’s profile to outsiders.

“Here’s the intangible. North Carolina is one of the fastest growing states, and our economy is doing really well, and a big reason for it is that we have changed our tax structure,” Sanders said.

“We have given tax breaks to corporations and individuals across the board, and not to favored players,” Sanders said. “So what we’ve had is essentially an all-comers economic incentive instead of an economic incentive tax cut for just people that we like.”

Primary sponsors for H.B. 473 are Rep. Holly Grange, R-New Hanover, and Rep. Andy Dulin, R-Mecklenburg. It had not been assigned to a committee by late Thursday afternoon. Primary sponsors for S.B. 358 are Sen. Michael Lee, R-New Hanover, and Sen. Paul Lowe, D-Forsyth. The bill was sent to the Committee on Rules and Operations of the Senate.