Oregon's Film Subsidy Tax Credit: "Reel Inefficiency"

Chuck Sheketoff

If you could buy something directly for $90, would you pay a middleman $100 to buy it for you? Of course not; it would make no sense. Not even in a movie filmed in Oregon.

But that is, in essence, how Oregon subsidizes film production in the state. Through the Film Production Donation Tax Credit, Oregon pays $100 to a small, fortunate group of taxpayers for every $90 to $95 that they donate to a film production fund. The fund then subsidizes the filmmakers.

The inherent inefficiency in the current film production tax credit scheme — let alone the 167 percent expansion that the Governor is proposing — is one that the state can ill afford, as it faces a large revenue shortfall. If subsidizing in-state film production is a worthwhile use of taxpayer dollars, then the legislature should fund it directly out of the General Fund or Lottery Funds. With the tax credit program set to expire this year, this is an opportune time for the legislature to fix the inefficiency by changing the funding for the program from a tax credit to a direct appropriation.

Read Reel Inefficiency, the latest issue brief from the Oregon Center for Public Policy, and learn

Then come back here and discuss.


Oregon Center for Public PolicyChuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

Comments

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    There are numbers that show the economic impact of film production in Oregon. Can one assume it was all because of tax credits? It's hard to say, but given the overall economic impact, I'm guessing this is why Kitzhaber supports the credits.

    Here's a link that provides the overall impact: http://oregonconfluence.com/index.php/2010/12/20/oregons-film-incentives-a-good-deal-for-all/

    I'm curious to know, Chuck, if you believe that the tax incentives offer enough of an ROI to be worthwhile.

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      The issue isn't about ROI on film subsidies, but rather that we are paying a middle man 5-10% to in turn fund the subsidy instead of directly funding it.

      It is analogous to me giving you $10 to put into the pot for encouraging film production, and you skimming 50 cents to a dollar off for putting the $10 in the pot. Chuck is pointing out is that if we are going to be putting money in the pot, we (as a state) should be putting $10 in the pot directly instead of paying you 50 cents to a $1 off the top of that $10 to simply put the money in the pot for us.

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    If I have the math right, we're talking about $500k - $1m in extra money paid out, right? That is, if Kitzhaber's proposal to bring the fund to $10m holds in the Leg.

    The question to ask is what the state gets for structuring it this way. My guess would be that you end up with a volunteer force to fund the incentive, rather than a conscripted taxpayer base at large.

    So the question to Oregonians is best framed as: "Do you want to save 5 cents on the dollar and put the film fund into the general revenue stream, or incentivize a tiny group of citizens to fund it themselves, and pay that extra nickel?"

    I think there are obvious diminishing returns if the total extra cost is 10s or 100s of millions...but a million bucks in a $14bil state budget? Is this really the most pressing inefficiency in state government right now?

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    Mitchell,

    Thanks for the response.

    Personally, I do think ROI is something to be considered here. The "middleman" is being enticed to get into the fold, and provide even more funding for said project, because the state doesn't have enough money to do it alone - and the economic benefits are pretty substantial:

    http://www.ompa.org/

    While it seems as if the state is losing money by not funding the tax incentives directly, more money is funneled into the pot because of the incentive started by the state.

    I would argue, given the economic impact of films, that the state's ROI is more than efficient. When you think of the impacts to jobs created, impacts to local businesses, and the money the state is getting in return, I'm having a hard time understanding what the problem is.

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    The problem is we could be getting a higher ROI.

    When I met with an accountant once, this is the singular tax break he brought up as an example of how there was real money in using the tax system to your advantage.

    It simply doesn't make sense when normal risk-free investments are paying less than 1 to 1.3% that we're giving out a lot more than that as taxpayers.

    If I recall correctly, this program is fully subscribed within a very short period of when it's opened. Whether or not you support the film subsidy, that's a sign the incentive is too high.

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    Here's some responses.

    Jason, we cite the full ECONortwest report in our report and you are correct that the film credits are not responsible for all the economic activity. Are they worth it? Well, given that they don't create lasting jobs, and if they create any jobs its just jobs that expire with each production....compare to a $15 million investment in a manufacturing plant that has longer term jobs.

    Mitchell is correct -- the initial issue is stop paying the middlemen profiteers. IF the state thinks the subsidy is worth it, pay it out of revenues.

    Mark -- your using Hollywood math that is wrong. Those extra people are not "funding it themselves" TAXPAYERS are funding it -- reimbursing the donors AND giving the donors a hefty profit.

    Jason -- under the current system we do have the money (or more accurately have prioritizes this spending)to reimburse the middlemen AND pay them a profit -- so its not a situation where the state is a winner -- any way you add it up the state is spending taxpayer dollars for the subsidy fund AND for the profits for the middlemen.

    And Evan is spot on --- there are probably a host of higher and better uses for the money -- in economic development (such as truly wooing and making happen a manufacturing plant, job training, etc.) and in other core services like education, health care and public safety. That's why the Film and Video Office doesn't want to give up the credit, they have fears that they will be exposed as not something that should be at the front of the line for the state's precious dollars.

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    I guess it boils down to whether the program, if run by the State instead of a private sector middleman, would be more efficient. Being one who works in State Government, that of course is relative. However I do know a thing or two about the film industry, having working in it for many years. An industry that (for the most part) "...takes nothing but pictures and leaves nothing but footprints." As to this vs. a "Manufacturing Plant," that would depend on what they are manufacturing. For example, an International firm wants to "manufacture" drinking water in petroplastic bottles, by sucking up our aquifers. Sorry Chuck, but I prefer a bunch of movies to that scenario. Or as we use to chant as children: "N-E-S-T-L-E-S: Nestles makes the BIGGEST mess!"

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    Chuck, Thanks for exposing yet another tax-subsidized handout to rich investors. It's astounding that there are participants in BO who respond, that's ok, it's only millions out of the state budget, year after year, who cares? It seems that there is something mesmerizing and paralyzing about these handouts that appear to stand free, on one hand, from tax revenues, and on the other, from budget expenditures. Yikes.

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    this is another strong argument for the Oregon State Bank: once it's in place, instead of relying on tax credits to get cash for movies, the OSB simply provides the necessary funds. i'm not a banker, so i'm not fully sure how that would work (eg, would filmmakers demand cash & not credit?) but anything that helps us reduce tax expenditures while promoting business has to be a good thing/goal.

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    Ending the funding scheme for the film subsidy fund should be a no brainer, but the Governor and others are pushing to keep the Rell Inefficiency alive (and more costly!).

    Then comes the question of whether the subsidy is a good economic development investment. Compared to investments in manufacturing, it isn't -- with films you are not creating permanent jobs, each year you have to keep putting in money to maintain the jobs, while with manufacturing you invest, get jobs and in following years the jobs are still there. We've created a group of workers who are dependent on state subsidies and who are asking for even more, and that's not something we can afford, nor is it good economic development policy. And with the film gang pointing to Leverage as an example of our success, I respond by noting that Leverage makes no long term commitment to Oregon, and why should our economic development strategy be based on the TV viewing whims of 18-35 year olds and prayers that shows filmed in Oregon will get their viewing and potential renewals. To the TV world, a year is just 16 weeks.

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    See the lists of who profited as middlemen in the scheme in this Willamette Week story. And a tip of the hat to Rep. Ben Cannon for being a leader on this issue.

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