Hurry and make money by grabbing your share of leaking subsidy

Chuck Sheketoff

Updated marked with strikethroughs and bolded new.

Back in March, the Oregon Film and Video Office acknowledged the “leakage” in the film production tax credit the office administers. That “leakage” — or built-in inefficiency — means that Oregon pays out at least $100 of tax revenue for every $95 that comes in from the sale of film tax credits to fund a subsidy program.

The next round of leakage gets under way on July 1, when the Oregon Film and Video Office puts up for sale the remaining $2.5 million in film subsidy tax credits (PDF) for tax year 2011. These are on top of an additional $5 million in tax credits that were “previously reserved” and will go on sale to the public on July 25 if not paid for in full by July 15.

“These tax credits have historically sold out very quickly and are available on a first-come, first served basis,” a marketing email from the Film and Video Office to CPAs recently explained. The credits will be sold to the public starting at 8 a.m. at the Film and Video Offices in Salem and Portland, where there will be sign-in sheets for those who get in line early. The agency will only accept cash or a cashier’s check with the application. (The marketing materials and email to CPAs do not explain that the Oregon treasury will take a 5 percent loss on the sales, for a net loss of $125,000).

Last July the tax credits sold out in less than 15 minutes, according to the Film and Video Office. If the film tax credits sell like hot cakes again, it begs the question of why the Film and Video Office hands out such a sweetheart deal to the tax credit purchasers. They could trim some of the loss to Oregon taxpayers by amending their own rules and sell the credits for more than 95 cents on the dollar.

While theThe agency has been shameless about the inefficiency so now the legislature is taking action. The legislature has yet to cry “stop the inefficiency,” they are

is seriously considering a measure in these final days of session (PDF) that would lower the yearly total of film tax credits that can be sold from the current $7.5 million to $6 million despite the Governor’s call to expand the subsidy and would sell the credits at auction, with a 95 cents on the dollar floor ("reserved bid") on the price.

For now, you too can get in on the action and grab your share of the leaking revenue. You will earn 5 a percent guaranteed return on your money by next tax season. Here is the application form (PDF) that you will need to fill out.

To figure out how much it will cost you to invest and how much you will profit, first decide how much you want to lower your tax liability (the tax credit is a subtraction from your net tax liability). Then multiply that tax credit amount by 0.95, and that's what you'll pay for the tax credit. Your profit will be the difference between the two. But remember, while the Film and Video Office’s subsidy fund operates on an IOU from taxpayers, the Film and Video Office won’t take an IOU from you -- only cash or a cashier’s check.

Show up early if you hope to beat out the well-heeled. It is they who historically grab the lion’s share of the profit made at the expense of Oregon taxpayers and vital public services.

It’s true that if you manage buy some of the tax credits at 95 cents on the dollar, your 5 percent gain will be pocketing revenue that otherwise could have gone to fund schools, health and human services and public safety.

But, hey, you didn’t cause the leakage. Legislators did by creating the scheme. Buying the tax credits will just make you one of the lucky ones with a bucket collecting the leaking revenues.

Comments

  • (Show?)

    Nice post, Chuck. Here's hoping the legislature reins in the credit.

    CDs pay about 1.2% for a one-year, so clearly these credits are significantly underpriced.

    Seems like an auction of the credits would be a better way to distribute them, providing more money for the state and getting a sense of their value to investors. Right now, the consumer surplus is benefiting investors at the expense of our schools and public services.

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    Once again it must be said that Mr. Sheketoff does not understand the huge job-creation engine that the Oregon Production Incentive Fund continues to be. Sadly, his attacks seem to be somewhat personal towards the Oregon production community, whose members work living-wage jobs and spread their earnings around the state in every manner of expenditure.

    This year the Joint Committee on Tax Credit gave intense and rigorous scrutiny to all of Oregon's tax credit programs and made huge cuts from approximately $350 million to only $10 million. In spite of this draconian reduction, then, why did the Committee give the Oregon Production Incentive Fund as much as possible? Simply because they recognize it is the overall best program of its type for the immediate establishment of jobs, jobs and, did I mention, jobs.

    Governor Kitzhaber wanted to fund this program with $20 million because he gets it, as did his predecessor. The more incentives Oregon creates for producers to shoot their shows here in-state, the bigger the ripple effect of production dollars into our hard-hit communities.

    "Leverage", for example, employs nearly 500 people, the vast majority Oregonians, and has spent hundreds of millions of dollars on salaries and supporting services in its three seasons of shooting. Would "Leverage" be here without the incentives? Probably not, according to Producer Dean Devlin. Too many other states and Vancouver B.C. are offering tempting incentives. To Mr. Devlin's credit, his company has worked hard with the Oregon Film Office to keep shooting here, with the result being an even more experienced and deep talent and crew base for Oregon and our industry's future.

    It has been proven, year after year: The Production Incentives work and the living wage jobs they create are immediate.

    Maintaining and growing the Oregon production industry should be a legislative priority and Oregon lawmakers should be applauded for recognizing this.

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    I will try to figure out how to update the original post from this morning, but the Joint Tax Credits Committee is now considering changing the way the credits are purchased -- instead of the contributor to the production fund paying only 90 to 95 percent of the cost of the credit they get, the current amendment to HB 3672, Amendment -7 (PDF)would auction the credits and set as a ceiling 95 percent, not the current 90 percent.

    What Frank DiMarco doesn't acknowledge is that to get those temporary (season-to-season) jobs we have to pay a subsidy to the filmmakers each year -- that's Timeless Assistance to Non-needy Filmmakers). Juxtapose that against spending money to build a manufacturing facility where in subsequent years you get the jobs without having to keep sending money.

    Add to that the economic analysis done for the agency showing that the subsidy does not pay for itself with state tax revenues from the economic activity it might have created and you learn that its a poor choice for economic development spending.

    The purpose of my post is to educate ordinary Oregonians who would like to put some of their money into an investment that will make a guaranteed 5.3 percent return how to do so.

    Telling people how to get in on a game that will make them money -- a game that heretofore has been a sport enjoyed primarily by some of Oregon's wealthiest taxpayers -- is hardly an attack.

    What's wrong with helping the film and video office market the sale outside the world of CPAs?

    • (Show?)

      The film business is labor-intensive. When caterers, truckers, camera, lighting and other professionals work on major productions, they build skills and experience that creates opportunities for future jobs. That's the infrastructure that the incentives are building.

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    Just to set the record straight, the Oregon Production community works year-round, not season- to -season as Mr. Shetekoff implies. Without the full-funding of the OPIF, however, Oregon stands to lose out to other locations.

    And, speaking of facilities, more than one major producer has expressed the hope of building Hollywood-style sound stages in Oregon, should the right incentives percolate from the legislature and local communities.

    This is no different than attracting, say, an INTEL or other industry to locate in Oregon.

    Unfortunately the opposition debate on this issue misses the essence of the Oregon Production Incentive Fund: A proven winner to create immediate living-wage jobs with huge regional revenue multipliers while continuing growing an already well-regarded statewide production industry.

    • (Show?)

      Frank - the subsidy money goes to short-term efforts that do not film year-round (think Leverage, Portlandia, expensive commercials) and claim they will only come back the next year if they get a subsidy again. They make no long term commitment to Oregon yet want Oregon to make a long-term commitment to funding their subsidies year-in and year-out. The top brass getting the subsidies are the Telsa-driving welfare queens of the 21st century.

  • (Show?)

    Great story - lots of compelling language. Here are some compelling numbers: the $125,000 is the discount to motivate investment of $2.375 million by Oregonians, which is leveraged to stimulate over $11 million in private investment funding, and creates a total economic impact of over $20 million for the state. That money is spent on Oregon workers and the stores and companies they work in. That pays for paychecks, phone bills, lunch meat, rent; there is no shortage of examples of the people who are positively impacted. And it is 160 times more money in jobs and economic development for the state than the $125,000 the state loses in the discount. The house wins on this deal, and it's smart business.

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    This thread makes me feel like I'm trying to have a conversation with a press release.

    Any update on the effort to auction off the credits?

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      Personally, I am not in any way invested in the mechanism, so maybe this isn't my thread.

      I'm delighted with the idea of spreading the news about how to get the credit. I think there are a lot of people who would be happy to know they could direct their tax dollars toward something they support, just as they do with the political contribution tax credit or the Oregon Cultural Trust.

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    The headline in today's Statesman Journal is the cutting of tax credits. http://www.statesmanjournal.com/article/20110617/STATE/106170339/Bill-would-slash-Oregon-tax-credits

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    Mr. DiMarco, I didn't mean to disrespect you or anyone in the conversation, or to imply that your support for the credit isn't personal or real.

    I meant to say that we didn't seem to be in the same conversation. The post, and my questions, were about the structure of the film credit, and what appear to be inefficient ways of delivering that credit.

    The pro-credit responses were seemingly talking-point advocacy about the credit itself, rather than having a conversation about the structure of it.

    It's the nature of blogs and political debates to avoid certain questions, and to stick to our strongest points. I've done it myself.

    But I'd love to be able to get beyond that dynamic and really be "around the water cooler" talking about the policies.

    That's what I was remarking upon in my "feels like I'm talking to a press release" note. We'd ask the same question about structure, in various ways, and get responses that aren't an answer to the question at hand. Blaine acknowledged this distinction.

    Good to have you in the conversation, though. I always appreciate hearing from people with first-hand experience in the industries affected.

  • (Show?)

    I appreciate everyone's point of view in this thread...

    I am a 6th generation Oregonian who has worked in the Oregon film industry my whole adult life, and my husband has worked as an Oregon film crew member for over 20 years.

    And I remember when the film industry was considered good for Oregon because it dumped a lot of money into the economy and then left again! No need for costly infrastructure from the taxpayer such as schools, sewers, roads, etc.; and it didn't take our tax money and pollute the environment or leave an empty big box building when it left, either.

    As for: "The top brass getting the subsidies are the Telsa-driving welfare queens of the 21st century." It is my understanding that the top brass in the film industry are roughly the same percentage as the top brass of any industry, roughly one to one and half percent. On any given day it is said over 90-some percent of Screen Actor's Guild members are unemployed. My husband and I drive an 80's Toyota, partly because we have re-invested our income in developing motion pictures that are Oregon stories, and hopefully will bring in funds from out of state to drop into our economy. Most Producers lose money in "development" as only one to one and a half percent of film projects in development ever get made and make a profit. It's a very tough business.

    In the recent economy, a lot of Producer's need the Incentives to trigger the rest of the funding for their projects. Just like most consumers have to have 10 percent down to buy a house, most banks won't lend film production money with out it, either.

    I think the time to oppose the structure of the Tax Credits was a long time ago. Let's work to improve the way they are structured in the future. Right now, at this 11th hour, we need these industry jobs. I know the crewing up of "Leverage' and "Gone" in March and April helped the recent upswing in the unemployment rate! Remember, without Oregon jobs, there will be no taxes paid, and then let's see how the funding for schools, health and human services and public safety are provided for in the future.

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    As a side note, film tax credits seem to be being cut by various state legislatures, meaning our cuts to the credit might be par for the course.

    Michigan, for example, reduced its from $155 million to a maximum of $25 million.

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