Ernst & Young Struggles to Say Nice Things About Film Tax Credits

May 09, 2012

Ernst & Young (E&Y), the large accounting firm, has a new study out today (PDF) that lists potential benefits from state film tax credits. Because the study was paid for by the Motion Picture Association of America (MPAA), whose members benefit the most from such subsidies, I presume they wanted a study that endorsed the credits as good economic development policy. E&Y did not do that.

Instead, the E&Y study simply lists potential benefits from film tax credits that one should include when comparing benefits and costs. These include increased tourism, new infrastructure like studio facilities, and ancillary activity beyond studio spending. E&Y is critical of "a number of studies" (ours) that focus primarily on whether the credit pays for itself in dollar terms.

I concede that the benefits they list are important ones, but they are also tough to quantify. I presume that (unsubsidized) Family Guy has boosted tourism in Rhode Island, but by how much? Whether a hotel room would have been booked in the absence of filming activity is also tough to know. In any event, contrary to their implication, most evaluations of these programs have included these benefits in their benefit-cost calculation, nevertheless finding that the costs exceed the total benefits.

The fact that E&Y's report is unwilling to call these programs successful, but rather limit itself to listing possible benefits, is telling. Their tepid conclusion should alert officials that even a paid-for study by a reputable firm can't prove something that's not true. We applaud E&Y's call for more scrutiny of the benefits of these costly film incentive programs (over $1.2 billion in tax dollars each year). Film tax credits do not pay for themselves. While some benefits accrue to in-state filmmakers and suppliers, on the whole they are a net transfer from taxpayers to out-of-state production company beneficiaries.

For more information on film tax incentives, please see our larger report on the topic.

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