New Ohio Study: State Film Tax Credit Loses 79 Cents on the Dollar
April 23, 2012
A new study (PDF) from Cleveland State University estimates the number of jobs created, dollars spent, and credit value associated with the Ohio film tax credit and the 27 projects it has funded since its creation three years ago. While the study is mostly glowing about the positive impact the program has had on its direct beneficiaries, the numbers it produces is in line with other studies that show that these credits lose tax dollars.
All told, the report estimates that Ohio film projects have received $28.3 million in tax credits (p. 9). The study’s authors estimate (through an economic planning model) that the subsidized projects generated $35 million in income and $113 million in output (p. 24), which in turn generated $5.9 million in state tax revenue (p. 25). Generously assuming that the tax credit induced all of this activity, the credit was therefore a net loss to taxpayers of $22.4 million ($28.3 million minus $5.9 million). In other words, for every $1 of tax credits provided, the state saw a return to its coffers of only 21 cents. If some of these productions would have happened in the absence of the credit, the loss would be even greater.
The study also reports that the credit created 9,018 new jobs, although conceding that many of these are temporary jobs (p. 6). Apparently 77 percent of the new jobs were temporary extras, with another 9 percent being jobs brought in from out-of-state (p. 6); that leaves no more than 14 percent of the new jobs as full-time and held by Ohioans.
As far as I can tell, the report fails to convert these raw numbers into Full-Time Equivalent (FTE) jobs, which would allow us to calculate how much credit money is required to create each new job. A recent study in Michigan doing such a calculation found that the cost of each new FTE job was over $90,000 in tax credits.
The report emphasizes that lots of economic activity was created by the subsidy, but this conclusion is problematic because it ignores opportunity costs. So while they conclude that the $28 million in credits led to $35 million in income over three years, which is not a spectacular return, they don’t look at alternative uses of the money. To conclude that the film tax credit is the best use of the money, you have to look at alternatives.