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With the governor of Pennsylvania putting a freeze on Pennsylvania’s Film Tax Credit (FTC), a whole industry now nervously waits to see if the livelihoods of thousands of working Pennsylvanians will be canned and put in the vault. There are many opponents of the film tax credit who view it as “corporate-welfare.” Others believe that one industry should not have preferential treatment over another. Proponents in support of the credit believe the FTC creates jobs and revenue for the Commonwealth.

The debate and lobbying efforts are partially based on the accuracy or inaccuracy of the Pennsylvania Film Production Tax Credit and Industry Analysis Report submitted to the Legislative Budget and Finance Committee by the research firm Economics Research Associates (ERA) dated May 2009. Depending on your perspective, you will believe the report’s level of accuracy. There are many talking points but I would like to address just a few. The following talking points seem to drum the loudest beat.

Does the film tax credit create jobs?

In the long term, yes. In the short term, no. It does not primarily create jobs, but SUSTAINS AND SUPPORTS the jobs that are in the Commonwealth. Here are the words from the report regarding general incentives, followed by the PA film credit specifically (ERA, pg 6):

1. To foster economic growth and innovation in industries which are well aligned with future economic needs and goals; or

2. Stem the decline of, and loss of jobs, wages, and capacity in an industry which is critical.

While the current Pennsylvania Film Tax Credit is largely an effort of the latter, given the current highly competitive nature of film production between U.S. states and countries internationally, it is also, in part, a practice of the former. This is to say that while the film industry is well aligned with future economic trends, the Commonwealth could expect to lose significant amounts of production activity statewide without such a credit.

In review, the report states that the Film Tax Credit largely “stems the decline of, and loss of jobs, wages, and capacity in an industry which is critical.” Removal of the tax credit would affect over 3,700 jobs. (ERA, pgs 35-36)

Why should one industry receive preferential treatment over another?

One of the arguments regarding the film tax credit is the following: “what makes the film industry so special that they get assistance while other industries do not?” According to the ERA report on page 1:

The Commonwealth currently spends in the order of $300 to $400 million annually on manufacturing and industrial economic development assistance. The FTC program is currently capped at a maximum of $75 million annually.

It appears as though the film industry is not the only one receiving assistance. The report does not go into detail regarding the other industries that are receiving support. The numbers show at the Commonwealth’s minimum level of spending, the FTC is LESS THAN A THIRD of what they spend to assist manufacturing and industry as a whole.

In addition to the millions in assistance from Pennsylvania, manufacturing and industry apart from the film industry have the advantage of being exempt from the sales and use tax. The exemptions are for the purchases of materials to be consumed in manufacturing or those to be used directly in manufacturing (e.g., equipment, raw materials, etc.).

Does the FTC pay for itself?

According to the ERA report, directly- no. Indirectly and induced – yes. Page 54 of the ERA report:

Although there is a net fiscal loss when comparing the cost of the Film Tax Credit program ($58.2 million) to the taxes generated by productions directly receiving tax credits ($17.9 million), there is a net fiscal gain to the Commonwealth of $4.5 million when considering all of the revenues generated by the entire industry.

The revenues generated reflect the impact and multiplying effects the film industry has on other industries and businesses. Opponents have said that there are other industries with higher multiplier effects and they believe those industries should have priority. Cheese, milk, poultry processing, leather hide tanning, and hand tool industries have the top five industry output multipliers.

But the film industry is number 30 out of 422 industries listed (ERA, pg 46) in Pennsylvania. To ignore or deny the film industry’s position in the top ten percent (ERA, pg 1) of output multipliers is disingenuous and misleading.

Is there a causal link between the FTC and film production?

The ERA report shows a general growth trend of productions (ERA, pg 32) and subsequently jobs (ERA, pg 36) “corresponding to major legislative changes.” These numbers reflect more than just coincidence. They reflect the importance of an FTC for film production and long term job growth in the Commonwealth.

The fact that many productions occurring in the Commonwealth do not apply for the tax credit has been suggested to be a problem. Initially, this appears not to support a causal link between the FTC and film production. But what we discover is that the number of applications submitted is the wrong quantitative value on which to place our focus. Here is how the ERA reports it (ERA, pg 32, emphasis mine):

It should be noted that the majority of the productions listed on IMDb have not applied for tax credits through Pennsylvania's incentive programs, though the more significant ones in terms of dollar value and employment levels generally have applied for the Pennsylvania FTC.

Yes, there are fewer films that apply for the tax credit, but the films that do apply are the productions that typically spend the most in the Commonwealth and provide the greatest number of jobs. The amount a production receives in tax credit is directly related to the amount spent. More is credited because more is spent in the Commonwealth. (See ERA report pages 62 through 64 for credited payments.)

“Emulsion side out,” we would be remiss to deny a causal link between the lack of an FTC and a drop in film production. The ERA report, within the first eight pages, repeatedly indicates that the decision to shoot in an area is primarily dependent upon an incentive (ERA, pgs 1-2, 5-7) and not infrastructure. A void of healthy incentive reduces the opportunity for a state to be a competitive host for film production. Fewer film productions; fewer jobs.

A conservative Film Tax Credit

Comparing the FTC in the Commonwealth with other FTC’s from different states we discover that Pennsylvania does not offer wage/withholding credits, tax exemption credits, or infrastructure credits on top of the FTC. (ERA, pg 58) Tax revenue drawn from wages remains unchanged. An increase in the number of productions supports additional jobs, which translates into increased tax revenue pulled from wages and the wage earners purchasing power within the Commonwealth.

So is the FTC worth it?

The FTC for the thousands of film industry workers is not about photo-ops, corporate-welfare, or the like. Nor is it about cutting a break for wealthy stars and their salaries (which it does not). The Pennsylvania Film Tax Credit is simply about jobs. The politicians, lobbyists, or film offices may have their own agendas. I cannot speak for them. But as a film industry technician, my opportunities for employment are dependent upon the FTC. From craftsmen to production personnel we all rely on the FTC for the well-being and financial support of our families.

Hollywood is no longer the sole purveyor of the cinema. It is still the capital of movie making but productions are no longer beholden to the golden state. Producers strive to create their product at the cheapest price; they are looking for the biggest bang for their bucks. It is telling that California recently passed a Film Tax Credit to lure back runaway productions.

A Film Tax Credit is the competitive advantage that states have against each other. Without the FTC the Commonwealth is no longer a viable competitor. Film industry workers hear it time and time again from producers: “No FTC. No business. We will go where there is one.” This is not an idle threat. Productions have gone elsewhere even when the FTC’s cap has been reduced, let alone totally removed. These producers bring productions that are multimillion dollar investments to Pennsylvania and her workers.

Could there be improvements to the FTC to generate more revenue for Pennsylvania? Absolutely. Why not raise the percentage spent within the Commonwealth as the criteria for eligibility? Why not support Pennsylvania workers by placing a minimum percentage floor for Commonwealth residents required on the production rolls? To cut the FTC and ignore the deep relationship between the Film Tax Credit and film production is to strip the Commonwealth and her residents of many fiscal advantages.

Yes, the film tax credit is worth it.