Washington State Decides Not to Extend Costly Film Tax Credit

Last week, Washington state opted to close a $5 billion revenue shortfall by relying predominantly [2] on cuts to K-12 education, higher education, health and disability services, support for working families, and other essential programs. As the Washington State Budget and Policy Center points out, 90 percent [2] of the budget agreement relies on cuts, embodying what they describe as an “imbalanced approach that jeopardizes [the] state’s ability to recover from this economic recession," and further, undermines the middle class, low-income families, and children in a time of hardship.

Though the state legislature opted against [3] proposals that would have generated revenue, closed or reduced certain corporate tax breaks, or created a more common-sense and effective budget process [4] by allowing voters to re-consider the legislative super-majority required to pass revenue increases, Washington lawmakers did take a sensible step in deciding not to extend [5] an inefficient film tax credit program that would have cost the state $7 million in the coming biennium.

As House Majority Leader Pat Sullivan explained [6], “having just passed a budget… that actually didn’t fund some of the programs that some of our members really wanted to see funded, it was difficult then, in turn, to turn around to adopt a tax break.”

Film tax credit programs are notorious examples of wasteful and ineffective spending. In 2002, only three states offered incentives to the film industry; today, a majority do so. Nonetheless, in recent years, lawmakers and officials in several states [7], including Connecticut, Iowa, Michigan, Massachusetts, New Mexico, and Wisconsin, have looked to decrease or eliminate this type of tax credit due to issues of excessive cost, scandal, corruption, and lack of economic impact.

In Wisconsin, the Commerce Department released a cost-benefit analysis [8] of the state’s film tax credit program and found several structural flaws, including the fact that the credit is biased toward out-of-state labor and not cost effective. The department found that the program was 75 times less effective at creating jobs than the “next least effective” state economic development program. Their report includes the following graph charting the hypothetical loss to the taxpayer from the Wisconsin film tax credit:

Source: Wisconsin Department of Commerce, Cost Benefit Analysis of Wisconsin Film Tax Credit Program [8]

Assessing the fiscal impact of film incentive programs in different states, the Massachusetts Department of Revenue [9] determined that in twelve states that administer a film tax credit, the return is extremely meager. The department found that “studies estimated that state revenues generated by new film production activity ranged from $.0.07 to $.0.28 per dollar of tax credit granted.” Finally, the Tax Foundation writes [10] that states are greatly overestimating the impact of providing film tax credits and basing decisions “on fanciful estimates of economic activity and tax revenue (leading to) small returns and unnecessary risks with taxpayer dollars.”

This resistance to extending inefficient tax credits parallels recent legislative action to enhance transparency [11] in the budget process, review state spending, and halt [12] right-wing efforts to increase corporate tax breaks. States can ill-afford to allocate scarce resources to inefficient and costly programs, while sacrificing and undermining the interests of working families and the middle class through economically-damaging budget cuts.