Does Louisiana’s “Hollywood South” nickname cost more than we can afford?

During March 2013, the office of the Louisiana Legislative Auditor issued the following  press release about its “Tax Credits and Rebates in Louisiana” report:

BATON ROUGE – Mar 25, 2013 – Louisiana’s tax credit and rebate programs resulted in a tax revenue loss of more than $6.13 billion in revenue in the last seven years, according to a study of the programs released Monday by Legislative Auditor Daryl Purpera’s office.

The performance audit looked at 44 of the credits that each resulted in a tax revenue loss of at least $1 million for at least one year between the calendar years 2006 and 2011. Auditors said the credits from those 44 programs – 52 percent of the 85 tax credit programs on the books — totaled a revenue reduction of approximately $5.4 billion, with 2011 tax data still incomplete as of October 2012.

The five most expensive tax credits accounted for almost $3.7 billion of the $5.4 billion total for the period studied, or 67 percent of the total revenue loss. The five are:

·  The inventory/property tax exemption for businesses — $1.5 billion.
·  The insurance company premium tax credit — $1.1 billion.
·  The motion picture investor tax credit — $512 million.
·  The credit granted on net income taxes paid to other states — $402 million.
·  The credit for assessments paid to Louisiana Citizens Property Insurance Corp. — $212 million.

While media sources are generally focusing on the $512 million figure noted above [emphasis added] regarding the “Motion Picture Investor Tax Credit,” it is actually one of three separate components of the film tax credit program listed among the 44 “loss leaders” noted in Appendix C of this report:

· The Motion Picture Investor Tax Credit: $511,613,716 (ranked #3 of 44)

· The Motion Picture Infrastructure Tax Credit: $29,561,287 (ranked #20 of 44)

· The Louisiana Motion Picture Incentive Program : $10,561,744 (ranked #29 of 44)

That’s a cumulative total of $551,736,747 over a period of 72 months’ time (or an average of $7,663,010 per month) that is reportedly lost through the program as a whole.

This $551,736,747 figure accounts for nine percent (9%) of the reported total lost of $6.13 billion during the six-year time frame examined in the report — or roughly $1 out of every $11 lost.

(Note, too, that those numbers do not include the much-touted year of 2012 with its 61 projects filmed in New Orleans… I predict that those numbers will reflect even greater losses as hundreds of millions more in uncapped credits and rebates are likely to be reflected in the statistics. If the program continues to operate in this unlimited manner, the notion of a “turning point” from subsidizing Hollywood to Louisiana’s realization of a genuine profit becomes increasingly unlikely.)

The three credits/programs noted in the report are described as follows:

Motion Picture Investor Tax Credit: Louisiana taxpayers that invest in state-certified motion-picture productions can earn a tax credit at the time expenditures are made by a motion picture production company. (This credit in particular features a rebate component, which the report defines as “A rebate is money directly reimbursed by the state to an entity or individual, independent of the tax return process or tax liability.”)

Motion Picture Infrastructure Tax Credit: To provide a credit against corporate income tax for an approved state-certified infrastructure project for a film, video, television, or digital production or postproduction facility. This credit applied to infrastructure projects between July 1, 2005 and December 31, 2008. (While this credit appears to time-bounded/no longer be active, it still earned a spot on the loss list.)

Louisiana Motion Picture Incentive Program: To provide a financial incentive to the film industry in order that the state might compete with other states for filming locations.

It seems that the only guaranteed way to make the big money in “Hollywood South” is to be a so-called “motion picture investor,” given that the tax dollar hemorrhage from that program is a staggering 48 times greater than the losses experienced by the so-called “Louisiana Motion Picture Incentive Program” itself.

And, oh, the hand-wringing that occurred when Governor Jindal proposed the implementation of a $1 million limit on the amount that could be claimed for each actor’s salary by production companies as qualifying expenses when applying for Louisiana film tax credits! (Never mind that this precise limitation already applies to “payroll spent on Louisiana residents,” apparently whether or not they’re in front of the camera.) The governor only wanted to trim one specific part of the program… however, with media coverage regarding this report currently on the rise, I suspect that future proposed cuts may go even deeper.

As noted in this WWL TV story originally broadcast on 3/25/13, Mayor Landrieu’s office has been at work, creating the spin:

“We asked Mayor Mitch Landrieu’s administration whether the film tax credit program is providing a tangible benefit to the New Orleans economy.

“His adviser on the Cultural Economy said in a statement, ‘The state’s tax incentive program for film has helped New Orleans grow a new industry. We estimate that since 2007, New Orleans has seen more than $2 billion in direct spending from tax credit film projects – money that is spent in and remains in the local economy, as the program intended. Our local film industry is now nationally known, and it supports more than 1,000 full-and part-time jobs. Production companies want to film here because of the tax incentives and numerous related businesses have launched or relocated to New Orleans because of the opportunities that have been created.’”

Unlike the numbers noted in the Louisiana Legislative Auditor’s report, the figure of “$2 billion in direct spending” (which is not to be confused with $2 billion in tax revenue generated) is unsubstantiated.

The estimated “1,000 full- and part-time jobs” may not be as statistically significant as the Mayor’s adviser’s statement would like to imply if one considers that the city’s current estimated population is ~370,000, nor is it confirmed if all of these jobs in fact consistently pay a year-round living wage.

While the auditor’s report includes fairly “hard” numbers (verifiable, with the exception of the noted not-yet-complete figures for calendar year 2011), the best we see from proponents of the film tax credit program are nothing more than “soft” or estimated figures that are inherently difficult to verify.

As the WWL story notes, “And without a requirement that the tax credit programs track the return on the investments, the legislative auditor said it’s tough to tell if they’re worth it.”

About these ads

9 thoughts on “Does Louisiana’s “Hollywood South” nickname cost more than we can afford?

  1. That’s no spin. The Mayor is right and I, for one, would not have returned to Louisiana – my home – if it weren’t for the film tax credits. I lived in California for years working in the film industry. Now I can work at home, in Louisiana. Thousands have moved here to work in the film industry. Hundreds of my colleagues alone – in my department only – have moved here. We are contributing to the economy. We are buying homes, eating at restaurants, shopping, you name it – LIVING!

    The film companies, also, are spending billions here in construction, hotels, restaurants, equipment and facility rentals, transportation, and on and on and on! It ain’t cheap to make a movie!

    If the film taxes go away, so will the industry. If the industry leaves Louisiana, so will all the people and the revenues that go with it. All the small businesses that popped up such as casting agencies, talent agencies, training facilities, studios, acting classes, post-production facilities and so on would leave or go bankrupt. Not to mention, all those who have invested billions in the state building infrastructure – such as studios – would go bankrupt. Businesses are a huge part to building an economy and we can’t give them the boot.

    So, where the auditors may fall short in hard revenue, they are most definitely making up for it in soft revenue, substantiated or not. There is no question. Mayor Landrieu is right. The film tax credits have been a boon to the city and the state and I am grateful to live and work in Louisiana in my chosen profession.

  2. I second all of that!

    I left L.A. after 18 years to live and work here for the rest of my life. I have planted my roots and contributed to this economy since 2009. Though not everyone who moves here will stay, all of us will spend our dollars here. Many of us receive unemployment from California and spend it here. Those who receive per diem spend it here.

    I’ve found several of my former coworkers from L.A. have moved here years ago and are buying property, raising children and paying taxes here.

    There are many more businesses affected by this influx of money and industry. Costume shops, prop houses, studio facilities, photographers, police officers, drivers, tutors, masseuses, musicians, dancers, caterers, medics, animal wranglers and more have found work through the influx of films. Even the 2 year boom in the fashion industry here is buoyed by the film industry.

    Not to mention all the free advertising our various locations and businesses have received by being seen in films and TV shows! Evergreen Plantation is just one of the many places that has let me know how much Django Unchained has affected their income after being featured as “Big Daddy’s house.”

    Nightclubs, movie theatres and other venues have been called upon to host the many extracurricular events surrounding the industry like wrap parties and screenings.

    A normal movie takes at least 200 people to make. The giant productions coming here have directly employed at least 400 people. Many of those people are hired in L.A. but all productions seek to hire locals precisely because they receive the tax break on their salaries.

    The tentacles of this industry reach far and wide making it nearly impossible to track to effects of the tax credits on our community and our coffers. So, I’ll just say for myself that I love my home. My family has roots here dating back to the 1700′s. I plan to die on this dirt. obviously, I have a personal investment in the tax credits, but I care more about my home and I truly believe that the tax credits are worth their weight and then some.

    • Here here! I plan to put up a big fight to keep the tax credits. The film industry has done more for the state than the eye can see. Thank you.

  3. As one example, I offer the following analysis of the box office data re: “Django Unchained”:

    Budget: $100,000,000 (estimated)
    Opening Weekend: $30,122,888 (USA) (28 December 2012)
    Gross: $162,794,503 (USA) (1 May 2013)

    As noted, those are only the receipts from the United States; its foreign gross receipts are reported as $258,155,192 for a worldwide total of $420,949,695 to date.

    Based upon its reported budget, its production cost Louisiana taxpayers $30,000,000-$35,000,000 (depending upon the number of local hires involved).

    Since the percentage of the tax credit that applied to local hires cannot be easily verified, I’ll use a flat 30% credit for this calculation (even though the likelihood of a higher percentage is a given, if the 35% reimbursement applied to local hires could also be included):

    $100,000,000 – $30,000,000 = $70,000,000 spent to make the movie.
    $420,949,695 – $70,000,000 = $350,949,695 profit

    Source: Box Office Mojo

    The site also notes that “Django Unchained” ranks as the 15th top movie released during the past calendar year as of today’s date and 154th worldwide of all movies produced.

    U.S. News and World Reports recently ranked Louisiana as the 5th poorest state in the union, yet taxpayers in our state funded a minimum of $30,000,000 to make this movie that has, to date, realized a profit five times greater than its subsidized production cost.

    As there isn’t an easy way to verify the percentage of local hires who have purchased property in New Orleans or the number of local hires paying income tax in Louisiana, an analysis of property taxes generated is not something that can be calculated reliably. But let’s look at the Orleans Parish 9% sales tax that was possibly generated by the production of this movie:

    9% sales tax applied to expenditures not reimbursed by the tax credit ($70,000,000) = $6,300,000.

    $30,000,000 (reimbursed to the production through tax credits) – $6,300,000 = $23,700,000

    This amount can be further reduced when the sales tax on the 30% reimbursed through tax credits is applied (the amount that is basically recouping a portion of the tax dollars paid via the credits): $23,700,000 – $2,700,000 = $21,000,000

    It’s difficult to imagine that property and income taxes paid by local hires plus other “soft returns” make up for an estimated minimum of $21 million in actual Louisiana tax dollars paid for the production of this particular movie after calculating the most immediate revenue benefit of sales tax (even over an extended time frame); yet the movie’s gross worldwide profit to date amounts to more than one-third of a billion dollars.

    While it appears that the movie’s producers have made a relatively immediate and significant return on their investment, the same cannot be said for Louisiana’s taxpayers.

    [Note, too, that of the 9% sales tax currently in effect in Orleans Parish, only 3.97% of the taxes paid are returned directly to the state's coffers, or $3,970,000 of the estimated $100,000,000 budget. (An additional .03% goes to the Louisiana Tourism Promotion District sales tax, or $30,000.)]

    It has been reported that Louisiana paid $231 million in subsidies to film productions in 2012. In fiscal year 2013, our state is reportedly grappling with an estimated $963 million budget shortfall.

    As I noted previously, it seems that the only guaranteed way to make the big money in “Hollywood South” is to be a so-called “motion picture investor.”

  4. You can’t hinge an entire argument on one movie. Most movies shot here are much lower budgets and profits.

  5. New Orleans Cultural Community Snapshot: “The city hosted 61 total feature film and television tax credit projects (each with local expenditures over $300,000) in 2012. Local spend is estimated at $670 million for the New Orleans Region.2In 2011, there were 46 total (film) projects with an estimated $532 million spent in the New Orleans Region” (not including the rest of the state’s filming: Baton Rouge, Shreveport, Lafayette and surrounding regions) => http://new.nola.gov/getattachment/eb6a244f-4b51-49d9-8265-6dba5789da84/cultural_economy_2012.pdf/

  6. Direct spending dollars are not tax dollars; for every “direct dollar” spent, only 4% (four cents) is directly recovered through sales tax by the State of Louisiana to offset each “tax dollar” spent.

    At best, $670,000,000 x $.04 = $26,800,000 in immediate state sales tax dollars generated.

    In 2012, the State of Louisiana reportedly spent $231,000,000 subsidizing film tax credits. $231,000,000 – $26,800,000 = $204,200,000; an additional $204 million in tax dollars would still need to be recouped by the state’s coffers to make up for $231 million spent during that year. (To be fair, it should be noted that income taxes paid by local residents, property taxes paid by those who own their residences, and even “trickle-down” dollars that are likely also spent, etc., would, of course, offset that $204 million somewhat, but very unlikely completely.)

    To put it another way, approximately $5.78 billion (not million) “direct dollars” would need to be spent to generate $231 million in “tax dollars.”

    While filming did occur in other areas of Louisiana during 2012, it is doubtful that it would amount to a figure greater than what is being reported in New Orleans.

    • So, first you say the numbers can’t be verified, then you try to verify them.

      This is the deal: The state can destroy a viable industry – all it’s jobs, revenues and businesses while running it’s infrastructure into the ground – by eliminating the incentives they offered to bring them here in the first place OR they can find another way to generate the revenues the state apparently needs. The fact that we have a governor who refuses to raise taxes of any kind, unless it’s on the poor, or reign in oil subsidies, or ANY NUMBER OF SOLUTIONS to solve the state’s fiscal woes an issue that I can’t solve. What I do know is that running off the hard-working, tax paying citizens of this state is not the answer.

  7. I did not attempt to verify any numbers; I simply attempted to explain the difference between “direct dollars” and “tax dollars.” I used the “local spend” figure for 2012 provided in your comment and the tax credit spending figure for 2012 from page 2 of this report: Louisiana Film Tax Credits: Costly Giveaways to Hollywood

    A loss of more than half a billion dollars over six years’ time by any industry as reported by the Louisiana Legislative Auditor is worth the consideration of all hard-working, tax-paying citizens living in this state. Can our state afford to lose “at least 85 cents in tax revenue for every $1 it spends” to support any tax credit incentive?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s