How much economic impact do film and TV production tax credits yield for states?

Everyone loves the movies — especially New York state officials. New York Gov. Kathy Hochul recently enacted a proposal to expand by billions of dollars an existing tax credit for film and television production in the state.

New York state had already sought to entice directors and studios to shoot shows in New York by offering tax incentives worth up to $420 million a year. The program was authorized through 2029.

Under Hochul’s proposal — which made it into a budget deal with legislators that was passed May 2 — the program would allow up to $700 million a year in credits starting in 2024 and continue past the prior expiration date, newly ending in 2034. 

Before it was passed, Reinvent Albany, a group advocating for government transparency and scrutiny for state subsidies to corporations, challenged Hochul’s effort.

"New York State leaders are proposing a massive expansion of the state’s film and television tax credit that would cost the state $7 billion over the next decade," the group said in a March 8 statement on its website. "But there is substantial evidence from across the country that film/TV tax credits do not create the promised economic effects on jobs, incomes, or economic growth."

Different analyses have found different economic values from film and TV tax credits, so we won’t put this statement to the Truth-O-Meter. However, some academic research does support Reinvent Albany’s assertion that such programs’ effects on "jobs, incomes, or economic growth" are limited.

Hochul argued that the tax credit is necessary because when New York cut its film tax credit, major productions left the state for New Jersey. She added that local studios have had less business.

Her office pointed us to an economic impact study that state officials conduct every two years. 

The most recent report found that every dollar spent on the tax credit returned about $9 in economic activity within the state. Since 2014, the tax credit’s cumulative impact, according to the study, is "1.7 million hires" and more than "$35 billion in spending" statewide. In 2019 and 2020 alone, the study said, the tax credit supported more than 57,000 jobs across New York. 

However, academic researchers say the analysis is overly rosy.

One concern is the low threshold for what counts as a job, said Michael Thom, an associate professor at the University of Southern California’s Price School of Public Policy.

"The analysis classifies a job created as ‘one person employed for some amount of time,’" Thom said. "A person who shows up and works on a set for three hours thus counts as a ‘job created.’ That's hardly a driver of economic activity."

Thom and others who study film and TV tax credits also cast doubt on models that estimate dollar-for-dollar economic gains through a "multiplier effect." 

These multipliers are subject to "questionable assumptions that are unrealistic and not testable," said J.C. Bradbury, an economics professor at Kennesaw State University.

The state report said that of the 58,851 New York state film industry jobs in 2020, approximately 11,000, or 19%, were directly attributable to the tax credit program.

However, Thom and Bradbury said it’s impossible to determine whether a given incentive was necessary to make sure a film or TV show was shot in New York. 

"Much filming is already done there, so much of the payouts are for work that was already going to be done in the state anyway," Bradbury said.

Thom agreed. "The analysis assumes most production activity is due to the incentive. In reality, much of that activity would have occurred anyway," he said.

Meanwhile, New York cites the value of tax incentives for keeping existing jobs from going to neighboring states such as New Jersey. However, this is not necessarily as useful as leveraging tax incentives to spur creation of new jobs. 

Keeping New York film jobs from going to another state like New Jersey sets up an accelerating treadmill of state tax incentives, as production companies play one state off another to get a deal that costs less for them, but more for the states. Spending the same money to promote other types of economic expansion, rather than waging an escalating arms race against other states, might more effectively expand the state’s economy, experts say.

Meanwhile, academic studies of other film and TV tax credits show weak impacts for state economies.

A 2016 paper by Thom studied a variety of film production tax incentives that had been enacted by more than 40 states from 1998 to 2013. He found that sales and lodging tax waivers had no positive economic impact, while other types of tax credits boosted employment or increased wages, but never at the same time. The paper also found that neither tax credits nor spending improved gross state product, the overall measure of the size of a state’s economy.

(The Motion Picture Association, an industry group that stands to benefit from film tax credits, has criticized Thom’s findings, citing "data and methodological flaws.")

Meanwhile, a 2018 paper by Thom found equally disappointing results from a California tax credit enacted in 2009. Looking at industry employment in California from 1991 to 2016, Thom found the tax credit "had no significant effect" positive or negative, on employment in three motion picture industry-associated occupational categories. 

"Motion picture industry employment in California instead appears to track the national labor market," he wrote.

Bradbury told PolitiFact New York that he "wholeheartedly" agrees with such skepticism..

"Film incentives are nothing more than a wealth transfer from general taxpayers to the film industry," Bradbury said. "There is no legitimate economic development justification for their existence."