SB 5539 – Film Credit bill

Update 3/9/12: The bill was “pulled” from Ways and Means last night and passed the House 92-6. The official term is that Ways and Means was “relieved of consideration” of the bill. I believe this particular subsidy is similar to the way the economics of the NBA works and voted no, but clearly a majority of legislators disagree with me.

I have received a lot of calls and e-mails from people about the Film Credit bill (SB 5539), as we do with any expiring tax credit or preference. The film industry is important to the state’s economy and to both the Spokane and Seattle areas in particular. We obviously want to do everything we can to encourage growth, however the structure of this particular credit has some issues.

The credit works as follows:

  • Companies get a 100% B&O tax credit for donations they make to a non-profit organization, reducing state tax revenues.
  • The non-profit in question can then subsidize film and commercial productions for up to 1/3 of the cost of production for their film or commercial.

In essence, taxpayers in Washington are paying out of state companies to do work in Washington. It’s one thing to give someone a reduced tax rate, but in this case it is a direct subsidy of commercial work. In deciding if a tax break is doing its job you have to look at what your alternatives are for spending the money. We could provide a much cheaper tax incentive to a wide variety of industries, or we could use the money to educate children (employing teachers, for example). In comparison to other incentives, this one is very, very expensive for the benefits received.

Film production credits have been critiqued by both progressive and conservative leaning think tanks. The Tax Foundation (the people who bring you “tax freedom day”) found that most film production jobs are either temporary or imported from other states, noting “When evaluating job creation, legislators should acknowledge that some jobs might be destroyed in the creation of film production jobs.” (Page 8, http://www.taxfoundation.org/files/sr173.pdf )

Progressive leaning groups have also weighed in against film credits. The Center on Budget and Policy Priorities concluded “State film subsidies are a wasteful, ineffective, and unfair instrument of economic development. While they appear to be a “quick fix” that provides jobs and business to state residents with only a short lag, in reality they benefit mostly non-residents, especially well-paid non-resident film and TV professionals.” (Conclusion, http://www.cbpp.org/cms/index.cfm?fa=view&id=3326 )

Because of the unique nature of Washington’s B&O tax, very little tax revenue is paid to the state from Hollywood movie studios. In its 2010 review of the film production tax incentive, The Joint Legislative Audit and Review Committee found that from 2007-2009 the film industry generated $36 million in direct economic activity and $36 million in induced economic activity; however only $873,000 in sales tax revenue was generated during the same time period. (An effective sales tax rate of 1.14% compared to the state sales tax rate of 6.5%). Rental of equipment for film production also enjoys its own sales and use tax credit. (RCW 82.08.315)

In general, the Washington State constitution enjoins the state from directly subsidizing businesses. This credit uses a unique mechanism to get around this prohibition in law, but not in spirit.

About the Author

Ross
I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.

7 Comments on "SB 5539 – Film Credit bill"

  1. cdavidprops | March 2, 2012 at 5:35 pm |

    I am one of the film industry workers who has lost employment in Washington state because the house of representatives decided to play politics last term with the Bill for Motion Picture Competitiveness.
    Due to its lack of passage I have been forced to leave my family and home for at least 5 days per week for work in Portland Oregon since October, 2011.
    Compare this with when the incentive was in place and for a 5 year period I was able to work and live in Spokane and earn a living wage plus benefits while living at home. i only had work twice during this period outside of town, and only one of these times was out of state

    Unfortunately your blog post on the legislation relies on biased studies, which you cite as evidence, to make a point that production incentives represent bad economic development.   These studies only evaluate the most aggressive incentive programs in drawing their conclusions.  Washington’s program is dramatically different – we offer a return on in-state spending only.  The Motion Picture Competitiveness Program has injected $69.2M into our statewide economy, with $31.2M going to wages and benefits for Washington workers and $38M to Washington based businesses.  This investment in our economy has generated B & O taxes, property taxes, and sales taxes. 

    In his opening remarks to the 2012 legislative session, Speaker Frank Chopp cited jobs as the top priority on the agenda.  The Motion Picture Competitiveness Program has successfully created over 4800 jobs for film industry professionals.  These jobs are family wage and provide health and retirement benefits for Washington workers.  In this challenging economic environment the state should be doing everything possible to maintain existing employment opportunities; without this program all these film jobs will vanish.

    The Motion Picture Competitiveness Program is simply not a Hollywood subsidy.  It is an investment in maintaining an existing industry, one with a long history of bringing jobs and revenue to our state.
    WE ARE SKILLED, UNION, WASHINGTON RESIDENTS WORKING IN THE FILM INDUSTRY !
    With 39 other states offering competitive incentives, the honest truth is that without this program there be no film industry in Washington
    Without this program I will be forced along with others in my industry to relocate permanently or look for cross training in another field after 20 plus years in this industry.

    You have stated:
    “We obviously want to do everything we can to encourage growth [in the film industry],” yet you staunchly oppose our most effective tool to win motion picture business.  Your remarks illustrate that you are misguided about the program and the way the film industry works.
    Please reexamine the evidence
    Please support maintaining the existing film jobs in the state and the continuing growth of this industry.
    Washington Film Workers are counting on you to do the right thing!
    Sincerely
    cdavid hall-cottrill
    Property Master
    Nine Mile Falls, WA/Portland, OR

  2. Megan Griffiths | March 2, 2012 at 4:09 pm |

    Representative Hunter, in your argument you are citing studies that have only evaluated the most aggressive incentive programs in drawing their conclusions. Washington’s program is dramatically different – we offer a return on in-state spending only. Also, while the jobs that the incentive creates are admittedly short-term, the incentive is designed to bring enough productions to Washington that film workers in our state can work enough to support themselves year-round. Without the incentive, the jobs won’t come and thousands of film workers within your state will be without work. I don’t see how that makes sense to you.

  3. If this bill doesn’t pass, then the growth of our local film industry in the past few years will die.

    There are many benefits to our community when 72 million dollars is spent locally. Tax money is only a small benefit but even if it was just the sales tax revenue of $873,000 – you are killing that revenue by killing this bill. You are mistaken if you think that we’re going to just shoot here anyway and pay higher taxes. The point is that WA will lose all the productions. You are killing an industry here by killing this bill. Productions will go to the other 39 states that do offer incentives. So the 72M (assuming your numbers are correct) that was injected into our economy will disappear and so will the tax money that WA did receive. Unfortunately we can’t choose to shoot here just because it’s beautiful.

    The local film industry has been slowly built up over the past few years in WA because of the incentive program and the hard work of the film office. The fact that this was not renewed last year has already begun to destroy what was already built. If this does not pass this time around we are in danger of killing this industry in WA State and it will take years to rebound if a new incentive were to arise in the future.

    I would also like to inform you that Hollywood has very little to do with our film incentive. Yes, as an industry we would love to have more Hollywood films shot locally but the fact is, even with the incentive caps of this bill, it is primarily funding independent films with local crew (which is required to take advantage of the incentive) and local citizens of WA State. Unfortunately, many politicians put the Arts as a last priority and something that is easy to cut.

    I’ll admit our industry is different. We work on a film here, a film there, a commercial there, etc. and because of that we’re not even considered to have a regular job. However, there is a large industry of residents that do work in this industry and it will cost you more in the long-run to deal with unemployed residents and a dead industry.

    The bottom line is that when you look at the benefits as a whole and not just one statistic that you think proves your point, this is a no-brainer for our economic development in WA State and for the industry that it supports.

    I hope that you will at least push for a vote by the people that represent us in our state government on this issue.

    Eric Colley
    Fireshoe Productions (WA state)

  4. ScottCBrown | March 2, 2012 at 2:53 pm |

    Wow, Mr. Ross. I am really taken aback by your last statement in your ill conceived argument about something that you obviously don’t know enough about to have done non-biased research on. First and foremost, I like how you say that the bill “get’s around” the law, but not “the spirit of” the law. You sir, who chose to insert his personal opinions/beliefs into his publicly held position on the Ways and Means committee, were not acting in “the spirit of” public service.

    I don’t have any issue that you personally don’t feel that this bill is appropriate. However, when you use your position to move forward your own agenda, or worse yet, directly and with purpose, block the progress of and deny due process of a bill, to me, that is abuse of power. No one, not one person who supports this bill feels we are “entitled” to it. We want it to be supported and pass, to be sure, but we want it to go through the process, evenly and fairly. You sir have held that up, and now, after you have committed that obstruction, you come out with errant, biased and just plain wrong information to try to bolster your position on this. Shame on you.

    You obviously have not bothered to read the copious amounts of materials generated by hard working, honest, local, dedicated individuals who have provided non-biased information. In fact much of the information provided has been done so, showing both the positives and negatives, contradictory studies, and in depth research, of which you have either ignored, or disregarded as irrelevant. There have been stories on all our local TV stations, interviews with people in the industry who have clearly made the case that not only would this bill help to draw Projects here, create jobs and increase money flow into the state, it would also help to level the playing field with Oregon and Vancouver, B.C. who do offer incentives to production companies. That is why Leverage, Grimm, and other current programs and films have not chosen Washington as the location for their productions.

    And if you want to get right down to it, I truly wonder if you have even looked at the bill at all. You have been great to site studies and provide links to sites using arguments that have nothing to do directly with THIS unique bill. These studies only evaluate the most aggressive incentive programs in drawing their conclusions. Washington’s program is dramatically different – we offer a return on in-state spending only. The Motion Picture Competitiveness Program has injected $69.2M into our statewide economy, with $31.2M going to wages and benefits for Washington workers and $38M to Washington based businesses. This investment in our economy has generated B & O taxes, property taxes, and sales taxes. But that is just taxes, that has nothing to do with investment in our state and current businesses, nor does it address job creation.

    In the opening remarks to the 2012 legislative session, jobs were cited as the top priority on the agenda. The Motion Picture Competitiveness Program has successfully created over 4800 jobs for film industry professionals. These jobs are family wage and provide health and retirement benefits for Washington workers. In this challenging economic environment the state should be doing everything possible to maintain existing employment opportunities; without this program all these film jobs will vanish.

    The Motion Picture Competitiveness Program is simply NOT a Hollywood subsidy. It is an investment in maintaining an existing industry, one with a long history of bringing jobs and revenue to our state. With 39 other states offering competitive incentives, the honest truth is that without this program there be no film industry in Washington.

    In closing, I would just like to point out, what I feel is the most glaring, and frankly, concerning statement that you have directly made. In this article, right at the top, your 3rd sentence in fact, you state: “We obviously want to do everything we can to encourage growth [in the film industry].” I am not sure how sincere that statement is, since you are doing everything within your power to oppose our most effective tool to be competitive and succeed in the motion picture business.

    I would encourage you to please read the plethora of information that is being provided to you on behalf of a job sector who only wants to be able to compete on a level playing field with others. There is a diverse, strong, hungry and extremely talented base of professionals here in Washington ready and willing to roll up their sleeves, and work hard to make this state a major player in the Film, TV, Commercial, Web and Video industry. And all we want, all that we ask for, and all that we can expect is to have our voices heard, and that due process happen.

    Please act in “the spirit of” one of our states elected officials, and represent the people.

    Scott C. Brown
    Local Washington Actor, and proud to call myself so

  5. Ross,

    The film industry is important to business in Washington. I beseech you to support SB5539. Unfortunately some of your opposing views are just not born out by the facts.

    The Motion Picture Competitiveness Program injected far more dollars into the WA economy that it cost us to operate. In fact, over the 5 years of the program, it cost the state about $20mil in “lost” B&O and the economic impact was in excess of $100mil. That economic impact provided good, well paid, family wage jobs with benefits to many film workers and actors, BUT it also supported a broad variety of ancillary business like mine. We rent cameras to many of the project that shoot here and we also manufacture accessories used by our industry. Our cameras are primarily rented in WA, but last year we also had rentals in Los Angeles, Vancouver, Toronto and Paris. Our products are sold world wide. During the depths of the recession, we had a staff of 6. Today we have a staff of 10. Much of that gain in employment was due to the Motion Picture Competitiveness Program. And as long as there is work in WA, my staff enjoys full time ongoing employment with benefits. REAL JOBS.

    But you also need to recognize that film workers are well paid and even though a film worker might only work 35 weeks in a year, they can earn between $40,000 and 125,000 in that time. WELL PAID REAL JOBS.

    But motion picture in WA also supports a broad swath of businesses which are not specific to our industry. These range from hotels to lumber yards to caterers, to clothiers.

    And, now that the state no longer funds tourism, the tourism benefits of motion picture production are even more critical. Seattle gets “Sleepless” tourists, Roslyn gets “Northern Exposure” tourists, North Bend gets “Twin Peaks” tourists, Port Townsend gets “An Officer and a Gentleman” tourists and little Forks gets “Twilight” tourists. And there are other examples.

    If you’re available, I would love to sit with you this weekend to discuss film in WA and the critical importance of the Motion Picture Competitiveness Program.

    Sincerely
    Marty Oppenheimer
    Oppenheimer Cine Rental
    Oppenheimer Camera Products
    Seattle

  6. Hi Rep. Hunter,
    I saw that you made criticisms of the Motion Picture Competitiveness Program public via your personal blog. I want to address these misconceptions in order to reaffirm the value of our industry. Here are some relevant items:

    Studies

    You’re relying on biased studies, cited as evidence, to make a point that production incentives represent bad economic development. These studies only evaluate the most aggressive incentive programs in drawing their conclusions. Washington’s program is dramatically different – we offer a return on in-state spending only. The Motion Picture Competitiveness Program has injected $69.2M into our statewide economy, with $31.2M going to wages and benefits for Washington workers and $38M to Washington based businesses. This investment in our economy has generated B & O taxes, property taxes, and sales taxes.

    Jobs

    In his opening remarks to the 2012 legislative session, Speaker Frank Chopp cited jobs as the top priority on the agenda. The Motion Picture Competitiveness Program has successfully created over 4800 jobs for film industry professionals. These jobs are family wage and provide health and retirement benefits for Washington workers. In this challenging economic environment the state should be doing everything possible to maintain existing employment opportunities; without this program all these film jobs will vanish.

    Investment in Washington

    The Motion Picture Competitiveness Program is simply not a Hollywood subsidy. It is an investment in maintaining an existing industry, one with a long history of bringing jobs and revenue to our state. With 39 other states offering competitive incentives, the honest truth is that without this program there be no film industry in Washington.

    You said, “We obviously want to do everything we can to encourage growth [in the film industry],” yet you staunchly oppose our most effective tool to win motion picture business. Please consider the facts and perspectives coming to you from so many devoted and deserving workers here in Washington.

    Thanks for listening,
    Ben

  7. Don Jensen | March 2, 2012 at 1:35 pm |

    Representative Hunter:
    It appears you misunderstand the film incentive and its impact in some crucial ways.

    The incentive money ONLY goes for money spent for Washington workers and businesses. The 30% incentive money is paid as REIMBURSEMENT for funds spent with Washington businesses and residents (Most of the money spent on a film is spent on crew and cast, hotel, restaurant, materials. All from local businesses who pay B&O Tax as well as sales and property tax.) This is very different than the sort of program in other states criticized in the two reports you cite.

    Washington Filmworks funds do not go to out of state businesses or crew. Residency must be proven, and expenditures receipted. Crew must receive Health and Pension benefits. This is not what these studies envision when they look at a film incentive program.

    In fact very little of the production work receiving support is created by Hollywood production companies. Projects are created typically by small independent producers (not companies) from Washington or elsewhere, who would have to take their production elsewhere if they don’t get the discount in costs they receive here. This too is different than the “Hollywood” productions you mention in your posting.
    You write about recognizing the importance of the Film Industry in the State of Washington. The simple truth is that without a film incentive program there will be no motion picture production in the state. With almost all other states, and Canada offering incentive programs, a producer simply cannot afford to work in a state without such a program.
    This program is really not like the programs criticized in the studies you cite. It works to create a lot of jobs, economic activity, and benefit for the state.

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