Politics

Study: RI taxpayers lost $1.8 million a year on film tax credits

PROVIDENCE, R.I. (WPRI) - Rhode Island’s tax credit for movies and TV shows has been losing the state an average of $1.8 million in revenue a year, giving taxpayers a “negative return on investment,” according to a comprehensive new study requested by lawmakers.

The tax credit, enacted in 2005, offers to have taxpayers cover up to 25% of the cost of making a movie or TV show in Rhode Island, with the stated goal of building up the local film industry.

The state has handed out at least $84 million worth of the credits since the program was authorized. Last September, for example, the R.I. Film & Television Office awarded $750,000 to fund an unidentified movie with a budget of $3 million. In November, the same deal was given to an unidentified Web series.

But the new study, conducted by the R.I. Office of Revenue Analysis, raises questions about whether the millions spent on the program has paid off, citing “relatively poor” results and noting the spending “has not achieved a lasting, stable motion picture industry.” The 50-page report also reveals many productions are violating state law by failing to disclose information.

“The film credit does not break even,” Paul Dion, who oversaw the study as head of the Office of Revenue Analysis, told Eyewitness News. “That is similar to Massachusetts, Washington state, and various other studies that have been done.”

In comments included as part of the report, R.I. Commerce Secretary Stefan Pryor said, “While the credit seems to have had some net positive effect on both GDP and employment in Rhode Island, spurring new economic activity, it is noteworthy that the credit comes far from breaking even.” (He noted the numbers were worse in some other states.)

State Rep. Teresa Tanzi, a South Kingstown Democrat who has long pushed for closer scrutiny of all the state’s tax credits, suggested lawmakers could hold hearings on the film credit in light of the new study. “There’s a number of opportunities to make it stronger, or to discontinue it even,” she said.

Steven Feinberg, the longtime head of the film office, defended the program.

“The results of our investments go beyond tangible benefits - the arts provide community enrichment, education and a platform for innovation,” he said in a statement. “Incentivizing moviemakers to film here continues to serve as a unique way to tell the Rhode Island story through art.”

The study looked at the 14 productions that received tax credits in 2013, 2014 and 2015. Under a best-case scenario, it found the productions generated less than $700,000 a year in average tax revenue for the state, or 27 cents per $1 spent. The result was a net loss to state coffers of more than $1.8 million a year.

“Our results are actually not different than any other state’s results when it comes to this, or any other study’s results when it comes to this other than those that are actually sponsored by the film industry themselves,” Dion said. “Those studies are always much stronger.”

The Film Office bases its required economic-impact analysis of each credit on a 2010 study by Edward Mazze, a University of Rhode Island professor, that suggested $1 of taxpayer money spent on a film tax credit generates more than $8 in economic activity. Mazze’s study was funded by the Rhode Island Film Collaborative, an industry group.

“The economic benefits of the tax credit far outweigh the state’s investment in the program,” Mazze said at the time.

Dion said his office’s analysis found no evidence that the 8-to-1 ratio touted by the film office is correct, describing the figure as “boilerplate.” One difference, he said, is that his study also considered what the local economic impact would have been if the revenue was spent on state programs like Medicaid rather than foregone through the tax credit.

On jobs, the study found little effect from the tax credit. An average of 594 people were employed in the Rhode Island movie industry before the credit was created in 2005, and the number has risen to 688 since, an increase of 94 jobs.

The study also found that most production expenses are compensation rather than payments to in-state vendors, and the majority of compensation goes to top names who are usually from out of state. The jobs created for state residents were relatively low-paying.

The film tax credit looked best when measured against its contribution to the state’s gross domestic product, or GDP. The analysis found the credit contributes positively to GDP even if only a small share of activity is directly triggered by the credit itself. The study also noted, “It is possible that tax credits are granted to projects that would have taken place even without the incentive.”

Dion and his staff struggled to complete and flesh out their report, they said, due to a lack of data. During the time period studied, only two of 13 tax credit recipients filed a follow-up report that is required under state law. Dion said many of the productions set up one-off corporations that only exist until shooting is finished.

“They are filing after the fact, and once they get their credit certificate they don’t care anymore,” he said. “And there’s no stick to make them do it even though it’s a mandatory report.”

Additionally, Dion said the limited data available was frequently messy and therefore difficult to analyze accurately. The Film Office was also unable to provide any quantitative data on education and training spurred by the tax credits, only offering anecdotal evidence, the study said.

Lawmakers have already taken steps to limit the film credit program, which former Gov. Don Carcieri unsuccessfully sought to eliminate during his term. There is now an annual cap of $15 million on how many credits can be authorized, though Dion’s study shows the Film Office hasn’t come near reaching that level in recent years. The program is currently scheduled to expire in 2024.

Both the Office of Revenue Analysis and the Commerce Corporation offered a number of ideas for improving the credit program. They range from gathering more robust data to incentivizing companies that establish a long-term presence locally or limiting how much of the credit can go toward salaries for out-of-state stars.

The report noted that the majority of states - 36 out of 50 - offer some sort of tax credit for film and TV productions, though a few have eliminated the program in recent years. In Massachusetts, which also offers a 25% credit, Gov. Charlie Baker has made repeated efforts to end the program but has been rebuffed by lawmakers on Beacon Hill.

Dion said the new study is the first in a series his office is producing that will analyze how well Rhode Island’s various tax credit programs are working. The reports were ordered under a law passed in 2013, but Dion said staffing and budgetary restraints prevented them from being completed until now.

Tanzi said she’s looking forward to seeing the reports.

“No one in their right mind would start a business and let it go 10 years, 30 years, without reviewing it and without analyzing it,” she said. “As a state we have to do the same thing.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook

An earlier version of this story misidentified which R.I. Commerce Corp. official gave the agency's statement responding to the report's findings.


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