Sunday, November 23, 2008

Massachusetts Lures Hollywood – Plymouth Rock Upstaged by Film Studio - At What Cost to the Commonwealth?

Credit: Sarony & Major. "The landing of the Pilgrims, on Plymouth Rock, Dec. 11th 1620." c1846. Prints and Photographs Division, Library of Congress.

Plymouth Rock, for most people, conjures up historical images of the first Thanksgiving and the Rock upon which the Pilgrims ship may have landed during a hazardous quest for a new land free of religious persecution; the perfect setting for a huge film complex? Plymouth will be the new home of “a $488 million film and television studio, complete with 14 sound stages, a 10-acre back lot, a theater, a 300-room upscale hotel, a spa and 500,000 square feet of office space.”. Some residents have grave misgivings about a mix of History and Hollywood, while others embrace the idea simply because of the loss of jobs in Massachusetts – the studio, from construction forward is an opportunity to find employment.

In July of this year, Governor Deval Patrick signed a bill that gave films projects in the Bay state a hefty 25 percent tax credit. The tax credits are designed to bring more film makers to the Bay state, thereby creating more jobs and revenue for the state. That said, some feel that these tax cuts will cost the state millions in lost revenue at time when Massachusetts is face with a deficit of $1.3 billion. In March, The Massachusetts Department of Revenue released a study that indicated these types of incentives cost the state approximately $120 million in lost revenue. A critic of this corporate tax cut stated bluntly: "Government should stop playing favorites with various industries," said Barbara Anderson, the executive director of the Center for Limited Taxation and a longtime crusader for smaller government in the state. "This is about politicians rubbing elbows with Hollywood celebrities." That said - there was an increase in revenue to Bay state communities. One proponent suggested that the film “tax credits are benefiting everyone from hotels to carpenters to hairdressers.”

Although Gov. Patrick supported the film industry credits, ostensibly to compete with bordering states with similar incentives in place, certain legislatures were concerned that the majority of the income from these films would end up leaving the state.

How big is this incentive? In 2006, The New England Public Policy Center at the Federal Reserve Bank of Boston, released a report on New England film tax credits. The report indicates that “The little evidence available suggests that film tax credits do attract film production and create jobs in states that have little or no film industry. However, they also cost states considerable forgone tax revenue. The film production stimulates little additional economic activity in other industries. Consequently, film tax credits do not “pay for themselves” by indirectly generating additional corporate income, sales, and property tax revenues.” At that time, Massachusetts offer a payroll tax credit of 20 percent; but did not include salaries exceeding $1 million. A Production expenses credit of 25 percent includes salaries paid in excess of $1 million. The requirement: the production company must produce at least $250,000 in local production expenses in the state in a 12 month period (consecutive). Further 50% of the total production expenses or filming days were state based. Tax liability credits are transferable and can be carried forward for a period of 5 years.

Massachusetts, which has been bleeding business and population at a rapid pace, had the 4th highest corporate tax rate in the country in March, 2008 according to the Tax Foundation report comparing U.S. States and other nations. (Ireland has the most attractive corporate tax rate.) Neighboring, New Hampshire ranked 14th on this list, and, not surprisingly is a top destination for Massachusetts refugees, both corporations and those desiring employment. In April, 2008, the Boston Globe reported that a Suffolk University study suggested that an across the board reduction in corporate income tax to 5.3% would do more to stimulate the economy than Patrick’s tax credits to Life Sciences, Film and Clean Energy industries. Patrick proposed a drop from the current 9.5% to 8.2% by 2012 –which does nothing to attract other industries to Massachusetts or prevent those left from seeking shelter in more attractive tax climates. Although the film industry will offer employment and revenue to cities and municipalities, it is on a short-term, temporary basis. Once the filming is complete, the residents are left with fond memories, a few autographs, and a return to the unemployment line. The state will be left holding the bag in lost revenue and those taxpayers that are left will see an increase in “fees” or a loss in services. Of course, Deval Patrick may stand a better than average change of procuring a Federal Bailout, but again, that money will come out of the pockets of the Massachusetts taxpayer. It’s a lose – lose situation.

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