Film Tax Credit Draws Bad Reviews

Be it Tom Cruise in Jack Reacher, Denzel Washington in Fences, or Gerard Butler in Law Abiding Citizen—everyone loves to see their favorite movie stars come to the neighborhood. This, combined with the promise of a local economic boost, provides plenty of incentive for Pennsylvania’s film tax credit program—which offers a 25 percent rebate on most film-related expenses. However, recent reporting shows the $60 million tax credit is inundated with waste, lacking oversight, and straying from legislative intent.

Reporter Eric Holmberg of Public Source obtained records for 339 film and television projects approved to receive 95 percent of tax credits allocated since 2007. Here are the major findings:

Pennsylvania productions received more than $116 million in tax credits. That’s more than one out of every five tax credit dollars, missing the program’s true intent to attract out-of-state productions.

Few productions use the tax credit; productions sell 99 percent of all film tax credits to companies that have nothing to do with film or TV. Essentially, the film tax credit is a backdoor tax break for some of the largest corporations and utilities operating in Pennsylvania.

Film tax credit dollars are frittered away in those transactions. The program wasted more than $27 million of taxpayer dollars by allowing credits to be sold to non-film companies, such as Apple. Secondary tax brokers also received thousands in fees from each transaction because of this arrangement.

Given Pennsylvania’s budget shortfall, it’s becoming nearly impossible to justify another year of this corporate welfare program. 

Fundamentally, the film tax credit is bad economics. The jobs it creates are relatively few and never permanent. It has largely failed to seed a permanent, successful native industry in Pennsylvania to work with outside studios.

Time and again, the film tax credit provides a net loss in economic activity. In Michigan, a review of the program’s performance in the 2010-2011 fiscal year found a net cost of $111.5 million. An earlier study from South Carolina found it generated only 19 cents in tax revenue for every dollar spent, which, according to the Tax Foundation, is close to the average return.

The lack of accountability is another issue plaguing the program. In 2014, an Auditor General’s report on the Pennsylvania agency tasked with overseeing the credits (DCED) concluded that "DCED did not provide true accountability and transparency." Attempts at clarification from DCED concerning its metrics for conducting and evaluating the program provided no answers at all, let alone “evidence that metrics even exist.”

Pennsylvania already leads the nation in corporate welfare. This distinction is unacceptable in light of the state’s persistent and immense budget challenges. It's time to reevaluate these programs and make better use of taxpayers’ funds. The film tax credit is a great place to start.