New York's Film Production Tax Credit: A Cost-Benefit Analysis
Over the past two decades, New York State has invested nearly $7 billion in taxpayer-funded subsidies to support film and television production through the Empire State Film Production Tax Credit. In the most recent budget, this annual subsidy was increased to $700 million, with a total commitment of $7.7 billion through 2034. This credit, which is the largest ongoing business tax incentive in New York and the second-largest of any state, aims to attract and support film and TV productions within the state.
The Economics of the Tax Credit
An independent study by PFM Group, a Philadelphia-based financial advisory firm, sheds light on the financial implications of this substantial tax credit. The study, commissioned by the New York State Department of Taxation and Finance, provides an in-depth analysis of the economic impact of New York's tax incentives.
Key findings of the PFM study include:
• Low Return on Investment: The Film Production Credit generates only 31 cents in direct and indirect revenue for every dollar spent by the state. This figure suggests that the credit offers a minimal return on investment and may be a net cost to the state rather than a profitable venture.
• Questionable Economic Impact: The study indicates that much of the economic activity attributed to the tax credit would likely have occurred even without it, due to New York's prominent role in U.S. culture and its existing industry infrastructure.
• Job Creation: While the credit does support high-paying jobs, it is unlikely to foster long-term industry growth without continued subsidies. The jobs created are often temporary and do not necessarily lead to a stable, sustainable growth in the industry.
Comparison with Other Tax Incentives
The PFM study contrasts the Film Production Credit with other New York State tax incentive programs:
• Excelsior Jobs Program: This program, which offers incentives for job creation, investment, and business expansion, shows a significantly positive return on investment. The study estimates that each dollar invested in Excelsior credits generates $4.25 in tax revenues, making it a highly effective economic tool compared to the Film Production Credit.
• Other Credits: The study found that smaller programs, such as the Commercial Tax Credit and Post-Production Film Credits, have mixed results. While the Commercial Tax Credit has a nearly break-even return, Post-Production Film Credits show a lower ROI but may hold promise for the future due to the nature of the work and its potential permanence.
• Music and Theatrical Production Tax Credit: This program, which aims to encourage musical and theatrical productions outside New York City, yields a very low ROI of just six cents per dollar spent.
Political and Economic Implications
Despite these findings, the Film Production Tax Credit remains politically popular, supported by influential producers, actors, labor unions, and real estate interests. The credit's proponents argue that it helps maintain New York's status as a key player in the film and television industry, providing significant cultural and economic benefits. However, the study's results suggest that the credit's effectiveness in achieving these goals is debatable.
The PFM study highlights the broader challenge of evaluating tax incentives and their real economic impact. While some programs, like Excelsior, demonstrate clear benefits, others, including the Film Production Credit, may require reevaluation and adjustment to better align with state economic goals.
This summary is based on information from the PFM Group study and additional sources.
