Over the past 20 years, New York has spent nearly $7 billion on taxpayer-funded subsidies to underwrite films and television shows produced in the state. In last year’s budget, annual outlays for the Empire State Film Production Tax Credit were bumped up to $700 million a year, promising a total of $7.7 billion more in cash handouts to the entertainment industry through 2034.
The Film Production Tax Credit is by far the largest ongoing business tax incentive offered by New York—or any state. But in fiscal terms, net revenues from the massive giveaway don’t begin to cover its costs, according to an independent study commissioned by the state Department of Taxation and Finance.
Quietly posted on the department’s website last month, the 360-page study by PFM Group, a Philadelphia-based financial advisory firm, is an exhaustive analysis of New York business tax incentives and their economic impact.
The biggest item on the list is the film credit, through which New York taxpayers underwrite 30 percent of qualified production costs for movies and TV shows made in the Empire State. Unlike similar entertainment industry tax breaks in other major states, the New York credit is fully “refundable” in the year it’s claimed, regardless of whether the producer owes any state tax—thus functioning more like an outright grant than a tax break.
PFM took a hard look at every side of the cost-benefits equation, concluding:
- The Film Production Credit “does not provide a positive return to the state.” Production activity and hiring attributed to the credit generates a combined total of just 31 cents in direct and indirect revenues for every dollar the state pays producers.
- “It is highly likely, given [New York’s] existing workforce and infrastructure, that much of the economic activity [attributed to the tax credit] would occur without it.”
- The jobs subsidized by the credit are “high-paying” and thus create “enduring value,” but “it is likely that the production credit will never ‘go away’ in the sense of leaving behind a stable, job-growth industry absent the credit.”
- New York State and New York City benefit from exposure in movies and TV production, but much of that would have happened in any event because of New York’s “prominence in U.S. culture.”
And the clinching conclusion:
“Based on an objective weighing of the costs and benefits, the film production credit is at best a break-even proposition and more likely a net cost to NYS.”
This finding is not exactly new or surprising. Multiple academic studies of film credits in New York and other states have come to similar conclusions over the years. In 2013, then-Governor Andrew Cuomo’s Tax Reform and Fairness Commission was presented with a highly skeptical research study noting that, in 2008, the film credits received by 31 film production industry taxpayers exceeded the combined tax liability of the entire industry—all 1,600+ firms—in nine of the ten previous years.
Given its official provenance, the PFM study should have added weight and credibility with policymakers. It was commissioned by the Department of Taxation and Finance under a 2022-23 state budget provision requiring the agency to contract with an economic impact firm to create “an independent, comprehensive, analysis of each tax credit, tax deduction, and tax incentive established in this chapter or any other chapter of the law which relates to increasing economic development[.]”
PFM’s findings nonetheless are likely to be ignored by the Hochul administration and the Legislature’s Democratic supermajorities. The taxpayer giveaway to Hollywood East enjoys strong support from a politically powerful, deep-pocketed constellation of producers, actors, labor unions and real estate interests enriched by the subsidy. The film credit’s cheerleaders aren’t just a reliable source of big campaign contributions—they can even arrange for a governor to receive a special Emmy Award (or revoke it when that pol turns toxic).
“But-for” and shifting job shares
In pushing for increases in the tax credit, Hochul and her predecessor can cite economic impact studies commissioned by the Empire State Development Corp., the state government’s economic development arm and a reliable cheerleader for all the incentive programs it has a role in administering.
The latest ESD study of the film production credit, a 16-page analysis produced by Camoin Associates of Saratoga Springs and covering the period 2019-21, used a simplistic methodology assuming (preposterously) that the industry would have created no jobs without the credit. By contrast, the meatier PFM study applies a more nuanced (and less credulous) “but-for” test to the economic impact question.
Given the “nomadic and often temporary nature” of film and TV projects, the PFM study acknowledges that “a strong case can be made that ‘but for’ the incentive, much of the activity would have or could have occurred elsewhere.” It adds, however, that given the entertainment industry’s “economies of scale and agglomeration advantages” in states like New York and California, “it’s also quite likely that a lot of activity would occur in this industry in those states with or without the incentives” [emphases added].
Based on wage and job growth from 2019 to 2021, ESD’s impact study claimed the film credit generated $1.04 for every dollar in subsidies awarded to producers between 2019 and 2021—a return on investment (ROI) ratio of 1.04. PFM’s analysis of data for 2018 to 2022 produced a significantly lower return estimate of 31 cents in total direct and indirect tax revenue for every dollar of credits awarded, an ROI of just 0.31.
PFM also highlighted a “shift-share” comparison of national job growth to employment trends in New York, as summarized in this table:
As shown, from 2012 to 2022, film and TV production employment grew 31.1 percent nationally, but just 8.2 percent in New York. The study continued:
[S]imply matching national growth rates for private employment would have produced 7,602 jobs, and matching the growth rate for the film industry nationally would have produced an additional 6,872 jobs. As a result, NYS’s actual growth of just 3,839 jobs means the growth attributable to the film industry in NYS was negative 10,635 jobs.
This suggests that this industry has underperformed both the national economy and the national industry. Whatever economic impacts the credit may have generated, it is not evident from this analysis that it has been a positive contributor to state or industry employment growth in NYS. [emphasis added]
PFM took a more benign view of two smaller tax credit programs aimed at subsectors of the film and TV industry. It said the state’s Commercial Tax Credit, capped at $7 million a year, has a roughly break-even ROI, with a combined direct and indirect revenue impact of 99 cents per dollar of credits awarded to producers.
The study said Post-Production Film Credits, capped at $25 million through 2025, have a lower ROI ratio of 0.30 but “may be a worthwhile investment” in the future due to technical trends in the industry; also, because most of the work is done in production facilities, there is “greater permanence to the associated employment and a greater expectation that the associated economic activity will stay within the NYS economy,” the study said.
But the PFM study was more negative about the Music and Theatrical Production Tax Credit offering up to $8 million a year in subsidies “to encourage musical and theatrical production companies to conduct pre-tour activities, technical rehearsals and to perform shows outside New York City.” Promoting live theater outside New York City may be a worthy goal, the study said, but the combined ROI for that program was estimated at a minuscule six cents per dollar spent.
Ever upward
Among other New York State tax incentives covered by the PFM study, the most positive findings were related to the Excelsior Jobs Program, a suite of five different tax incentives designed to encourage businesses to relocate and expand in New York State. For periods up to 10 years, eligible businesses can claim refundable credits tied to their expenditures on job creation, investment, research and development expenditures, property taxes and employee child care.
Credits available through the Excelsior program are capped at $200 million but have never reached that level in a single year; some $3 billion in unspent cap space is available through 2030, according to the study.
PFM estimated Excelsior credits generate a whopping $4.25 in direct and indirect tax revenues after repaying each dollar of state revenue “invested” in the program. At that rate, Excelsior has ignited much larger and more enduring economic gains than the Film Production Credit—at a fraction of its cost.
“Based on this analysis the Excelsior program generates a significantly positive Return on Investment as well as highly positive economic impacts,” the study said.
