Sex and the City and Subsidies

Sex and the City and Subsidies

We almost never find ourselves on the same side as celebs, so when “Sex and the City” star Cynthia Nixon, now running for governor of New York, recently railed against taxpayer subsidies for the film industry, we couldn’t help but pop the popcorn.  Bashing tax subsidies is especially titillating news since the actress’ own “Sex and the City” movies “scored enough dough from the $420-million program to buy a lifetime supply of Manolos,” reported Carl Campanile of the New York Post.  Her two films, based on the series, received a combined $13.6 million in tax credits and subsidies for filming in New York.

Nixon’s campaign is reportedly on financial life support, and given her comments above, her Hollywood friends may be reluctant to chip in for her campaign.  California’s own Film and Production Tax Credit program, with the full support of the Motion Picture Association, has handed out more than $1 billion dollars since the subsidy began in 2009.

The state’s tax credit program started out as a policy reaction to fears that California was losing industry jobs to other states and countries that had established their own tax incentive programs to lure film companies.  Since then, the California Film Commission, which itself has a budget of $2 million, has been touting the benefits of the program through a barrage of press releases.  It’s latest announced that

“19 films (11 non-independents and 8 independents) have been approved conditionally for $52.2 million in tax credits. They will generate an estimated $258.2 million in qualified expenditures (defined as wages to below-the-line workers and payments for equipment/vendors) and spend a combined 602 shoot days across the state. Based on data provided with each tax credit application, they will employ 869 cast, 2,357 crew, and 23,000 extras (including stand-ins measured in man-days).”

But does the program really bring jobs to California? In the case of “Sex and the City”, it’s obvious that New York state got snookered.  Can “Sex and the City” really be filmed any place else but in New York?

At last, there’s been some serious independent research on the economic impact of film industry subsidies.  Michael Thom of USC, in his study “Time to Yell ‘Cut?’”, examined California’s tax credit program to see if it indeed boosted employment in the film industry. Even after running various models, Thom found that the tax credits had no significant effect on three job categories in the industry.  Moreover, his study showed that California employment was unaffected by competing incentive programs in other states – he found no evidence that other states’ incentive programs took jobs away from California. His conclusion? Film industry employment gains and losses in California simply tracked the national labor market.  The tax credits had virtually no impact.

Some states have already learned these lessons.  More than a dozen states have eliminated or reduced their programs.  Thom cites the following losses based on state program evaluations: Louisiana’s more than $2 billion “investment” yielded a return on investment of -77%; Connecticut’s $800 million investment had an ROI of -99%; and Massachusetts $650 million investment yielded -84%.

Thom’s study is also backed up by the Legislative Analyst’s Office evaluation of Program 1.0 – an earlier but smaller tax incentive program.  The LAO’s office found that the program’s overall cost exceeded the tax revenues generated by production activities that the tax credits supposedly incentivized. They will result in a net loss to California’s general fund of around $100 million in 2018– 2019 alone, and this doesn’t factor in the legislature’s decision to triple funding.  We can expect even bigger losses to come.

And just like the free money New York handed out to “Sex and the City”, the LAO’s office estimated that about one-third of the film and television productions that received funding would have located in California anyway.  It would be hard to imagine that “Sex and the City” would in the backdrop of San Francisco’s hoody population.

The economic gains from targeted subsidies to specific companies and projects have been debunked by many academic studies. The $1.1 billion boondoggle to the film industry could have been better spent to improve California’s decaying infrastructure, mitigate the homeless problem, or fund education programs that prepare young people for technical jobs . . .  in the film industry.  Projects like these, at the end of the day, would have likely been far more effective at attracting and retaining film companies to California.

Rowena Itchon is senior vice president of the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.