The Palmetto Insider

The blog of the South Carolina Policy Council

Film Incentives Show Need for Economic Development Transparency

with one comment

As we’ve written, one of the current sticking points between the House and Senate budgets concerns film incentives.

The House wants to continue to provide film makers a 20 percent rebate on payroll costs and a 30 percent rebate on all other expenditures (proviso 39.8).

Meanwhile, the Senate plans to eliminate these tax breaks and use the savings for the S.C. Conservation Bank (proviso 89.145). Current incentives would remain at 15 percent, as required by the S.C. Motion Picture Incentive Act. Both chambers are also content to take money from the Motion Picture Rebate Fund to use for the Destination Specific Tourism Program (proviso 39.12).

On one side, the “film community” is arguing the incentives are needed to keep “Army Wives” from leaving Charleston. This seems unlikely: we’re only talking about $1.5 million in incentives – and not all of that, presumably, is going to “Army Wives.” Moreover, if the funding is so essential to keeping the film industry in South Carolina, why is the Legislature transferring money to the Destination Specific Tourism Program?

On the Senate side, no one has really explained why they cut the House proviso. Presumably, no other source of funding could be found for the $1.5 million they want to give the Conservation Bank. Making such choices is called “prioritizing” – it’s what real leaders do. But it could just as easily be only a bargaining chip between Senate and House leaders as they negotiate over their respective budget proposals.

Setting aside the essential question of whether the state should provide such incentives in the first place, we all need to ask whether these incentives are actually creating jobs and prosperity for the people of South Carolina. As our new fact sheet indicates, the answer is no.

According to a recent study by College of Charleston Professor Frank Hefner, taxpayers are actually losing 81 cents for every $1 in incentives provided to film producers. Hefner’s study is posted on the state’s Department of Commerce website, raising questions about why lawmakers keep approving money for a program the department seems to acknowledge isn’t working.

Unlike the revenue impact statements ordinarily conducted by the state’s Board of Economic Advisors, Hefner’s study is based on what is called a cost-benefit analysis. It’s the method used by most businesses. The analysis actually gives some idea of return on investment for tax dollars spent. Yet, as Hefner notes, state analyses usually employ a methodology that ignores the initial cost of targeted subsidies. For this reason, he says, their approach “will always show that public subsidies result in a positive economic impact for the state.”

The way it works is like this: South Carolina spends $10 million in tax dollars to attract “Army Wives” to Charleston. “Army Wives” then results in $1.9 million in direct and indirect tax revenue. Thus state economists claim the tax break generated $1.9 million in new investment – ignoring the initial $10 million investment used to bring the production to South Carolina in the first place.

Politician-speak: “Army Wives” is bringing in $1.9 million

Real life: “Army Wives” is costing $8.1 million

Granted, all this is made more complicated by multipliers and other such things. But that is all the more reason to reform the way we hand out tax incentives in this state.

In particular, we recommend the following changes:

1) Reform the process by which economic incentives legislation is passed by the General Assembly.

2) Create standardized application and reporting mechanisms so that the public can more easily track and monitor economic development assistance.

3) Hold recipients of state aid accountable for meeting specific and measurable job creation/investment targets and provide for ongoing oversight.

If film incentives really are good for South Carolina, then make the film producers prove it by showing us the numbers.


Written by Jameson Taylor

May 18, 2010 at 8:18 am

One Response

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  1. This article shows a very poor understanding of how film incentives work. The first problem is the reliance on Dr. Hefner’s study for accurate numbers. Your piece states that Hefner’s study is posted on Commerce’s website. If one were to talk to anyone with experience in statewide economic development, they will tell you that any “study” coming out of the Dept. of Commerce these days cannot be trusted. They will also tell you how Commerce Secretary Joe Taylor has gone through two or three heads of research and that over 70% of the staff has left since he was appointed in 2006. That information alone tells anyone with a modicum of objectivity that there is something seriously wrong within that department, and any numbers issued from there should be suspect. Dr. Woodward at USC also came out with a study that showed the state was making money from these incentives. The Policy Council’s selective choice of focusing on only one incomplete study is revealing as to how far you all will go to make your flawed argument.

    Jameson Taylor concludes his piece by asking the producers of “Army Wives” to show us the real numbers to prove how good the series has been for the state. A recent article by Tim Smith in the Greenville News stated that “Army Wives” has spent over $63 million in the four years they’ve been here, while the state has paid out $15 million in incentives during the same period. If the Taylor/Hefner team wants to argue that $63 million is not direct tax revenue, have at it. It’s still real money spent locally, and much more than what the state gives away. And since when did tax-on-tax become the only legitimate cost-benefit measure for a state? $63 million is a heck of a lot more than $0 the state would be receiving should “Army Wives” pull out because a few politicians have a very narrow idea of what constitutes a positive return on investment. It’s called an incentive for a reason. The hundreds of people who make up the “Army Wives” crew make more money in six months of employment than most people make in twelve. Not a bad way to make a living, imho. There goes the argument about films offering only “part time” jobs. Also, how does one account for the four million viewers from around the country tuning in every week to watch a television show that is set in Charleston, SC? You can’t buy that kind of advertising on a weekly basis. That’s a huge benefit to the state, no matter what some inadequate study tries to show.

    The bottom line is, filmmaking is a business, and the decision to shoot somewhere is both a creative and business one. Films are going to spend their money somewhere. If South Carolina can’t give filmmakers a reason to spend it here, they will go elsewhere. This state has already proved it can attract films. The question now is do our elected officials want a percentage of something or a percentage of nothing?

    John Ford

    May 27, 2010 at 10:08 pm

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