Proponents of the Ohio Motion Picture Tax Credit don’t lack for enthusiasm. They talk about the 10-year-old credit as helping to define the state’s future, fueling workforce development, even pointing the way to a thriving movie industry here. They have been urging state lawmakers to expand the credit, from $40 million a year to $100 million annually. In doing so, they have found strong backing in the state Senate.
Then, Speaker Larry Householder arrived with the House version of the state budget for the coming biennium, majority Republicans and minority Democrats in support. The plan calls for eliminating the motion picture tax credit, along with a handful of other tax breaks. So expect a legislative collision, especially as the two chambers head to a conference committee, a final budget due by the end of June.
Which side has the better of the argument? The House. No doubt, the credit generates economic activity, including jobs, whether filmmakers are shooting “Carol” in Cincinnati or “The Avengers” in Cleveland, two of the more than 100 productions that have received subsidies since 2009. The credit carries star power, and thus buzz and attention. Supportive politicians can point and say: We did that.
The more telling factor goes to whether this is an effective way to deploy taxpayer dollars — in view of the alternatives. Consider a 2015 Cleveland State University study. It found that during the previous four years, the state spent $32 million on the tax credit. The total tax revenue generated by movie production in the state was $22 million, with more than two-thirds going to the federal government. Related state and local tax revenue amounted to $6.7 million.
In that way, the credit did not pay for itself.
The credit is refundable, meaning that if the approved subsidy exceeds the actual tax liability, the state still pays the full sum. The credit also is transferable, something Wendy Patton of Policy Matters Ohio flagged as problematic during testimony at a legislative hearing last year. This element allows film companies to sell the credits to buyers with Ohio tax liability. The result is that entities having nothing to do with the movie industry end up getting tax relief. Movie-makers gain by collecting the proceeds. Yet taxpayers are left supporting unintended beneficiaries.
This is both inefficient and costly. Better, it would seem, to engage in direct grants.
At one point, some 44 states offered such movie-oriented tax credits. Today, the number is number is around 30, Michigan and West Virginia among those ending their programs. What states have recognized is that the credits result in a race to the bottom. A few states have genuine movie industries. The rest are competing against each other, and that includes Ohio. Proponents invite skepticism when a decade into the credit here, they argue the subsidy just isn’t big enough.
As Wendy Patton reminded lawmakers, the entertainment sector is not one of the nine strategic industries identified by JobsOhio. She added that at $100 million, the credit would rival the Job Creation Tax Credit, the largest economic development credit the state offers. In other words, there are better ways to spend the money, even $40 million, a tinier fraction of the total state budget. Unfortunately, Speaker Householder sees ending the tax credit as part of paying for yet another reduction in state income tax rates.
A more productive use involves directing funds to areas of real need, including child care, early education, clean water, mental health care and financially strained local governments. These and other priorities outpace tax relief, even in the form of credits for the movie industry.