A recent op-ed in in the Hobbs News-Sun extolled the virtues of payouts to the film industry as detailed in a recent study predicting $8.40 of return to the state for every $1.00 spent on the subsidies.
This is incorrect. First, the study was not conducted by a legitimate accounting firm such as Deloitte or KPMG, but rather an outfit by the name of Olsberg SPI. This firm bills itself as a “creative industries” consulting firm. In other words, a shill for the movie industry.
The excuse we were given in our Revenue Stabilization and Tax Policy committee was that the State film office had no money in the budget for a proper study. What was presented was cobbled together from existing resources.
Only in New Mexico would we shovel 100 million dollars in subsidies out the door without allocating any resources to determine if this was a wise use of taxpayer dollars.
The subsidy described is a refundable tax credit of up to 35 percent of film production expenditures in the State of New Mexico. The payout by taxpayers is capped at 100 million dollars per year unless you are a New Mexico “partner” at which point there is no upper limit.
Refundable means your actual tax liability is irrelevant. If your tax liability is five percent, the state simply writes a check for the difference. The practical effect is to lower costs to production companies by between 20 and 30 percent. The industry will state with no hesitation that the payout is the only reason operations are conducted here.
Now let’s turn to the math to see if it is possible to return the $8.40/$1.00 predicted by the study.
For the purposes of this analysis I will assume a major movie expenditure of 300 million dollars, all occurring within the our state. Under the subsidy system this expenditure would be eligible for some 30 percent of that number or 100 million dollars.
Most economists would say this expenditure would roll through our economy some five to seven times. At each transaction the state would get its “bite” of five percent and this approximation works whether the expenditure is on goods (gross receipts tax) or services (income tax). The total return at seven times rollover works out to around 89 cents, about one-tenth of the amount in the report, and less than the one dollar of state “investment.”
89 cents is a very optimistic best-case as most other studies on this issue have placed the return between 15 cents and 40 cents on the dollar. The reason for this is much of the money is spent on high-priced out-of-state talent that comes into the state, does what it does, cashes the check, and either heads back home or for greener pastures.
The New Mexico film office will justify these expenditures on the basis of the jobs created, that the wages paid create prosperity far beyond just what the numbers show. This mindset, however, elevates temporary film industry jobs to the same level as police officers, firemen, and teachers—jobs requiring state support and make major contributions to our health and well-being.
I am now and have always been a strong supporter of economic development to enable private industry to create high-paying permanent jobs. At some point, however, that industry should be required to have an actual commitment to remain here, growing its operations and jobs without the need for subsidies.
If the film industry cannot make that commitment, it’s time to dismantle these subsidies that do more to benefit those outside New Mexico than those within our state.
Larry Scott is is a state representative of House District 62, and a partner in Lynx Petroleum Consultants in Hobbs.