Policy Analysis | October 2011

States Efforts to Promote the Motion Picture and Video Game Industries

Sujit CanagaRetna

In June 2007, the SLC issued a report entitled Lights! Camera! Action! Southern State Efforts to Attract Filmmakers' Business. The major objective of the report was to hone in on a trend that was sweeping across the country: states, led by 2002 landmark legislation in Louisiana, working proactively to lure the motion picture and television industries to work within their borders. In addition, the report highlighted why the film industry landscape in the United States had become very competitive, vis-à-vis international locations in Canada and Eastern Europe, in the early to mid-years of the decade and provided details on some of the aggressive new and revised financial and other incentives offered by states to filmmakers.

Since the release of this SLC report, two important developments have surfaced that require attention:

Film Industry

A number of studies contend that state film incentives are not a sound investment of scarce state tax dollars and that states should strongly reevaluate continuing the practice. For instance, in a study released in March 2009, Professor Susan Christopherson, Cornell University, maintained that "most of the three dozen states chasing film production with tax breaks will not catch up with New York and California, where the movie and television industries have been dug in for decades. The subsidies they're giving the productions don't have a long-term economic impact for the state." Another study, prepared by Robert Tannenwald at the Center for Budget and Policy Priorities also maintained "[I]n the harsh light of reality, film subsidies offer little bang for the buck."

Similarly, other state studies maintain that states did accrue financial gains from these incentives and that policymakers should continue to extend offering these incentives after careful and ongoing reviews of the programs. Specifically, an April 2011 study from Louisiana, entitled Fiscal & Economic Impact Analysis of Louisiana's Entertainment Incentives documents the tremendous economic gains flowing to the state from these incentives. Similarly in North Carolina, in March 2011, a workshop entitled In Focus: Film Industry in the Carolinas, documented that "Southeastern North Carolina's film industry had generated eight television series and more than 2,300 features, mini-series and TV movies since the 1980s. The industry brings millions of dollars into the local economy and creates high-paying, skilled jobs." A study done on the economic and fiscal impacts of New Mexico's film production tax credit program in 2009 also substantiated that the state reaped significant economic benefits from the incentives.

An early 2009 study of New York's tax breaks for movie and television production suggested that a 30 percent credit offered by the state, along with an additional 5 percent offered by New York City, secured or created about 19,500 jobs while yielding $404 million in tax revenue, at a cost of $215 million in credits. (The study was conducted by the accounting firm Ernst & Young for both the Motion Picture Association of America and New York's state film office.) A similar study out of Rhode Island demonstrated that rather than returning a few cents on the dollar, the tax credits brought back an average of $8 for every dollar spent.

Given the controversy surrounding the efficacy of states continuing to provide incentives to the film industry ‐ at a time when state budgets are under so much strain ‐ there is growing awareness that incentive programs have to be reviewed on a state-by-state basis. While they might be very effective in one state, they might not be as effective in another. Experts on the incentive programs to states also insist that if states can foster the creation of a gamut of post-production activities, the benefits to the individual state economies would be more permanent in contrast to the more fleeting benefits flowing from the actual filming operations.

Video Game Industry

In recent years, a number of states, at least 20, have introduced legislation to promote the video game industry as a catalyst for economic growth. These measures, typically in the form of tax incentives, take the form of credits, grants and exemptions. The effort undertaken by a number of universities (University of Southern California, University of Central Florida, Louisiana State University and Georgia Tech) to both expand and introduce undergraduate and graduate level degrees in video game technology is another important allied development. Most often the incentives related to the video game industry are administered by a state's film office.

An important decision made by Louisiana State University (LSU) to promote the creative economy by melding both creative and technological forces led to LSU (and the Louisiana Department of Economic Development) inviting Electronic Arts Inc., more commonly known to gaming buffs throughout the world as EA Sports, to establish a new global quality assurance center ‐ the first of its kind in the United States ‐ located on LSU's South Campus.

Along with these state incentives, the video game industry also secures incentives from the federal government. These federal tax incentives – a collection of deductions, write-offs and credits mostly devised for other industries in other eras – now make video game production one of the most highly subsidized businesses, according to certain experts.

This recent research piece, the result of a legislative information request, provides the latest trends on state incentives to the film industry (including specific statutes) in over a dozen states and details incentives provided by states to the video game industry.

Further information is available for the following states:

Alabama

Minnesota

California

New Mexico

Connecticut

New York

Georgia

North Carolina

Illinois

Texas

Kentucky

Wyoming


The reports below may also be of interest

General Overview of Tax Incentives

Tax Foundation Report

Tax Incentives for Video Games

State-by-State Guide to Business Incentives for Interactive Entertainment Production

Video Game Tax Incentives-June 2011