Taxpayers Shouldn’t Have to Foot the Bill for Films Made in New Mexico

I, for one, like having movies made in New Mexico.

It is nice to go out to the theater and see familiar places, such as in the recent film “In the Valley of Elah,” much of which was filmed in and around Albuquerque.

I’m not alone in taking pride in New Mexico’s now regular appearances on the silver screen. But as it turns out, I’m also not the only one concerned with the financial arrangements upon which the industry has been built.

Recently, the state’s Legislative Finance Committee discussed the matter of the film industry’s incentives, with an eye toward capping annual expenditures at $15 million. Although a fixed cap is probably not the best solution, the industry’s unique incentives deserve a closer look.

Unlike with most other state incentive programs, New Mexico does not merely exempt the film industry from taxation. Rather, the state — that is, you and I — pays up to 25 percent on all direct production expenses that are subject to taxation. Unlike a deduction or exemption, this results in an actual expenditure of taxpayer dollars and a significant subsidy.

To get an idea of the importance of such a subsidy, think about how many businesses would flock to New Mexico if taxpayers paid 25 percent of their expenses. However, that’s not all.

Taxpayers also invest up to $15 million per film at a rate of 0.0 percent interest. Try getting that deal from your local bank!

These funds, which are managed by the State Investment Council for the express purpose of “optimizing total returns,” are clearly not achieving optimal returns in this case, but are instead being used as simply another carrot to be dangled in front of a favored industry.

This may work out for a time but could have serious repercussions on state finances in the long term.

As if the incentives outlined above are not enough, a 50 percent wage reimbursement for on-the-job training of New Mexico residents in advanced below-the-line crew positions, and sales tax exemptions — albeit not in conjunction with the 25 percent rebate — are available.

The state film office estimates that the industry has spent $496 million here since January 2003. That is great, but what industry would not grow if so many taxpayer goodies were thrown at it?

New Mexico would have been better off if, instead of spending $70 million over the last five years on a particular industry, that money had been returned to the economy through a broad-based gross-receipts or income tax cut. After all, what independent analysis has been done to show that the film industry is really the best place to invest taxpayer dollars?

Also, given the potential for money-losing films or even abuse, running what amounts to a government program costs money. Wouldn’t we be better off reducing taxes on businesses and making New Mexico more competitive by reducing taxes for everyone?

So why not cut taxes across the board? The problem politically is one of diffuse versus concentrated benefits. It is more difficult for politicians to take credit for the creation of a new industry out of whole cloth.

An example of this — by no means the only one — is that during his run for the White House, Gov. Bill Richardson ran on his economically dubious tax credits and other programs developed for the benefit of specific industries. He hardly mentioned the very real positive economic impact of his significant income and capital gains tax cuts. Even though some hikes offset those cuts, they were still a boon for the state economy.

Regardless of whether they are good policy, it looks like generous film subsidies are not going away. The industry is going to be a powerful force lobbying to keep the generous program in place.

Nonetheless, as this giveaway becomes larger and larger, reality may set in, and legislators may decide that the program is simply too expensive relative to the benefits gained. We can hope broad-based tax cuts take their place.

Gessing is president of New Mexico’s Rio Grande Foundation. The foundation describes itself as “an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.”