Category: Film Subsidies

Yet Another Reason to Yell “Cut” on New Mexico Film Subsidies

Post author By Paul Gessing
Post date October 15, 2015

The results of yet another report on New Mexico’s film subsidy program were recently released. This study was commissioned by the New Mexico Film Office and conducted by the Canadian accounting firm MNP. It included payroll data, industry interviews, and financial reports filed with the Film Office.

The report further casts doubt on the idea that New Mexico’s generous film subsidy program will ever lead to a permanent, sustainable film industry presence in the Land of Enchantment.

According to the report, “total statewide spending on goods and services by … film and television productions declined from 2011 through 2014, with $118.7 million being spent in the 2011 budget year and $82.8 million being spent in 2014.” In addition, direct employment fell between the 2010 and 2014 fiscal years.

The value and size of New Mexico’s film and television industry also declined from $276.7 million in 2011 to $162.1 million in 2014. New Mexico residents accounted for just 46 percent of performing artists, 35 percent of “key creative” employees, and 24 percent of post-production staffers.

This is a program that is authorized to spend up to $50 million annually (any unspent funds roll over to the subsequent year) with 25% of total costs of films and 30% of television show costs being reimbursed directly to production companies. In other words, the industry is spending $82.8 million annually at a cost to taxpayers of approximately $50 million. True, $80 million is bigger than $50 million, but this is a hugely expensive way for taxpayers to generate a relatively small amount of economic activity.

Notably, New Mexico’s poor performance occurred as other states are moving away from film subsidies. Alaska’s governor, staring down a state fiscal crisis, signed legislation that repealed that state’s program. State Sen. Bill Stoltze (R-Chugiak) noted that the tax credits had “done some good things to different communities around Alaska,” but “had a pretty heavy cost to our treasury.”

Michigan has also ended incentives for the film industry and phased out funding for the state’s film office. In response, Rep. Dan Lauwers (R-Brockway Twp.) declared that it was time to “time to drop the curtain on this failed experiment,” in favor of “funding our transportation system.”

While these are relatively conservative states under Republican control, critics of film subsidies come from both sides of the political aisle and all political perspectives. A 2013 report by the liberal Citizens for Tax Justice noted, “Not only do film tax credits cost states more money than they generate, but they also fail to bring stable, long-term jobs to the state.”

This admonition is, of course, reflected in the recently-released study which found that despite ongoing and even growing subsidies, New Mexico’s film industry has shrunk in recent years.

The need for ongoing, generous subsidies is in part due to the nature of the industry. It is highly mobile and needs little in the way of permanent infrastructure. At least if a state throws money at a car company or another manufacturer (an endeavor we at the Rio Grande Foundation discourage), the company bears the expense of building a manufacturing facility and training local workers.

The film industry, on the other hand, goes where the subsidies are most generous and can pick up and leave as soon as they change. This mobility and rapid response to subsidy cuts is often cited by film industry supporters in their critiques of Gov. Martinez’s efforts to scale New Mexico’s incentive program back in 2011.

Gov. Martinez and the New Mexico Legislature should embrace sound economic principles and stop throwing money at Hollywood’s biggest and wealthiest business. Taxpayers in one of America’s poorest states shouldn’t be subsidizing Disney, Time-Warner, Fox, and other profitable corporations.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is 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

Economy Film Subsidies Tax and Budget Taxes Top Issues

Right-to-Work Law and Lower Taxes Will Help More than Subsidies

Post author By Marina
Post date August 18, 2014

It’s official. Tesla has broken ground at its new “gigafactory” near Reno, Nevada. While New Mexico appears to have missed out on Tesla and its expected 6,500 jobs, some legislators, when asked, seem willing to spend as much as 500 million tax dollars to lure the company to the state.

While details are by no means firm, it appears that Tesla is looking for an infusion of $500 million, not tax breaks of $500 million. The difference between the two is that tax breaks don’t actually “cost” the state/taxpayers anything because Tesla would have to locate in New Mexico for any tax revenue to result from its activities. When it comes to outright spending of New Mexicans’ tax dollars, those are dollars that come directly out of the pockets of average New Mexicans and the businesses already located here.

This important nuance explains why we at Rio Grande Foundation oppose payments made to the film industry which, according to a new legislative report, paid out $251 million in incentives to the film industry with $103.6 million in state and local tax dollars generated over the same basic time period. In simple mathematical terms, the state spent $147 million more than it generated from the film industry in recent years. That’s called a “loss” in any other industry. Jobs were created, but the net loss really illustrates the inherent problems with the program.

The same reasoning explains why fiscal conservatives should not support outright spending of $500 million to bring in Tesla. Tax breaks are one thing, but if the company goes under, there are no “clawbacks” that will get $500 million in outright spending back.

Long-term, generous subsidies and tax exemptions are not the answer for New Mexico’s economy. In fact, it is no surprise that the company broke ground in Nevada, which, aside from proximity to the company’s factory, is a state with a right to work law and zero income tax.

Recently, site selection expert John Boyd was interviewed about New Mexico’s chances of attracting Tesla. His comments were enlightening. He said, manufacturing companies look for reasons to scratch off states when considering where to build major facilities — and no right to work law is at the top of the list. Boyd again reiterated the need for right to work stating, “I can’t underscore how critical right to work status is.”

“Right to work” is not “anti-union.” It simply states that union membership must be optional and not a condition of employment. “Right to work” must be at the core of efforts to turn New Mexico around. Taxes are a second area in dire need of reform. As economist Steven Moore has illustrated in study after study, having a zero income tax means both stronger economic growth and faster population growth than the national average and the states with the highest rates on personal income. It all goes back to the adage that if you want more of something, tax it less; if you want less of something, tax it more.

Liberals clearly understand this when taxes were raised in a successful effort to reduce tobacco consumption, but they seem not to believe that workers will choose to go where they can keep more of their hard-earned money.

Despite the state’s challenging economy, New Mexico has made some progress in recent years in gradually reducing taxes on productive activity (Bill Richardson reduced the top income tax rate from 8.2 to 4.9 percent and Susana Martinez has made New Mexico a “single sales factor” state, reduced taxes on manufacturing inputs, and is phasing down New Mexico’s corporate income tax).

Unfortunately, decades of reliance on the federal government and a business-unfriendly gross receipts tax, underperforming educational system, and poor regulatory environment mean that the transition away from government reliance and toward prosperity will require greater cooperation and even bigger reforms.

Paul Gessing is the president of New Mexico’s Rio Grande Foundation, 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.

Economy Film Subsidies RailRunner

New Mexico Economy in Search of Leadership

Post author By Marina
Post date December 15, 2013

The year 2012 was a tough one for New Mexico’s economy. Without going through the litany of evidence, our state was the only Western state to be found on United Van Lines’ list of “top-outbound” states. And, while the US as a whole grew by an anemic 2.2% during the year, New Mexico grew by a downright pitiful 0.2%. Texas grew by 4.8%.

As the end of 2013 nears, new data from the Bureau of Labor Statistics indicate that 2013 is not looking to be much better.

According to the report, the state’s labor force participation rate, a measure of how many working-age residents are employed or looking for work, was the fourth-worst in the nation in October. And, between April and October, the state lost 20,382 jobs, or 2.4 percent, and nearly 24,000 labor force participants.

To top it all off, According to CoreLogic, New Mexico was the only state to show a decline in home prices from October 2012 through October 2013.

According to a report from the Mercatus Center at George Mason University, New Mexico is both the most reliant state on federal employment and has become even more so in recent years having lost more private sector jobs between 2007-2012 than all but eight states.

New Mexico has always been a relatively poor state, but it has not faced such a depressing economic outlook relative to the mildly-optimistic national outlook for at least two decades. What is to be done?

The Rio Grande Foundation has done groundbreaking research on New Mexico’s economy and is on record as supporting pro-growth tax reforms that address the massive disincentives for work and business formation in New Mexico’s tax code. We support adoption of a Right to Work law and broader regulatory reforms that would reduce the barriers to economic activity and employment. Lastly, we support dramatically-expanded school choice (Louisiana is a potential model) to improve workforce quality.

I certainly believe that these and other free market policies will move our state in the right direction. Other groups including Voices for Children and Think New Mexico have outlined ideas that they believe will, rightly or wrongly, spur our economy.

We have an election for Governor in 2014 and the New Mexico House is up for election as well. It is my firm belief that the poor state of New Mexico’s economy and what to do about it must be the top agenda item regardless of party affiliation.

Questions for Democrats, including the five who have entered the race for Governor, might include whether costly programs like the Richardson-era RailRunner and Spaceport are helping our hurting the economy. They also might be asked whether more regulations, more welfare, and more special interest subsidies like the one for film are really the answer to our economic woes, and why.

And, I would not let Gov. Martinez off the hook. Her significant economic development initiatives to date have involved attracting Union Pacific to Santa Theresa and a phase-down of New Mexico’s corporate income tax to 5.9% that will be completed by 2018. Obviously, these efforts alone have not done enough to improve our economic competitiveness.

I’d further ask Martinez what specific economic policy changes are needed to turn New Mexico around and why she hasn’t already introduced these reform ideas. Is political opposition from a hostile Legislature a stumbling block to even considering more dramatic reforms?

New Mexico is a beautiful state with a unique culture, but poverty has real, negative consequences for all of us. It is time to have an honest, far-reaching debate on our poor economic performance, our lack of a private sector, and our overreliance on Washington.

Our future depends on it.

Film Subsidies Tax and Budget Videos

Discussing Film Incentives on New Mexico “In Focus”

Post author By Marina
Post date February 5, 2011

Rio Grande Foundation president Paul Gessing appeared on “In Focus” on Friday night to discuss New Mexico’s film subsidies. Mr. Walpole unfortunately got away with a fib at the very end of the interview. We do indeed know exactly how much other tax incentives are reducing tax revenue to the state. That data is available here (provided by the Tax and Revenue Department).

Economy Film Subsidies RailRunner

Union Pacific, Film Industry Deals Very Different

Post author By Marina
Post date January 31, 2011

The state of New Mexico and southern New Mexico in particular, face a great opportunity. One of America’s great railroads, Union Pacific, is hoping to build a $400 million railroad hub in Santa Teresa. While there would be a few, relatively minor, tax incentives given to the company, this deal, if it is approved by the Legislature, would be a huge economic boon for the state.

Why is that? First and foremost, no taxpayer funds would actually be spent on this project. The tax on locomotive fuel would be eliminated, but millions of tax dollars would flow into state and local coffers annually with Santa Teresa becoming an important hub of economic activity. Also, the Union Pacific facility represents a huge investment of private capital in the state. This rail yard would stay in the state for decades (or more) and could even lead to further increases in rail and intermodal transportation activity in southern New Mexico. All of this is good news, not to mention that freight rail is a green industry.

Unfortunately, some of our elected officials, failing to understand the difference between spending and taxes left uncollected have conflated the Union Pacific issue with that of the film industry’s generous 25 percent subsidy on all activities the industry undertakes in New Mexico. This is not taxes uncollected; rather it is spending to the tune of $70 million annually.

Sen. Michael Sanchez, one of the most powerful Democrats in the state Senate recently questioned Gov. Martinez’s pledge to cut New Mexico’s film subsidy from 25 percent of everything spent in the state to 15 percent, while at the same time eliminating the locomotive fuel tax to help close the Union Pacific deal. Of the Union Pacific deal, Sanchez said, “Isn’t that a subsidy? Isn’t the railroad one of the most subsidized industries in the country?”

I don’t pretend to know all there is to know about the railroad industry and its finances, but this is about New Mexico and what it offers various industries. Viewed from that lens, New Mexico does very little for the freight railroad industry (the RailRunner is another matter entirely) but does a great deal for film.

In my view, no industry has a right to take my hard-earned money directly in the form of taxes. That makes the two issues very different with the Union Pacific arrangement far superior both for taxpayers and New Mexico’s budget.

Further differentiating the deals is the fact that once it is built, Union Pacific is not likely to move its rail hub as it would be prohibitively expensive to do so. The film industry, on the other hand, is already threatening to pick up and move based on the mere threat of a reduced annual subsidy. They can easily do so because the industry can and has quickly moved to states that offer the sweetest deals. Simply put, it is not a sustainable industry in New Mexico.

While the Union Pacific deal will ultimately be a big winner for New Mexico, some purists will question why the state should offer special deductions and deals in the first place. This is indeed a valid point and, ideally, taxes would be low enough that New Mexico would not need to offer special deals to Union Pacific or anyone else. Until then, however, large businesses with the power to do so will continue to negotiate special deals.

Small businesspeople, on the other hand, must bear the burden of New Mexico’s unique gross receipts tax which covers services and business inputs, while also paying income taxes at a top rate of 4.9 percent while Texans pay nothing. This is the reality of tax competition and it is one reason why Texas has continued to create jobs and attract businesses despite tough economic times.

If New Mexico taxpayers are smart, they’ll phase out or abandon welfare payments for movies, provide the limited exemptions necessary to attract Union Pacific, and work to make the state’s tax and regulatory climates more attractive to generate more growth at home.

Paul Gessing is the president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is 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.

Economy Film Subsidies

Film Debate Video Online

Post author By Marina
Post date January 12, 2011

The film debate last night (the 11th) was a huge success and unfortunately many who showed up could not get into it. The good news is that full footage of the debate is now available online. Thanks to Kevin McDonald and the folks at KNME Channel 5 for the video!

Economy Film Subsidies

Our Take on the Film Industry’s Subsidies

Post author By Marina
Post date January 11, 2011

This evening, at 4pm, the Rio Grande Foundation is co-hosting a debate on the film industry’s subsidies with the newly-formed New Mexico Motion Picture Association. While the debate will involve four legislators, I felt that it was important for us to put out our own statement explaining our concerns about the program. That statement follows:

New Mexico’s film industry is heavily-subsidized. Filmmakers are reimbursed for 25% of everything they spend in the state to make a movie (not including the interest free loans and job training considerations which are not discussed here in detail). This is a very generous program that has undoubtedly led to a large number of films having come to the state. Of course, this program is also direct expenditure of taxpayer dollars collected by the state. This money was taken from average citizens and other businessmen in the form of taxes and transferred to a chosen industry (the film industry).

Simply put, this violates the basic principle of tax fairness and this is grounds for our opposition.

But what about the program’s effectiveness? Advocates claim that millions of dollars in economic activity and thousands of high-paying jobs have been produced by the program. A variety of other studies including non-ideological ones from the Arrowhead Center at NMSU, the liberal Center on Budget and Policy Priorities, and the conservative Heartland Institute (to name just one conservative critique) have pointed out the flawed economic logic associated with New Mexico’s film subsidy program and similar programs nationwide.

Some 44 states nationwide offer film subsidy programs of one type or another. So, why does the Rio Grande Foundation believe that it is right and that policymakers in 44 states are wrong?

First and foremost, what we have here is a classic case of concentrated benefits and designed costs. The film industry and its employees derive significant benefits from the diversion of $60 to $90 million annually to their industry. They have a tremendous amount at stake when it comes to preserving and continuing the subsidies.

Other businesses and average taxpayers do not see how much is being taken from them to fund this program. All they hear about is the films that are made here, not what they could have done or businesses could have done with the money – including hiring New Mexico workers – if they’d had the opportunity to keep their money.

Currently, the state faces a $400 million budget deficit. Even if we wished to keep subsidizing the movie industry to the tune of $60-$80 million annually, can we afford it? If we are to continue the subsidy, what areas of program should be cut? Should K-12 education be reduced or Medicaid? How about higher education? These are problems that advocates for the film industry rarely address.

Economy Film Subsidies Tax and Budget

Film Subsidy Debate: You’re Invited!

Post author By Marina
Post date January 7, 2011

The Rio Grande Foundation is co-sponsoring a free legislative debate over the film subsidies currently offered by the state. The debate is Tuesday and more information can be found here.

Please let us know you’re coming by reserving a seat at info@riograndefoundation.org We’ve been advocating for at least a $30 million cap on the program which would save taxpayers at least $30 million annually (perhaps even more as the program is not capped). This would put a significant dent in the $400 million budget deficit the state is now facing.

Come, learn about the program and decide (or weigh in) for yourself.

Economy Film Subsidies Research

Film Industry Study Has Many Holes

Post author By Marina
Post date May 10, 2009

Over the past year, several studies have been produced on New Mexico’s heavily-subsidized film industry. Taken together, these studies show that New Mexico’s film industry is an economic loser for taxpayers.

The first report was produced at the behest of the Legislative Finance Committee (LFC) by the Arrowhead Center at New Mexico State University. This study found that “During fiscal year 2008…the implied return of New Mexico’s film program was 14.44 cents on the dollar.”

A “rebuttal” study was published at the behest of the Governor and the State Film Office, by the consulting firm Ernst & Young. Not surprisingly, this study concluded that the film program returns an astounding $1.50 to the state for every dollar spent by taxpayers.

A subsequent study by both the chief economist for the Legislative Finance Committee and the Arrowhead Center shows that Ernst & Young took gross liberties with facts in their so-called “analysis” and that the study is nothing but propaganda for taxpayer subsidies of the film industry.

Rather than looking at payroll data, the Ernst & Young study used data collected from on-line and telephone surveys of the film industry.

Then Ernst & Young added in the income of millionaire movie stars, producers and directors, some of whom make 100 times or more the income of a film crew member.

Ernst & Young also excluded the cost to taxpayers of making interest-free loans to Hollywood. At a simple annual interest rate of 5% on a $15 million loan (the largest given out under the program), taxpayers are giving up $750,000 in interest annually. On a six-year loan, the loss to taxpayers is $4.5 million.

These and other questionable assumptions regarding the economic logic of subsidizing the film industry are contained in the report, “A Modern Spaghetti Western: Shooting Holes in the Ernst & Young Study of Film Industry Subsidies” which is available for free on the Rio Grande Foundation website at www.riograndefoundation.org.

Paul Gessing is president of New Mexico’s Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to principles of limited government, economic freedom and individual responsibility.

Film Subsidies Tax and Budget

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

Post author By Marina
Post date January 24, 2008

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.”