Film Industry Study Has Many Holes

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.