Film subsidy expansion would drain state’s coffers

Strong growth in the oil patch has given New Mexico’s legislators a little “new money” to spend. There is no shortage of ways that our Legislature has cooked up in order to spend it, but perhaps the worst idea of them all is to eliminate the $50 million cap on annual film subsidies.

The State of New Mexico’s 2014 study (curiously it was touted at the time by the media and film subsidy supporters) found that New Mexico’s film subsidy returned 43 cents to taxpayers for every dollar spent. That number actually overstates the return to state taxpayers as the workings of New Mexico’s gross ensure that local governments receive a “free” 10 cents for every dollar spent by the state while the subsidy returns 33 cents to the state’s own coffers.

It is always worth pointing out that unlike most government incentive programs, the film program is a spending program. Most tax credits and exemptions represent foregone tax revenues, but when a film crew spends, say, $100,000 in New Mexico, they receive a check from taxpayers for either $25,000 or $30,000 (25 or 30 percent) depending on whether they are shooting a movie or a TV show.

The $50 million cap is merely an attempt to limit the film industry’s annual budgetary impact. Limiting annual spending on film subsidies at $50 million also gives legislators a bit more certainty when it comes to passing an annual budget. Creating an annual budget is tough enough without a line item costing tens of millions of dollars with an unknown final cost. Remember, budgets are passed in advance of when they are spent so there is no way legislators can budget for an uncapped film subsidy.

The Rio Grande Foundation opposes the film subsidy on principle. The view that government should not pick winners and losers using subsidies and special exemptions is widely-shared by economists across the political spectrum. Robert Tannenwald of the Center for Budget and Policy Priorities (author of the report “State Film Subsidies: Not Enough Bang for Too Many Bucks”) is one of many liberal economists who oppose film subsidy programs like New Mexico’s.

Increasing numbers of states are stepping back from their favoritism for Hollywood subsidies. Michigan and Alaska have eliminated their programs while Kentucky’s Gov. Matt Bevin has proposed eliminating his state’s program.

Unlike in New Mexico, where the film subsidies have become another partisan football, at least one Kentucky Democrat expressed support for the Republican governor’s proposal to eliminate subsidies.

Democratic Rep. Chris Harris recently said, “This good-intentioned incentive has morphed into a major drain on our state budget. We haven’t been provided with any reliable data that would justify the cost of this program. Other states that have had similar tax credits in the past are reconsidering, and I believe Kentucky should as well.”

The fact is that despite the “new money” floating around the Roundhouse right now, there are more spending priorities than dollars. Medicaid, the Rail Runner, Spaceport, solar industry, the courts, early childhood, K-12, and higher education are just a sampling of the numerous budget areas being considered for more spending.

A complete repeal of New Mexico’s film subsidies is not in the cards right now, but with so many other spending priorities, a still-struggling economy, and all of this built upon volatile oil and gas prices, this is hardly the time to eliminate the film subsidy caps.

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.