Working in Iowa
The Kill Bill: Eliminating Film Tax Credits
Feb 2, 2010
By Dave Swenson
By Dave Swenson
A few years ago, Richard Florida, an academic and urbanist, burst onto the scene with his somewhat intriguing book, The Rise of the Creative Class. It was his hypothesis that places where critical clusters of scientists, scholars, artists, and other “super creative” people intersected grew faster in the 1990s than other places with less creative folks.
Many people only heard part of his message and took away an overly simplistic formula that more artists and cultural investments equal more job growth. To Florida’s credit, that is not what he concluded. Nonetheless, across the U.S. arts councils, orchestras, and regional theaters began touting the economic impact of the arts and the power of the arts to drive regional economic development.
That inverted, “out of the box” thinking led to the Iowa’s Film Tax Credit law that is now under assault on a wide range of fronts. An ad hoc cabal of arts boosters, state and local economic developers, impressionable legislators, and an uncritical me-too response to other states’ attempts in this extremely iffy arena led to what was proudly billed as half-price film making in Iowa. That is, incredibly, 50 percent of qualifying in-state film-making expenditures could be claimed as state income tax credits. And even if you didn’t generate enough economic activity to use the credits, you could sell them on the secondary market to some other Iowa company that wanted to lower their state taxes.
It was a fiasco on three fronts. First, the grant of a fully-refundable credit on 50 percent of costs was fiscally unsustainable, legislatively irresponsible, and set the stage for the documented abuses that occurred. Second, Iowa does not have the population, talent, geography, climate, visual amenities, and the whole array of agglomerations that would support a meaningful and sustainable year-round film industry. It never will. And third, the creative economy, as in arts and entertainment, will not be a leading driver of the Iowa economy because they all had it backwards: arts and entertainment clusters of the kind described by Mr. Florida are a result of other economic growth not the cause.
Iowa does not have a Hollywood, Nashville, Taos, Santa Fe, Austin, Memphis, or even Branson to build from. Iowa is farms, biotechnology research and development, manufacturing, finance and insurance, health care, and universities. Those are Iowa’s key industries, and the creative content of many of those industries is quite high. They are full of biologists, agronomists, actuaries, mathematicians, chemists, engineers, computer scientists, and other physical, medical, and social scientists. That is Iowa’s creative economy, and that is the portion of the state that will drive most job growth and innovation in the next decade. It has art and cultural centers, but no art and cultural centers that are driving regional or statewide growth in other industries.
To date, research-based evidence of the fiscal folly of these efforts has not deterred the promoters of the Iowa Film Tax Credit program. We know, for example, that New Mexico State University researchers determined their film tax credit program, one half as generous as ours, found “… that for every one dollar in rebate, the state only received 14.44 cents in return.”
The Des Moines Register misreported that finding as a positive return on investment of 1.14, when it actually translates into a minus 0.86 return on investment. Oops.
Further, Frank Hefner’s research in South Carolina found their program “…returned 19 cents in taxes for each dollar paid out in rebates.” And the state of Louisiana’s chief legislative economist determined theirs recovers just “... 16-18 percent of the tax revenue it obligates to [their movie production incentives] program.”
[These conclusions and others are amplified in The Tax Foundation’s recent report: "Movie Production Incentives: Blockbuster Support for Lackluster Policy," which can be found at the following address: www.taxfoundation.org/publications/show/25706.html. Quite a good read]
There’s an obvious consistency to these studies: respected scientists (creative people by the way) find them huge drains on state government accounts, an especially onerous outcome at a time when governments are slashing budgets, firing teachers, laying off highway patrol officers, and talking about closing state parks.
Governor Culver has recommended eliminating the credit in his attempt to balance the state’s books, Senator Herman Quirmbach has introduced a file to rid us of what he calls a “boondoggle,” but film representatives and chambers of commerce across the state are urging their legislators to not be too hasty -- to their way of thinking, the state will be better off in the long run if we keep pumping money into the film industry.
It won’t. The state will be worse off and poorer. But no amount of research seems likely to convince the boosters of that.
___________
Dave Swenson is a long-time analyst of Iowa political, social, and economic issues. He is a staff research economist at Iowa State University and an extension-to-communities economics educator. He also teaches community and regional planners (those nefarious agents of totalitarian control) how to do economic things in their profession.
