Motion Picture Production Tax Credit

Testimony in OPPOSITION to S-2959 concerning the Motion Picture Production Tax Credit
Senate Committee on Finance
April 25, 2024
Alan Krinsky, Director of Research & Fiscal Policy

The Economic Progress Institute strongly opposes S-2959, which would raise to $40 million and then $50 million each year the amount of motion picture production tax credits available and also remove the program’s sunset date.

Rhode Island’s Office of Revenue Analysis (ORA) has repeatedly explained, in its evaluations of tax credit programs, that the absence of a sunset date is simply bad policy. The very purpose of sunset dates is to enable legislators, in their obligation to exercise oversight, to make informed decisions about which programs are working and which are not, which should be continued and which should be ended. Whenever ORA sees a program without such a date, it always recommends adding one. To remove one is to weaken necessary oversight.

The General Assembly has clearly expressed its desire to make sure we are getting the “bang for our buck” when it gives out tax credits – most pointedly in the Economic Development Tax Incentives Evaluation Act of 2013. The legislative findings and purpose of the Act includes the following provision: “In order to improve state government’s effectiveness in serving the residents of this state, the legislature finds it necessary to provide for the systematic and comprehensive analysis of economic development tax incentives and for those analyses to be incorporated into the budget and policymaking processes.” (RIGL § 44-48.2-2.4) In removing the sunset date, H-7994 would effectively remove the Motion Picture Production Tax Credit from the “budget and policymaking processes,” no longer subject to regular evaluation by the General Assembly.

Such oversight is all the more necessary for the Motion Picture Production Tax Credit, because this program loses money every year, and the most recent data show that it creates no net jobs: “In other words, even if, under the best-case scenario where 100% of the economic activity associated with the MPPTC program is attributable to the availability of the tax credit, the net impact on employment is negative.”

In 2018, when ORA released its first Evaluation Act report on this tax credit, we learned that under all possible scenarios – even where an unlikely 100% of additional revenues could be attributed to the Motion Picture Production Tax Credit program – new revenues could never prove adequate to cover the value of tax credits awarded. According to the report, “[F]or every dollar spent on the MPPTC the state generates 27 cents of new revenue. This payback ratio shows that new revenues generated from MPPTC-incentivized activity may help to mitigate costs of the MPPTC, but it is not sufficient for the tax credit to ‘pay for itself.’”1

In February 2022, ORA released its follow-up Evaluation Act report, covering the years 2016-2018, and the news is even worse. Once again, under the most optimistic scenarios, the program does not generate enough tax revenue to cover even the cost of the credits. However, instead of each dollar of tax credit producing 27 cents on the dollar, the new analysis shows that each dollar of tax credit issued produces only 3 cents on the dollar. To be clear, this does not mean that each dollar produces $1.03 in revenue, but rather 3 cents.2 Between 2016 and 2018, every dollar Rhode Island invests in the Motion Picture Production Tax Credit program lost 97 cents in revenue. We would quickly end, not extend, any other economic development program that lost 97 cents on the dollar (see Exhibits 1 and 2). And if the funding for the program is increased to $40 million and then $50 million per year, this will mean tens of millions of dollars in lost revenue, mostly sent out of state.

• Massachusetts (2022). The analyses of the MA Department of Revenue show the credit generating 14 cents per each dollar of credit issued between 2006 and 2017, amounting to a total revenue loss of $652.8 million, and at a cost of $102,945 per resident job created.3
• Georgia (2020). The Georgia Department of Audits & Accounts concluded in 2020 that the state’s credit produced a return of 10 cents on the dollar for the state and another 11 cents on the dollar for local governments; the estimated cost per job in 2016 was $65,950, with a revenue loss of $602 million in 2016 alone.4
• Pennsylvania (2019). Pennsylvania’s Independent Fiscal Office determined that the state’s film tax credit returned 13.1 cents on the dollar.5

Numerous other studies show similar results, with some reaching above 20 cents on the dollar, and one study, for New York, finding a return on investment of 51 centers per dollar. A peer-reviewed study by Michael Thom of the University of Southern California, identified 29 government agency or independent state-level studies published between 2009 and 2018 and found that all but one demonstrated a negative return on investment (ROI).6

We ask this committee to reject increasing the cap on a program that loses revenue for every dollar invested, and we strongly urge this committee to keep this program’s sunset date in place.