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State Loses Money on Film Incentives, Study Says

A new study confirms an old conclusion about state incentives for the film and TV industry: The subsidies are a bad deal for South Carolina taxpayers.

“For every $100 spent on (such) rebates, $31 came back in the form of taxes, a net loss as is the case with many other film incentive programs in the U.S.,” the study says.

That equals a net loss to the state treasury of 69 cents for every taxpayer dollar given to film and TV productions – or a 69 percent negative return on investment, according to the study.

AECOM, a global consulting firm with an office in Columbia, conducted the analysis and detailed its findings in a Dec. 9 report. The S.C. Department of Parks, Recreation and Tourism (PRT) commissioned the study.

Marion Edmonds, a spokesman for the agency, was traveling Wednesday and unable to immediately provide the cost of the study or the department’s response to it.

The PRT agency is part of the governor’s cabinet and includes the S.C. Film Commission, which works to lure film and TV productions to the state.

Gov. Nikki Haley reportedly directed PRT to have the cost-benefit analysis of the state’s film incentives done. Haley’s spokesman, Rob Godfrey, did not respond to an email and a phone message late Wednesday morning seeking comment on Haley’s reaction to the study, what if anything she plans to do with it, and her position on film incentives.

When The Nerve initially sought a copy of the study from Edmonds last week, he said the governor’s office had received the report and was reviewing it.

One of the Film Commission’s main strategies in efforting to recruit productions is marketing the state’s generous, user-friendly incentives.

“We’re also one of the country’s leading incentive states for feature films and television series,” says the home page of the commission’s web site. “South Carolina’s production incentives differ from other states’ incentives in that they are a cash rebate, paid to the production company within 30 days of final audit.”

The state offers an array of the freebies, including:

  • A rebate of up to 20 percent on wages paid to production personnel, including non-residents.
  • A 10 percent rebate on wages for all other non-resident crew members, up to $3,500 per person. “However, depending upon your project, this amount may be negotiated to the full 20% rebate,” says the “incentives” page of the Film Commission site.
  • A 30 percent rebate on goods and services purchased, rented or leased from South Carolina merchants. A production must spend at least $1 million to qualify for any of the three rebates.
  • A sales tax exemption if spending on a project exceeds $250,000.
  • A tax credit of up to $100,000 for production costs of a movie; and
  • A tax credit of up to 20 percent for investments in production facilities, capped at $5 million per facility.

Although the Film Commission boasts that South Carolina’s incentives package “is among the best in the country,” with “a quick cash return,” this Hollywood welfare is not such a great deal for state taxpayers.

Putting some totals on the 69-cents-lost-for-every-rebated-dollar formula, the AECOM study says the state treasury would have received nearly $1 million more had the wages paid for nine productions the firm analyzed in its study been subject to the full 7 percent state income tax.

In addition, “AECOM estimates that South Carolina would have received $304,000 in state sales tax and $23,000 in local sales tax revenue since 2007” absent the sales tax exemption for film and TV productions.

In its report, the consulting firm says the information it reviewed was current through November.

The nine productions AECOM studied were: Angel Camouflaged; seasons three, four and five of Army Wives; The Bay; Dear John; Little Red Dragon; Nailed; and New Daughter.

(The Nerve previously detailed millions of dollars in state incentives given to Army Wives in this report and this story.)

The AECOM review confirms the results of an earlier study that also found film incentives to be a loser for state taxpayers.

In a 2008 report, College of Charleston economics professor Frank Hefner analyzed nine film and television productions made in South Carolina between 2006 and 2007. Hefner’s conclusions were even worse for the state treasury – a return of only 19 cents per rebated dollar, for an investment yield of negative 81 percent.

The AECOM study does cite some significant larger economic impacts from the works the firm considered:

“Since 2007, nine qualified productions and a smaller number of non-incentivized productions facilitated by the South Carolina Film Commission generated $86.9 million in sales for state businesses and supported 1,610 full-time equivalent jobs for South Carolina residents paying $48.5 million in wages.”

Supporters of film incentives cite those kinds of numbers in making a case for the subsidies, along with exposure the state receives from moviemaking.

But at the same time, the AECOM study points out that, “A notable number of productions use South Carolina for activities that do not qualify for incentives.”

The firm said these projects produced yearly estimated economic activity “in the order of $1 million and $5 million spent in South Carolina annually with related economic impacts of over $26 million since 2007.”

Like incentive-driven economic development as a whole, subsidized moviemaking is a fiercely competitive game, with some 40 states engaged in it.

Some states, though, are checking out of the game. “Iowa suspended its program after widespread abuse and fraud was uncovered, and New Jersey suspended its program,” the AECOM study says.

Reach Ward at (803) 254-4411 or eric@thenerve.org.

Incentives

Frank Hefner Gov. Nikki Haley S.C. Film Commission Rob Godfrey S.C. Department of Parks Recreation and Tourism