Independent study after independent study has found that Louisiana's high-profile tax subsidy program to bring Hollywood productions to the Pelican State has been a victim of its own success.
The state’s generous subsidy, in the form of tax credits, has lured dozens of filmmakers here — but at a cost to taxpayers of more than $1 billion over the past decade.
Runaway growth — and data showing the state wasn’t getting its money’s worth — prompted the Legislature two years ago to corral the program and reduce its cost to taxpayers. But the program’s supporters say the changes went too far, unintentionally shutting down most filming in the state last year and causing jobs and businesses that served the industry to move out of state.
Production has ramped up again recently, although only in metropolitan New Orleans.
State legislators will put the film tax credit under the microscope again beginning next month when the Legislature begins its 60-day regular session.
No serious effort to kill the program appears to be in the cards, even though taxpayers lose money every time a movie or TV show is filmed here. In fact, independent studies have shown that the state recoups less than 25 cents of every dollar it invests in the program. And the modest economic gains have largely benefited New Orleans and, to a lesser extent, Baton Rouge.
Instead, lawmakers, with the support of Gov. John Bel Edwards, appear poised to make changes aimed at providing the long-term stability that supporters say is needed to crank up filming again, without raising the cost to taxpayers each year. Louisiana Economic Development, the state agency that oversees the program, is expected to issue recommendations along those lines shortly.
The key change will focus on how to limit the cost to taxpayers, which at present can be no more than $180 million per year, down from a peak of $246 million in 2013, when the program had no statutory cap.
After years of making short-term decisions that allowed them to avoid hard choices, state la…
A little background: When a film is completed, the producers get an audit from an independent CPA who certifies how much they spent in Louisiana. The producers then get a certificate from LED that says how much the state owes them in tax credits — generally, an amount equivalent to 30 percent of production costs in Louisiana. At that point, the producer can either sell the credits to someone who owes taxes to the state or else sell them to the state directly for 85 cents on the dollar.
The 2015 legislation capped taxpayers’ cost at $180 million per year for three years.
But industry supporters say the law contained a fatal flaw: While limiting how much the state could pay out each year, it did not cap the dollar amount of tax certificates the state could issue every year.
The situation would be akin to McDonald’s issuing an unlimited number of promotional certificates for Big Macs each year while allowing customers to cash in only $180 million worth of them. Once the cap was reached each year, Big Mac lovers couldn’t cash in their freebies until the following year, at the earliest.
That’s basically what happened with the film tax credits in Louisiana, said Robert Vosbein, an attorney and film-industry supplier who heads the Louisiana Film and Entertainment Association, the main industry trade group.
“They weren’t able to cash in their tax credits,” Vosbein said. “That created uncertainty in the marketplace.”
The 2015 legislation also established a one-year suspension of the “buyback” program, which allows producers to sell their tax credits to the state for 85 cents on the dollar. The one-year suspension added to the uncertainty.
Program supporters want to lift the $180 million cap on how much the state can pay out per year and impose that same cap instead on the amount of tax credits that can be awarded. That should clear up the backlog of certificates not yet cashed in, while also making the cost of the program more predictable over time, they say.
The 2015 legislation caused so many producers to claim their cash on the first day allowed during the current fiscal year — July 1, 2016 — that the entire yearly cap of $180 million was reached that day, according to Kimberly Robinson, who heads the Department of Revenue. Before the cap existed, the agency redeemed credits throughout the year.
With so many tax credits outstanding, Robinson said, producers have already sought to claim more than $80 million in cash for the following fiscal year, which does not begin until July 1. The Department of Revenue says there are about $203 million in credits still outstanding.
One potential problem with the change sought by the industry: If the state lifts the cap on how much the state can pay each year, producers cashing in the backlog of certificates could drive up the cost to taxpayers next year far beyond $180 million.
State Sen. JP Morrell, D-New Orleans, who has strongly supported the program, said the state may have to impose a short-term cap both on how much the state pays each year and on the amount of certificates it awards each year, before transitioning to a long-term cap on the amount of new credits awarded.
The Louisiana Budget Project, a left-leaning nonprofit based in Baton Rouge, has questioned the benefits of the film tax credit program, citing studies done by independent economists for Louisiana Economic Development. The most recent of those studies, by LSU economist Loren Scott, showed that state taxpayers receive about 23 cents in tax revenue for every $1 they send to movie producers.
“It’s a significant drag on the state budget,” Scott said in an interview, noting that his studies take into account the "multiplier effect" from the industry's spending.
The program’s net cost to state taxpayers in 2014 was $171 million, according to Scott’s 2015 study, and $135 million to taxpayers overall when local tax collections were included. LED will shortly release Scott’s latest examination.
The Louisiana Budget Project recently issued a report calling for a $100 million cap on the amount of tax credits the state can issue every year along with a $150 million cap on how much the state can actually pay out each year. The group said this approach would produce a $30 million savings to taxpayers next year and more over time because the $100 million issuance cap would steadily shrink the pool of outstanding credits.
Others — including a blue-ribbon panel that studied the state’s tax system throughout 2016 — have said the Legislature needs to find ways to better support Louisiana-based production companies and not just the major Hollywood studios.
Complicating any moves by the Legislature are fears of losing business to other states, especially Georgia, which has become a film hub by offering a similarly generous tax credit without any cap on it.
“Georgia is saying, ‘Come our way, come our way,’ ” Vosbein said. “We started losing jobs.”
Everyone in Louisiana’s industry has a tale of someone they know who moved to Atlanta as productions went to Georgia.
Louisiana’s sound stages went dark during the second half of 2015 and remained empty for much of 2016, until the state reinstituted the credits buyback program and again began writing checks to producers for past productions.
A Sony Pictures TV show, “Preacher,” began filming in November on all three sound stages at Second Line Stages in New Orleans and will continue through July, said the facility’s owner, Susan Brennan.
“They’re good-paying jobs, and it’s steady work,” she added.
A Hollywood feature has occupied the three sound stages at The Ranch in Chalmette, according to its chief executive officer, Jason Waggenspack, who declined to identify the movie.
Film is “a clean and diverse industry,” he said, which has led to spending in St. Bernard Parish on “lumber, paint, designers, restaurants, the renting of public facilities, EMS, police and fire.”
Overall, according to Vosbein, “In our heyday, a year and a half ago, we had 13,000 jobs in the state, with an average salary of $60,000.” A study commissioned by the Louisiana film industry showed that the industry has led to $140 million of spending to create infrastructure in the state. Taxpayers heavily subsidized the construction of some of those projects.
Critics say the state has not gotten enough investment, given the cost to taxpayers. And the recent loss of filmmaking to Georgia, they say, shows that the industry is dependent on taxpayer subsidies and will follow them wherever they go.
The recent filming uptick in New Orleans has not spread to Baton Rouge. The major activity lately at Celtic Studios, the biggest sound stage there, has been to serve as a FEMA disaster recovery site following the 2016 flooding.
“Not much has changed outside of New Orleans,” said Patrick Mulhearn, Celtic’s executive director.
The industry’s supporters say a potential solution would be to expand the tax credit by 5 percent for productions shot outside of New Orleans to entice them to go elsewhere in the state. The change would not raise the program’s overall cost if the dollar cap remains in place.
Editor's note: This story was changed March 19 to correct Patrick Mulhearn's title and to clarify the effects of a proposed change to the law aimed at incentivizing film production outside of New Orleans.