Oscar Night Secret: Tax Breaks for Films Go Undisclosed in Many States

By: - February 22, 2012 12:00 am

States are eager to use financial incentives to attract Hollywood productions. But they’re less enthusiastic about revealing which films got how much help.

Of the nine film productions up for best picture at Sunday’s Academy Awards, five received financial incentives from state governments. But if you want to find out exactly how much help the films got, only some of the states will come forward with the answer.

Hawaii is one that won’t — although it couldn’t be prouder of The Descendants , which was filmed on Kauai and Oahu and was based on a book written by a resident of Hawaii. In fact, Governor Neil Abercrombie has cited the film’s success as a reason to make the state’s temporary film tax credit permanent. But when Stateline asked Georja Skinner, who oversees the tax credit program, how much Hawaii gave The Descendants to film in Hawaii, she wouldn’t say. “We don’t ever quote the exact amount,” Skinner says.

Texas is far more open about the incentives it gave the production company behind The Tree of Life , which was directed by native Texan Terrence Malick and filmed in Smithville, Texas and other locations around the state. Ask Evan Fitzmaurice, the head of Texas’ film commission, and he reads out the number digit-by-digit, down to the cent: $434,252.79. “When public funds are spent, that is a matter of public record,” Fitzmaurice explains. “We have always had the attitude that that dollar amount is a public dollar amount.”

About 40 states currently use taxpayer dollars to offer some form of tax credit, rebate or other financial incentive to film and television productions. The states aren’t just looking to bring home some Hollywood starpower; they’re also trying to create jobs for caterers, carpenters and others who support productions off-camera. Since Louisiana began offering film incentives in 2002 — following a similar move by Canada five years earlier — the tax-credit war among the states and a number of countries overseas has only grown more intense.

Industry wants privacy

The question of disclosure is a new front in that war. Generally, states will reveal aggregate figures showing how much in the way of incentives they gave the whole industry in a given year. And it is not hard to find out if a particular production got some help from a certain state. What is more shrouded in secrecy is the dollar amount for individual productions. According to Good Jobs First, a watchdog that maintains a database of state economic development subsidies, only one-third of the states that offer film incentives reveal how much they give to individual productions.

Many in the film industry view that information as a trade secret, one that states have no business revealing. Dama Claire, a consultant who works with producers to identify and acquire the best incentives for their films, says states that insist on disclosure could see productions go to states that don’t. “Disclosing the amount of tax credits may be akin to asking about a state tax return, which is privileged,” Claire says.

From the studios’ perspective, the argument against disclosure is simple. If it’s widely known how much an individual production received in incentives, competitors can do a back-of-the-envelope calculation to figure out key details about the studio’s cost structure. As film executives see it, disclosure on a per-film basis would be like offering all automakers a tax break but then demanding specific information about how one make of car gets made.

“I can understand the interest in knowing who is doing business in the state and who is receiving benefits,” says Emily McNamara, an entertainment attorney who consults with productions in Massachusetts. “But when it gets into proprietary budget information that affects people’s ability to compete, or financial information they don’t want out there, then it is has to have more of a purpose. I haven’t heard an argument why it would be necessary to disclose at that level of detail.”

It’s not just an issue for large studios, McNamara says. Makers of independent films — those that are produced before they’re sold — don’t want their budgets disclosed, either. Having that information out in public weakens their leverage when it comes time to strike a deal.

And the winner is…

The case for disclosure

In Massachusetts, state Senator Ben Downing has heard these arguments and decided that the taxpayers’ interest in transparency matters more. Downing was the force behind a recent budget amendment that will require the state to disclose the identity of each recipient of tax credits, including film tax credits, and the amount received on a per-project basis. The change doesn’t take effect until May, so it won’t answer the question of whether Massachusetts gave tax credits to Moneyball to shoot at Fenway Park. But it will affect future film productions in Massachusetts.

As Downing sees it, states need to know exactly what they are getting for their money. Especially in these tight fiscal times, publishing the names and dollar amounts for each project will allow state budget writers to measure the impact of film credits, and allow them to compare the results with what they get from other economic development programs. Tax credits “don’t have to go through yearly appropriations process that direct spending items do,” Downing says. “We are scouring one side of our budget and too often we aren’t doing the same thing on the tax side.”

What’s more, recent scandals have shown just how film credits can be abused. In Iowa, a state film tax credit program was suspended after the state auditor documented misdeeds by both film producers and the head of the state film office. And just this past December in Massachusetts, movie director Daniel Adams was indicted for allegedly inflating his expenses for two films in order to boost the tax credit award he would receive from the state. The new disclosure rules in Massachusetts were passed before that case came to light.

“If you don’t have good disclosure, there can be some funny business behind the scenes,” says Phil Mattera, research director at Good Jobs First. “The more transparency, the less likelihood there will be abuses.”

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