Woody Allen Movie Reopens RI Film Tax Credit Debate

Woody Allen Movie Reopens RI Film Tax Credit Debate

While Rhode Island has been abuzz with talk of Woody Allen shooting his newest film in Rhode Island, sides are divided over the role of the state's motion picture production tax credit -- currently capped at $15 million a year -- plays in economic development for the state.

The prolific film director has shot with high profile actors Joaquin Phoenix and Emma Stone at such locations as Fastnet in Newport and Loie Fuller's in Providence, and supporters of the industry tout the ancillary effects that filming brings to the state, from hotel and dining to transportation, to various uses of the state's businesses. 

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"It's not controversial," said Steve Feinberg with the RI Film and TV Office, of the state's motion picture tax credit.  "Climate change is controversial, some say it doesn't exist, some do.  As far as this goes, Dr. [Edward] Mazze did a comprehensive analysis, and showed that for every $1 we give in movie tax credits, it creates $8 in economic activity for the state.  That's not controversial."

However, some critics -- including Mike Stenhouse with the RI Center for Freedom and Prosperity, who cited the movie tax credits as "non-essential" in its Spotlight on Spending report, question the value -- and validity -- of the tax credit program. 

"Claiming an economic impact is a false argument. If there was a true positive effect of special interest spending like this, then RI, as the king of crony spending,  should have one of the best economies in the nation," said Stenhouse.  "Obviously we do not, proving that such schemes have been a failure for our state."

Economic Impact Debated

Mazze, who is URI's Distinguished Professor of Business, has long been a strong proponent of the film tax credit as an economic driver for the state.

"The tax credit is given for documented/audited expenditures in Rhode Island. Critics of the program want to see an immediate return from this investment [if we give you a dollar today we would like a dollar and fifty cents tomorrow].  They do not understand the purpose of tax credits, which is to support and build economic strength in a sector of the Rhode Island economy that has some strong assets with potential to grow. The purpose of the tax credit was to build a film and television sector in Rhode Island," said Mazze.

"The General Assembly should expand the program so that the state can attract larger productions which will employ more people and purchase more goods and services in the state because these productions are now going to other states with larger tax credit programs," Mazze continued.  "There should also be support from the Rhode Island tax credit program for smaller productions and new media ventures to give entrepreneurs an opportunity to build their businesses. We need to keep talented people in Rhode Island. This can only be accomplished if we build a movie-television-live performance industry here."

Feinberg said that the current cap on the the tax credit program meant that he has seen productions interested in Rhode Island go to other states -- as well as those in the industry moving out to follow the jobs.

"[Rhode Island] was always on the forefront back in 2005," said Feinberg.  "We were visionary, and then other states emulated us -- and they were a little more liberal.  We didn't have a cap, and once we put one in, the cap has impacted production, as well as supporting businesses.  Take Massachusetts, who has a 25% tax credit, but unlike here, they don't have a cap -- they also have the offer the option of a transferable tax credit, or a 90% rebate."

Feinberg noted he was recently approached about a particular project -- which he said "people would have loved"  -- that opted to shoot elsewhere, due to a more attractive credit.

"The first question asked by someone who's interested always is, "Creatively -- can it meet our needs?  Then, how does it compare financially with other options?" said Feinberg.  "They said we love Rhode Island, we want to come here -- I thought we had it, we met their needs.  But if you're a big project, you're not going to walk away from $3, $4 million on the table for you elsewhere."

Opponents, however, question the role of the governement in promoting the industry.

"Tax credits are just another term for subsidies.  Choosing which industries to subsidize by risking our limited resources, whether it's through loans, subsidies or tax credits, is not government's role. We've seen how well that has worked with 38 Studios. Tax credits have a very limited impact.  Just like with federal stimulus money, what happens when it dries up?  The jobs are gone, so either taxpayers keep funding them or lose the business," said Pam Gencarella with OSTPA, which bills itself as the "voice for taxpayers in Rhode Island.  "OSTPA cannot stress enough, that it's government's role to create an overall economic climate where all businesses can thrive and that's through a predictable and reasonable tax structure. The problem in RI is there is no objective, analytical modeling performed to determine whether or not credits have produced a net benefit or not and, more importantly, what the 'opportunity cost' was - could that money have been better spent to produce more of the desired result?"

"Tax credits can carry a serious 'opportunity cost'. According to a US News and World Report done last year, most states are finding that there is no net benefit for film credits.  Reportedly, when Massachusetts did the math, after providing $44 million in tax credits, they produced only $39 million in state economic activity.  That's a net loss," said Gencarella.  "When North Carolina did the math, they determined that with the $30 million in film credits they gave out, if they had simply reduced taxes across the board, they would have increased the number of jobs created more than 6 fold".

Looking Ahead

Gary Sasse, former Director of Administration and RIPEC Director, advocated for a comprehensive analysis of the program.

"Steve Feinberg does an excellent job promoting the motion picture industry in Rhode Island and managing the motion picture tax credit program," said Sasse.  "However, granting preferential tax treatment to an industry must be based on hard evidence that the tax credits are producing a real return on investment for Rhode Island taxpayers. This includes the number and type of permanent jobs the tax credit produces, the level of private investments attributable to the credits and whether the credits produce new tax revenue to offset the revenues foregone by providing the credit."

Sasse continued, "Simply providing a motion picture tax credit because other states do so is irrelevant if the credit does not produce a positive return. I believe lower tax rates are a more effective competitiveness strategy than government using tax credits to pick winners. I am not a fan of crony capitalism. Therefore, I have reservation when proposals are made to enhance the motion picture tax credits and would urge a comprehensive independent assessment of the costs and benefits of the existing program."

With this year's General Assembly season wrapped up -- and an election season ahead -- the new Speaker of the House expressed his support for the program where it's currently at -- and that he might be open to considering an expansion in the future.

"Speaker Mattiello does support the film tax credit program.  He believes the state’s current investment is appropriate, but would be open to considering an expansion of the program in the future.  Until a clearer picture develops on the money that is available in the state budget next year, it is difficult to speculate further," said Larry Berman, Director of Communications for the Speaker.

While there are those calling for a financial impact study, Kathryn Farrington with Discover Newport said that there were benefits that just couldn't be measured.

"Being in marketing here in Newport, I have the best job in the world.  It's all about the brand," said Farrington.  "Like others that have filmed in Rhode Island, this new Woody Allen is going to be shown around the country, and around the world.  Folks will see it -- and everything Newport, and Rhode Island.  You can't put a price on the branding, or the number of eyes on it."