It’s a Wrap: Film Tax Credit Funding Flat, with New Award Structure

By Melissa Daniels | PA Independent

HARRISBURG — Managers, sound crews, religious deities, moms and husbands often get thanked during awards speeches. But the state taxpayers who helped foot the bill? Not so much.

Forty states offer some kind of tax credit for film or television production, according to a recent study from the Government Accountability Institute, contributing to $1.5 billion in production tax credits annually.

In Pennsylvania, productions that want to film in the rolling Northern Tier hills, sprawling Susquehanna River basin or narrow Center City streets can take advantage of new funding structures.

Yet funding for Pennsylvania’s six-year-old film tax credit program will, for the foreseeable future, stay flat, with an annual operating budget of about $60 million.

Last year, however, lawmakers adopted laws to allow the program to give out multi-year credits by appropriating money from future fiscal years.

The program can take up to 30 percent of its funding from the next year, 20 percent from two years out and 10 percent from the third successive fiscal year.

Awarding credits in advance, though, counts against what the department gets later.

This year, Pennsylvania’s Department of Community and Economic Development approved $92 million in film tax credits, with $32 million coming from future years.

Steve Kratz, spokesman for DCED, said officials can’t predict how the new structure would affect funding requests for the program.

“After this year we have to take a serious look at how it’s working and make a determination at that point, if it’s something that’s feasible to do moving forward or if we want to take another look at it and re-evaluate it,” Kratz said.

The multi-year funding is given out conditionally, meaning if the state does not get the funding it anticipated for that year, the deal would be off. So far, the conditional commitments have been offered to a handful of projects, according to DCED data:

• In 2013-14, $18 million is conditionally committed to four projects.
• In 2014-15, almost $10.7 million is conditionally committed to six projects.
• In 2015-16, about $3.6 million is conditionally committed to one project.

Other changes to the program include a scoring system for project approval. Previously, tax credits were awarded on a first-come, first-served basis, Kratz said.

To get approved for a tax credit, projects must spend 60 percent of their budget in Pennsylvania.

For now, it sounds as if these changes are the most the film tax credit program might see for some time. In a Monday DCED budget hearing, state Sen. Wayne Fontana, D-Allegheny, said he would like to see a higher funding cap for the program.

“It seems we’ve sort of stagnated at that $60 million,” Fontana said. “In fact, we’ve already cut into it going forward.”

But the administration doesn’t seem keen on increasing that figure. DCED Secretary C. Alan Walker said he does not envision the program becoming more open-ended, because people could take advantage. He compared the temporary nature of film industry jobs to major manufacturing, which might create jobs that stick around for 30 years.

Walker said the program was doing well.

“We had about $12 million roll back … we’re going to be able to recycle, so it’s not as dire as you think,” Walker said.

State Sen. Jim Ferlo, D-Allegheny, and Sen. Larry Farnese, D-Philadelphia, said they want more information about what the tax credit funds, as well as the economic impact.

“Before I go blindly supporting this program in the future I want to know a little more about it,” Farnese said.

There’s potential downsides, Farnese said, noting street closures in Center City Philadelphia a few days during December’s bustling holiday season.

In an annual report delivered to the General Assembly, DCED said the program has awarded a total of more than $298 million to about 292 projects in its first five years. The state estimates the direct economic impact at almost $1.4 billion.

Some of the program’s beneficiaries are more high-profile than others. “Silver Linings Playbook,” shot in Philadelphia, claimed $5.6 million in tax credits from the 2011-12 funding year. Actress Jennifer Lawrence won an Academy Award for Best Actress for her portrayal of “Tiffany.”

Once projects are completed, the recipients submit economic impact reports. Of the six projects that completed production in fiscal 2011-12, 252 full-time equivalent jobs were created, according to the report. Most of those, 224 jobs, were created by the production of “Safe” from Safe Productions, LLC., in Philadelphia.

Collectively, these six projects received almost $4.8 million in tax credits. DCED estimates they generated $37.5 million in total sales in the region, contributing almost $1.2 million in state and local sales taxes.

But government watchdogs across the political spectrum often question the validity of the production tax credits as an economic development tool.

Robert Tannenwald of the Center on Budget and Policy Priorities wrote in 2010 that film tax credits provide temporary jobs, and he criticized them as a source of cronyism.

“Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services — such as education, healthcare, and police and fire protection — or higher taxes elsewhere,” Tannenwald wrote. “The benefits to the few are highly visible; the costs to the majority are hidden because they are spread so widely and detached from the subsidies.”

Contact Melissa Daniels at melissa@paindependent.com