When it comes to taxpayer-subsidized industries, Hawaii’s motion picture business has few equals.
The state paid out an estimated $99 million to productions in 2016 and 2017 alone, supporting two network television series, “Hawaii Five-O” and “Magnum P.I.,” a steady parade of Hollywood blockbusters and numerous big-budget television commercials, with more than $467 million in expenditures that qualified for the credits.
In simple terms, it’s a 20% to 25% rebate. If a production spends the minimum of $200,000, it gets back $40,000 to $50,000. A $1 million project can get $250,000 back in the form of a check from the state.
But is it worth it?
That’s what lawmakers are asking as they take a hard look at the incentive, rethinking a decision to cap the credits at $35 million annually. The cap went into effect this year, and already industry boosters say the policy is costing Hawaii production business — and jobs.
A broad swath of people, from Hollywood lobbyists and government officials to union workers, is pushing to lift the cap or eliminate it altogether. Even the Tax Foundation of Hawaii, which often looks askance at tax credits, has joined the bandwagon, extolling the economic development benefits of the motion picture tax credits.
Leading the push is Mike McCartney, acting director of the Hawaii Department of Business, Economic Development and Tourism. In testimony, McCartney has asked the Legislature to raise the annual cap to $55 million.
“This competitive advantage is in jeopardy, if this cap is not amended,” McCartney said in March testimony submitted to the House Finance Committee.
The Motion Picture Association of America has gone a step further, asking lawmakers to lift the cap entirely and remove a sunset provision that will require the Legislature to renew the program to keep it active past 2026.
“MPAA and its members submit that those amendments will ensure stability and predictability for motion picture and television producers, who want to bring even more projects to Hawaii,” Vans Stevenson, the MPAA’s senior vice president for government affairs, testified.
Georja Skinner, who oversees the Hawaii Film Office as the head of DBEDT’s Creative Industries Division, couldn’t say in an interview how much business Hawaii has lost. But she said the loss of projects is very real in a state that saw an estimated $425 million in production expenditures for projects that qualified for tax credits in 2018.
“We know that there are productions and studios that have been calling and are concerned because the cap is in place,” she said.
Legislation is now headed to conference committee. The key provisions – the cap and sunset date – are left blank, which means legislators will have to hash out those terms in the waning days of the session. If not, the current cap and sunset date will stay in place.
“Is the industry activity worth the investment by the state? That’s a question on everyone’s mind.” — House Finance Committee Chairwoman Sylvia Luke.
The push comes at a critical time for Hawaii. With its high cost of living and dearth of relatively high-paying jobs, the Aloha State has experienced population decline for two years in a row – the apparent result of young people migrating from the state in search of better jobs in what amounts to an unusually high pace of brain drain.
But is subsidizing Hollywood a good bet?
The trend is for states to say it isn’t.
As of 2018, 31 states, Washington D.C., Puerto Rico and the U.S. Virgin Islands offered subsidies for the industry, according to the National Conference of State Legislatures. But that was down from 44 states in 2009. Although some states have expanded incentive programs, states generally are scaling back, NCSL reported in a 2018 document.
“Most states’ policymakers walk a fine line and try to balance film production incentives in ways that limit forgone revenue, yet still reduce the chances of losing the state’s film industry to competing incentive programs,” the NCSL report said.
Rep. Sylvia Luke, the chair of the House Finance Committee, said a key question facing lawmakers trying to balance the state budget is the extent to which producers would film projects here anyway, without the incentive.
“That’s the question everyone wants the answer to,” Luke said. “It’s a tough issue because you really don’t know the answer to that question unless the tax credit is gone.”
There’s no doubt that the creative industries have a substantial impact on Hawaii’s economy, and motion pictures – mainly, movies, television series and commercials – are a big part of that.
In a recent report, the federal Bureau of Economic Analysis reported that “arts and cultural production industries” in Hawaii accounted for 22,742 jobs and $1.4 billion in income in 2016. Almost 15,000 of those jobs and $950 million in income were in what the bureau calls supporting arts and cultural industries, including publishing, broadcasting and motion picture production.
It’s not just artsy types who make a living from Hawaii’s production business. The Hawaii Teamsters’ movie division, for instance, employs more than 220 workers, including 160 truck and equipment drivers and 45 location managers, said Cody Sula, the union’s government affairs liaison and business representative.
Including overtime pay, a union driver can make $80,000 to $120,000 annually, with some earning as much as $150,000, Sula said.
Data from the U.S. Bureau of Labor Statistics indicate Hawaii has a robust film industry. According to the bureau, 130 camera operators were employed in Hawaii in 2018, for instance, with an average annual wage of almost $60,000. The numbers were even better for other media and equipment workers; there were 230 of those earning just under $79,000 annually. Hawaii has concentrations of these workers above the national average, bureau data show.
“This competitive advantage is in jeopardy, if this cap is not amended,” Mike McCartney, acting director, Department of Business, Economic Development and Tourism
Such jobs are critical in Hawaii. A 2015 report by Hawaii’s Aloha United Way found that a family of four including two adults, an infant and a preschooler would need a household income of more than $72,000 to afford basics like food, clothing, transportation, health care and housing.
Families with income below the threshold are struggling, the report said.
It had a term for such families: “asset limited, income constrained, employed,” or ALICE. The report estimated 48% of people in Hawaii were living below the ALICE threshold; while some were actually below the poverty level, many were just able to make ends meet.
Stevenson, the industry lobbyist, said CBS alone employs almost 1,000 cast and crew workers on “Hawaii Five-0” and “Magnum P.I.” But that’s only part of the local hiring from big television shows. According to data from the Hawaii Film Office, the two largest television series in Hawaii made an estimated $93 million in expenditures qualifying for tax credits in 2017 and made an estimated 3,727 local resident hires.
The problem for lawmakers trying to balance the state’s budget is that all those jobs don’t come for free. The state also paid out $18.5 million in tax credits to the state’s two largest television productions.
What’s often overlooked when discussing tax credits is the true cost of the program, said Randy Roth, a retired tax law professor.
The term “tax credit” often seems benign to the public and even some policymakers, said Roth, who taught tax law for 36 years at the University of Hawaii, William S. Richardson School of Law.
“When they say ‘tax credits’ they act as if it’s Monopoly money,” Roth said. “But it’s the equivalent of simply writing a check to someone.”
Unlike a standard legislative appropriation, however, tax credit programs steer money through a more opaque process. Who exactly gets the money, and how much, is all secret. For instance, while the film office posts a list of productions with qualified expenditures and estimated tax credits received, the productions themselves are not identified.
Skinner said productions need to keep costs under wraps for business reasons, but Roth said tax credits are tax expenditures just like appropriations, even though they don’t appear in the budget.
“The lack of transparency: That’s the big one,” Roth said, when asked about problems he saw with the program.
Another issue is getting a handle on the net loss to the state in terms of tax revenue, said Luke, the House Finance Committee chair. Although the tax credits stimulate economic activity, it appears the activity doesn’t produce enough tax revenue to offset what the state pays out. The result is a net fiscal loss.
In 2017, for example, 48 productions made $268.6 million in qualified expenditures to generate an estimated $55.4 million in tax credits versus about $29 million in taxes generated, for a net loss of $26.3 million.
Estimates for 2018, which was a banner year, are more striking: $477 million in production spending generated an estimated $90 million in tax credits and $51 million in taxes generated. The loss to the state was $39 million.
Of course, the big difference between motion picture productions and public libraries is that the movie business has a huge economic impact. Not only are the productions essentially exports, which bring new money into the economy, but they also generate a wide range of spending throughout the community.
DBEDT estimates the industry’s economic impact to be $825 million in 2018, far greater than the $39 million fiscal loss.
“Government is notoriously bad at picking winners.” — Randy Roth, retired UH tax law professor, on state tax credits
A final question, Roth says, is whether the government should be trying to pick winning industries by singling them out for support. Beyond movies, Hawaii’s local entertainment industry is strong, its nearly 10 million annual tourists creating high demand for traditional live performances.
In fact, according to the Bureau of Labor Statistics, Hawaii’s concentration of professional dancers, singers and musicians is many times greater than film technicians and camera operators when compared to other locales. And while it might be hard to make a living on stage, the hourly wages aren’t bad: about $18 an hour for dancers and $36 an hour for musicians and singers.
Becky Newbold, an attorney who serves as entertainment director for the Star of Honolulu dinner cruise ship and the Rock-A-Hula show at the Royal Hawaiian Shopping Center, said the ship employs about 35 to 40 Polynesian dancers, while the Rock-A-Hula show has about 15 dancers, including some jazz dancers.
Asked why DBEDT’s Creative Industries Division singles out motion pictures for big subsidies over such local live productions or other creative artists, Skinner said the answer was complicated.
Some arts organizations get other forms of government support like grants, she said.
Another factor, she said, is that motion picture productions cut across all the creative industries and stimulate those.
“The film industry is a catalytic industry for all creative sectors,” she said.
Roth isn’t sure. He thinks DEBDT would be better off creating a good business environment for everyone.
“Government is notoriously bad at picking winners,” he said.
For now, lawmakers must sort it all out: decide whether to keep in place the policy that scales back the program or open the state’s coffers again.
“Is the industry activity worth the investment by the state?” Luke said, framing the issue. “That’s a question on everyone’s mind.”
“Hawaii’s Changing Economy” is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.
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