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‘Action!’ or ‘Cut!’ on film incentive?

Filming Homeland
Robert Lahser - 2013 OBSERVER FILE PHOTO
Showtime films part of one episode of “Homeland,” with star Claire Danes, in the Charlotte Observer newsroom last May.

We confess: It was fun having Claire Danes and the “Homeland” cast film a scene for their hit show in the Observer newsroom last spring. (At least, until we could all recite her profanity-laced lines by heart after a couple dozen takes.)

Whether that fun was worth buckets of taxpayer cash is another question.

One of the hottest topics when the N.C. legislature convenes next month will be tax incentives for the movie industry. Lobbyists for the industry are working overtime, we expect, trying to preserve a lucrative tax break slated to expire at the end of the year.

The state currently gives film production companies a credit worth 25 percent of their qualified spending in North Carolina (with a minimum spending of $250,000), up to $20 million per production.

That generosity has gotten the industry’s attention, and has helped North Carolina win business. The industry’s qualified spending has grown from $48 million in 2010 to $150 million in 2011 to over $300 million in 2012.

That means N.C. taxpayers are shelling out more each year in credits to the companies, to the tune of some $84 million for productions in 2012.

Is that a good deal? To persuade legislators that it is, the Motion Picture Association of America and a group of regional film commissions helped pay for a study.

That study, by N.C. State professor Robert Handfield, became public last week. Handfield said North Carolina and local governments took in $170.3 million in taxes as a result of film and television production from 2007 to 2012. He said the state paid out $112 million in credits during that time, meaning the industry paid $1.52 in taxes for every incentive tax dollar the state granted.

Sounds great, right?

Maybe too great. Economists Patrick McHugh and Barry Boardman of the Fiscal Research Division, asked by a legislator to review Handfield’s work, eviscerated it. In an April 3 memo, McHugh and Boardman said Handfield’s findings are “based on a series of misunderstandings of the State’s tax laws, invalid or overstated assumptions, and errors in accounting.” They then detailed how they believe Handfield understates the cost of the credit and overstates the income taxes paid by workers, sales taxes generated by the industry, tax revenue generated when workers spend money and taxes from tourism the industry sparks.

All told, they say, the net impact on state revenues in the most recent year was not a positive $5 million, as Handfield asserts, but a negative $45 million. Handfield says he stands by his results.

There’s no doubt incentives help attract TV and film productions and jobs. But given McHugh’s and Boardman’s convincing gutting of Handfield’s work, legislators should bring great skepticism this summer. Perhaps an alternative approach could be found that doesn’t cost the state so much. If not, and if that means Claire Danes never visits the Observer again, so be it.

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