While state legislators are considering taxing pensioners and raising taxes on alcohol, they are pondering increasing tax breaks enjoyed by film producers. The proposal is based on the wishful theory that movie makers would arrive in droves, paying even more in taxes. That is a gamble the state should avoid; lawmakers should hold the line at tax generosities already offered.
The 1997 Legislature enacted an income tax credit of 4 percent for costs of making a motion picture or television show and 7.25 percent for the hotel room tax associated with the endeavor. Five years ago, legislators increased the credit to 15 percent for filmmakers on Oahu and 20 percent on neighbor islands. They now are considering raising it to 35 percent on Oahu and 40 percent on neighbor islands and exempting hotel room taxes for longer productions.
The proposal also would allow the credits to be sold, assigned or transferred from one taxpayer to another, although "allowing taxpayers to market or sell their tax credits in fundamentally poor tax policy," said Frederick D. Pablo, the state’s tax director. According to Pablo, the generosity offered in the bill would result in a tax revenue loss of $46.3 million in the upcoming fiscal year.
Executives from entertainment companies Relativity Media LLC and Shangri-La Industries want the tax break so badly that they have offered to build production facilities on Maui and Oahu. Ryan Kavanaugh, chief executive officer of Relativity Media, said in a statement released by Maui Mayor Alan Arakawa that the company "can’t think of a better place than Maui to focus our efforts towards building a new industry which will help Maui’s economy."
Film makers are urging legislators to raise the subsidy to compete for film production with Michigan, which has a subsidy of 42 percent, along with Louisiana and New Mexico — although in the latter two states, employment in film and video production has actually fallen after early apparent success of the tax credits.
Forty-three states now offer film subsidies but some are reconsidering. Massachusetts found that for every dollar of revenue lost from the tax break the state gained only 16 cents in revenue, mostly in income tax revenues withheld by film company employees. Kansas, Iowa, New Jersey, Arizona and Rhode Island have suspended the subsidies, let their credit expire or capped the film tax credit in the past four years.
Clearly, all that glitters from Hollywood is not gold. Just as clear: We should not sell Hawaii short or underestimate its filmmaking charms: nearly year-round sunny and reliable weather, and a diverse spectrum of beautiful scenery, from vast seas to rugged rainforest. These assets, enhanced with the existing tax credits, have been powerful enough to attract major productions in recent years: the TV series "Hawaii Five-0" and "Off the Map" after years of the hit show "Lost," as well as the upcoming big-budget movies "Pirates of the Caribbean 4" and "Battleship." The business is certainly appreciated, not taken for granted, and is likely due as much to local hustle, hard work and good relationships as to the existing, generous tax incentives.
"The rapid spread of film tax subsidies across the country is a classic case of a race to the bottom," noted Robert Tannenwald of the Center on Budget and Policy Priorities in a recent study.
He concluded that state subsidies to the film industry "are a wasteful, ineffective and unfair instrument of economic development" rather than the "quick fix" they appear to be.
State legislators would be reckless to sharply increase the subsidy to the film industry. Hawaii has performed well under the present policy — and given the current fiscal environment, productions should be content that they’re not hearing "Cut!" when it comes to state tax credits.