What Californians Found Out about Hollywood Credits

by Tom Yamachika, President, Tax Foundation Hawaii

In Hawaii, we like many other states offer credits and incentives for movies and TV productions to shoot here. We offer the credits to lure the productions away from other states, primarily California where Hollywood is located, so you might not think California would need or want to offer credits itself. But it does in fact offer credits. Indeed, a recent report from their Legislative Analyst’s Office (LAO) reveals some interesting truths about their credit program, which could help us to formulate policy for the production credits we offer here.

Perhaps the most startling is the LAO’s conclusion that $1 out of every $3 in credits went to productions that would have shot in California anyway. It turns out that California’s credit was limited, the production companies applied for more credits than were available, and the state had to conduct a lottery to determine which of the productions would be awarded credit. But several productions began shooting even before lottery results were announced.

This result supports what Hawaii credit opponents have been saying over the years, namely, “They'll come anyway, so why do we need to pay them to come? We have great weather, blue sky, pristine beaches, and more.”

The hard reality, however, is that productions are businesses and most do take a hard look at the bottom line, evidenced by the companies accounting for the other $2 in credits. Indeed, although the LAO lamented that industry-specific tax credits were “inappropriate public policy because they (1) give some businesses an unequal advantage at the expense of others and (2) promote unhealthy competition among states in a way that does not benefit the nation as a whole,” LAO concluded that California shouldn’t be giving up its production credit program while other states (including Hawaii) are actively competing with it for the production dollars. LAO recommended that California should consider scaling its program back when other states do.

At the same time, we in Hawaii need to remember that this interstate competition does affect us. We don’t have a monopoly on beaches, sand, sunshine, forested hills, overgrown jungle, or other natural wonders. Productions can and do find comparable locations in Puerto Rico, New Zealand, and elsewhere.

Next, the LAO concluded that the tax credit program boosted California’s economy only minimally, if at all. Because of the way California credits work, they saw state revenue benefits in the early years of the credit but found that the program cost more as time went on. We in Hawaii have had our production credit since 1997, so it’s been almost twenty years. Have there been any studies about what the program has done for Hawaii’s economy or Hawaii’s tax revenue? None were cited to the Legislature when the Hawaii production tax credit was increased in 2013. Maybe we don’t care as much about the hard dollars as we do about other intangible effects like local jobs, the development of a skilled workforce, or robust media education programs that simply weren’t around at the turn of the century. Even if so, lawmakers should have data on these intangibles, and other cost-benefit information, so they can make intelligent decisions on this matter.

Remember, we are talking about credits for movies and TV productions. The people in these industries make a living by telling stories, some fact, some fiction. (We previously wrote about a media company where there was a generous dose of the latter.) We need enough information to separate fantasy from reality so we can make some good decisions about whether to continue supporting this industry at the expense of others, and if so, on what terms.