Stop the American hustle

In 2012, the people of North Carolina paid Marvel Studios $20 million to shoot Robert Downey Jr.’s latest comic-book sequel, “Iron Man 3,” in their state. It was just one of many movies and television shows taxpayers subsidized in North Carolina that year. Among them were season 8 of “The Bachelorette” and Jennifer Aniston’s “We’re the Millers” — a film that The Fresno Bee said “aims for mediocrity and hits it with a dull thud.”

Subsidies like these for the entertainment industry exist all over the country, in Florida and Michigan and Ohio. Georgia taxpayers in 2012 funded “Tyler Perry’s Aunt Bam’s Place,” “Tyler Perry’s I Don’t Want to Do Wrong” and the latest Vince Vaughn–Luke Wilson buddy flick, “The Internship.”

With so much public money going toward these ventures, it’s reasonable to question whether they bring the public any actual benefit — and there are plenty of reasons to be skeptical. In 2010 in Michigan, the state Senate authored a report on film industry incentives and found that, in one year, the state had spent $100 million to create only $60 million in economic activity. Of the spending stimulated — by the production of such gems as “A Very Harold and Kumar Christmas” — the report found that almost half occurred out of state. Such doubts were compounded by a November report from the office of New York Gov. Andrew Cuomo, which could not find “sufficient justification for the size of the film credits.” The amount of public money spent on a production company, it said, was the equivalent of paying a factory 40 times what it owed in taxes.

The film industry, now under scrutiny for engaging in these practices, is just one example of a much larger problem. Tax credits for businesses, in theory, are meant to be a means of using public money to stimulate private-sector growth and create jobs. Yet many subsidies don’t pay off in the form of public benefits, and few come with any measures for accountability, preventing the public from ever knowing if it’s getting its money’s worth. Walmart, for instance, has used “more than $1.2 billion in tax breaks, free land, infrastructure assistance, low-cost financing and outright grants from state and local governments around the country,” according to Good Jobs First’s Wal-Mart Subsidy Watch website. Sports franchises frequently approach cities and suburban regions with proposals for new stadiums funded by public dollars, touting them as job creators.

But, as Good Jobs First notes in its study of the industry, “all that public subsidies accomplished was to help shift spending from other forms of entertainment to the stadium, with little in the way of net employment gain.” While corporate beneficiaries make big boasts about the employment they are creating, taxpayers usually have few ways to verify such claims. And rarely do they demand their money back when corporations fail to deliver on their promises. 

These programs are taken advantage of constantly, but the good news is that the abuse shouldn’t be too difficult to curb. Political will can come from both sides of the aisle, at least in principle: Budget-conscious conservatives who think that government spending should be carefully controlled should be just as concerned as liberals who want corporations benefiting from tax subsidies to create living-wage jobs. Both can agree that companies receiving subsidies in the name of creating jobs should live up to their commitments.

There are several steps toward a solution that can be taken immediately.

The first is to make sure that any subsidies for an industry come tied to provisions for business-specific disclosure and accountability. If companies don’t prove that they are creating the jobs they claim, how can the public know whether its investments are paying off with benefits to the community? These benefits should include new full-time jobs and local spending that in turn will generate greater public revenues for infrastructure such as schools, hospitals and roads. To give a sense of how little the public knows about its investments, one need look no further than a national tax credit survey conducted by Connecticut’s Office of Legislative Research. The survey found that fewer than half of the incentive programs across 49 states provided “online, company-specific disclosure.”

The next move is to insert language into existing and future subsidy laws that allows for rescissions and clawbacks holding companies accountable to return money if they don’t create as many jobs as they received subsidies for. Community and labor groups can also help by drafting community benefit agreements (CBAs), a set of agreed-upon terms that business leaders must follow as conditions for receiving concessions. CBAs often include provisions such as requiring that a certain percentage of jobs on the movie set or construction project go to workers from local ZIP codes and requiring that any jobs created must pay a living wage.

An example of a successful CBA involving the film industry came about in late-1990s Los Angeles. DreamWorks announced a plan to build a $70 million studio as part of a large redevelopment plan scheme in the city’s Playa Vista neighborhood, and the city was prepared to hand over $35 million in tax subsidies. But the potential deal caught the attention of a network of community groups based in South Los Angeles called the Metropolitan Alliance, which put pressure on DreamWworks and the Los Angeles City Council to attach a CBA to the subsidy. In the end, in exchange for the $35 million in tax breaks, the Metropolitan Alliance won funding from DreamWorks for a local hiring mandate and a film-industry job training program, to be run by the alliance, called Workplace Hollywood, which still exists. 

Beyond community benefits, it’s important to prevent these corporate handouts from being used to benefit one state at the expense of another. That’s no easy task. Organizations such as the Texas Enterprise Fund and TexasOne, both taxpayer-funded nonprofits, don’t even hide the fact that they exist to lure businesses to relocate to their state. “Maybe it’s time to move your business to Texas,” Gov. Rick Perry said in one TV spot that aired in Maryland during a six-state speaking tour last year. He told Californians, “I have a message for California businesses: Come check out Texas.”

Perry’s is merely the most shameless of the programs that exist in many states. Outfits such as Promoting Employment Across Kansas and New Jersey’s Business Employment Incentive Program are pursuing the same strategy. None of them create jobs; instead they reward companies either to move jobs to states with cheaper labor or to stay in town on the taxpayers’ dime.

Instead of beggar-thy-neighbor economic development strategies, states should begin to enforce a policy that 40 of them already observe within their borders: Don’t pay subsidies unless new jobs are created. If a company is simply moving an office or factory, it shouldn’t get a subsidy. There is also a role here for the federal government. In the same way it used highway money to leverage states to raise the drinking age, it can use federal development funding to prevent relocations that pit California’s residents, for example, against New York’s or North Carolina’s. 

The bottom line is that tax subsidies like those provided to the film industry are a form of corporate welfare that receives far too little scrutiny. Florida taxpayers played an instrumental role in the creation of “Alvin and the Chipmunks: Chipwrecked”; they are at least entitled to some assurance that they actually got something out of it. And if they can’t get that assurance, then perhaps it is time for the taxpayers to get back their share of the box office receipts.