A Reel Bad Deal on Tax Giveaways

Recipients of Massachusetts' film credits are selling them off to the tune of hundreds of millions of dollars. That's a box-office bomb for taxpayers.
November 3, 2015 AT 9:00 AM
By Charles Chieppo  |  Contributor
Principal of Chieppo Strategies and former policy director for Massachusetts’s Executive Office for Administration and Finance

Those who doubt that the amount of economic-development tax breaks that state and local governments dole out has careened out of control should take a look at some newly revealed information about Massachusetts' film tax credit.

The credit, which offers filmmakers a 25 percent rebate if they spend at least $50,000 in Massachusetts, has always been a bad deal. Last year alone, it cost taxpayers $88 million in foregone revenue. Between 2006 and 2012, only about one-third of the spending the credits are estimated to have generated took place in Massachusetts, and a similar percentage of the jobs that were created were local ones. When you add it all up, taxpayers paid more than $118,000 for each new Massachusetts job attributable to the tax credit.

And the problems aren't limited to meager job creation. A recent Boston Herald examination of the tax-credit program found that filmmakers sold more than 80 percent of the $411 million credits they've received over the last decade on the secondary market.

Here's how it works, according to Herald reporter Matt Stout: Filmmakers might sell a $1 million tax credit to a broker for $900,000, then the broker sells it to a corporation or individual for, say, $920,000. Filmmakers make out because they either sell credits in excess of their tax liability or monetize the credit more quickly than if they waited for a check from the state. Brokers make their share, corporations get tax credits, and taxpayers get stuck with the tab.

Experts say the Herald's $335 million number significantly underestimates the amount of tax credits that are sold. An annual state report on the film tax credits that will cover through 2013 is due soon, and in time film producers most likely will sell a number of the credits they're still holding.

Of course, the best way to end the madness would be to eliminate the film tax credit, as Gov. Charlie Baker proposed earlier this year. But a more immediate fix would be for Massachusetts lawmakers to pass legislation pushed by state Auditor Suzanne Bump and Inspector General Glenn Cunha that would give the auditor access to business tax returns for the sole purpose of auditing tax breaks.

The bill would allow the auditor's office to make sure that businesses actually qualify for the breaks they receive, determine if commitments to job creation or other public benefits have been met, and track whether state agencies are pursuing "clawbacks" that require businesses to reimburse taxpayers if the recipient fails to meet the requirements of the tax-break agreement. Thirty-seven states provide their auditing office with access to this information.

If state and local governments are to successfully navigate what feels like an almost permanent era of scarcity, they will need to crack down on dubious or overused economic-development investments. One place to start is with tax credits that usually wind up in the hands of people or corporations that have nothing to do with the particular industry that state officials intend to boost.