Movie tax credit bill will cost Arizona dearly, say legislative analysts

New analysis of a push to lure film productions to Arizona with $150 million in tax credits says claims that the state will see a return on its investment are unfounded — and the state could end up by getting little in exchange for his money.

Legislative budget analysts examined Senate Bill 1708 and assessed its impact during its first three years. They concluded that Arizona could face a loss equivalent to the $150 million the bill reserves for movie companies.

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The bill is an attempt to revive the 2005 Arizona Motion Picture Production and Infrastructure Credit program which oversaw a loss of $6.3 million in just one year. The new measure aims to avoid the pitfalls of its predecessor by requiring film projects to do pre-production, post-production and editing in Arizona, and offering tax credits for filming in the state and l hiring locals. Under the bill, a company may be eligible to recover up to 25% of its production costs in tax credits.

Senate approves $150 million tax credit plan to film movies in Arizona

These credits are fully refundable, meaning film companies could cash out even if they don’t owe the state taxes and critics say this is bad economic policy.

“What you’re really doing is taking money from the government and writing a check to Hollywood,” Sen. Warren Petersen, R-Gilbert, said of the refundable nature of tax credits during plenary discussion of bills in the Senate. February 24.

Proponents of the measure say it will put Arizona higher on the list of favorable filming locations, generating jobs and income over time through the arrival of production companies and tourists. Industry representatives have indicated that two studio complexes could be built if the bill becomes law. While increased economic activity may offset some revenue losses, the committee’s analysis indicates that the value generated by this activity will always be less than the amount lost to tax credit refunds for some time.

The benefits will outweigh the costs eight years after the program began, according to a study by Rounds Consulting Group, a Tempe-based company that analyzes the economic impact of public policy proposals.

But analysts from the Joint Legislative Budget Committee think it’s unlikelypointing out that RCG’s estimate is inconsistent with previous studies of film tax credit programs in other states that had much lower estimates of costs relative to revenues.

Claims that tax incentives give Arizona a competitive advantage over other states are also unfounded: as many as 30 other states offer film credit programs that reduce production costs by 20% to 30%, and Arizona’s 25% aren’t much more appealing.

While the bill seeks to lure out-of-state film productions, domestic productions would also benefit — at the expense of taxpayers.

“For example, local commercials that would have been shot regardless of the bill would now receive a credit of at least 15% of their production costs,” notes JLBC’s analysis.

This program also does not include minimum total spend requirements, but makes eligibility contingent on in-state production. To qualify for tax credits in California, projects must have a budget of at least $1 million – this ensures that only large projects with higher economic activity production rates benefit.

The bill was approved by the Senate on February 24 and is currently pending in the House of Representatives, where it has been assigned to the Appropriations Committee.