Baltimore Sun

Analysts Urge State to Scrap Film Tax Credit

By Erin Cox, The Baltimore Sun

Updated December 2, 2014

State analysts urged lawmakers Tuesday to scrap Maryland’s film tax credit, arguing the state hasn’t benefited enough from the $62.5 million poured into television and movie companies since 2012.

The hearing in Annapolis marked the public opening of a debate expected to last through the General Assembly session as politicians try to determine whether the lucrative program that brought “House of Cards” to Maryland is worth it.

So far, it remains an open question.

“We have a limited amount of money. How do you use it?” said Sen. Richard S. Madaleno Jr., a Democrat and chair of a task force examining state tax credits.

Film industry advocates implored the panel to continue the program, dismissing analyst conclusions that taxpayers were getting a poor return on investment.

The nonpartisan budget analysts, charged with evaluating the film tax credit, concluded that lawmakers should let it expire in 2016 because it generates only temporary jobs and not enough money for state coffers. Unlike other tax credits that launch an industry, film companies depend on continued subsidies.

All but 2 percent of the taxpayer money spent on film tax credits since 2012 went to just two productions: HBO’s satirical show “Veep” and Netflix’s political thriller “House of Cards,” which has filmed in iconic state buildings and at The Baltimore Sun.

“It’d be different if we had a surplus, but we don’t,” said Jacqueline Adamson, a volunteer with an arts organization that saw its funding cut last year to help pay for the film tax credits. “We’re broke.”

Maryland faces a $600 million budget shortfall next year, and Gov.-elect Larry Hogan was ushered into office on a promise to curb state spending.

Hogan has repeatedly declined to offer thoughts on the film industry subsidy since he was elected, but during the campaign he called it “outrageous” that lawmakers would divert money from the arts and “give it to Hollywood millionaires to produce subscriber-only TV shows.”

Representatives of “House of Cards” and “Veep” did not testify at Tuesday’s hearing.

Analysts from the Department of Legislative Services described for the task force their assessment of the subsidy. They found that the tax credit — which in practice is often distributed as a check cut to a production company — is “significantly more generous than other business tax incentives,” said Robert J. Rehrmann, a department analyst.

Unlike other programs, where a one-time investment yields dividends down the road, the major film companies have threatened to leave if the state money dries up.

Analysts also questioned the fairness of a state program that disproportionally benefits just one region of the state. More than 80 percent of the companies used by productions have been based in just four jurisdictions: Baltimore, Harford, and Anne Arundel counties and the city of Baltimore.

The analysts’ biggest criticism: The government gets back just 10 cents in tax revenue for every dollar spent.

Maryland is one of 37 states and the District of Columbia that offer financial incentives to lure television and film productions. Maryland has offered some form of incentives to film companies since 2007, but its more generous version took effect in 2012.

Competition has driven the generosity of the credits, which analysts said have become increasingly less effective at creating jobs.

The production company for “House of Cards,” MRC, wrote a letter this year threatening to leave if lawmakers did not provide enough funding to deliver up to $15 million in tax credits for Season 3.

“In the event sufficient incentives do not become available, we will have to break down our stage, sets and offices and set up in another state,” Charlie Goldstein, a senior vice president for the production company, wrote to Gov. Martin O’Malley.

This month, the series is filming part of its Season 3 finale in New Mexico.

Hannah Byron, assistant secretary for tourism film and the arts at the state’s Department of Business and Economic Development, said Maryland’s program is “in the middle of the pack” compared to other states, and that the current tax credit program has worked exactly as planned.

Before, “we were simply not competitive with the other states. With the tax credit, it worked immediately,” she said.

Byron and others said the budget analysts overlooked all the indirect benefits the film production industry has brought Maryland, from tourism to catering.

“The businesses like lumber and paint and florists, how can you not look at them in this analysis?” Byron said, calling the tax credit “absolutely critical” for small businesses. “It has really made the difference between keeping their doors open and closing them.”

She pointed to a February 2014 study by the Regional Economic Studies Institute at Towson, which counted a broader array of impacts and concluded Maryland gains $1.03 in tax revenue for every dollar spent.

Jack Gerbes, director of the Maryland Film Office, told lawmakers about a Frederick County winemaker who sold out of her most costly vintage just three months after it was featured on an episode of “House of Cards.”

And Susan Picinich, dean of fine arts at Towson University, told lawmakers the burgeoning film industry has ushered in new classes of students at her school, at the Johns Hopkins University and the Maryland Institute College of Art who can get first-hand experience at productions in Maryland.

A set maker, a stuntman and an actor told lawmakers that of course film industry jobs seem temporary, since each job is dependent on new projects coming on line.

” ‘Veep’ is now in its fourth season,” said Sig Libowitz, a Bethesda resident who said he worked in the film industry. “By its very nature, those are not temporary jobs.”

Lawmakers did not tip their hands as to whether they were swayed that Maryland should keep paying out millions to production companies.

“We represent people from other industries as well,” said Del. Andrew A. Serafini, a Republican from Western Maryland. “They’re going through hard times, and they would like subsidies.”