THE BLOG
05/15/2009 05:12 am ET Updated May 25, 2011

Is Bankrolling Johnny Depp's Hair the Best Use of Public Funds?

As huge budget deficits cripple most states, Wisconsin is trying to stimulate its economy -- by paying for $100,000 in personal grooming and perks for Johnny Depp, and another $4.5 million towards his upcoming film, Public Enemies. Rhode Island recently underwrote Disney's Underdog -- a CGI re-imagining of the adventures of the flying beagle -- with nearly $10 million in public funds. Missouri is gearing up to help pay for three episodes of the soap opera, "As the World Turns," and if Connecticut's Economic Development Office has its way, that state's taxpayers will soon be paying Jerry Springer to tape episodes of his raucous daytime talk show.

Unbeknownst to many Americans, the film and television industry now operates across most of the nation with public subsidies averaging about 25%.

Astute observers of state budgets have long-noted the insane logic of the "war among the states" for so-called "economic development," whereby states strive to lure businesses away from one another with tax breaks. One of the most absurd instances of this phenomenon is the adoption of steep credits and cash rebates for filmmakers and TV show producers. Lawmakers have been persuaded to believe that they can lure the entertainment industry away from California -- that they'll soon be dodging paparazzi in Detroit and Madison, right alongside Brad Pitt and Angelina Jolie.

State after state, the the numbers are astounding: Since 2005, tiny Rhode Island has forked over nearly $60 million to film and TV production outfits. Connecticut has paid out more than $90 million, and Massachusetts $136 million. Louisiana, whose program is subject of an FBI investigation, spends more than $100 million per year; New York spends about $200 million annually. And that's only the tip of the iceberg.

This sprint to the bottom has just reached its predictable, pathetic conclusion: Burned particularly by the loss of the television show Ugly Betty, California's recent budget includes a half-billion in tax credits of its own, under the guise of "stimulus," as a bribe to keep Hollywood from off-shoring to Manhattan, Indianapolis, and Santa Fe, which are offering bribes of their own. The floor has been lowered across the land, achieving a new equilibrium where public subsidies accrue to industry moguls to make movies that would be made anyway. At least 42 states now provide incentives, with some exceeding 40% of production costs.

Typically states offer these subsidies in the form of tax credits. The film production company can use credits to offset taxes owed, or, as happens more commonly, sell them to other taxpayers who use them to reduce their own tax obligations. For instance, a $1 million tax credit might sell on the open market for $750,000. The buyer, (a big corporation or wealthy individual) uses the credit to offset $1 million in taxes owed, saving $250,000. These programs are giveaways to Hollywood and the wealthy at the expense of revenue-starved state budgets.

So do these programs do any good? An increasing body of evidence indicates that they don't. A 2008 Department of Revenue study in Massachusetts determined that out of every dollar the State gives movie makers, less than 18 cents is returned in new tax revenue. In a sense, these subsidies do not create jobs so much as rent them. They persist only so long as subsidies remain in place. Forty-two other states stand waiting to lure them away, checks in hand. In Massachusetts, the rental fee for a single film job is more than $27,000 a year. Studies done for policy makers in four other states; Louisiana, Rhode Island, Connecticut and New Mexico all reach similar conclusions.

But that's largely beside the point. Even if a state could 'make money' (that is if film production yielded more tax dollars than it consumed), society as a whole would still lose. A state's film incentives are "successful" only if they manage to lure film and TV production from other states. It may seem easier to steal jobs than to create new ones. However, we are not creating any new wealth, we are merely paying to move it around. The benefits flow to the powerful media conglomerates who are lobbying hard to encourage and expand this self-defeating competition among the states.

So, as California tilts the playing field back in its favor by spending half a billion dollars on an industry that previously operated there without a subsidy, the question is: will states cut their losses, or will they continue a race to the bottom? Here is a suggestion to state leaders struggling to close budget gaps: Let's end the mass delusion, and collectively agree to end this wasteful corporate welfare program.