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During the recently completed legislative session, one of the issues that bubbled below the surface was the State’s generous subsidy programs that are designed to attract moviemakers to set up shop in New Mexico. New Mexico’s film subsidies – the primary components of which are a 25 percent subsidy for film producers doing business in New Mexico and up to $15 million in interest-free loans – have resulted in some big-budget films being made in the state. But the program costs taxpayers approximately $60 million annually. As Rio Grande Foundation investigative journalist Jim Scarantino has found, the economic studies used to justify the program are based on assumptions that could be described as shaky at best. The study which was done by the consulting firm Ernst & Young concluded that the film program returns an astounding $1.50 to the state for every dollar spent by taxpayers.
Unfortunately, the Ernst & Young study seems to have been based on assumptions that would make the film subsidy program far more economically-sensible than it really is.
- Instead of looking at payroll data, Ernst & Young utilized information collected from on-line and telephone surveys of the film industry – surveys coincidentally commissioned by a defensive Film Office. Furthermore, that information was collected at a time when the film industry was aware of the growing skepticism about the generous film subsidies they were receiving.
- Then Ernst & Young did something not seen in any other film industry study. They added in the income of millionaire movie stars, producers and directors, some of whom make 100 times or more the income of a film crew member. As a result, the average New Mexico film industry job income jumped to $91,396! That figure is also higher than reported in any other film industry study – higher than studies conducted in Louisiana, Arizona, Seattle, Florida, even New York City.
- Lastly, Ernst & Young excluded the cost to taxpayers of making interest-free loans to Hollywood. At a simple annual interest rate of 5% on a $15 million loan (the largest given out under the program), taxpayers are giving up $750,000 in interest annually. On a six-year loan, the loss to taxpayers is $4.5 million. Yet, Ernst & Young completely excluded this enormous expense from its calculations of the cost to New Mexico of the film industry subsidies.
Consultants like Ernst & Young work to achieve specific results, not objective analysis, for their clients. New Mexico policymakers need honest numbers and a careful review of the film industry subsidies in order to take action to limit the negative financial impact these subsidies are having on taxpayers. Scarantino's report on the film industry is available here. "In the report released today on film industry subsides, an error appeared in the discussion of the cost to taxpayers of interest free loans. At a simple interest rate of 5% per annum over six years on a principal balance of $15 million, the cost to taxpayers is $4.5 million, not the $13 million which originally appeared due to a typographical error. This error has been corrected and we apologize for any inconvenience caused by this correction. Thank you."
Author: Paul Gessing
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