Rich stars pocket subsidies, state says

Report fuels debate on tax incentives to lure film industry

Tax subsidies are credited with drawing stars such as Kevin Spacey (right), filming "21" in Chinatown last year, to the Bay State. (Evan Richman/Globe Staff/file 2007)

When Governor Deval Patrick signed legislation a year ago to expand state tax subsidies for the film industry, he predicted it would help lure new movies to Massachusetts and pump millions of dollars into the economy.

But a new government study suggests much of the money will go to high-paid Hollywood actors, raising questions about the value of the incentives.

The analysis by the Department of Revenue this week estimated that at least half the film-industry payroll spending will go to out-of-town residents, mainly actors, directors, and producers commanding salaries of more than $1 million each. The Revenue Department assumes they will spend only a fraction of their paychecks in Massachusetts, limiting the benefits to the local economy.

"It's not the best use of taxpayers' money," said Representative Steven D'Amico, Democrat of Seekonk, who requested the study. "I don't think it's good business to be subsidizing the salaries of rich movie stars."

Though the report didn't name individuals, dozens of movie stars have come to Massachusetts to make movies in the past couple years, including Sandra Bullock, Kate Hudson, and Kevin Spacey.

The Revenue Department noted its analysis is consistent with a 2005 report on Louisiana's film tax subsidies, which estimated 60 percent of spending eligible for tax credits would go out-of-state. And when The Providence Journal reviewed records for a Wesley Snipes film subsidized by Rhode Island, it found just $1.9 million of the $11 million in production expenses went to local residents and vendors - less than the $2.65 million in tax credits issued to support the 2006 movie, "Hard Luck."

The Revenue Department declined a Globe request for access to similar records for Massachusetts productions, saying the documents are considered confidential under state law, like tax returns. In Rhode Island, such records are deemed public.

Under the state's two-year-old film tax incentive program, the state offers to reimburse companies for up to one-quarter of their local production expenses in the form of tax credits, which the companies can use to reduce corporate income taxes or sell to other firms or back to the state (which has agreed to pay 90 cents for every dollar). That means taxpayers could subsidize up to one-quarter of the pay for stars. In addition, film companies do not have to pay sales tax on production expenses in Massachusetts.

Kofi Jones, a spokeswoman for the Patrick administration, said the incentives are important.

"We must keep our competitive edge so that we can create new, high-wage jobs in what is a growing industry," Jones said.

Film industry lobbyists have argued the subsidies will generate enough jobs and other economic activity to eventually pay for themselves. A Revenue Department report in March suggested that between 2006 and the end of this year, the film industry will likely spend $545 million on productions qualifying for the incentives. Film advocates say the productions will generate hundreds of millions more in indirect spending.

But in this week's report, the Revenue Department found the subsidies probably wouldn't generate enough money in income taxes and other revenue to offset the cost of the incentives, forcing the state to cut other government spending. Assuming $100 million a year in incentive spending, the state said it would only be able to recoup $18 million to $23 million in other tax revenue.

Still, the report also estimated subsidies could increase full-time employment in Massachusetts by between 2,388 and 5,314 jobs, assuming the state spends $100 million per year on the incentives. The Revenue Department said it hopes to come up with more accurate figures next year, when it has data from more film companies applying for incentives.

William Earon, managing director of Coastal Capital Advisors LLC, a Boston private equity and consulting firm that serves the film industry, said it's "premature" to analyze the impact of the incentives.

The Revenue Department "made it clear that it does not yet have enough detailed information," Earon said.

Meanwhile, the state is considering a bill to subsidize up to 20 percent of the construction costs of film studios in Massachusetts, which could help lure even more films to Massachusetts. Members of the Joint Committee on Revenue are slated to vote on the bill via e-mail by this afternoon.

Todd Wallack can be reached at twallack@globe.com.