Gov. Charlie Baker’s announcement that he wants to end Massachusetts’ costly tax credit program for the film industry was met with disappointment by those who enjoy seeing Jennifer Lawrence strolling around the Prudential Center mall or hope to find fame as an extra. But data from the state’s own report on those incentives suggest that these tax credits take far more away from the state than the industry they are meant to bring in ever gives back. Additionally, the majority of productions’ payroll and expenses actually go to businesses and people based in other states.

Massachusetts offers eligible productions (you can find the eligibility requirements here) a sales tax exemption (reducing the state’s tax revenue by about $750,000 between 2006 and 2012) and a 25 percent credit for payroll and production spending. This means that, for every dollar spent, the production gets a 25 cent credit. That credit is then applied to the film’s state tax liability. If the credit exceeds the tax liability, it can be sold to another party to pay off its liabilities or cashed out at 90 percent of its value.

To put it simply: A production spends $1 million on payroll and $1 million on production costs, giving it a credit of $500,000. Its tax liability is $100,000. After paying the tax, it has $400,000 to play with. It can cash out for 90 percent of the credit’s face value, or $360,000. The production recoups $360,000 of its budget, and the state loses $460,000 (the $360,000 plus the credited tax bill of $100,000).

Alternately, the production might get an better deal by selling its credit to another party, say for 93 percent of its value ($372,000). The other party then spends $372,000 to reduce its tax bill by $400,000. In this situation, the production gets back $372,000 of its budget, the other party saves $28,000 on its tax bill, and the state loses $500,000 in tax revenue. There is currently no cap on these credits.

This is a generous program, and film productions are happy to take advantage of it. In fact, almost all of the credits were given to productions that would not have shot in this state otherwise. In its “Report on the Impact of the Massachusetts Film Industry Tax Incentives Through Calendar Year 2012” (issued September 2014 and the most recent data available), the Massachusetts Department of Revenue stated: “it is reasonable to assume that no major movie productions would have been filmed in the Commonwealth in the absence of the Massachusetts tax incentives.”

This also means that if the tax incentives were to go away, so would all of those productions — and the jobs, and the economic impact. That’s exactly what happened in North Carolina when its general assembly decided not to renew its incentive program at the end of 2014. Productions follow the money, and with the majority of states offering some form of tax incentive program, it’s relatively easy to move to greener (and cheaper) pastures.

Between 2006—when the Massachusetts incentive program began—and 2012, $411 million in tax credits have been generated. Here’s where they ended up:

As you can see, the vast majority of the credits weren’t applied to the production’s tax liability, but were sold to another party. Here’s who ends up buying those credits:

The majority of the time, the credits end up in the hands of businesses that are based in Massachusetts, regardless of film tax incentives. Insurance companies ended up with $200 million of the $411 million in tax credits generated between 2006 and 2012. That’s $200 million that would have gone to the state, and didn’t. Also, the report says insurance companies bought those credits for about 94 cents on the dollar, ultimately saving them $12.7 million on their taxes overall.

In 2012, the state gave away $79 million between those tax credits and the sales tax exemption. In return, the DOR reports, film productions generated $10.6 million for the state (this includes both taxes and non-tax revenue). The state lost $68.4 million. Another way to put it: For every dollar given to tax credits, the state made 13 cents—and lost 87 cents.

Here’s the counterargument: It’s worth giving away hundreds of millions of dollars in tax credits if it brings in jobs and spending, and that economic boost far exceeds the amount of taxes lost. This is certainly true for out-of-state residents and businesses, because that’s who gets the majority of production spending. An item purchased outside of Massachusetts from a non-Massachusetts-based company can be applied to production expenses as long as it’s used for a qualifying Massachusetts-based production. Because of this, the majority of production money goes to out-of-state companies. It’s the same with payroll: It doesn’t have to go to a Massachusetts resident. Most of it doesn’t:

It’s also worth noting that of the $144.8 million paid in wages to non-residents in 2012, $83.5 million went to workers who earned over $1 million (hi, Jennifer Lawrence!), but no Massachusetts resident earned more than $1 million. The films may shoot here, but the highly-paid above-the-line talent is imported.

But sure, these films create local jobs that would not exist if the tax incentives were not available. In 2012, of the “full-time equivalent” jobs Massachusetts-based productions directly created, 650 were given to state residents. Out-of-state workers held 653 jobs. According to the DOR’s report: “non-resident wages and salaries generate little additional economic activity in the Commonwealth.”

Basically, tax incentives are creating more jobs and giving more income to people who don’t even live here. The state is losing millions of dollars to create only 650 jobs, most of which last less than three months or even, the DOR says, “a few weeks, or even days.” The DOR estimates that between 2006-12, for every one state resident production job created, $118,873 in tax credits were given out.

As for the indirect economic impact — tourism to places seen in a popular movie, spending at local businesses around film locations when productions are there, jobs at the New England Studios, for instance — it really depends on which report you read, and how the effects are measured.

A report from the Motion Picture Association of America (which very much supports incentives) said that Massachusetts’ incentive program generated $183 million in personal income in 2011, but the DOR’s 2011 report put the number at just $26.7 million. The MPAA said incentives generated $375.3 million in economic output in 2011, but the DOR calculated it to be $196.5 million, adding that economic output is “a broader, less useful measure of economic activity,” which does not take into account how much money goes outside of the state — and the majority of it does.

In both reports, these figures rely on “multipliers.” The direct, measurable effects are multiplied by a number determined by the report’s author to estimate the indirect effects. Different reports use different numbers, but one thing is the same: They are educated guesses, not facts, which rely on data that is widely unpredictable year-to-year. Five big-budget movies may shoot in the state one year, but only one the next. In 2010, for instance, production spending decreased dramatically from the year before, resulting in a personal income loss of $1.9 million. In essence, the economic impacts of film tax incentives are impossible to quantify or predict.

Films are glamorous, and it’s nice to imagine that Boston could become Hollywood East. But if you’ve ever been on the Fox backlot, which simulates a New York street in the middle of Los Angeles, you know that behind the realistic building facades, it’s just scaffolding. It looks great, but it’s not real.

http://www.boston.com/news/opinion/2015/03/06/what-wrong-with-film-industry-tax-incentives-they-don-work/wRzsGm3OegxBjDCgINEj9L/story.html