By Mr. Jacob Bundrick
Recently, I’ve written about how financial incentives that states provide to businesses in the form of tax breaks and subsidies don’t increase economic activity, have fiscal costs, are ineffective in steering the economy, and lack taxpayer protections when the firms that get money don’t meet their promises. In my final post in this series, I’ll elaborate on how states and localities use incentives in an attempt to spur economic growth using two specific examples: financial incentives for sports venues and financial incentives for film production.
Financial Incentives for Sports Venues
State and local governments sometimes use taxpayer dollars to fund professional and amateur sports venues. Stadiums such as Marlins Park in Miami, Florida, and AT&T Stadium in Arlington, Texas, were developed in part with public funding. In Arkansas, Arvest Ballpark in Springdale was built using $50 million in voter-approved bonds. The state also spends $849,500 annually to manage War Memorial Stadium in Little Rock.
Supporters say it makes sense to use public money to build sports venues because they establish civic pride, increase tax collections, and spur secondary investment and indirect jobs. However, real-world evidence suggests that sports venues do little to boost economic activity. Temple University economist Michael Leeds says that “a baseball team has about the same impact on a community as a midsize department store.” Further, Harvard economist Greg Mankiw analyzed various polls of the economics profession and found that 85 percent of economists agree that state and local subsidies to professional sports franchises should be eliminated.
Why Stadiums May Not Help Local Economies
Sports franchises generally do not generate new spending because households have a limited budget for entertainment. Think about it: if you want to attend a Cowboys game while you’re on vacation in Dallas, the money you’ll spend on those tickets is money you can’t spend on something else, like a visit to Six Flags over Texas. Sports venues don’t really create new spending; they just shift it from one entertainment venue to another—robbing Peter to pay Paul.
Additionally, the congestion caused by sporting events can drive people who are not attending the event away from the area. This deterrent effect has a negative economic impact: the money these people would have spent at area restaurants, shops, and other businesses gets redirected. For example, a 2003 report from the Los Angeles city controller found that after the Lakers and Kings left the small city of Inglewood, California, to move 11 miles to the Staples Center in downtown Los Angeles, Inglewood actually experienced increases in economic activity. Now, if you ask any Angeleno if they’ve tried to go to another event downtown at the same time as a basketball or hockey game, they’ll probably tell you they spent so long sitting in traffic just trying to get to a parking lot in time to catch their show that they were almost late and had to skip their plans to enjoy dinner at a nearby restaurant. Some local businesses might see increased activity on game days, but there are trade-offs; business doesn’t simply increase.
Tax Incentives for Filmmaking: Do They Work?
Film and motion picture incentives are other specialty incentives that have become more popular over the last decade. As of 2014, nearly 40 states offered motion picture incentives, according to the Los Angeles Times. Arkansas belongs to this category, offering a rebate on all qualified production, with an additional rebate on the payroll of employees who are full-time Arkansas residents. These rebates reduce a firm’s costs by repaying a portion of what it has already spent.
Proponents of film incentives argue that these specialty rebates and tax breaks boost the economy because production crews must stay in local hotels and eat in local restaurants. Advocates also argue that producing films in a particular state increases tourism because movie buffs want to see where films are made. That may be true in California, since Los Angeles has a longstanding reputation as the setting for countless famous movies and TV shows. However, evidence from other states shows that the return on motion picture incentives is very low. Even in California, film tax credits only recoup 65 cents for every dollar spent, according to the Times.
States Lose Money on Tax Incentives for Film Production
Consider the cases of Massachusetts and Louisiana. Massachusetts recouped just 13 cents in state revenue for every dollar it issued in tax credits from 2006 through 2012, a loss of 87 percent. And Louisiana’s film production incentives had a negative impact of $171.4 million on the state budget in 2014 alone. The negative fiscal impacts indicate that not only do film incentives not bring a return on investment, they do not even pay for themselves. States must increase taxes to pay for them or cut spending elsewhere. Either way, film incentives are hurting taxpayers.
Evidence shows that the primary beneficiaries of film incentives are out-of-state companies and individuals. In written testimony to the finance committee of the Alaska House of Representatives, Joseph Henchman of the Tax Foundation testified that while some benefits go to in-state filmmakers and suppliers, film tax credits mainly just transfer money from in-state taxpayers to out-of-state production companies. For instance, total Massachusetts production spending that was eligible for film tax credits from 2006 through 2012 was more than $1.64 billion. But only $556.3 million, or 33 percent, was spent on Massachusetts businesses or residents.
Moreover, the jobs created by film production are temporary. Catering companies, extras, local prop builders, and so forth are employed only as long as production lasts. Filmmaking is finite: a movie is not filmed forever. A film being produced along the Mississippi River may provide local jobs for a while, but when production ends, so do the local jobs.
Conclusion
Outcomes in Arkansas and other states show that there is no reason for governments to provide tax incentives and subsidies to build sports venues or attract film producers. These subsidies and tax incentives fail to create the desired outcomes. They also take money from taxpayers that could be better spent in other areas where taxpayer funding has proven effective or that would be better left in taxpayers’ pockets where they can use that money to improve their own lives.