Film Industry Trashes Critique of Incentives | Eastern North Carolina Now

    Publisher's note: The author of this post is Rick Henderson, who Carolina Journal Print Columnists for the Carolina Journal, John Hood Publisher.

    'Talking points' go after NCGA economists, Commerce analysts, JLF

    RALEIGH —   Lobbyists for North Carolina's motion-picture industry, in an attempt to preserve an expiring taxpayer subsidy for film production in the state, are circulating two "talking points" documents to lawmakers attacking the credibility of those who have questioned the figures the industry uses to tout the value of the film incentives.

    The industry's targets are the labor-market experts at the state Department of Commerce, the economists at the Fiscal Research Division of the General Assembly who review the fiscal implications of pending legislation, and the John Locke Foundation, which in recent weeks published two Carolina Journal news reports evaluating the fiscal and employment impacts of the film tax credit.

    The film-industry talking-points documents, available here and here, employ misleading language, incorrect descriptions of film-industry jobs, and assertions that are not supported by independent sources.

    One obvious error is a claim on page 2 of the film-industry chart that film and television production jobs are classified by the Census Bureau and the Bureau of Labor Statistics using North American Industry Classification System code 541214, rather than the 5121 code used by Fiscal Research staff. In fact, code 541214 is the job classification for payroll services, including talent payment services (such as agents), rather than film production. NAICS code 5121 covers motion and video picture industries and encompasses not only production jobs but also positions at cinemas.

    Meanwhile, the first CJ news report, published online March 31, was produced by Executive Editor Don Carrington, who, as deputy director of Labor Market Information for the N.C. Employment Security Commission under former Govs. Jim Hunt and Jim Martin, is no stranger to labor statistics. In it, Carrington noted, "it's not clear how many jobs the film industry provides in North Carolina, and whether offering tax credits is a net economic benefit to the state or simply a drain on the treasury."

    Carrington cited industry data from the federal Bureau of Labor Statistics, which is considered the nation's most credible source of information on employment, showing that the number of full-time North Carolinians employed in film and motion picture production from 2001-12 peaked in 2001 at 1,252 and slowly declined to 792 in 2012, the most recent year numbers are available.

    A Commerce Department presentation prepared last fall cites employment in motion picture production ranging from 2,000-4,000 jobs. (See attached document, page 7.)

    The state Department of Revenue claimed 36 projects employed 17,730 people in the fiscal year ending June 30, 2012 — but Revenue spokesman Trevor Johnson told CJ that the agency considers each paycheck it issues for a project to be a separate "job." The agency wrote 17,730 checks in that fiscal year, but did not indicate how many people received more than one check for the same project, or how many people received checks for working on several projects. "In addition, a paid assignment lasting only one day — a movie extra, for example — would be counted as one employed person," the news report noted.

    Carrington also noted that the North Carolina Film Office, another division of the Commerce Department, uses the number "'4,100 well-paying crew positions for the state's highly skilled work force' for year 2012. NC Film Director Aaron Syrett told CJ that the BLS numbers do not cover all the employment in the industry. 'We get numbers directly from the production companies,' he said." The CJ story consistently cited the wide variation between job figures calculated by the industry and those measured by the government.

    Carrington has sought to have the state's BLS analysts clear up the differences between the numbers they have reported and the figures cited by film-industry boosters. Commerce spokeswoman Kim Genardo has not responded to those requests.

    The second news report, published online April 5, reviewed a memo from economists at Fiscal Research reviewing an industry-funded study of movie production jobs prepared by Rob Handfield, a professor of supply-chain management at N.C. State University.

    That report noted a host of inaccuracies and errors in Handfield's study, including the assertion that the film industry generates sales tax revenues for services it generates, although services are not subjected to sales tax. It also asserts that local governments gain property tax revenues from property owned by film companies, even though governments would collect property taxes no matter who owned the land.

    The film-industry chart claimed, without being more specific, that JLF "[got] out an alleged theory" using flawed models, and that "supply chain analysis is about counting." Perhaps the "alleged theory" is opportunity cost — a fundamental tenet of economics stating that a dollar spent for one purpose cannot also be spent for another. As BusinessDictionary.com puts it, opportunity cost is "A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.,) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost."

    JLF director of regulatory studies Jon Sanders has noted that supply-chain studies often ignore opportunity costs. The Fiscal Research memo concluded, the "Handfield study does not include opportunity costs — the ways money spent on the film credit could have been used for other purposes in the general economy or to reduce public sector spending."

    The refundable tax credit for 25 percent of allowable spending on film-production costs will expire Dec. 31 unless it is renewed or modified during the short session of the General Assembly. The industry is lobbying heavily to keep some form of the subsidy in place.

    Rick Henderson (@deregulator) is managing editor of Carolina Journal.