Despite the many studies that found problems yet little positive effects from state film incentives, “just an old sweet song” keeps Georgia’s program on our mind. Georgia, we are told, has created tremendous growth for its film industry by offering a very generous tax credit, so much so that it is now called the new Hollywood of the South (we’ve heard that before for another state, with questionable outcomes).
However, two audits conducted by the Georgia Department of Audits and Accounts (DOAA) — one on the administration and one on the impact of Georgia’s film tax credit — and released in January 2020 shed some light — or rather cast a shadow — on the much-praised program.
According to DOAA, Georgia’s incentive program generated more than $3 billion in credits between 2013 and 2017 and is the state’s largest tax credit. More than $667 million in credits were generated in 2016 alone, and $915 million in 2017. Georgia “has the largest film incentive of any state by the amount generated.”
However, DOAA’s audits report, lax requirements regarding the documentation needed to claim the credits, no mandatory auditing of projects, control weaknesses, the fact that the credit is transferable and can be carried forward for up to five years, created “an environment ideal for fraud” and resulted in some productions receiving credits for which they were not eligible.
Moreover, DOAA concluded that the impact of the tax credit had been exaggerated: “the information available to decision makers regarding the credit’s impact has been incomplete and inaccurate. The economic impact and jobs attributable to the credit have been overstated, even before considering the cost of the credit.” The Georgia Department of Economic Development, the audit states, “used an inflated multiplier to calculate credit-related economic activity and has reported misleading job numbers,” including jobs not related to the credit.
As was the case for many other states’ film incentive programs, Georgia’s program created a fiscal cost to the state: “while the economic activity resulting from the credit generates revenue, the additional revenue is not sufficient to offset the credit.” In addition, the ability for taxpayers to carry forward the tax credit creates uncertainty on when the credits will be claimed. As of March 2019, there were $1.7 billion in outstanding credits.
Both audits also found that some of the program’s benefits went to other states. For example, “while Georgia residents held most of the jobs in the period studied, most of the wages were paid to non-residents, including highly paid, out-of-states actors.” Some expenditures to out-of-state vendors that did not meet the eligibility requirements were nevertheless allowed to count toward the credits. Finally, many production companies are not based in Georgia and have little to no income tax liability in the state. As a result, most of the credits are sold — “approximately 80% of credits generated in 2016 have been transferred by the production company to another Georgia taxpayer.”
These are only some of the serious issues Georgia’s DOAA found. The two audits can be found here.
The audits can serve as a cautionary tale: Texas should not envy Georgia’s program. As the same patterns of inefficiency, fiscal cost, and inflated impact keep coming up in audits and studies of different state film incentive programs, Texas would do well to consider getting rid of its program and returning the money currently handed out to film productions to taxpayers instead.