Studies provide different scripts on film tax rebate

By Robert Nott: The Santa Fe New Mexican

There’s an old saying that the devil can quote scripture for his own purpose. It can also be argued that economists can use financial data to paint the portrait that best suits their needs.

Small wonder, then, that two recent studies of the financial impact of New Mexico’s tax-rebate program for film production generated widely divergent results.

The 25 percent rebate is one of several incentives intended to lure film projects to spend money in the state.

Last August, the Arrowhead Center, the economic arm of New Mexico State University in Las Cruces, published a study saying the rebate was netting only about 14.5 cents for every dollar.

The Legislative Finance Committee had commissioned the study after lawmakers raised concerns that the tax rebate wasn’t paying dividends for New Mexico.

In January, the New Mexico State Film Office and State Investment Council — part of an administration that has made the film business a cornerstone of economic development efforts — released a separate study. The $50,000 study by the accounting firm of Ernst & Young concluded that state and local government revenues combined amount to $1.50 for every dollar the state spends on the program.

The Ernst & Young study said that the state was getting 94 cents in revenue for each dollar spent — losing 6 cents on the deal — but that local governments were taking in 56 cents on the dollar, thus resulting in the $1.50 figure.

While the state Legislature looks for ways to cover a projected $450 million shortfall in the current state budget, film industry proponents are citing the Ernst & Young study as proof that the movie business pays off.

“This is not the time to shake this program up,” Lisa Strout, director of the New Mexico Film Office, said Thursday. “Our position is that we need to stay steady, we want to still be standing at the end of the year.”

The varying data in the two reports has Legislative Finance Committee members trying to reconcile the differences.

During an LFC meeting at the Capitol this week, Rep. Antonio Lujan, D-Las Cruces, asked Strout and one of the authors of the Ernst & Young study, Andrew Phillips, to work with the LFC toward this goal.

When Lujan asked Phillips how much net tax revenue the state was getting for every state dollar spent. Phillips responded, “94 cents.”

“It’s still not making money?” Lujan asked.

“In the strictest sense, that’s true,” Phillips said, but he stressed that the film incentive program is nonetheless clearly creating jobs.

The Ernst & Young study reports that film production work created 2,200 direct jobs in 2007, which led to an additional 1,612 “indirect” (or trickle-down) jobs. When the researchers factored in capital expenditures and the impact of film tourism, they decided that the total number of jobs created was 9,210.

The two studies used different data.

The Arrowhead report relied primarily on U.S. Bureau of Labor statistics for employment data and calculating the effect of rebate-program spending and its subsequent return to the state in tax revenues. It did not take into account either tourism dollars purportedly generated by the film business or capital expenditures by the industry.

The Arrowhead study focused on fiscal year 2007, while the Ernst & Young study focused on calendar year 2007 — a variable of six months. That allowed Ernst & Young to factor in the roughly $100 million spent on infrastructure by Albuquerque Studios, a new eight-soundstage studio, in 2007.

Phillips acknowledged in an interview that, “In a year with no capital expenses we would not have had this impact.” It’s unlikely that a new studio costing $100 million will be built in the state every year.

“These are estimates,” Phillips said. “The impact may be off a little bit, but that’s true of any economic study done in the history of man.”

Anthony V. Popp, an NMSU economics professor who compiled the Arrowhead report with James Peach, said Thursday that, “Obviously the two studies have made some different assumptions and worked with a different starting point, and one would expect there would be differences. We are going to do an in-depth comparison of the two studies and provide that information to the LFC.”

Popp said the issue of film incentives is “a very hot topic, not just in New Mexico but over the whole United States.”


Contact Robert Nott at 986-3021 or rnott@sfnewmexican.com