Getting a Grip on Film Tax Incentives 

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Paul Giamatti and Laura Linney in HBO's “John Adams,” one of the last major  productions to film in the region.

In 2008 the Virginia Film Office used what is known as the Keynesian multiplier of film production to figure the economic impact of “John Adams” and “Evan Almighty.” The economic model is based on geographic location and local industry indicators.

“What they are saying is typical,” says John Gerner, managing director of the Richmond-based Leisure Business Advisors. “It's really an estimate, though. This is not a science.”

Gerner says a multiplier determines the ripple effect of a movie or commercial being filmed in a particular area. Money is spent directly to hire local actors or to rent equipment locally. Then the actors take part of that pay and go out to eat at local restaurants, for example. That restaurant buys vegetables from local producers. It's how money is spent and respent in an area.

Some of the money goes out of the local area, Gerner says. The larger the city, the more likely the money stays local and the higher the multiplier. But the multiplier must allow for some leakage. The smaller the market, the more leakage there will be.

More money will leave the Richmond area than this 2.12 multiplier suggests, according to Heywood Sanders, professor at the University of Texas who studies taxpayer-funded economic development. Multipliers more than 1.5 don't typically pan out, he says.

“Folks who want to make arguments to support certain projects are going to prefer ever bigger numbers,” Sanders says. “Whether those numbers seem to make a whole lot of difference is not always evident.”

People involved in a local film production can spend money on things outside of the area as quickly or more quickly than they can on those goods and services in the locality, he says. If the money is spent in the area, the next concern is whether the money will be of temporary benefit or become a part of a long-term economic impact.
The state shouldn't offer incentives just so a production company comes and then leaves, Heywood says. The incentives should be used to build a much larger base of human capital in skills or resources that will enable Virginia to achieve something with a broader purpose.

“If it's just a matter of making money for a local catering company then you are stuck in this enormous, endless circle trying to compete with other states for temporary business,” Heywood says. “What you want to do is try and use the incentives to build a very different kind of base, one that takes advantages of local resources and talent base.”

The new incentive packages due to begin in 2011 offer additional tax credits to production companies that hire Virginians, which is one way to ensure that portions of tomorrow's visiting film budgets will circulate locally.



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