(Sep. 1, 2011) – There’s no denying the excitement when a major motion picture production comes to your neighborhood. Increasingly, in recent years, movie making has moved out of the Hollywood soundstages to our streets and hometowns. Producers hunt for attractive locations and, in the parlance of today’s motion picture industry, “attractive” is measured, in part, by the lucrative incentives states offer to bring the production into town.

Enter the Commonwealth and its film tax credit. That credit – which a filmmaker can sell to raise money – has brought the promise of jobs, increased tourism, and state and local revenue, along with movie stars, our state on the big screen, and Oscar-nominated films showing off the Commonwealth.

But the film tax credit has also cost the Commonwealth’s treasury hundreds of millions of dollars in lost tax revenue, money not available for educating our youth, providing public safety, or funding public works and critical human services. How do we know if this tradeoff is worth it?

The film tax credit is one of the most controversial tax incentive programs.

Recent studies from the film industry, the Tax Foundation, the University of Massachusetts, and the Department of Revenue suggest widely divergent returns on the millions we’ve invested. The program gets mixed reviews, in part, because there is no agreement about how to measure its effect. How do we count the number of direct and indirect jobs associated with a film production, and what taxes – on salaries paid now and on the film’s profits realized later – result from that production? How do you really measure increased tourism and the intangible benefits it brings? How do you determine if the benefits of this tax incentive outweigh the attendant reduction in funding for other programs? Should the average taxpayer foot the bill for local film making?

The controversy surrounding the film tax credit is, in many ways, reflective of the larger issue with all tax credits. We have no system in place that identifies the public policy goal of our many tax credits and accounts for the public costs and benefits. The Massachusetts Department of Revenue, in a document called the Tax Expenditure Budget, produces an annual report of all the credits, exemptions, and deductions associated with our state’s sales, corporate, and income taxes. Add them up, and we annually forego an estimated $20 billion, an amount approximately equal to the revenue the state collects each year. While many of us would defend some of the expenditures, we need a serious public conversation about how we decide which ones we are willing to prioritize and pay for.

We recently took a major step in this direction, creating a special commission to “review and evaluate the administration and fiscal impacts of tax expenditures” and to provide recommendations for how to improve the evaluation of current tax expenditures and proposals in the future.

The Committee on Revenue recently advanced a bill to go beyond the study commission and establish a permanent tax expenditure oversight board. It would put in place a three-year review cycle for each item in the tax expenditure budget, require a clearly identified public policy purpose for any exception to our taxes, and require specific metrics that will allow us to evaluate the efficacy of a tax credit, as well as an accounting of anticipated costs and benefits.

It would give consideration to sunset clauses and clawback provisions so that taxpayers don’t get left with the bill when an investment doesn’t pay off. Finally, it would mandate complete public disclosure so that we, the people, can keep watch.

To date, there’s more heat than light in the debate over the film tax credit and tax incentive programs in general. The commission and the proposed permanent oversight board offer the promise of an important public conversation and the hope that we’ll stop flying blind on these incentives. For now, let’s just call that a wrap.

Republished from: Commonwealth Magazine