States are battling to bring Hollywood to Main Street — and paying big

ALBANY, N.Y. — The men spent months plotting their escape. They cut through the deepest recesses of the Clinton Correctional Facility, one of New York's most infamous maximum-security prisons, before finding their way out through a steam pipe on June 5, 2015 — setting off a three-week manhunt involving 1,000 officers scouring the dense woods near the Canadian border.

The dragnet cost a small fortune, including $23 million in overtime. And taxpayers didn't pay once, but twice: First for the search, then for a critically acclaimed TV series about the ordeal. The state doled out $21 million last year to subsidize the Showtime mini-series, "Escape at Dannemora," starring Benicio del Toro and Patricia Arquette, according to public records obtained by POLITICO.

The money is part of $420 million in film tax breaks New York gives out annually, and it highlights an escalating war between states intent on attracting Hollywood productions with massive incentives. It's an endeavor many economists see as financially foolish, but still features states like California, New York, Georgia, New Mexico, New Jersey and a handful of others.

While 35 states now have some form of film-tax breaks, studios often go to the highest bidder, industry officials said. And the studios' shopping spree has fueled some states in recent months to increase their tax breaks to outmaneuver their neighbors, creating significant criticism for the huge amount of public money going to offset costs for a lucrative industry.

"The only thing they look at is their spreadsheet and where they are going to save money," said Laurent Rejto, the director of Hudson Valley Film Commission in New York, estimating last year the region was in consideration for 20 productions but ended up with only two.

And there's plenty of taxpayer money available for studios to film the next hot show or movie, especially as states are now flush with cash due to higher-than-expected tax revenue as the Covid-19 pandemic wanes.

Georgia issued a national record $1.2 billion in tax credits last year, far surpassing any state, but also faced calls for the program to be curbed. A measure to do so in the Legislature failed, a sign of the industry's power in statehouses where it lobbies heavily and has strong union support.

Georgia's ability to attract the top shows and movies — such as Netflix' "Stranger Things" and Marvel's "Black Panther" — has increasingly drawn efforts to put a cap on its spending and also no longer subsidize "above the line" costs, which includes portions of actors' salaries.

And unlike many states, Georgia doesn't disclose how much each production receives in tax breaks, which the state claims is proprietary information.

"It’s cannibalizing the state budget," Danny Kanso, policy analyst for The Georgia Budget and Policy Institute, a left-leaning group, said.

"First, we need transparency. We need to know where these credits are going and how much these productions are getting. And second to that, we need to retool the credit so that we are incentivizing those companies that are actually based in state, that are hiring in-state workers, rather than offering this across the board credit everyone the same."

A battle of the states

States have defended their film subsidy programs, saying the tax breaks bring in thousands of jobs — whether on set or in the form of indirect economic benefits, like the local stores that make food and sell supplies for the productions.

In 2019 and 2020, New York — which has one of the most expansive programs — generated $10 billion in total spending through its productions, according to Empire State Development, the state's economic development arm. The state provides 25 percent back on production costs to studios and 35 percent for those that film outside the New York City area as a way to spread the work to other parts of the state.

Studios submit their expenses after the productions end, then get reimbursed for a portion of their eligible costs.

"The New York State Film Tax Credit Program supports the livelihoods for production workers, caterers, hospitality workers and many others throughout our local communities and drives employment and investment that, as several states that have discontinued their tax incentive programs have learned, would disappear without it," the agency's spokesperson Kristin Devoe said in a statement.

When New York bolstered its program to $420 million annually about 12 years ago, productions jumped from 62 a year to 216 in 2021, and it has fueled more brick-and-mortar studios. The state now has 130 production facilities, mainly in New York City, but also in other more northern regions of the state, where additional savings are available.

The tax breaks add up: "The Irishman" on Netflix starring Robert De Niro received $35 million last year. The most was a few years ago when "Amazing Spider-Man 2" from Columbia Pictures received $46 million.

The debate over film-tax breaks is one of the few issues that often unify conservative and liberal advocacy groups in state capitals: They both usually deride the programs as giveaways that aren't worth the bang for the buck.

One point of contention is that some shows and films would still shoot in New York, for example, regardless of the incentives. "Saturday Night Live" stands out: It gets millions of dollars every year for being in Manhattan, even with its moniker "Live from New York." Last year, the NBC show received $18.6 million for season 44.

"I don’t think people fully understand just how outrageous and blatant a giveaway this is. This is not a tax break. This is an outright subsidy," said E.J. McMahon, the founder of the Empire Center, a fiscally conservative group based in Albany.

Fueling the TV and movie industry

The tax subsidies have created a scenario of haves and have-nots in states.

When Florida ended its film tax credit about six years ago, the cameras packed up and moved to other states — illustrative of how portable the productions can be. For example, the HBO show "Ballers," starring Dwayne "The Rock" Johnson, was based in Miami from 2015 to 2019 and shot the first two seasons there. But when the tax credits dried up, it moved to California and used stock footage of gleaming South Beach for future seasons.

"Budget is everything," said Sandy Lighterman, the film commissioner in Broward County, Fla. "It’s like you look at your grocery store and your rival grocery store. If one has buy one get one free and the other one does not, where are you going? It’s the same concept."

In New Jersey, former Gov. Chris Christie, a Republican, nixed the state's film tax credit program in 2010 amid complaints the MTV reality show "Jersey Shore" had benefited from it. Democratic Gov. Phil Murphy signed legislation that brought the program back in 2018 and has since bolstered the initiative. The state now offers up to 35 percent back on expenses, including up to $500,000 for each actor's salary.

The tax breaks are part of a perfect storm for the industry, said New Jersey Motion Picture and TV Commission Executive Director Steven Gorelick: Streaming services in recent years have created an unprecedented demand for new content, and states are eager for the business.

Streaming services and cable stations are "trying not only to populate with productions, but you have an audience that has an unending appetite for content," he said.

California, where most top studios have been based since the Golden Age of Hollywood in the 1920s, has struggled to keep up as it lost its industry-leading position to Georgia and other states.

Last year, the state Legislature added an additional $75 million to its $330 million a year program, as well as another $15 million per year to coax TV shows back to the state.

The additional money "provided significant and much needed funding for our program because our program has been oversubscribed for a long time," said Colleen Bell, the executive director of the California Film Commission.

"We have had to turn away qualified productions because we have not had enough tax credits to allocate, and then those productions will go to other states. There’s a lot of competition out there."

A state report in March found productions that applied for tax breaks in California, but were turned away between 2015 to 2020, spent $2 billion in 18 different states, led by $552 million that went to Georgia and $250 million to New Mexico, which also has robust incentives.

Economists and state officials supportive of the tax breaks have long been at odds.

A 2012 report by the California Legislative Analyst's Office found several government-commissioned studies overstated the program's benefit, concluding that "state and local tax revenue return would be under $1.00 for every tax credit dollar" issued.

Two years ago, meanwhile, a state audit in Georgia also accused the state of "an inflated multiplier to calculate credit-related economic activity and has reported misleading job numbers."

"While Georgia’s film tax credit has increased the production of movies, television, and interactive entertainment in the state, the information available to decision makers regarding the credit’s impact has been incomplete and inaccurate," the audit found.

But lawmakers have defended the program, and New York recently extended its tax breaks until 2029.

Georgia House Speaker David Ralston rejected efforts this year to cap the program, which allows productions to sell unused tax credits to other companies to reduce tax liabilities.

Simply put, he told Variety: “I’m not prepared to run that industry out of Georgia.”