What’s wrong with this picture? State auditors give Georgia’s movie tax credit mixed reviews

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Film production is big business in Georgia thanks to the state’s generous film tax credit, but economists worry about rising costs and a lack of transparency.

Credit: File photo

Georgia’s film tax credit helped bring blockbuster productions like Stranger Things, Ozark and Spider-Man: No Way Home to the state, along with an estimated $4.4 billion in spending during the 12 months ending June 30.

But a new report from the Georgia Department of Audits and Accounts finds lingering concerns about the program’s transparency and rising cost to the state treasury.

The program, passed in 2005, offers a tax credit of up to 30% for production companies that spend at least $500,000 on qualified productions. The amount of the annual credit more than doubled between 2013 and 2019, growing from $407 million to $961 million. The Georgia Department of Economic Development estimates credit amounts for 2021 and 2022 exceeded $1 billion, making Georgia’s incentive the largest of any state.

No cap

But unlike most states that offer film tax incentives, Georgia does not put a cap on the amount of credit granted. New York and California, the states with the next largest incentive amounts, cap theirs at $420 million per year. The state auditor’s office recommended Georgia cap its credit to reduce financial risk to the state.

Back in March, Rome Republican and Senate Finance Chair Sen. Chuck Hufstetler tried to do just that, proposing a cap of $900 million on the credits, but his colleagues eventually nixed the proposal.

“It just keeps growing, and I could get into the things we’re paying for, private jets and chefs and personal trainers and stuff that probably needs cleaning up,” Hufstetler said in a committee meeting.

But the program has received broad support from lawmakers of both parties. Atlanta Democratic Sen. Nan Orrock told the committee messing with it would be reckless.

“I just feel very cautionary about our whacking this tax credit that’s made us the third highest state in the country for film activity,” she said. “So it’s hard to have a comfort level with that being added in. It just seems incautious to me.”

Film is big business in Georgia — the state reported hosting 32 feature films, 36 independent films, 269 television and episodic productions, 42 commercials and 33 music videos between July 1, 2021, and June 30, 2022.

Tax credit supporters compare the $4.4 billion spent in 2022 with a combined $1.4 billion from 1973 to 2008. They point out that Georgia went from having 45,000 square feet of stage space in 2010 to having more than 3 million square feet in 2022, with more than 4 million square feet planned for next two years, much of that supported by local investment.

The pro-credit side says all that movie making brings additional jobs not directly accounted for by studios, such as local carpenters, caterers, electricians and engineers.

But importing movie magic comes at a cost — an average of more than $300 per household — and the film industry’s halo effect is often overstated, said Kennesaw State University economist J.C. Bradbury.

“I have no doubt that that happens, but what is not easily seen is that these people would not be otherwise unemployed if not for the film industry,” he said. “We don’t subsidize a lot of the other industries that would be producing other (jobs). We don’t have a high unemployment rate in Georgia. Local Georgians who are employed in the film industry would otherwise be employed in other occupations within Georgia, and we would be just fine. There’s been a lot of research done on the economic stimulus effects of subsidizing the film industry, and no studies have found any stimulus.”

Fake news

The state auditor’s office found Georgia has done a better job of realistically portraying the economic impact of the film tax credit on the state economy after significantly overstating the benefit for years, but the department of economic development’s reporting on film production jobs “is still misleading at times.”

For example, auditors found that economic development touted that productions filmed in Georgia delivered $9.2 billion in total wages, but it did not disclose that that number included distribution jobs including movie theater workers.

Auditors said state officials claimed “tens of thousands” of Georgians were employed in film production, while federal data showed approximately 10,700 Georgia jobs in film production.

A spokesperson for the Georgia Department of Economic Development did not reply to a request for comment for this story, but in a written response to the audit, the department said it “stands by its reporting of the direct spend and job figures related to the film industry in Georgia, as this information comes directly from its expenditure form collected from all applicants, as well as other reputable sources.”

Out of state

The auditors found another mixed bag in the amount of credit benefits going to residents of other states.

In 2016, 88% of the credit went to companies with no permanent locations in Georgia, and 53% of the wages used toward the credit were paid out to non-Georgians. Most other states with a film incentive require or incentivize hiring residents.

“We are covering 30% of the cost of most of the economic activity that’s taking place and the transfer of resources to people who don’t even live in the state of Georgia, and are earning extremely high wages from doing so, a lot of Hollywood talent coming here,” Bradbury said. “And simply paying them to do a job they would have otherwise done in Hollywood in the state of Georgia is really just sending that money outside the state. It’s not enriching Georgia.”

The legislature hasn’t made any changes to incentivize hiring Georgia residents, but a bill requiring credit recipients to disclose more of their operations should reduce credits earned for out-of-state expenditures, the auditors found. A separate report released in July found the state economic development department fully or partially addressed all findings related to the credit’s administration.

This story comes to GPB through a reporting partnership with Georgia Recorder.