Pennsylvania's annual $60 million film credits cap unlikely to increase this year



When producers of “American Hustle” were looking for a place to shoot what would ultimately earn 10 nominations at the 2014 Academy Awards, they first set their sights on Philadelphia. But Pennsylvania ran out of tax incentives before the project could get there, and “American Hustle” went to Boston. 

This year, the film incentive program turns 10. Although Pennsylvania film offices claim the program is responsible for injecting hundreds of millions of dollars into Pennsylvania’s economy with the production of more than 300 films, TV shows and commercials, the $60 million cap per fiscal year may be stunting the state’s ability to grow within the industry and compete on a national scale. But state officials and others who oppose raising the cap or support eliminating the tax incentive altogether question whether it’s fair to expand this at the expense of other worthy state programs that also could benefit from tax incentives. 

PG graphic: Film and TV tax credits by state
(Click image for larger version)

Tax credits are designed to attract movie or television productions that are looking for filming locations. When 60 percent of a company's production expenses are incurred in Pennsylvania, it gets a 25 percent tax credit on qualified costs. Credits offset much of the tax liability a production would accrue while filming. More important, credits can be sold and transferred so that if a production has less taxes to offset than it has credits — which is most often the case — it can earn some money back by selling them to companies that do.

Between 2007 and 2012, Pennsylvania issued $298 million in tax credits among 292 productions and 500 applicants, according to a 2013 report by the Independent Fiscal Office. This resulted in 19,000 jobs, in addition to thousands of dollars injected back into the Pennsylvania economy: productions reserve building space, cast and crew rent hotel rooms for months at a time, actors buy food at local grocery stores and are photographed eating at restaurants such as Primanti Bros.

Those involved in the production of “The Umbrella Man,” for example, which was released in June, spent $18,850 on 213 hotel room nights, and $36,168 on catering expenses, according to the economic impact report submitted after filming. 

Along with those benefits come a steady output of quality contributions to the American paradigm of filmmaking. Since the program’s beginning in 2004, Pennsylvania has played host to films such as “Fathers and Daughters,” “Jack Reacher,” “Zack and Miri Make a Porno,” “The Road” and “The Last Airbender.”

Pennsylvania wouldn’t have been able to bring in these movies when the program first began; it started with a $10 million cap a year in 2004. By 2007, it had grown to $75 million a year, but by the 2010-11 fiscal year, the cap had been rolled back to $60 million a year.

In June 2013, Senate Majority Leader Dominic Pileggi, R-Delaware, introduced a bill that proposed an uncapped film production tax credit program, citing the “significant increase in the number of film and television productions” in states such as Connecticut, Georgia, Louisiana, Massachusetts and North Carolina that have uncapped programs, and the “corresponding increase in the number of film-related jobs.”

However, Erik Arneson, spokesman for Mr. Pileggi, said that he does not expect any votes related to film tax credits to take place this fall. The program also went unchanged in the budget process that concluded earlier this summer.

Most states have one center of production — Atlanta, New York, Chicago — but Pennsylvania has two: Pittsburgh and Philadelphia. Dawn Keezer, director of the Pittsburgh Film Office, said this makes it harder to stretch $60 million in credits.

Now, Ms. Keezer said, Pittsburgh loses most of its work to Atlanta. The Motion Picture Association of America reports that the film industry is responsible for more than 22,000 jobs in Georgia and $1.3 billion in wages since the credit program’s inception.

Atlanta has a similar crew size, union and labor rates to Pittsburgh, in addition to a similar cost of living to southwestern Pennsylvania. It is also home to Hartsfield-Jackson International Airport, the world’s busiest airport based on passenger traffic, and receives 15 daily nonstop flights from Los Angeles. In late July, United dropped its daily nonstop service from Pittsburgh to LA, leaving the Steel City with only one daily nonstop flight on American.

But what sets Georgia apart from Pennsylvania more than anything else is its uncapped tax credit program that allows the state to host as many productions as it is willing to grant credits. Once the $60 million dwindles to zero in Pennsylvania, productions have to wait until the next year to take advantage of them again.

Even Stephen Chbosky, who was reared in Upper St. Clair and wrote a book about Pittsburgh (“The Perks of Being a Wallflower”) that was turned into a movie filmed in Pittsburgh, acknowledged that the state’s tax credit program provided a powerful incentive to work here.

“We would have done a few days just for exteriors in the tunnel and some of the other important locations,” Mr. Chbosky said of “Perks,” “but we probably would have been forced to go elsewhere.”

The Independent Fiscal Office predicts that an uncapped program would allow the state to grant upward of $150 million in credits so projects choosing to shoot in Pennsylvania wouldn’t have to worry about being turned away.

But some are wary of leaving the program uncapped because it allows the state to spend far beyond $150 million, and recklessly.

“It’s competing against every other need in the state budget,” said Joe Henchman, vice president of the Tax Foundation in Washington, D.C. “Having it open-ended potentially throws the budget out of balance and draws attention away from bigger needs.”

Ms. Keezer doesn’t foresee the budget surpassing the predicted $150 million.

“They think we’re going to be throwing gold bars into the street,” she said. “Uncapping just gives us the ability to not lose some of the projects that we have in the past.”

The IFO reports that uncapping the program could inject another $100 million to $200 million yearly into the state’s economy.

Even so, the film tax credit program’s full-time equivalent — or the cost of creating one full-time job — may be so high that the state is actually losing money as a result.

An April 2014 report authored by Regional Economic Models, an economic impact analysis group based out of MIT, showed that Michigan was getting back only 38 cents for every dollar spent on their film tax rebate program, and its former tax credit program, while ambitious, was getting back only 24 cents on the dollar.

“The proponents talk about job creation and increasing the brand of the state on the silver screen and TV,” Mr. Henchman said. “But you also have to look at the cost, you can’t just look at the benefit. Is this the best use of the state’s revenue?”

The Pennsylvania program also allows film production companies to sell or transfer tax credits. When that happens, they often go to companies outside the film industry that are trying to develop their infrastructure.

In 2007, for example, Bombardier Transportation bought more than $119,000 worth of tax credits from the National Geographic channel and a production company called Big Smack TV. A Bombardier spokeswoman said during that year, the company used its Pittsburgh facilities to complete the automated people mover system in time for the 2008 Beijing Olympics, as well as automated metro vehicles for Taipei. 

In other instances, the credits are sold or transferred within a corporation to benefit Pennsylvania-based subsidiaries. CBS Paramount transferred more than $81,000 in credits in 2008 to CBS Radio, which owns KDKA-AM and KDKA-FM.

Tax credits also benefit contracted companies hired by productions to assist with jobs such as transporting equipment or post-production services such as sound and editing.

A spokesman for the Philadelphia-based post-production company Shooters Inc. said that business has noticeably improved since the implementation of the tax credit program. It has invested nearly $4 million into capital infrastructure in Philadelphia to take advantage of work brought to the state, and it has been on Inc’s 5,000 list of fastest growing companies for four of the past five years.

“We’re on that list in part because of the tax credit,” said a representative for Shooters. “That’s not all of it, because we have hard-working people, but it really does help us. Without the credit, just because of the competitive nature of the credits, we wouldn’t be able to compete for that business.”

But Ms. Keezer believes the annual $60 million cap is stifling further growth these kinds of companies could be experiencing in Pennsylvania as a result of the film industry.

“The program is oversubscribed every year,” she said. “We’ve been capped at $60 million for the last four years. All that really is doing is limiting our opportunities, limiting our ability to bring in more money and jobs into the region and into the commonwealth.”


Max Radwin, a rising senior at the University of Michigan, was a summer intern at the Pittsburgh Post-Gazette. He can be reached at mradwin@umich.edu

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