Tax credits for filmmakers were supposed to help Nevada break even on some of the tax breaks awarded to Tesla.

They haven’t.

A Reno Gazette Journal review of state financial disclosures shows that movie producers expected to flock to the Silver State simply haven’t shown up — effectively wiping out half of the state’s plan to offset Tesla’s transferable tax credits.

That means the $195 million in credits awarded to lure the electric carmaker to Storey County are helping to drain the state’s often strained general fund, to the tune of as much as $80 million over the past four years. For context, that's about 1 percent of Nevada's current general fund budget.

To understand why, it helps to grasp the state's complex plan to avoid losing money on Tesla's credits.

Think of tax credits as a kind of coupon companies get from the government. When the company's taxes come due, it simply hands over its coupons and gets a dollar-for-dollar tax reduction, while the government gets less tax revenue.

State lawmakers hoped that as Tesla’s tax coupons came in, they would be able to cover their losses by rejecting old coupons previously doled out to filmmakers and insurance companies.

Trouble is, legislators — relying in part on projections from filmmakers themselves —vastly overestimated how many coupons to expect from the movie producers.

More:Huge, Tesla-style tax breaks cost cash-strapped Nevada schools $108 million over two years

After five years, the film credit program has attracted less than one-third of the movie-making investment legislators anticipated when it was first approved.

That wasn’t a shock to good government advocates and tax policy wonks interviewed for this story. They pointed out that film tax credits have long been a punching bag for economists who study corporate tax incentives.

“There is a large, longstanding body of evidence from numerous states that film production tax credits return far less than they cost state treasuries,” said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based economic development watchdog. "I've never seen a credible study that suggested they come anywhere close to breaking even.

“It sounds to me like the Nevada Legislature made some overly optimistic claims to minimize the projected costs of the Tesla deal, but now those faulty assumptions are costing taxpayers huge sums.”

Related:It's big, loud and secretive: We got a tour of Tesla's Gigafactory and here's how it works

Tesla's transferable tax credits amount to about 15 percent of the $1.25 billion total tax package state lawmakers handed the company four years ago.

CEO Elon Musk has described that agreement as a “no-lose proposition” for Nevada. The company did not directly respond to questions about Nevada's tax credit caps.

Credits 'steamrolled' into law

LeRoy’s concerns about the film tax credits merely underscore fears first raised by the Nevada Taxpayers Association in 2013.

Back then, association president Carole Vilardo chided lawmakers for proposing a tax credit that would deprive the cash-strapped state of revenue at a time when lawmakers were desperately searching for new ways to fund education.

Vilardo, who retired in 2016, noted that similar film tax credits offered elsewhere had come under fire from economists who found the incentives were not a good use of taxpayer dollars. Some of those states have since completely eliminated their film subsidies.

She also predicted that her warnings would fall on deaf ears, as legislators “steamrolled” ahead with the film tax credit legislation.

The bill, famously touted by Oscar-winning actor and Las Vegas resident Nicolas Cage, sustained little damage on its way to Gov. Brian Sandoval’s desk, where it was signed in June 2013.

About a year later, Sandoval signed off on a Tesla tax package that treated the fledgling film tax credits as if they were already a hot commodity opening a big gap in the state’s budget.

Steve Hill — then-director of the Governor’s Office of Economic Development, which helped sell the Tesla deal — confidently predicted that plugging that gap, while throttling an existing insurance premium credit, would erase Tesla's impact on the state's general fund.

He endorsed the plan to cap the film production credit, projected to cost the state $80 million over four years, at $10 million. Also, the little-known insurance premium credit, purportedly a $30 million annual draw on state coffers, would be reduced to $5 million for a five-year period starting in 2015.

Those caps for filmmakers and insurance companies were supposed to fully offset the impact of Tesla's tax credits by 2020.

But Hill's recommended four-year, $10 million cap on film tax credits didn't save a dime. That's because filmmakers have used just $9.6 million in credits since fiscal year 2014.

The cap on insurance premium credits has fared far better. Restrictions on the use of that popular credit, which took effect in 2016, saved the state about $93 million in revenue through the end of last year, according to the Nevada Department of Taxation. Both the cap and the credit are set to expire at the end of 2020.

Tesla was awarded nearly twice that amount in tax credits, some $173 million, since 2015. The company is expected to burn through another $22 million in credits by June 2020.

In other words, savings from the offsets have so far fallen about $80 million short of filling the revenue hole created by Tesla’s tax breaks.

State Sen. Ben Kieckhefer, R-Reno — who voted against the initial bill to create film tax credits, but supported the Tesla bill — wasn’t surprised the film credit offset hadn’t performed as some had hoped.

But he disagreed with critics who said the Legislature oversold the credits' value to downplay Tesla’s impact on state finances.

“I found it unlikely that $80 million would’ve been used in film tax credits,” Kieckhefer told the Reno Gazette Journal last week. “We were using transferable tax credits for the first time, really. … It’s not that we intentionally inflated the value of the credit. Its efficacy was overestimated.”

Filmmakers to blame?

So how did the state manage to overestimate the impact of tax credit offsets in the Tesla deal?

Staffers at the Governor’s Office of Economic Development, which issues the credits, said it wasn’t their fault. They said the office merely relied on state lawmakers’ past predictions about the future value of the film credits.

Legislative testimony suggests those projections were based, at least in part, on studies conducted by the film industry itself.

The Nevada Film Incentive Task Force — a state-registered political action committee founded by movie producers — presented several film credit-friendly reports to state lawmakers between 2009 and 2013.

Perhaps unsurprisingly, the movie producers calculated that huge tax credits applied to their projects would pay for themselves almost from Day One, and would eventually yield hundreds of millions of dollars in new tourism revenue for the state.

Such figures seemed to appeal to legislators such as state Sen. Aaron Ford, D-Las Vegas, who sponsored the 2013 bill creating a film tax credit program.

Ford, Nevada's incoming attorney general, said at the time that the Silver State couldn’t afford to be left behind in the race to attract film productions.

“Nevada has lost interstate competitiveness, out-of-state investment money, long-term jobs and our best local talent,” Ford told his colleagues at a 2013 legislative committee hearing. “Most of us leave the movie theater before the credits finish running or change the channel on the television.

“The fine point we miss is these credits are jobs. These titles at the end of every movie and television show represent jobs for real people, wherever the film was produced.”

Yet little more than a year later — as the state sought out ways to offset Tesla’s tax breaks — some supporters had already started to change their tune about the film credit program.

Hill, the former economic development director, conceded it had created “very few,” if any, permanent jobs.

But he said capping the credits could still provide a useful counterweight to the nine-figure tally of tax credits the state had offered to Tesla. Hill assured state lawmakers that the repurposed tax credits would “ensure” that Tesla’s tax credit package would not negatively impact the state’s general fund.

That didn’t happen, though it hasn’t stopped current and former economic development officials from defending the effort.

Hill, now the CEO of the Las Vegas Convention and Visitors Authority, stands by the plan. Hill's spokesman on Wednesday told the RGJ that the film credit cap resulted in "savings" that would help the state get "very close" to offsetting Tesla's credits.

Hill did not respond to follow-up questions about how he tallied the savings generated by the cap on film credits.

Derek Armstrong, the economic development office’s deputy director, struck a similar note in a December interview the RGJ.

Armstrong, like Hill, characterized Tesla's tax credits as "revenue neutral." He, too, failed to directly answer questions about how he reached that conclusion.

“I definitely think the Legislature had some level of confidence about its (film credit) projections,” Armstrong said. “It’s hard to Monday-morning quarterback what happened.”

The state's economic development office praised Tesla in a December report that found the Gigafactory has created more than 7,000 jobs — 40 percent more than promised — and an additional 8,200 jobs in other local businesses since 2014.

That report arrived one day after critics slammed tax breaks that will see the company avoid paying school-funding taxes until 2034. Similar economic development incentives have deprived Nevada’s struggling public schools of more than $108 million since 2016.