'Set the money on fire and have the same outcome:' Critics say NJ tax break for movies is a bust

World Wrestling Entertainment rumbled into the Meadowlands last spring to showcase its annual drama of dropkicks and body slams, Wrestlemania. It featured celebrities of the squared circle and drew 82,000 fans to MetLife Stadium for a one-day marquee touted by the lieutenant governor as an “incredible windfall” for the region.

It’s debatable who benefited from the windfall – New Jersey or WWE. The state awarded WWE a $2.9 million tax break for bragging rights and an economic jolt estimated by the wrestling behemoth to be worth $100 million between New Jersey and New York.

But it did not bring long-term jobs, making it one of the prime examples used by experts to show why they say the Film and Digital Media Tax Credit Program touted by Gov. Phil Murphy is poor public policy. In addition to not creating long-term jobs, there is no sustained economic growth with the program and it does not build on an existing industry, they say.

As many other states have shied away from such programs in the last decade, Murphy has hailed the film tax credit as an economic booster that also draws attention to the state — and he wants to expand it at a potential cost of $700 million.

The push to expand this one tax incentive comes as New Jersey's two major programs for business tax credits have expired amid a political fight to revive them, investigations by state authorities and a team of outside lawyers, and a state comptroller report saying they had loose controls.

And this film production credit, scheduled for a committee hearing Monday, came with an economic warning of its own: The Office of Legislative Services estimated before it became law that it could cost the state up to $425 million over five years but could not determine how much revenue it could produce.

“It’s wild that he likes this one because this is one of the worst,” said Pat Garofalo, managing editor of the Center for American Progress project TalkPoverty and the author of “The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs.” He added: “You could just set the money on fire and have the same outcome.”

Murphy's public remarks show that he sees it differently from critics, and state officials view it as a springboard to an industry renaissance.

"There's no denying the benefits that will flow to the community," Murphy said after signing the bill in 2018. "Putting chum in the water to get that kind of economic activity, we’ll do that all day long."

Unlike the incentives that expired over the summer, which were largely targeted at promoting growth in Camden and other distressed areas, the film tax credit is capped at $85 million — $75 million for film expenses and $10 million for digital production costs. There has been so much interest in the incentive program that the cap may be “too low,” Murphy recently said.

And unlike many other incentive programs, he said, the film tax is not designed for the long term.

"This is: The circus comes to town, and you hit immediately, and you get an immediate payback," Murphy has said.

But that’s where experts say Murphy is mistaken. The circus may come to town, but it inevitably will leave for another one. Garofalo said production companies tend to hop from state to state to reap the rewards of incentives programs. Louisiana and Maryland, for example, were popular places for television shows and movies to film because of tax credits, but those states have strengthened controls on them in recent years.

“You kind of can never get out of having to spend more and more to keep the same level of economic activity,” Garofalo said. “You’re basically just renting jobs for the short term.”

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While film production credits may give an immediate injection into a local economy, there is little evidence it is worth the tax break, according to experts.

A study of 30 states’ use of film incentives, published in September, found that they “mostly show no statistically significant effects,” according to its author, Michael Thom, a professor at the Price School of Public Policy, University of Southern California, Los Angeles.

Since 2009, 13 states have ended their film tax credit programs while several others scaled them back, according to the National Conference of State Legislatures. New Jersey was among those that ended the film incentives when former Gov. Chris Christie vetoed "an expensive bill that offers a dubious return for the state in the form of jobs and economic impact."

Murphy revived the program in July 2018. While it has drawn marquee productions like Wrestlemania 35, the Warner Bros. film “Joker” and HBO’s “The Plot Against America,” one show that earned an $11.2 million credit, “The Enemy Within,” was canceled after one season.

The Office of Legislative Services had estimated the state would lose up to $425 million in revenue, but that estimate was based on New Jersey using all $85 million each of the five years the credit is in effect. In the 2019 and 2020 fiscal years combined, the state used $59.5 million. Adjusting for that lower amount means lost revenue would be around $346.2 million over the course of the five-year program, if the state gives out all $85 million in the next four years.

Film and digital productions generated $121 million in the second half of 2018, when the credits took effect, and the Economic Development Authority, which administers the tax credits, said it is confident that revenue for 2019 will exceed $300 million, according to spokesman Darryl Isherwood.

"To say this program is a negative for the state after just one year ignores both hard facts that show the immediate benefit as well as the long-term potential of the film and television industry in New Jersey," Isherwood said in a statement.

Steven Gorelick, executive director of the NJ Motion Picture and Television Commission, said the credit has helped to build a foundation. Two studios are under construction — in Harrison and Jersey City — and producers and directors have expressed intense interest in working here.

"New Jersey is one of the hottest places for movie and television production right now," Gorelick said in an interview.

In addition to the local impact, producing films and television shows helps promote the state and re-cast its narrative to a broader audience, said Jose Lozano, head of Choose New Jersey, a nonprofit charged with business and economic development.

In many ways, the tax credit helps Choose New Jersey do its job of promoting the state, he said.

"When you have movies and TV shows that profile your local community, it changes the perspective and it starts to change the narrative. It shows the state in a different light," Lozano said. "This is a golden goose for me right now."

Sen. Joseph Pennachio, a vocal opponent of the incentive, said the state auditor intends to examine the effectiveness of the tax credit this year. Pennachio, R-Morris, voiced one of the many concerns experts have with the credit: It does not have a long-term impact on the state.

“The only people benefiting from these programs are the Hollywood elites,” Pennacchio said in a statement. “The state may be giving away free stuff to the filmmakers without reaping any long-lasting economic benefits in the areas where they are filming.”

Brandon McKoy, president of the liberal think-tank New Jersey Policy Perspective, said the incentives could have greater benefit if they were integrated into the state’s economy in a long-term way, such as being tied to workplace development or film programs.

“To not even have that is a huge missed opportunity,” McKoy said. “In general, New Jersey needs to really go back to the drawing board on these things and say, 'What would actually grow our economy in a sustainable, reliable way', and not just these one-off things, these mini silver bullets.”

Assemblyman Gordon Johnson, D-Bergen, said he’s trying to improve the film tax credit program through a bill that would raise the annual cap from $75 million to $100 million and extend it for five years. He said it would “incentivize” the film industry to return to New Jersey and produce movies, television shows and documentaries.

Production companies must include in their applications what they spent on services, salaries or goods in New Jersey, which can include anything from props and makeup to set construction and lighting equipment. The 15 projects approved so far reported spending between $76 million and $181 million on qualified film expenses in the Garden State, which proponents say is a benefit.

“The money that we didn’t collect in taxes, which we wouldn’t have gotten if they weren’t here, would be made up in sales tax, payroll tax, and other collections that are taken,” Johnson said in an interview.

The Office of Legislative Services didn't express that view. In its financial analysis of Johnson’s bill, the office said it could not quantify local and state revenue gains “because of the lack of sufficient information on the number and aspects of the eligible film and digital media projects and expenses.”

But the office could estimate the loss of revenue: Up to $700 million.

Dustin Racioppi is a reporter in the New Jersey Statehouse. For unlimited access to his work covering New Jersey’s governor and political power structure, please subscribe or activate your digital account today.

Email: racioppi@northjersey.com Twitter: @dracioppi