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Georgia Thinks It’s Cool To Be Cool

Atlanta, Georgia skyline.
Atlanta stands in for many cities (and occasionally itself) in film and on TV.
Photo by Capt. William Carraway, courtesy the Georgia National Guard.

Regardless of your taste in entertainment, it is likely that one of your favorite movies or TV shows was filmed at least partly in Georgia.

Releases from just the past year include the “Jumanji” and “Zombieland” sequels; the Stephen King adaptation “Doctor Sleep”; reality shows including “American Ninja Warrior” and “Love & Hip Hop”; the return of Alton Brown’s “Good Eats”; a variety of Christmas-themed romance movies for channels in need of a constant supply; and dozens of other projects. In large part, this boom in production is due to the state’s generous tax credit program for film and television.

Georgia’s Entertainment Industry Investment Act offers companies a 20% tax credit if they spend $500,000 or more in a year on production or post-production in the state. That spending may be concentrated on one project or spread among several. (Promotional spending does not count toward the threshold.) If the company includes a logo designed by the state in the finished product, it can secure an extra 10%, for a total credit of 30%. Companies that have little tax liability in Georgia may also sell or transfer their credits. The 2008 program included no built-in sunset date. Unless lawmakers decide to end the party, this deal is open to filmmakers and TV producers indefinitely.

The prospect of losing Georgia’s incentives seems remote. The program garners wide bipartisan support. Both Republican Gov. Brian Kemp and his Democratic rival, Stacey Abrams, pledged to support the initiative during the 2018 campaign. Georgia Senate Majority Leader Mike Dugan, a Republican who represents the city of Carrollton, said bluntly in an interview in early February: “Nobody wants to get rid of film tax credits.” In a highly partisan era, it seems to be one thing most Georgia politicians can agree on. There are two obvious reasons.

First, the program has an undeniable “cool” factor. Georgians enjoy seeing their home all over the latest Marvel movie. Filming locations can even become tourist draws in their own right. At the same time, a lot of the actual production happens in studios or rural areas, meaning movie shoots don’t frequently inconvenience residents. Everyone likes to be popular, and Georgians aren’t exempt from the glamour of big-name actors and blockbuster productions.

The second reason so many lawmakers support the incentive program is financial. Politicians on both sides of the aisle are quick to say that the program has been a fiscal boon for the state. But unlike the cool factor, this financial benefit is not undeniable. True believers insist the program is great for everyone: the government, artists and Georgia residents. Some economists aren’t so sure.

Georgia grants more film credits than any other state. The program generated more than $3 billion in credits between 2013 and 2017, with $915 million of that amount in 2017 alone. The Atlanta Journal-Constitution recently reported that the total has climbed close to $4 billion since the program’s inception.

Given how much money is involved, it is important for the state to try to measure the program’s effectiveness. The question is: How? Georgia has long used a “multiplier” when calculating the financial impact of film or TV spending. For every $1 of direct spending, the state calculates that $3.57 in economic value is created. Where does this number come from? No one seems to know for sure, although Georgia has used this multiplier for at least the last 30 years. It’s possible that the multiplier is a useful estimate, and that film and TV spending does lead to this much economic impact, or even more. But it’s also possible that the impact is much lower.

The juiced-up economic impact number is what boosters of the program compare to lost tax revenue when measuring whether the program is effective. In fiscal 2019, Georgia film and TV spending reached $2.9 billion for the year. That is not small change, even before the multiplier would inflate the total impact to more than $9 billion. But does it balance out the incentives the state hands out, which totaled around $860 million the same year? It is not as simple as comparing the numbers directly; a useful assessment must also allow for opportunity costs. The film and TV incentives represent funds that were not devoted to other priorities, such as education or health care, which have economic benefits of their own.

There is also the question of employment. According to the MPAA, the Georgia film and TV industry created more than 92,000 jobs as of mid-2018, representing nearly $4.6 billion in wages. Unlike our neighbor Florida, Georgia levies an income tax. This means income earned in the state does affect state revenue (less the credits earned). Yet critics have expressed skepticism that all the jobs cited go to Georgians. If a production flies in nonresidents from New York or California to fill those jobs, how much difference will they make? Skeptics point out, too, that many of the jobs a film or show creates are by nature short-term. And critics of the incentive program further note that it’s not clear that all of the 92,000 jobs the MPAA cites are due to the tax credits alone.

These debates also assume the program is working as designed. In January, the Georgia Department of Audits and Accounts reported that the entertainment incentives program needs more oversight, the Atlanta Business Chronicle reported. “Due to control weaknesses, companies have received credits for which they are not eligible and credits that are higher than earned,” the department warned in its report. (The agencies running the program disputed some of the department’s findings.)

Lawmakers seem willing to make some changes in light of the audit. The Georgia Senate recently passed legislation that will allow for extra scrutiny on tax credit programs, including film and TV incentives. But even if the bill becomes law, the popularity of the program means it is unlikely to go away altogether. Lee Thomas, deputy commissioner of the Georgia Film, Music & Digital Entertainment Office, said in late 2019 that the office is evaluating whether to adjust the multiplier it uses to calculate economic impact.

The program may be hard to dislodge, regardless of whether it works economically. No one wants to be the lawmaker who kicked the Avengers to the curb. But Georgians shouldn’t fool themselves: All these films and TV shows aren’t made here because Georgia is the state with the best actors or the most scenic backgrounds. It’s because Georgia is the highest bidder when it comes to tax credits. The fact that other states are not going out of their way to match Georgia’s tax credit is a red flag. Getting a clearer sense of the program’s true economic impact will allow Georgians to measure its financial success more clearly, even if the cool factor remains untouched.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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