Lights, Camera, Tax Break

Even as Gov. John Kitzhaber is slashing Oregon's budget, he's pushing for a big expansion to a tax credit for movie production in the state.

On Feb. 7, Kitzhaber's proposed cuts of nearly $3.5 billion in current service levels in the next two years landed him on page 1 of The Wall Street Journal, in a story titled "Governors Chop Spending."

But last week, the Democratic governor also introduced legislation that would jack up the tax revenue the state funnels back to moviemakers from $7.5 million a year to $12.5 million. (The film credit began in 2003 and will expire this year if lawmakers do not vote to extend it.)

The $12.5 million is pocket lint compared with the state's annual budget of about $7.4 billion. But the proposed expansion of the film tax credit rankles critics who say it's an extension of an inefficient program that rewards the wealthiest Oregonians on the basis of some fairly thin evidence that it creates jobs.

"This scheme is merely enriching some very well-to-do people, and it is very inefficient," says Chuck Sheketoff, director of the Oregon Center for Public Policy.

The program works like this: Taxpayers who want to offset their Oregon tax liabilities buy credits from the Governor's Film & Television Office. That office then doles out the money to companies that produce such work as the TV show Leverage and that can document certain expenses in Oregon.

Sheketoff, a longtime critic of tax subsidies, says the state's approach of selling the film tax credits at a discount of 90 cents to 95 cents on the dollar is a waste of money and an indirect—and therefore less scrutinized—way of spending scarce tax dollars.

"If you want to fund subsidies, it ought to be done as a direct expenditure," says Sheketoff.

Sheketoff says if the program is worthwhile, it would be better to write a check from the state treasury to production companies rather than discounting the credits. That also would make the program compete with other general fund expenditures.

More than 40 states offer some level of subsidy for film production. And Oregon's program, which is capped at 20 percent of production costs, is less generous than many. 

But when the state is preparing to slash school days, eliminate medical care for some low-income Oregonians and cut multiple other services, it's worth asking why the state is underwriting moviemakers' expenses.

Vince Porter of the Governor's Film & Television Office says the program attracts production companies to Oregon, which translates into thousands of jobs, lots of tax revenues and lots of income for service providers, such as equipment rental companies and hotels. Porter says production companies have spent nearly $180 million in Oregon since 2007.

But Paul Warner, the state's legislative revenue officer, says Porter and fans of the credit may be reaching an unwarranted conclusion. 

Yes, the state is forking over subsidies to filmmakers and the filmmakers are hiring lots of Oregonians. It's unclear, however, whether the subsidies are creating the jobs or the link is merely coincidental. 

"Is there a causal relationship there?" asks Warner, whose office provides nonpartisan tax research to lawmakers. “That’s a tough one. We just don’t know.” 

Kitzhaber's spokesman, Tim Raphael, says the tax credit has every appearance of a job creator, something Oregon badly needs. He says the current format is efficient and maintaining it as a multilayer credit rather than direct expenditure “offers certainty over a longer period.” 

FACT: In 2007, Laika, the Portland film production studio owned by Nike founder Phil Knight, got $250,000 from the Governor's Film & Television Office. Most of the other production companies that have benefitted are from out of state. To see the entire list of beneficiaries, go to wweek.com.

WWeek 2015