UPDATED with Michael Thom statement: An assistant professor at USC who challenged the prevailing theory that state film tax incentives are good for their local economies has come under personal and professional attack by the MPAA, the industry’s leading booster of state tax incentives.
Last month, Michael Thom published a study titled “Lights, Camera and No Action?” that found that state incentives programs aimed at luring productions away from California and New York had “little to no sustained impact on employment or wage growth” in their states. His study found that since 1997, the film and TV industry has received more than $10 billion in state tax subsidies.
“The incentives are a bad investment,” Thom wrote on USC’s website. “States pour millions of tax dollars into a program that offers little return. On average, the only benefits were short-term wage gains, mostly to people who already work in the industry. Job growth was almost non-existent. Market share and industry output didn’t budge.”
The MPAA, however, has accused Thom of “academic malpractice,” stating that his study is so flawed that it not only tarnishes his own reputation but USC’s as well.
“It is troubling and without excuse that such a false and misleading study, without statistical and intellectual foundation, would be recklessly promoted by an otherwise respected educational institution such as USC,” Vans Stevenson, the MPAA’s SVP State Government Affairs, said in a statement. “It severely tarnishes the reputation of the university as well as the academic credentials of the author. This is academic malpractice, designed to make a provocative statement rather than offer sound policy analysis.”
According to the MPAA, “States and countries with strong production incentives report positive impacts on growth and employment, and studies have measured this impact.” One of the studies it cites was performed by the HR&A consulting firm “to support key policy goals on behalf of the Motion Picture Association of America.”
In a statement, Thom told Deadline that his study was published in a peer-reviewed journal, The American Review of Public Administration, “after two rounds of rigorous, double-blind review. That means that several academic researchers who are experts in the field evaluated the data, analysis and methodology, and determined the study to be credible and the analysis valid for publication. This study further validates previous work by other academic researchers, think tanks and state government auditors.
“Through my research,” he said, “I found that there were in fact short-term benefits to state film incentives, such as temporary wage gains and obviously some commerce. However, I also found that the incentives had no sustained impact on wage growth and little effect on jobs and economic growth. The peer-reviewed analysis that I conducted accounted for differences in spending across the states and over time.”
He said that in a second study published recently by the journal American Politics Research, he “examined why states kept or terminated their incentives from 1999 to 2015. I found a half dozen states ended the incentives as the Great Recession eased. States that slashed the incentives already had spent very little or were skeptical that the film incentives program wasn’t working.”
“I have included in my research recommendations for best practices if states choose to start or continue to offer filmmaking incentives,” he said. “For example, before adopting or renewing such a program, states should hire third-party researchers to conduct multiple analyses of the economic benefits and compare the results. I also recommend that states cooperate with each other on program design to minimize risks for taxpayers and more importantly, to safeguard their programs from potential malfeasance.”
The MPAA pointedly disparaged USC, as well. “Last month, the University of Southern California promoted a paper … which reached the odd and attention-grabbing conclusion that film production incentive programs have little to no impact on film industry employment and output,” wrote Julia Jenks, the trade group’s VP Worldwide Research. “This runs counter to the landscape of studies that have measured the direct employment impact of key state production incentive programs using Bureau of Labor Statistics data. Unfortunately, the new Thom paper has fundamental scientific flaws that undermine the paper’s credibility and render its conclusions completely unfounded.”
Thom’s study evaluated the impact of an array of tax incentives employed by more than 40 states to entice film and television TV out of California and New York on labor and economic conditions from 1998 through 2013. “Results suggest that sales and lodging tax waivers had no effect on any of four different economic indicators,” his report found. “Transferable tax credits had a small, sustained effect on motion picture employment levels but no effect on wages. Refundable tax credits had no employment effect and only a temporary wage effect. Neither credit affected gross state product or motion picture industry concentration. Incentive spending also had no influence.”
Wrote Jenks: “Overall, the Thom analysis reflects a lack of understanding of motion picture production and how incentives relate to those productions. The claims that transferable and refundable tax credits will have different impacts on employment, wages, and other metrics are not clearly explained in the Thom paper and are implausible based on how transferable film credits actually work, undermining the conclusions and interpretations of the results.”
According to the MPAA, Thom’s study “looks at the wrong jobs data” to reach its conclusions. “The paper’s baseline assumptions misunderstand how transferable film credits actually work,” the MPAA said. “The analysis ignores how the size of a state’s film production incentive program could impact the amount of production as well as correlations between program size and its potential impact on employment, wages, and other outcomes. The data also does not account for changes in size in programs over time or differences in the same type of incentives offered in multiple states. Treating all state film production incentive programs equivalently and ignoring the variability of spending by programs (from state to state and from year to year) falsely equates programs that are very different in terms of size and potential impact.”
The MPAA says that “out of the 1.9 million U.S. jobs supported by the film and television industry, direct industry jobs generated $50 billion in wages and nearly 305,000 jobs in core businesses related to producing motion pictures and television shows. These are high quality jobs, with a traditionally unionized workforce and an average salary of $92,000, 79% higher than the average salary nationwide. The amount of TV shows produced has been growing, and films produced remains high.”
Jenks wrote that although Thom described his analysis as focusing on motion picture production, “The Bureau of Economic Analysis data being used to study the effect of film production incentives is aggregated data that includes movie theater and sound recording industry jobs and wages. A ticket taker at the local cinema or an engineer at a recording studio should not be affected by film production incentives. Their inclusion in the study adds noise that dilutes and biases the results of the model.”
“To adapt the proverbial apples-and-oranges analogy, in this case you are looking for some oranges buried within a large cart of apples” she wrote, “Movie theater jobs account for an average of 59% of all motion picture industry-related jobs, as categorized by the Bureau of Labor Statistics, which is the source for granular employment data, outside California and New York. This percentage rises as high as 80 or 90% in certain states. Additionally, the measured sound recording industry jobs declined 45% nationally during the period covered by the research. Moreover, the dataset does not include freelance workers that are prevalent in motion picture production.”
Jenks also said that Thom’s analysis “ignores how the size of a state’s film production incentive program could impact the amount of production as well as correlations between program size and its potential impact on employment, wages, and other outcomes. The data also does not account for changes in size in programs over time or differences in the same type of incentives offered in multiple states. Treating all state film production incentive programs equivalently and ignoring the variability of spending by programs (from state to state and from year to year) falsely equates programs that are very different in terms of size and potential impact. States with low or no real spending in their production incentive programs may be obscuring the effects of strong, well-funded programs in the overall model.”
To illustrate the “flaws” in the design of Thom’s study, Jenks offered a music school analogy. “Let’s say you wanted to know whether school music programs increase the number of children who play music,” she wrote. “So you took all schools nationally and categorized them based on a technical category, i.e. whether they had a public school or private school music program each year – but ignored whether ‘program’ simply meant there was a piano in the school or whether the school was like Juilliard, the pinnacle of musical instruction. And then you measured the change in the number of students who participate in any extracurricular activities each year across the public/private categories. It should be self-evident that any conclusions drawn from this research would be unreliable.”
Jenks also criticized Thom’s study for not mentioning the historical role that incentives in other countries, such as Canada and the United Kingdom, have played in fueling state efforts to keep production and jobs in the U.S. “Incentive programs outside the US are likely to spur program creation and impact spending levels by states that wish to attract productions, and the impact of international competition should not be ignored,” she wrote.