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Legislative analysts agree: Film subsidies are money-losers

RIO RANCHO, N.M. — For years, the Rio Grande Foundation has attempted to educate New Mexicans on the bad economics of film subsidies.

The program began under then-Gov. Gary Johnson was enhanced by then-Gov. Bill Richardson when he and the legislature made it state policy to return 25 cents for every dollar spent in the state to the film industry.

The amount that could be spent in support of the film industry operating in New Mexico was uncapped during the Richardson administration. That situation was partially resolved during the Susana Martinez administration, when a $50 million annual cap was placed on payouts, but subsidies could and did accumulate above that amount.

This is the most generous business subsidy offered by the State of New Mexico. Economically and morally, it is one thing to exempt a business from taxes it would otherwise pay, but it is another thing for government to cut checks using our tax dollars to fund ongoing operations of chosen businesses.

Even the Local Economic Development Act, which results in tax dollars being paid to businesses locating new facilities in New Mexico, is a one-time funding mechanism.

Shortly before the 2019 legislative session, it was reported that the state owed hundreds of millions of dollars to the film industry. The legislature agreed to appropriate up to $250 million to pay off that “debt.”

That payment would be a sensible use of the surplus if the legislature enacted policies to wean the film industry from government subsidies. Instead, the legislature expanded the cap to $110 million annually and allowed film producers unlimited subsidies if they have a qualified production facility within the state.

New Mexico’s top fiscal leaders, Rep. Patty Lundstrom, vice chairwoman of the Legislative Finance Committee, and LFC Director David Abbey recently gave a presentation about tax and budget changes from the 2019 session.

They said film credit changes are estimated to cost $500 million to the general fund over the next five years, in addition to the $250 million that would have been paid out under the existing cap. Also, they said the revised film program is “likely the most significant state investment ever in a single industry‚Ķdespite evidence of about a 40 percent return on the dollar.”

We are happy to have films made here, but the policy of opening up the state’s treasury to any corporation is an economic loser.

Recently, Gov. Michelle Lujan Grisham has been encouraging film productions originally slated for Georgia to come to New Mexico. Due to its generous subsidies, Georgia has attracted a number of productions, but recently adopted abortion limits have rankled some in Hollywood.

A film boycott could be a boon for Georgia’s overall economy and a bigger boondoggle for New Mexico, which could see the film program’s costs skyrocket. Already, as Lundstrom and Abbey point out, the program will cost an estimated $150 million annually.

This largesse may seem affordable at a time of billion-plus-dollar surpluses, but at some point, oil prices will fall or the spending aspirations of the legislature will grow too quickly for oil revenues to maintain.

(Paul Gessing is the president of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.)