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NM needs to call ‘cut’ on extravagant film subsidies

Reasonably optimistic estimates suggest New Mexico state government will have revenues in the fiscal year commencing July 1 that will be hundreds of millions of dollars less than our budgeted expenditures for the current fiscal year. This shortfall may be about 10% of our current annual budget and would require the Legislature to reduce spending, increase taxes or do both when it meets in January.

Legislators and others have said that to address this budgetary problem “everything should be on the table” for consideration. High on the list to consider for reduction should be New Mexico’s extravagant film subsidy.

New Mexico’s film subsidy is about the most expensive in the country. It is among the most generous in percentage, ranging from 25% to 35% of the in-state production expenditures. Further, there is no effective cap on total payments. In 2019, the Legislature raised the existing cap from $50 million annually to $110 million annually. However, payments to “film partners,” production companies with facilities in New Mexico, are outside of the cap. The New Mexico Film Office projects that current film partners will account for about one-third of the total production payments in fiscal years 2020 through 2022.

The combination of generous percentages and no effective cap means that on a per capita basis New Mexicans will be subsidizing film production more than the residents of nearly every other state, perhaps approximately equaled by Georgia. In no other publicly funded program are New Mexicans’ per capita expenditures first or second in the nation. For a very poor state, this prioritization seems bizarre.

No other economic development effort by New Mexico approaches the cost of the film subsidy, yet there is no financial or economic reason that this industry should be singled out for such favorable treatment. An economic analysis for the Legislative Finance Committee was performed in 2014 through 2016. It calculated that for every tax dollar invested in our film subsidy program, state and local governments received about 43 cents in tax revenues. An earlier study by New Mexico State University calculated that return at around 15 cents per dollar of subsidy. For similar studies and commentaries from other states, just Google “film subsidies analyzed” and “film subsidies evaluated.”

Nor does the industry provide many jobs for New Mexicans. The Film Office reported that for fiscal 2019 there were about 320,000 worker-days of employment in the industry. This is the equivalent of about 1,400 full-time jobs, less than one quarter of 1% of New Mexico’s total job count. Any significant film industry employment increases will require greater subsidy payments.

The magnitude of the film subsidy may not be well understood. It is different from every other economic development program. It is more expensive than any reduction or elimination of taxes. The film industry subsidy is more than twice as expensive as it would be to simply exempt film production itself from all state and local taxes and fees, exempt from New Mexico income tax all income earned working for a production and exempt from gross receipts tax all vendors’ sales to a production.

Compared with other industries, film production has several drawbacks as an economic development project. There are not many permanent full-time jobs. Most of the highest paying jobs go to nonresidents. Their salaries are almost certainly deposited in California or elsewhere and are not recycled in the New Mexico economy, so fewer local spin-off jobs are generated. It is very unlikely that we will ever have a permanent, viable film industry that will survive without subsidies. Many businesses considering locating or expanding in New Mexico could doubtless be attracted by much less generous subsidies than the film industry.

In the January and subsequent legislative sessions other industries may face tax increases. Public services may have to be reduced. In the context of public-sector scarcity and private-sector hardship it should be difficult to continue extravagant favoritism to a single industry. However, many citizens and legislators who declare their opposition to “special interest legislation” or “corporate giveaways” inexplicably support giving money to a single industry far in excess of the tax revenue it will ever produce.

Dick Minzner is a former Democratic member of the New Mexico House of Representatives and former New Mexico Secretary of Taxation and Revenue.

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