A tax credit used to reward “House of Cards” and other productions for filming in Maryland costs taxpayers far more than they get in return and should be scrapped, according to a new report to the General Assembly.
The report, drafted by nonpartisan legislative staff, is likely to rekindle a debate that played out in dramatic fashion during this year’s legislative session over how much public assistance state officials should offer to entice the popular Netflix series about a scheming politician.
Since 2012, the report says, Maryland has authorized $62.5 million in tax credits for film and television productions, with HBO’s “Veep” being another big beneficiary. For every dollar granted in credits, state and local governments received only about 10 cents in tax revenue in return, according to legislative analysts.
The report acknowledges the chief arguments made by proponents of the film tax credit: Shooting movies in Maryland spurs job creation and economic development. But, legislative analysts say, those benefits are fleeting.
“As soon as a film production ends, all positive economic developments cease too,” the report concludes, suggesting that Maryland lawmakers should focus on “incentives that create permanent and lasting employment, rather than temporary jobs.”
This year, the District and 37 states, including Virginia, are offering some sort of financial assistance to encourage film production within their borders. Several of those states — including North Carolina, which used to have one of the most generous enticement programs — have started to reassess the costs and benefits.
Under the current rules of Maryland’s program, companies can claim a credit on their income taxes equivalent to about one-quarter of the costs of their film production. If the credit is larger than a company’s tax liability, it can receive a refund from the state.
Maryland’s program, which offered more modest incentives when it launched in 2001, has some powerful defenders in the General Assembly. But the program also faces a big unknown with the election this month of Larry Hogan (R) as governor.
As a candidate, Hogan criticized the lengths to which Gov. Martin O’Malley (D) and legislative leaders went to help “Hollywood millionaires to produce subscriber-only TV shows.” Hogan declined to comment for this article.
With the state facing a projected budget shortfall next year of nearly $600 million — and larger gaps in the future — it’s a good time to question the value of all tax credits, said House Minority Whip Kathy Szeliga (R-Baltimore County). “It seems to me that ‘House of Cards’ isn’t doing so badly that it needs taxpayer help,” Szeliga said.
Lawmakers are planning a public hearing early next month on the legislative report, which remains in a draft form.
Sen. Edward J. Kasemeyer (D-Baltimore County), chairman of the Senate Budget and Taxation Committee, said last week that he had not read the report but remains a supporter of the tax credit. He said he is “just missing why people are so unhappy with it.”
In addition to the job creation, the presence of film production crews leads to million of dollars in purchases of all kinds, including gasoline, meals and hotel stays, Kasemeyer said. Over three seasons, “House of Cards” has accounted for nearly 30,000 hotel nights, the show’s production company says.
“The point of this is to create jobs and economic activity, and that’s happening,” Kasemeyer said.
A study commissioned by the Maryland Film Coalition, which lobbies for the industry in Annapolis, found that under the current tax credit program, film production activity could support an average of more than 690 full-time-equivalent jobs annually and a total of about $86 million in wages through 2016.
That study, which was published in the summer by the Regional Economic Studies Institute at Towson University, also calculated a much higher return on investment than the legislative analysts did. It said that for every dollar Maryland allocates in film tax credits, it receives $1.03 back in tax revenues.
Jack Gerbes, director of the Maryland Film Office, which administers the state’s tax credit program, cited the Towson study during an interview. He said his office was reviewing the draft legislative report.
The report says studies commissioned by the film industry in Maryland and elsewhere use “different assumptions,” including about which taxes out-of-state actors and filmmakers pay.
“It is clear that the film credit does not pay for itself,” legislative analysts concluded.
Since 2012, Maryland’s program has invited production companies to apply to participate, estimating the maximum credit for which they could be eligible. For films, the state is willing to offer a credit worth 25 percent of “qualified production costs.” For television series, the credit is worth up to 27 percent of those costs.
The state’s film office has lengthy lists of which expenses qualify and which don’t. Before receiving the credit, the production companies have to submit documentation showing the qualified expenses. Maryland has capped the total value of credits it offers, with the amount varying by year but averaging about $12.5 million.
Ten productions have been approved for credits since 2012. But the vast majority of the $62.5 million in funding has been allotted to “House of Cards” ($37.6 million) and “Veep“ ($22.7 million).
The report suggests some productions might have filmed in Maryland even if they had not received taxpayer assistance. One of those, the movie “Ping Pong Summer,” received $200,000 from the state even though its director, a Maryland native, said in an interview that he didn’t consider making the film anywhere else.
This year, Media Rights Capital, the production company behind “House of Cards,” threatened to film elsewhere if lawmakers didn’t come through with a large enough allocation of tax credits. The company said it qualified for $16.3 million in credits — more than the state had available unless additional money was appropriated by the legislature.
The drama that unfolded included a visit by Kevin Spacey, the star of a series, to an Annapolis wine bar, where star-struck lawmakers lined up for pictures and autographs.
Debate continued until the final hours of the legislative session in April. While lawmakers did not pass a bill giving “House of Cards” everything it wanted, state officials tapped other economic development funds to provide enough money to convince the show to stay. Hogan, at the time a Republican primary candidate, was miffed about redirecting money intended for arts programs.
A representative of the production company did not comment directly on the draft report but said: “ ‘House of Cards’ has been a committed partner to the state of Maryland over the course of three years, generating significant economic benefits . . . in exchange for consideration in the form of production incentives.”