While deficit looms, Pa. House OKs $22.5 million for filmmakers

Pennsylvania lawmakers will soon be racing to fill a budget deficit that could top $1 billion in the next fiscal year, but there's still a glimmer of hope the financial news won't be all bad, at least if you're M. Night Shyamalan or another Hollywood filmmaker that likes to shoot movies in the Keystone State.

Legislation to allow the state to dole out about $22.5 million in unused tax breaks for filmmakers cleared the state House last week, passing 180-21 despite the looming financial quandary.

State Rep. Todd Stephens, R-Montgomery, voted against the bill, which would tweak the incentive used to lure Hollywood filmmakers to Pennsylvania. It's difficult to justify the perk after the bleak fiscal picture was discussed in caucus last week, he said.

"We need to find a billion dollars somewhere, and sending $22.5 million out the door for a film tax credit, I just don't see that as a priority right now," Stephens said.

Sponsored by state Rep. Jerry Stern, R-Blair, the legislation wouldn't increase the $60 million annual cap on the tax credit, but rather draw upon instances in which authorized credits are not awarded — perhaps because production wasn't completed, expenses fell below estimates or companies don't pass an audit.

In those cases, the state Department of Community and Economic Development can award those credits to another production only in the same budget year. If that doesn't happen, the credits disappear rather than roll over.

Stern's legislation, House Bill 2083, would instead allow the state to recapture those credits and use them in a different fiscal year. He sees the situation differently than Stephens, pointing to numbers included in DCED's 2013 report about the tax credit.

That document indicates that while the state has chipped in $367 million in tax breaks since the program began in 2007, film production companies have spurred $2.7 billion in total economic activity and supported more than 19,000 jobs.

While other lawmakers, including Senate Majority Leader Dominic Pileggi, R-Chester, have advocated for uncapping the credit, Stern said this year might not be the best time to consider that.

"Taking this approach — just using the unused tax credits — might be more of the middle-of-the-road approach," Stern said.

To qualify for the 25 percent tax credit, 60 percent of a production's budget must be spent in Pennsylvania. The credit isn't awarded until production is complete and expenditures are audited.

After starting at $75 million in 2007 and falling to $42 million in 2009, the tax credit funding has remained at $60 million since 2010, according to DCED.

Pennsylvania exhausted this year's allotment in February, and about five feature films are pending as the industry waits for more credits to become available, Stern said.

Sterns recalls the buzz that came to his district when "Unstoppable," a movie about a runaway train starring Denzel Washington, filmed scenes in Tyrone. Many of the residents served as extras in the film, while nearby hotels filled up, he said.

"It really was a big thing for the community at the time," Stern said.

That flick received $22 million in state tax credits. In another case, Shyamalan's "The Last Airbender" received $36 million from state taxpayers.

But blockbuster films, such as "The Dark Knight Rises," have filmed scenes in Pennsylvania even without qualifying for the tax break, a point not lost upon critics of the credit who argue the state shouldn't choose winners and losers.

The Commonwealth Foundation, a free-market think tank based in Harrisburg, has lumped the film tax credit with other targeted subsidies that could be eliminated to produce tax relief for all businesses. The foundation has contended the film industry creates mostly seasonal jobs that contribute to a temporary economic boost.

"Admittedly, it's hard to argue economics against the 'I saw Denzel Washington at Starbucks' factor; but taxpayers are simply not getting a good return at the box office," the foundation wrote back in 2011.

Research has backed that point. A 2013 report from Pennsylvania's Independent Fiscal Office found that, for every dollar spent on the film tax credit, the state recoups 14 cents in tax revenue from related business.

Stephens doesn't think that's a good investment.

"I think this corporate welfare needs to be on the table as part of the budget discussions," Stephens said.

For now, the legislation will head to the state Senate for consideration. Lawmakers return June 2, with a June 30 deadline looming to pass a budget.

Gov. Tom Corbett's proposed spending plan keeps the film tax credit funding at $60 million. Thirty percent of that, though, has already been committed in conditional credits, leaving $42 million available for new projects if the budget passes as proposed, according to DCED spokeswoman Lyndsay Kensinger.

Andrew Staub is a reporter for PA Independent and can be reached at Andrew@PAIndependent.com.  Follow @PAIndependent on Twitter for more.

The Pennsylvania Independent is a public interest journalism project dedicated to promoting open, transparent, and accountable state government by reporting on the activities of agencies, bureaucracies, and politicians in the Commonwealth of Pennsylvania. It is funded by the Franklin Center for Government and Public Integrity, a libertarian nonprofit organization.