Producers of films made principally in New York will receive another $420 million a year in state tax subsidies under Gov. Paterson’s 2010-11 Executive Budget.  The proposed allocation of $2.1 billion for the film production credit over the next five years would come on top of more than $1 billion that the state has funnelled through the tax credit program over the last five years.

Josh Barro, the Manhattan Institute’s Wriston Fellow for state and local fiscal policy, makes the case for repealing the film credit in the Empire Center’s “Blueprint for a Better Budget”:

The Empire State Film Production credit subsidizes movie and TV productions in New York State. It’s an expensive corporate welfare program whose costs are unjustified, and it should be abolished. A similar program subsidizing production of TV commercials should also be ended.

The film credit equals 30 percent of “below the line” production costs for film and television series in New York State. New York City provides an additional 5 percent credit for productions within its borders. “Below the line” expenses generally include all production expenses incurred in New York except payments to writers, directors, producers, and performers with speaking roles.This credit is fully refundable against both personal and corporate income taxes, meaning that producers may receive credit payments in excess of income taxes due to New York State. As such, while the program operates through the tax code, it is economically indistinguishable from a simple subsidy program for film production.

And it’s an expensive subsidy program: the state budgeted $515 million for credits in 2008 and allocated all of it to 120 projects within a year. With New York facing its greatest fiscal crisis since the Depression, Governor Paterson and legislative leaders authorized an additional $350 million. In announcing the renewal, Paterson’s office touted the program’s “enormous success,” as though giving away free money to a favored industry is a surprising or difficult feat.

Supporters argue that the program creates jobs. On a gross basis, this is true, just as a negative 35 percent tax rate (on gross expenditures) for any industry would create jobs in that industry. What’s not seen is the jobs and economic activity that are lost because New Yorkers must be taxed an extra $4 million for every production the program “brings” to the state—some of which would have been shot in New York anyway, as the TV series Law & Order has been since 1990. At that kind of expense, New York taxpayers should at least be getting a share of profits (or what Hollywood producers would call “backend points”) on these productions, instead of serving as uncompensated partners.