Rhode Island’s Motion Picture Production Tax Credit: “Marginal” and “Leveraged” Approaches to Measuring Costs and Benefits with the REMI Model Joseph Codega Jr., Senior Revenue Policy Analyst RI Department of Revenue Office of Revenue Analysis
Introduction • Rhode Island Department of Revenue, Office of Revenue Analysis (ORA) About Us • Executive branch office with economic development incentive evaluation mandate • Situation within Dept. of Revenue allows access to some otherwise confidential data • Unified Economic Development Report (“UEDR”) defined by Rhode About the Island General Laws §42-142-6 “UEDR” • Annual comprehensive accounting and cost-benefit analysis (CBA) of many state economic development incentives • Includes a net benefit measured in terms of jobs, GDP, and state revenues for four tax incentive programs. 2
Introduction • Since FY 2011 UEDR has included a comprehensive accounting of tax How we use credit usage REMI • Since FY 2013 UEDR has included a cost-benefit analysis (CBA) component • ORA has chosen to utilize the REMI PI+ model in CBA portion of UEDR • Decisions in the modeling approach can significantly impact Today’s evaluation outcome Presentation - These subjective decisions made by evaluators can make difference between positive and negative net benefits • ORA sought to balance the following goals: - Desire to provide useful, succinct, actionable analysis while maintaining role as an unbiased, objective evaluator • Today’s presentation will discuss decisions ORA faced in balancing these goals using our evaluation of the Motion Picture Production Tax Credit as an example. 3
About the Motion Picture Production Tax Credit • Transferable credit equal to 25% of “state Selected MPPTC Projects: certified production expenses” including: - Compensation paid to individuals (resident or The Polka King (2016) non-resident) for in-state work The Purge: Election Year (2016) - Payments to in-state vendors • Project requirements “Building Wonders” Documentary Series (2012-13) - At least 51% of filming days or production spending take place in state Victoria’s Secret Commercial - At least 5 employees (2012) • Capped at $15M per year, $5M per project, Moonrise Kingdom (2011) recent actual usage ≈$2.8M 4
5 Photo Credit: https://en.wikipedia.org/wiki/The_Purge:_Election_Year http://www.rogerebert.com/reviews/moonrise-kingdom-2012 http://variety.com/2017/film/news/jack-black-the-polka-king-netflix-1202478204/ https://images-na.ssl-images-amazon.com/images/I/81sXmARfHAL._SX342_.jpg
Rhode Island Motion Picture Tax Credit: FY 2016 Usage At-a-Glance Number of Recipient 4 Productions Productions $362,176 Total Tax Credit Amount $1,480,877 total compensation Certified Production Expenses & payments to local vendors 6
Basic Modeling Approach: A Menu of Options Benefits Costs • Production cost savings realized by • General tax increases necessary to motion picture industry resulting pay for forgone revenue created by from availability of tax credit tax credit - or - - or - • Motion picture industry • Forgone state expenditures on employment and industry sales in projects that could have been motion picture industry and local funded if tax credit had not been intermediate input industries awarded. 7
Modeling Challenge: Additive vs. Subtractive Model Inputs Challenge: Do we model the addition or subtraction of the tax incentive activity? Considerations: Solution: • Impact of tax credit is longstanding and Model impact of tax credit by presumably part of historical/forecast removing the credit data • Tax credit subsidizes significant portion of - e.g. Model the impact of a local motion picture and sound recording $1M tax credit by entering industry: negative $1M of industry - Average industry employment 658 sales into REMI model - Average contribution to GDP $96M 8
Modeling Benefits: Marginal Approach vs. Leveraged Approach Marginal Approach Leveraged Approach Counterfactual • Tax credit represents a marginal • Availability of tax credit had Assumption production cost savings to a firm deciding impact on firm’s production decision. • Production cost savings in • Industry sales, nullify REMI Policy amount of tax credit intermediate inputs and Variables investment, w/compensation adjustment • Relatively minor impact • Relatively significant impact Results Wide range of potential impacts highlights importance of counterfactual assumption 9 9
Modeling Costs: Tax Policy Response vs. Expenditure Response Tax Policy Response Expenditure Response • If tax credit had not been • If tax credit had not been Counterfactual awarded, state gov’t would have granted, state would have spent Assumption reduced taxes on businesses . funds elsewhere in budget . • Production cost increase, • Exogenous demand and REMI Policy distributed across industries employment distributed across Variables based on value added / industries based on ORA profile contribution to state GDP. of state general fund spending. • Shocks to production cost take • State government spending relatively longer to reach new concentrated in locally impactful Results equilibrium and not all impact is industries such as education and felt locally. healthcare. 10 10
Modeling Benefits: Leveraged Approach Translating Production Expenses to REMI Inputs Certified Production Expenses REMI Inputs REMI Category Detail Amount Industry (NAICS Code) Amount Industry Sales / Motion Picture & Sound Recording -$1,480,877 Accommodation (721) $94,507 Exogenous Production Industries (512) Admin. & Sup. Serv. (561) $737 Nullify Intermediate Motion Picture & Sound Recording -$1,480,877 Couriers & Mess. (492) $76 Inputs Induced by Industries (512) Food Serv. & Drink. (722) $59,385 Industry Sales Pro., Sci., & Tech. Serv. (54) $7,827 Nullify Investment Motion Picture & Sound Recording -$1,480,877 Induced by Industry Industries (512) Real Estate (531) $107,335 Sales Rental & Leasing (532-3) $22,182 Compensation Motion Picture & Sound Recording -$519,979 Repair & Maint. (811) $1,247 Industries (512) Telecommunications (517) $5,070 Industry Sales / Each of 11 industries and amounts -$374,288 Transit & Ground… (485) $18,983 Exogenous Production documented in Certified across 11 Production Expenses Table. industries Wholesale Trade (42) $56,939 Compensation $1,106,589 * This figure represents the difference between actual compensation paid and the REMI standard compensation assumption. TOTAL: $1,480,877 11 Source: FY 2016 Unified Economic Development Report, RI Dept. of Revenue, Office of Revenue Analysis
Modeling Benefits: Leveraged Approach Making Compensation Adjustments GOAL: Develop procedure to find combination of industry sales and compensation inputs that simulates actual changes to motion picture industry sales and compensation of $1,480,877 and $1,106,589 respectively. Model Run 1: Output Inputs Variable Detail Amount Variable Detail Amount Note: Industry Sales MP & SR Industry -$1,480,877 Industry Sales MP & SR Industry -$1,480,877 Insufficient Compensation MP & SR Industry -$586,610 [also nullify intermediate inputs and investment] compensation response. Model Run 2: Output Inputs Variable Detail Amount Variable Detail Amount Note: Comp. & Industry Sales Industry Sales MP & SR Industry -$1,480,877 Industry Sales MP & SR Industry -$1,480,877 responses Compensation MP & SR Industry -$1,106,589 Compensation MP & SR Industry -$519,979 match targets. [also nullify intermediate inputs and investment] 12 Source: FY 2016 Unified Economic Development Report, RI Dept. of Revenue, Office of Revenue Analysis
Modeling Costs: Government Expenditure Response Translating RI General Fund Spending to REMI Inputs ORA Analysis of FY 2016 RI General Fund Expenditures Industry (NAICS Code) Amount % of Total FY 2016 RI Compensation Detail Ambulatory Healthcare Services (621) $1.12 billion 31.8% Total State Employee Comp. $1.396B Educational Services (61) $1.04 billion 29.7% Full Time Equivalent Positions 12,826 Social Assistance (624) $95.9 million 2.7% Total Comp. Cost per FTE $108,806 Prof., Sci., & Tech. Services (54) $50.3 million 1.4% Admin. & Support Services (561) $33.1 million 0.9% Wholesale Trade (42) $30.6 million 0.9% Note: REMI model assumes Remaining / Other (19 additional industries $128.5 million 3.7% average annual compensation for and also non-residential capital investment) state/local gov’t job is approx. State Wages, Salary, and Other Comp. $937.0 million 26.6% $87,667 – slightly less than what is (entered as “State/Local Gov’t shown by analysis of expenditure Employment” w/ compensation adj.) data. Another compensation Local Government Spending (entered as $78.5 million 2.2% adjustment is necessary. “Local Gov’t Spending”) TOTAL: $3.5 billion 100.0% 13 Source: FY 2016 Unified Economic Development Report, RI Dept. of Revenue, Office of Revenue Analysis
Recommend
More recommend
