June 9, 2011

New Jersey Agency Recommends Ending Film Tax Credits

The quasi-public New Jersey Economic Development Authority (NJEDA) recommended ending the credits last February. It did so after Governor Christie asked it to review the program’s effectiveness and recommend if the state should continue it. The legislature created the $15 million program in 2005, with a 2015 sunset date.

NJEDA engaged the New Jersey Institute of Technology (NJIT) to determine the program’s economic impact and recommend if the state should continue it. NJIT determined that the program created over 1,600 jobs in 2009 with wages averaging around $47,700, concluding that it will generate and maintain significant jobs in state while “breaking even” on program costs.

NJEDA then asked the Treasury Department’s chief economist to review NJIT’s study, and he found that its data didn’t support its projected increases in jobs and film making. “In my reading, of the evidence, the net effect of the credit upon state activity is smaller, thus suggesting the credit has produced a net loss to state revenues.”

How does one explain the dueling evaluations? The bone of contention appears to be the extent to which the credits stimulate movie making. NJIT determined that the $10 million credit program would pay for itself based on the $10.1 million in state and local revenue all moviemakers—including those who did not receive credits—generated in 2009.

The Treasury Department economist evaluated the program based on the state and local revenue generated by only those filmmakers who received the credit. Because these filmmakers generated about $5.5 million in state and local revenue, the credit program cost the state about $4.5 million (i.e., $10 million program less $5.5 million in state and local revenue).