Here at the 1889 Institute, we firmly believe in an economic system that rewards individual initiative and eschews government intervention in markets. In addition, it is clear that when government is directly involved in markets, it can only distort them and cause resources to be used inefficiently. As a result, we are developing a directory of Oklahoma subsidies and tax incentives which are just that – government distortions of the market.
The subject of the first installment (released today) in the 1889 Institute’s Corporate Welfare Directory is the Oklahoma Film Enhancement Rebate. It has been around since 2001, but was most likely going the way of the dinosaurs until the legislature gave it new life in 2019 (thanks in large part to Governor Stitt’s appreciation for such programs). As explained in “Policymakers Guide to Evaluating Corporate Welfare,” we developed a five-part test which legislators can use to determine if a certain program is, in fact, corporate welfare. The Film Enhancement Rebate fulfills every requirement and is clearly a corporate welfare scheme.
In essence, the program allows film production companies to apply for a rebate (more properly, a subsidy) of up to 37 percent of their total production expenses so long as they fulfill a list of requirements (film in Oklahoma, hire Oklahomans, etc.).
While this may not come as a surprise, the Incentive Evaluation Commission (IEC) has further solidified their position as political lapdogs with their latest report concerning the program. The supposed mission of the IEC is to produce “objective evaluations” of Oklahoma’s economic incentives. Unfortunately, they’ve strayed from that mission (that or they weren’t consistent to begin with).
In 2016, the IEC published their first evaluation of the Film Enhancement Rebate. According to the report, the return on investment was negative (13 cents on the dollar) and would likely always be negative. The report also noted a few important things: First, no matter how efficiently the program was run, almost all independent studies from other states showed a net loss from such programs. Second, film productions are temporary and do not produce lasting jobs. Third, continued funding of the program created an industry whose business model is dependent on ongoing subsidies. And fourth, continued use of the program would necessitate an arms race with other states that couldn’t possibly be an efficient use of tax dollars.
As a result, the IEC recommended that the program be allowed to sunset in July of 2024, its scheduled sunset date, which is a very weak recommendation considering the very negative evaluation they gave the program. The legislature chose to ignore this recommendation and, in 2019, decided to extend the sunset date to 2027 as well as raise the program’s funding cap from $4 million to $8 million (again, this is due in large part to Governor Stitt’s appreciation for corporate welfare programs).
How did the IEC respond? In 2020, they released a report evaluating the Film Enhancement Rebate once again. This time, however, they recommended retaining the program and attempted to paint the program in a very positive light, particularly highlighting the supposed “total economic activity” created by the rebate, while brushing over the net loss in revenue to the state treasury. All the while, they knew the program was a poor use of state dollars and yet they cowed to the whims of the governor and the legislature. This excerpt from the report is particularly telling: “While the program has a potentially low return on investment and is limited to a small group of beneficiaries, the project team’s analysis notes that there has been an increase in activity since the program cap was raised and the sunset extended.” Translation: “We know this program is a waste of taxpayer dollars and is mercantilist in nature, but the governor likes it so we recommend that it be retained.”
While the Film Enhancement Rebate needs to be done away with, the legislature should also consider doing away with the IEC as well. At this point, it is merely a taxpayer-funded rubber stamp of the governor’s pet corporate welfare policies.