Illinois Film tax credits: Bought by producers, paid for by taxpayers

By Jackson Adams

Illinois News Network

SPRINGFIELD – While most Illinois taxpayers have seen their income taxes go up 67 percent, one favored group – movie producers – is receiving tax breaks.

And the state of Illinois’ largesse doesn’t always result in success. 

For instance, “Just Like a Woman,” a 2013 film about a belly dancer, grossed $11,403 domestically, according to the website Box Office Mojo.

However, Just Like a Woman LLC received an Illinois film tax credit 10 times that size, $117,370.

Lavishing tax credits on the film industry does nothing to help regular Illinoisans, say some economists.

“What any tax credit ends up doing is it privileges a particular industry at the expense of consumers and taxpayers,” said Matthew Mitchell, an economist at the Mercatus Center at George Mason University. “The benefits are concentrated on a few small groups, and the costs are dispersed over a large number of consumers and taxpayers. The industry is very effective at lobbying for them, and those who are paying for them are not very good at lobbying against them.”

One part of effective lobbying is generously giving to political campaigns.

In fact, Illinois politicians received thousands of dollars in campaign contributions from the motion picture industry in the years lawmakers approved the state’s film tax credit program.

Former state Sen. Rickey Hendon, D-Chicago, and current state Sen. and GOP gubernatorial hopeful Kirk Dillard, R-Hinsdale, sponsored the tax credit legislation in 2007. Dillard received $1,500 in 2006 and 2007 from the Motion Picture Association of America IL PAC. From 2006 to 2008, Hendon received $6,263 from film interests, including money from the Illinois Production Alliance and the Motion Picture Studio Mechanics Local 476.

Similarly, two of the main sponsors of the 2007 tax credit legislation in the Illinois House received sizable donations. State Rep Ken Dunkin, D-Chicago, received $8,263 and Angelo Saviano, R-River Grove, received $5,150 from the Illinois Production Alliance and the Motion Picture Studio Mechanics Local 476 between 2006 and 2008.

Many more politicians have taken motion picture money as tax credit legislation has been extended.

Gov. Pat Quinn and his three gubernatorial predecessors, as well as Illinois Senate President John Cullerton, Speaker of the Illinois House Mike Madigan, Attorney General Lisa Madigan, Chicago Mayor Rahm Emanuel and key legislators all received donations from organizations tied to the motion picture business.

At least one of these groups, the Motion Picture Association of America IL PAC, based in California, receives its funding from major production studios: Paramount Pictures Group, Warner Brothers Entertainment Inc., Walt Disney Company and Twentieth Century Fox Film Corp.

From 1999 to 2013, the group gave more than $86,000 to Illinois politicians.

So why are tax credits so valuable to film companies?

The Illinois Film Production Tax Credit Act offers a credit of 30 percent off of allqualified Illinois production spending, including Illinois salaries up to $100,000 per worker.

Also, film tax credits are Illinois’ only ‘saleable’ tax credit, meaning the holder of the credit can peddle it to others for cash.

The practice goes back at least to February 2011 and has resulted in companies that had nothing to do with making films saving millions off their own tax bills.

Companies such as Comcast Corp., Kohl’s, Macy’s Inc., Meijer, Heinz and U.S. Bank have benefited from the practice.

Even Boss Kane Productions, makers of the television series “Boss,” which portrays rampant corruption within Illinois politics, traded its more than $3.69 million tax credit to HomeGoods Inc. for an upfront payment. HomeGoods Inc saved more than $3.69 million off their Illinois taxes and Boss Kane Productions received an upfront payment, instead of having to wait on their tax return.

In total, more than $42.8 million in tax credits were transferred in 2011 and 2012, according to the Illinois Department of Commerce and Economic Opportunity.

Film productions benefit from the transfer since they receive immediate payment for the credits.

Companies purchasing the credits also benefit, since they pay less in cash than the credits are worth.

But the tax credit hurts the state and the taxpayers, because it represents lost revenue that has to be made up somewhere else.

According to the Commission on Government Forecasting and Accountability, the film tax credit has cost taxpayers $47.8 million from 2009 to 2012.

That number is set to jump with more movies being made in Illinois.

In January, Quinn announced that the Illinois film industry generated a record $358 million in estimated spending in 2013. The new record is nearly double the $184 million in 2012, the previous record year.

"These record-breaking numbers show there is no better place to film than Illinois," Quinn said in a prepared statement. “Productions like Chicago Fire are helping grow and strengthen Illinois’ economy by creating thousands of jobs across the state, from actors to painters and carpenters, and the hundreds of small businesses that serve the industry.”

Film industry representatives echoed Quinn’s point.

"We support state film incentives as a means to provide short- and long-term economic growth. Growth in jobs and revenue to the state from sales and income tax paid by the vendors and the workers who benefit from the increased production,” said Jeffrey Bennett, national director of government affairs & policy for the Screen Actors Guild.

But at least some economists disagree, saying that insulating industries from the real business environment is no way to ensure their long-term success.

“I think the last thing that politicians should be wanting is to have an industry that survives only by dent of their favors,” said Mitchell, the George Mason University professor. “That’s not a sustainable industry.”

Film tax credits have been implicated with fraud and corruption in other states.

Iowa’s film tax credits were suspended in 2009 after it came to light that $26 million worth of credits should not have been awarded. Tax credits were, for instance, used to buy personal vehicles.

Similar scandals have gone to court in Louisiana and Massachusetts.

So could movies be made without tax credits?

"Movies would be made. They are one of this country's greatest exports,” said Bennett. “But the amount of overall film production, and the variety of projects made, would significantly decrease.”

Some lawmakers pointed out that tax credits don’t make a level playing field.

“What I’ve found in politics is people love justice and they like fairness,” said Kyle McCarter, R-Lebanon. “If you want to deliver fairness to the people, just lower the cost of business for everybody, and do away with the tax credits.”

“I’d like to see tax credits more widespread,” said state Rep. Dan Brady, R-Bloomington, “whether it’s film or any other type of industry. … If it’s good for one it should be good for all.”