5-FY18 MPIP Tech Memo (1).pdf

To: Virginia Pearce, Director, Utah Film Commission

From: Joshua Spolsdoff, Research Economist John Downen, Deputy Director of Economic and Public Policy Research

Date: November 22, 2019

Subject: Economic and fiscal impacts associated with the FY 2018 Motion Picture Incentive Program

The Kem C. Gardner Policy Institute is pleased to respond to your request for an analysis of the economic and fiscal impacts associated with the Motion Picture Incentive Program (MPIP). We analyzed nine movie and television projects that filmed in Utah in FY 2018 and were approved by the board as of June 14, 2018. These productions spent a total of $78.4 million on goods, services, and resident payrolls in Utah over the fiscal year and were awarded a total of $14.2 million in refundable tax credits.

Table 1 summarizes the results of our analysis. The in-state spending of FY 2018 MPIP projects generated $201.0 million in total economic activity in Utah, measured as state gross domestic product (GDP). This economic activity was associated with an estimated $4.5 million in new state revenue, bringing the net cost of the incentive program to approximately $9.6 million.

Table 1: FY 2018 Utah Motion Picture Incentive Program Summary Impacts (Millions of 2018 Dollars)

Total Economic Impacts Total Fiscal Impacts New Utah GDP $201.0 New State Revenue $4.5 New Earnings $114.6 State Incentives Paid $14.2 New Jobs 2,554 Net Cost of Incentives $9.6 Note: Totals may not match exactly due to rounding.

Source: Kem C. Gardner Policy Institute analysis of Utah Film Commission data using the REMI PI+ model

The $14.2 million of FY 2018 MPIP tax credits incentivized activity that generated 2,554 full- and part-time jobs, $114.6 million in earnings, and $201.0 million of GDP in Utah. In other words, every dollar of incentive was associated with about $8.00 in new earnings for Utahns and about $14.00 in new state GDP. About 32 cents of every dollar of incentives found its way back to state coffers in the form of new sales and income taxes associated with increased economic activity.

The remainder of this memo provides an overview of the methodology and models used in the analysis, detailed results, and a discussion of limitations of the analysis. All dollar amounts are in inflation-adjusted 2018 dollars.

Models and Methodology

Economic impacts include changes in the size and structure of a region’s economy when goods and services are purchased from vendors within the region using money generated from outside the region. Total economic impacts include direct, indirect, and induced effects. In the case of this analysis, direct effects are the MPIP projects’ resident payrolls and purchases from local businesses. These local businesses make purchases from other local businesses that make purchases from other local businesses, and so on. These rounds of activity are the indirect effects. Induced effects are the impacts associated with the expenditure of wages derived from direct and indirect effects (i.e.

household purchases of goods and services). The overall increase in total economic activity (direct, indirect, and induced) will attract new workers to the state, some of whom will bring families with them. The Gardner Institute used the REMI PI+ model to estimate economic impacts for this analysis. REMI PI+ is a dynamic model that incorporates input-output, economic geography, econometric, and general equilibrium components.

On the fiscal side, increased economic activity produces new income and sales tax revenues, while the growing population creates additional government expenditures. The Gardner Institute uses economic impact results from REMI PI+ modeling to estimate fiscal impacts based on multi-year historical relationships between income, industry output, and tax revenues on the one hand, and expenditures per capita for the relevant populations (school age, college age, and total population) on the other.

The Gardner Institute used detailed transaction data provided by the Utah Film Commission to construct employment, wage, and expenditure inputs for the REMI PI+ model. Table 2 provides summary information for the productions included in the analysis. Annual job numbers reflect a conversion of Utah cast and crew counts for each project using in-state photography days (for cast) or production days (for crew). We calculated annual jobs based on a 365-workday year to account for the longer film production work week. For example, Andi Mack, Season Three, hired 28 Utah cast members over 111 photography days (30 percent of a year), equivalent to about 9 annual jobs. The production also hired 317 Utah crew members over 166 production days (46 percent of a year), equivalent to about 144 annual jobs. In total, Andi Mack brought 153 jobs to Utah.

Table 2: FY 2018 Utah Motion Picture Incentive Program Projects (2018 Dollars)

Project Spending Production

Days Cast &

Crew Jobs*

MPIP

Incentive Andi Mack Season 3 $14,242,739 166 345 153 $3,560,686 Dwight in Shining Armor $10,333,051 426 183 173 $500,000 Enchanted Christmas $699,064 68 75 13 $138,562 Pupsicle Nickelodeon Pilot $855,000 40 100 11 $148,908 Snatchers Season 3 $1,693,673 300 160 116 $423,418 The Happy Worker $4,081,290 129 150 47 $1,000,000 The Night Clerk $1,300,486 158 129 50 $325,122 Yellowstone Season 1 $33,696,259 162 682 289 $7,115,960 Youth & Consequences $11,481,468 196 667 291 $946,842 Total $78,383,030 1,645 2,491 1,142 $14,159,498 *Annualized Utah job count, includes part-time and full-time jobs.

Note: All figures represent Utah-based activity.

The Film Commission provided the Gardner Institute data for payroll spending and non-payroll expenditures distributed by industry. Table 3 details non-payroll expenditure estimates, which reflect the Film Commission’s assignment of production spending categories to impact model industries. The Gardner Institute used the default IMPLAN motion picture industry spending pattern to allocate miscellaneous expenditures. IMPLAN is an economic modeling program that estimates transactions between producers and suppliers and final consumers in a local economy.

Table 3: Estimated Utah Expenditures of FY 2018 Motion Picture Incentive Program Projects by Industry (Thousands 2018 Dollars)

Category of Expenditure Amount Utah cast and crew payroll $25,140.0 Retail trade $18,843.9 Wholesale trade $12,007.3 Accommodation $8,982.0 Automotive equipment rental and leasing $3,390.5 Professional, scientific, and technical services $3,387.1 Food services and drinking places $2,155.8 Motion picture and sound recording industries $1,921.4 Air transportation $635.7 Transit and ground passenger transportation $211.9 All other industries $1,707.4 Total $78,383.0 Source: Kem C. Gardner Policy Institute analysis of Utah Film Commission and IMPLAN data

In the strictest interpretation, economic impacts occur only when “new money,” i.e. money from outside of the regional economy, is spent locally. For purposes of this analysis, we consider all expenditures of MPIP projects to be “new,” generating economic impacts.1 The expenditures presented in Table 3, therefore, constitute the direct economic effects of FY 2018 MPIP projects, which the Gardner Institute modeled in REMI PI+.

Economic and Demographic Impacts

Table 4 presents the results of the Gardner Institute’s REMI PI+ analysis of the $78.4 million spent by FY 2018 MPIP projects in the state. In addition to direct employment of 1,142 jobs, MPIP project expenditures generated an additional 1,412 indirect and induced jobs, for a total employment impact of 2,554 jobs. The employment impact includes both full- and part-time jobs. The $114.6 million total earnings impact is the value of the wages, benefits, payroll taxes, and proprietors’ income associated with the employment impacts. The $201.0 million Utah GDP, or “value-added,” impact represents the market value of all final goods and services produced in Utah associated with MPIP expenditures, less the cost of inputs. All of the economic activity generated by MPIP project expenditures is associated with net migration of 353 people.

Table 4: Economic and Demographic Impacts of FY 2018 Utah Motion Picture Incentive Program Projects (Millions 2018 Dollars)

Impact Direct Indirect/ Induced Total

Jobs (full- & part-time) 1,142 1,412 2,554 Earnings $25.1 $89.5 $114.6 Utah GDP $88.1 $112.9 $201.0 Population 0 353 353 using the REMI PI+ model

1 For four films that received incentives in 2018 the Gardner Institute was unable to verify that their expenditures were funded by out-of-state revenues. These films were excluded from the analysis and are mentioned in the Limitations section.

Fiscal Impacts

The Gardner Institute estimated the new state revenues and expenditures from the economic and population impacts produced by the REMI PI+ model. State revenues consist of estimated personal and corporate income taxes and state sales taxes. State expenditures comprise non-education expenditures, state public education expenditures, and higher education expenditures. Table 5 presents the results of the fiscal impact analysis.

Table 5: Fiscal Impacts of FY 2018 Utah Motion Picture Incentive Program Projects (Millions 2018 Dollars)

Impact Total New State Revenue (gross) $6.0 New State Expenditures $1.5

Net New State Revenue $4.5

State Incentives Paid $14.2 Net Cost of Incentives $9.6 Note: Totals may not match exactly due to rounding.

Source: Kem C. Gardner Policy Institute analysis of Utah Film Commission data using the REMI PI+ model and Gardner Institute fiscal impact model

Total economic activity associated with MPIP project expenditures generated an estimated $6.0 million in new state revenue in FY 2018, which was offset by an estimated $1.5 million in new state expenditures to serve a larger population, resulting in $4.5 million in net new revenue. Based on incentive payments of approximately $14.2 million, economic activity associated with MPIP projects in FY 2018 contributed about $0.32 in additional state revenue for each $1.00 paid out in incentives. This is slightly lower than the $0.35 revenue per $1.00 incentive payout from our FY 2015 MPIP study due to there being a larger increase in the employment impact per dollar of incentive than in the earnings impact per dollar of incentive. In our models, additional jobs generate additional population through migration, which in turn drives state government expenditures. State revenues are a function primarily of earnings.

The increase in the jobs impact had a greater effect on state expenditure growth than the increase in the earnings impact had on state revenue growth. Taking into account net returns to state coffers, the net cost of the incentives paid was approximately $9.6 million.

Limitations

The results of this analysis are subject to at least three limitations. First, the sum of spending listed by category (e.g.

equipment purchases, per diem, etc.) was less than CPA-verified spending totals. To match CPA-verified totals, we appropriately scaled each category provided so that their sum equaled CPA-verified totals. Results could vary if the actual categories of expenditure differ from the estimates used. Second, this analysis does not account for contributions to Utah’s $9.75 billion travel and tourism industry, outside of direct production spending on food, lodging, and transportation. Films and television series that prominently showcase Utah play a role in attracting new visitors to the state. However, an evaluation and analysis of Utah Office of Tourism survey data would be necessary to assess whether and how much tourism spending can be attributed to movies and television series filmed in the state.

This is outside the scope of the current study. Lastly, we assume that the majority of funding for these films originates from sources outside of Utah. The 2018 MPIP program included four local productions (Jane & Emma, Shoelaces for Christmas, However Long, and Let’s Get Epic) where sources of funding likely originated within Utah. The CPA-verified dollars of these four films was $1.2 million, representing 1.5 percent of total spend. These four productions are categorized as an economic contribution rather than an economic impact, and thus were excluded from analysis.

Conclusion

MPIP projects generated a net $4.5 million in new state revenue in FY 2018 through direct, indirect, and induced economic activity, which helped offset the $14.2 million cost of the program that year. This translates to a return of 32 cents of state revenue per dollar of incentive. This is three cents less than in FY 2015 due to an increase in the jobs impact having a greater effect on state expenditures than the increase in the earnings impact had on state revenues.

The in-state spending by these projects increased state GDP by approximately $201.0 million.