SUMMARY OF: A Special Report on the Department of Commerce, Community, and Economic Development (DCCED) and the Department of Revenue (DOR), Alaska Film Production Tax Incentive Program (AFPTIP), Select Performance Issues, August 8, 2012

Purpose of the Report

In accordance with Title 24 of the Alaska Statutes and a special request by the Legislative Budget and Audit Committee, we have conducted a performance audit of the AFPTIP. The AFPTIP is administered by DCCED’s Alaska Film Office (AFO) in cooperation with DOR’s Tax Division. The primary objectives of the audit include: identifying the AFPTIP’s economic impact in Alaska, determining whether the AFO’s application review and approval process adequately protects the State’s interests, evaluating the extent to which the AFO is meeting its statutory duties, and determining whether a production tax credit is the most cost effective method for incentivizing film production activity in Alaska.

Report Conclusions

The AFPTIP has generated a net positive economic impact in the State. An AFPTIP economic impact study for the period July 2008 through February 2012 indicates direct spending from AFPTIP approved productions has generated $2 in economic output for every $1 in Alaska Film Production Tax Credits (tax credits) issued. While the study highlights a net positive economic impact, the AFPTIP does not generate tax revenues sufficient to pay for credits issued. Additionally, a significant amount of program benefits are realized outside Alaska.

The AFO’s eligibility and application review is adequately designed to ensure the State’s best interests are reasonably protected. However, improvements are needed. Necessary improvements include developing written criteria for evaluating whether a production is not in the State’s best interests, and strengthening residency verification and documentation requirements to ensure the State is provided the information necessary to adequately review and approve credit calculations.

Except for certifying internship programs, the AFO is meeting its statutory program responsibilities. The AFO is promoting Alaska as a viable film location, cooperating with private entity organizations, and providing production assistance. Although identified as one of its statutory duties, the AFO has not yet certified any internship programs.

Whether the AFPTIP, as compared to other states, is the most cost effective method for incentivizing the film industry cannot be determined. The significant variations in design of film production incentive programs and differences in state tax structures make comparisons between states problematic. Available impact analysis reports of other states’ programs indicate that all film production incentive programs create positive economic impacts while in operation.

Findings and Recommendations

  1. The AFO development specialist should strengthen qualified expenditure documentation requirements to ensure tax credit calculations are adequately supported.
  2. DCCED’s Division of Economic Development director should consider amending AFPTIP regulations to more clearly define Alaska residency and provide CPAs a more effective method of verifying expenditures claimed as resident wages.
  3. The AFO development specialist should strengthen procedures for collecting and reporting Alaska employment data to ensure reliable information is available for program evaluation.
  4. The AFO development specialist should develop film production internship training program certification procedures.