It's hard to pin down Hollywood's benefit to Virginia

CW Television Network is developing a drama called "Company Town"  about the lives and loves of people at the Norfolk Naval Station.
CW Television Network is developing a drama called "Company Town" about the lives and loves of people at the Norfolk Naval Station.

Like most folks, Gov. Bob McDonnell enjoys a good movie or TV show -- especially if they’re filmed in Virginia.

So imagine his delight when he annnounced that the pilot episode for a television drama will be filmed in Hampton Roads this spring. The show, called "Company Town," revolves around the lives and loves of characters at the Norfolk Naval Station. It is being developed by the CW Television Network.

"Should the show move forward as a series and continue taping in Virginia, it could mean an annual economic impact for the region of up to $50,000,0000," McDonnell’s office stated in a March 14 news release.

State officials aggressively recruit and subsidize film-making in Virginia because it is an industry that often comes with large crews said to fill local coffers by staying in hotels, eating in restaurants, buying supplies and creating spin-off jobs.

McDonnell said last November that Steven Spielberg’s movie "Lincoln," filmed in 2011 in Richmond and Petersburg, had a state economic impact of $64.1 million. The governor also said that the film and television industry had a total economic impact of $394.4 million in Virginia during 2011.

We’ve tried to run some of these numbers through our Truth-O-Meter but always encounter problems: The estimates are based on some information that only can be supplied by the Virginia Film Office and computed by a proprietary computer program.

We’re not suggesting the estimates are wrong; we’re saying we can’t verify them.

Let’s walk through how the state came up with the $50 million a year impact estimate for  "Company Town."

Andrew Edmunds, director of the Virginia Film Office, said the producers are planning to spend about $2 million per episode.  A network normally orders 13 episodes per season, bringing the total production cost to $26 million.

But then they add a mysterious ingredient, called a "standard multiplier," that assesses how an industry’s spending ripples through a region and generates other economic activity. In Virginia, the multiplier for film and video is 1.77. That means that each $1 the film industry spends in Virginia is estimated to generate $1.77 in spending.

When you apply the multiplier to the $26 million annual production cost of the series, you get an economic impact of $46.8 million a year, Edmunds said.

"This does not include the economic impact of the pilot which should be between $7 (million) and $8 (million)," Edmunds wrote in an e-mail.

All of this leads to a vital question: How do they arrive at that 1.77 multiplier? Edmunds pointed us to a report from Mangum Economic Consulting, LLC, a Richmond company that makes computations for the film office.

Fletcher Mangum, the consultant group’s managing partner, said he takes numbers on film and video industry employment from the Virginia Employment Commission. He also uses figures on estimated spending by the film and video industry that are supplied by the Virginia Film Office. The data is not limited to major film and television projects; it includes industrial and corporate videos, multimedia projects, public service announcements, student films, still photo shoots and commercials.

The information is put into a software program called IMPLAN, a model that’s widely used by economists, researchers  and government agencies across the nation to gauge economic impact. The software makes a series of complex calculations, Mangum said. His company issued a report last October that concluded the multiplier was 1.77 in 2011.

We can’t shed light on the formula used to compute the multiplier because the software is proprietary. We contacted Minnesota-based IMPLAN and were told it does not answer press inquiries about its modeling software.

Mangum said IMPLAN is the "gold standard" of economic impact analysis and that the 1.77  multiplier is "very conservative" compared to other states.

Terry Rephann, a regional economist at the University of Virginia’s Weldon Cooper Center for Public Service, said Virginia’s multiplier is low compared to some other states.

Rephann said he’s seen reports estimating that a $1 invested in Louisiana’s film industry produces a $1.87 return, and that in New Mexico the estimated return is somewhere in the range of $2. New York has been estimated to have a return of $3, but Rephann noted that state boasts entertainment hubs, such as NBC and other studios.

For more insight, we looked at Maryland’s experience with "The Wire," an HBO show that focused on the police department, school system and drug dealers in inner city Baltimore. State officials estimate the show had a $196 million economic impact over five seasons from 2002-2006, a figure that has not been adjusted for inflation, said Jack Grebes, director of the Maryland Film Office.

Not everyone is comfortable with these estimates of riches, which many governors use to justify offering incentives to lure film companies to their states.

The Tax Foundation in Washington issued a critical report in 2010 saying the number of states offering movie production incentives had risen from five in 2002 to 44 in 2009. It said that states were taking unnecessary risks with taxpayer dollars by offering such incentives "based on fanciful estimates of economic activity and tax revenue."

The foundation said many jobs that the film industry brings are temporary and involve hiring workers from out of state.

The Center on Budget and Policy Priorities reached a similar conclusion in a 2010 study, concluding that states often rely on "flawed studies" that overestimate the benefits of offering incentives to film companies.

Virginia has budgeted $11 million over two years for tax incentives and grants to lure productions.

Edmunds said without such incentives, productions like "Company Town" will go elsewhere.