Arizona politicians are eagerly forking over public funds to Hollywood film companies that make movies in Arizona—leaving taxpayers on the hook for up to $125 million in subsidies every year.

But tax dollars should fund government functions—not movies. That’s why the Goldwater Institute filed a lawsuit this week on behalf of two taxpayers, challenging Arizona’s unconstitutional tax subsidies for filmmakers.

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Arizona has seen this picture before. Two decades ago, the Arizona Legislature enacted an “incentive” program for motion picture production that ended up costing the state millions, with little to show for it. After the state’s own reports showed that lavish Hollywood handouts failed to generate even enough indirect benefits to the state to justify the program, it was allowed to expire in the wake of the Great Recession.

Then in 2022, when the state legislature controlled a $5.3 billion surplus, film industry executives and lobbyists who for years had failed to revive a subsidy program seized their chance to get back in on the action. They cobbled together enough votes to enact the Arizona Motion Picture Production Program, which provides up to $125 million in refundable tax credits each year to qualified film production projects. “Refundable” means that if a film company qualifies for more in credits than they owe in taxes, the state cuts them a check! That’s even worse than the old program, which only allowed for “transferable” credits (meaning the recipient could transfer or sell the credit to someone else, but the state didn’t directly send them cash).

In short, the sequel is worse than the failed original.

After delays due to administrative rulemaking and recent strikes that rocked the film industry, the state is set to finally begin issuing the first round of credits this year. The Arizona Commerce Authority, or “ACA,” has begun the process of approving subsidies up to $1.2 million for a single project.

Proponents argue that such taxpayer-funded “investments” attract film projects that would otherwise shoot elsewhere, leading to increased economic activity and tourism. But economic and fiscal data on film subsidy programs across the country do not support these claims. Such handouts are almost always a net negative for states that go out of their way to prop up the film industry.

Even worse, taxpayers are left with no return on the substantial subsidies provided under the program. In fact, the primary “benefit” for receiving a film tax subsidy is an acknowledgement in the credits that the movie was filmed in the state. But producers don’t even have to release or distribute their films to receive taxpayer money! So these handouts may pay for films that no one will ever watch, or credits no one will ever see.

These types of abuses are exactly why the Arizona Constitution prohibits the state from subsidizing or otherwise giving out money for private purposes unless taxpayers receive direct benefits in return. That means that the state can contract with private companies to perform services or provide supplies at fair market rates, but donations, grants, subsidies, and other forms of corporate aid are not allowed.

The Goldwater Institute has succeeded time after time after time in defending taxpayers from illegal subsidies. Until we can say “that’s a wrap!” on politicians funneling money to special interests and other rent seekers, Goldwater will continue to fight against unconstitutional handouts and other forms of taxpayer abuse.

You can read our complaint here.

Click here to read more about Goldwater’s efforts to protect taxpayers from Hollywood subsidies and unconstitutional handouts. You can learn more about the Arizona Constitution’s Gift Clause here.

Author: Parker Jackson is a Staff Attorney at the Goldwater Institute.