Virginia could begin courting Hollywood wealth with new film incentives shown to hurt the budgets of some other states.

At the suggestion of Gov. Bob McDonnell, the state House and Senate have approved similar bills that would return 15 to 20 percent of direct production costs back to companies that choose to film in Virginia. For example, a film budgeted for $10 million might have qualifying expenses of $5 million and could consequently receive $1 million from the state.

Applying only to companies spending at least $250,000, the Senate bill would limit total credits given to $10 million every two years, while the House limit is half that amount.

The incentives would move Virginia from the back to about the middle of the pack of states trying to attract films. Since 1995, the state has offered sales and use tax exemptions for filmmakers, and granted $1.5 million through the Governor’s Motion Picture Opportunity Fund, according to the Virginia Film Office.

Half of that $1.5 million was given to HBO in 2004 for filming the John Adams miniseries in historical Williamsburg. The filming brought a boost to local businesses that proponents of the new incentives say could be multiplied if Virginia ups its rewards.

Williamsburg hotels filled up during the filming, said Chris Canavos, president of the Williamsburg Hotel/Motel Association.

“It has a tremendous residual,” he said. “There were a lot of hotels that provided rooms, so it had a tremendous economic impact here.”

During the filming, $80 million was spent on labor, equipment, goods and services and 3,500 were employed, according to estimates from the VFO.

That’s just a part of what films have done for private businesses in Virginia, says the VFO. In total, the office estimates that the film industry has brought an estimated $3.3 billion impact to the state by spending $1.7 billion on films, television shows, documentaries, commercials and education videos.

More money for production companies means more ripples of wealth through Virginia, said Terry Stroud, president of the Virginia Production Alliance—the trade organization behind the state’s film industry.

“If you can get these films to come here, the amount of money they pour into the community is just incredible,” Stroud said.

But some analysts say Virginia is just stepping into a financial drain just like many other states before it.

David Zin, economic analyst for the Michigan Senate Fiscal Agency, doesn’t deny that private business in his state has benefitted from the 40 percent, no-cap tax credit offered to production companies since 2008. But compare what the state’s handing out to what it’s getting back, and Michigan comes out a big loser, Zin said.

So far, the cash-strapped state has given production companies about $150 million. For every one of those dollars, the state is only getting back 10 cents, Zin said.

And even if the economic “ripple” effect of the film spending is taken into consideration, Zin said it is still impossible for the state to make up the money in extra revenue. Assuming the economic effect was double the actual spending—which is a common estimate—Michigan would have to levy at least a 20 percent tax to make up all the credit money, he said.

“Michigan has no prayer paying for it,” Zin said. “But even a state like Virginia, your average state tax rate isn’t 20 percent and you’re paying for 20 percent of the production costs, so it becomes very difficult to pay for itself. It’s pretty mathematically unlikely.”

And even as local businesses benefit from some of the spending, a lot of it ends up leaving the state as actors and production crews finish up and move on to the next project, Zin said. Michigan paid $800,000 of Clint Eastwood’s salary for the film Gran Torino, only to see him take most of that money elsewhere, Zin said.

“To think that any kind of that money stayed in Michigan is naïve,” he said.

Carl Davis, senior analyst for the Washington, D.C.-based Institute on Taxation and Economic Policy, agrees that film tax credits bring some money to states—but it’s temporary and doesn’t create the long-term jobs that a stable economy needs.

“In the absence of having a large production studio, all you’re going to get is people coming in, shooting and leaving,” Davis said. “Even if they do hire Virginia residents, is that really the type of job you’re trying to create.”

He says that while money is pumped into hotels, restaurants and other service-oriented businesses, manufacturing and other core industries in Virginia are left out.

It’s unclear exactly what the new credits would do for Virginia’s budget. Economic impact statements for both bills don’t offer estimates of how many films would be attracted to the state, nor how much revenue they’ll generate. Instead, both state that “the income produced by this activity would likely offset the lost tax revenue.”

Most of Virginia’s legislators seem to be on board. Nineteen Democrats voted against the House version, while the Senate version passed unanimously.

Davis doesn’t think that’s surprising, given that movies are glamorous and popular.

“It’s always a very high-profile thing,” Davis said. “People understand what movies are, and it’s a very visible way for politicians to claim they’re doing their best to create jobs and help the state.”

Film credits have been growing in popularity for the last decade. Most states now offer a 10 to 40 percent tax rebate, according to the Screen Actors Guild. Only four states offer no special incentives for production companies.

While Michigan offers the biggest gold mine for production companies, Illinois, Alaska, New York and Missouri, Alabama, Oklahoma and Connecticut offer at least a 30 percent credit on all qualified spending.

Like Michigan, some states are finding they’re losing money to Hollywood. Massachusetts, which offers a 25 percent credit, paid out $166 million over two years and received new revenue of just $26 million, according to a July 2009 report by the Massachusetts Department of Revenue.

The report also found that of roughly 3,200 jobs created by production companies, 60 percent were held by non-residents and more than 80 percent of the wages paid on productions went to employees living out of state.

In Connecticut, 89 percent of the spending eligible for the credit occurred outside of the state, according to a July 2009 study by Connecticut Voices for Children.

Terry Stroud criticizes states that offer credits he says are too high and lack a spending cap. The new incentives limit credits enough that Virginia wouldn’t be hurting itself by handing out too much money, he said.

“We’ve studied it pretty hard to make sure if you’re going down the road of incentives, that you’re not giving away too much,” he said. “They’re giving away more than they should to get the stuff here.”