Posted 12 April, 2007 in FilmUSA
From the Hollywood Reporter
By Todd Longwell
It’s a universal scenario that’s at least as old as “Leave It to Beaver”: Achild asks mom and dad if he or she can do the cutting-edge thing that thekid up block is doing, and the parents reply, “If the kid up the blockjumped off a bridge, would you jump off a bridge, too?” That used to be theattitude of state legislatures when people pleaded with them to establishtax credits or rebates to encourage film and TV production. Federal cropsubsidies might be OK, but production incentives were looked upon as handouts, corporate welfare, or worse, creeping socialism. Just because Canada was doing it, it didn’t mean we were going to do it, too.
But times have changed. It’s like coming home from college to find mom haspierced her navel, and both dad and your high school science teacher havegotten tribal tattoos. What was once extreme is now mainstream: From Oregonto Rhode Island, states are offering attractive tax credits and rebates tolure productions, and others are getting in line to enact similarincentives. The growing use of these incentives will be a hot topic ofdiscussion among the 260 exhibitors from 43 countries expected to attend theAssociation of Film Commissioners International’ s 22nd annual InternationalTrade Show, which begins today and runs through Saturday at the Santa MonicaCivic Auditorium.
“Louisiana sort of started the ball rolling five years ago, but it’s reallytaken off in the last year or year and a half,” says Joseph Chianese, vpbusiness development and production incentives at Entertainment Partners.”Right now, the way I count them, there are around 31 states offering directtax credits and rebates, if I include Puerto Rico and New York City in themix, and four or five have proposed legislation. “
The question is whether these incentives are working, in terms of luringproductions and as revenue generators for the states.
“I think as long as people think making movies is an attractive area foreconomic growth, you’re going to see states wanting to compete for that,”observes Heidi Hamilton, director for the Connecticut Commission on Culture& Tourism Film Division.
And to compete in the current climate, states need incentives.
“Even New York, which has been a historic home for production, had to pass atax credit, and they have the most significant infrastructure outside ofCalifornia,” Hamilton notes. “So, that tells you something.”
In 2006, Connecticut passed a law establishing the largest production taxincentive currently available in the U.S.: a 30% transferable tax credit onqualified productions with expenses in the state exceeding $50,000. Unlikeincentives in many states, Connecticut’ s have no annual or per-productioncap, nor do they have a sunset date, which means they will stay in effectindefinitely unless repealed by the legislature.
Connecticut’ s incentive program is not only generous — it is liberal.”We created a tax credit that allows you to bring what you need to the stateand have it count,” Hamilton says. “So whether that be labor or equipment orother goods and services, you can bring it into the state, create yourproduction, and earn a 30% tax credit for those expenditures. That won’t beforever. But we had to really do something aggressive and upfront to getpeople to look at Connecticut as a good place to do business. It’s a carrotto get people to come and try the state, and so far it’s worked.” Indeed, ithas attracted two major 2929 Prods. features — “In Bloom,” starring UmaThurman, and Warner Bros. Pictures’ “What Just Happened?” starring Robert DeNiro — as well as Focus Features’ “Reservation Road,” starring JoaquinPhoenix, and the ESPN miniseries “The Bronx Is Burning.”
Competing with Connecticut is nearby Rhode Island, which last yearestablished a 25% transferable tax credit for productions with budgets of$300,000 or more that are shot primarily in the state.
“It’s 25% of all your Rhode Island spend, which includes salaries both forin-state and out-of-state staff,” marvels John Hadity, president and CEO ofHadity & Associates, an independent firm specializing in film and TVproduction planning and financing. “So, if Tom Cruise goes to Rhode Islandand gets paid $20 million on his movie, but he doesn’t live there, you’restill going to get 25% of the $20 million.”
In addition to the extra 5% offered in its tax credit, Connecticut has a legup on Rhode Island because of its closer proximity to New York, which ishome to so many A-list stars and top-flight crew and remains a place toshoot despite the combined 15% tax credit available to eligible productionsfrom the city and state. But while Stamford, which has hosted the lion’sshare of productions to date, can be reached from Manhattan by express trainin a mere 45 minutes, the state’s only notable production complex, SonalystsStudios, is 85 miles to the northeast in Waterford.
“One of the struggles that Connecticut will have is building itsinfrastructure, ” Hamilton admits. “There are only so many warehouses andairport hangars that you can use to convert to the kind of studio space thatyou would need.”
The inspirations for the domestic incentive trend are Louisiana and NewMexico, which have been successful in both luring production and, moretentatively, building infrastructure since passing rich tax credits in 2002.
Louisiana’s current incentive package is highlighted by a 25% tax credit onexpenditures in the state of $300,000 or more and a 10% credit on in-statehires whose salaries do not exceed $1 million.
“At the end of 2005, the law changed from a 10% to 15% credit to the flat25%,” explains Alex Schott, executive director of the Louisiana Governor’sOffice of Film & Television Development. “Prior to the change, if it wasover $8 million, it was one percentage, and if it was under $8 million, itwas another. I think that having a streamlined process is key. Regardless ofhow enticing your program is, the perception of being complicated kind ofscares off people.”
Louisiana also cuts generous deals for those investing in the state’s filminfrastructure.
“All the equipment we have to buy, they give us back, like, bonusdepreciation on it — and the infrastructure tax credit, which is anywherebetween 15% and 40%, depending on what you buy and how you fill out yourapplication, ” says Jordan Kessler, co-founder (with Jerry Gilbert and NickThurlow) of Louisiana Media Services, a postproduction facility that openedin Baton Rouge in October. “Theoretically, if you spent a million bucks, youcould get up to $400,000 back. The problem is, whenever you do somethinglike that, every bozo submits a plan for a huge studio.”
Last month, Economic Research Associates of Chicago unveiled a 115-pagereport that seems to support Kessler’s bozo analysis. Currently, Louisianahas six soundstages. The report ascertained that the state needs moreproduction facilities to handle the 25 film and TV projects it has beenaveraging a year, and it could probably support another 15 soundstages ifits film industry grows as projected over the next decade. But the statealready has been overwhelmed with applications to build a total of 32 newsoundstages.
The wealth of productions lured by New Mexico’s tax incentive package –highlighted by a 25% tax rebate — are what inspired Pacifica Film Partnersto build the recently-opened Albuquerque Studios, a $74 millionstate-of-the- art motion picture and TV production facility that includeseight sound stages with a combined total of 168,000 square feet. But thestudio’s COO Nick Smerigan says the studio itself has not received any taxbreaks or loans from the state.
“Right now, for all intents and purposes, we are not on the dole with eitherthe city or the state at all,” Smerigan says. “We’re in this for the longrun, and we’re not looking at this point to take anything from thoseinstitutions. “
The problem for Pacifica and others who invest in the productioninfrastructures of states that owe their booming film and TV business to taxincentives — arguably all but California and New York — is that if theincentives go away, so will their business.
Smerigan isn’t worried. “I don’t believe the incentives are going away,” he says.
“A lot of states have incentives, but they see our consistency, that we’renot just a flash in the pan,” says Lisa Strout, director of the New MexicoFilm Office. “The law we just passed makes the 25% rebate permanent. There’sno sunset date. That’s very important for the confidence of companies.”
But even if a tax credit doesn’t have a sunset date, there’s always thechance it will be bested by another state or country or repealed by adissatisfied legislature. But Hadity, for one, is confident the domesticproduction-incentive trend has staying power.
“There are two groups of people when there’s an argument about whether thereshould be an incentive,” he says. “The first battle is always won by taxpeople. They say, ‘Look at all the money we’re giving away or we’re nottaking in,’ and either the incentive goes away, or it doesn’t happen. Then,the economic-developmen t people come back and give them a list of all thedry cleaners and restaurants that have closed because there’s no business,and the credits get on the books. The economic development people always winthe war. Always. It’s like I’ve seen that movie a hundred times.”
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