Current economic swoon gives states less incentive to back production credits

The credit crunch and the crumbling economy have put the nation's film tax incentives under the microscope as states debate their overall effectiveness. At a locations panel Saturday during the American Film Market, the question of how long states can maintain the present course of tax rebates and credits in the face of mounting job losses and bleeding state budgets took center stage. (A refundable tax credit, instituted in such states as Michigan and New Mexico, acts more like a rebate and sees states issue a check to production companies. A transferable tax credit, like the ones in Louisiana and Rhode Island, sees states issue credits that the production then sells via brokers to those looking to offset tax liability.)

Some states are even questioning this "subsidization" of the film industry after reports like one that claimed Louisiana gave more than $27 million in credits to "The Curious Case of Benjamin Button."

The scrutiny has local film commissioners and those involved in local film production on the defensive.

"We're not giving away money," says Tony Wenson, COO of the Michigan Film Office. "We're really incentivising new business growth and job creation in the state."

Adds Jeff Spillman, who runs production-services firm S3EG: "They are not a subsidy for film, they are a subsidy for the development of the economy."

Michigan instituted its program — which includes the possibility of an eye-catching 42% credit — in April. Since then, it has seen an explosion in production: A dozen movies have wrapped, and four are in production. The previous year, the state hosted one film.

The forecast is for about $100 million of direct spend in the state, a figure that does not include ancillary spending, like money film crews spend after work.

According to insiders, Clint Eastwood's upcoming "Gran Torino," which shot entirely in Michigan, will receive about $5 million in credits once its audit is complete. "Youth in Revolt" received $4 million.

Wenson declined comment on the numbers but points out that when all is said and done, the final credit outlay will look more like 35%, not the much-ballyhooed 42%. A production receives 42% credit if it shoots in select cities; in the rest of the state, a production gets 40%, though that's only if it uses a Michigan crew. Since almost all productions have been importing crews — Michigan is only beginning to create its infrastructure — the credit is only 30%.

"That number is not going to kill the budget," Wenson says.

Some states are hearing a growing call to cap credits. That idea was brought up in Michigan but quickly quashed.

West Virginia, on the other hand, capped incentives at $10 million a year. The limit was instituted to prevent the state from being overrun by productions as well as to maintain control over growth.

"Ten million dollars is a very manageable number for us," Jamie Cope of the West Virginia Film Office says.

Louisiana, meanwhile, is standing by "Benjamin Button," supporting the film after it pumped millions into the New Orleans economy. Jennifer Day of the New Orleans Office of Film & Video said the production helped refurbish the city by sprucing up, restoring and fixing the locations it used.

"They were helping to rebuild this city location by location," she says.

As for its tax-credit scheme, which includes a 25% motion picture credit, film heads point out that if there are no buyers for the credits in these recessionary times, the state will buy them. The current price is 72 cents on the dollar, rising to 74 cents in 2009.

"It's important to stress that the economy has its issues, but there is a fail-safe — and that fail-safe is the state of Louisiana," says Bill Hess, from the city of Alexandria's office of economic development.

Borys Kit can be reached at borys.kit@THR.com.