States play the credit card to lure filming


It's a universal scenario that's at least as old as "Leave It to Beaver": A child asks mom and dad if he or she can do the cutting-edge thing that the kid up block is doing, and the parents reply, "If the kid up the block jumped off a bridge, would you jump off a bridge, too?" That used to be the attitude of state legislatures when people pleaded with them to establish tax credits or rebates to encourage film and TV production. Federal crop subsidies 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 has pierced her navel, and both dad and your high school science teacher have gotten tribal tattoos. What was once extreme is now mainstream: From Oregon to Rhode Island, states are offering attractive tax credits and rebates to lure productions, and others are getting in line to enact similar incentives. The growing use of these incentives will be a hot topic of discussion among the 260 exhibitors from 43 countries expected to attend the Association of Film Commissioners International's 22nd annual International Trade Show, which begins today and runs through Saturday at the Santa Monica Civic Auditorium.

"Louisiana sort of started the ball rolling five years ago, but it's really taken off in the last year or year and a half," says Joseph Chianese, vp business development and production incentives at Entertainment Partners. "Right now, the way I count them, there are around 31 states offering direct tax credits and rebates, if I include Puerto Rico and New York City in the mix, and four or five have proposed legislation."

The question is whether these incentives are working, in terms of luring productions and as revenue generators for the states.

"I think as long as people think making movies is an attractive area for economic 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 a tax credit, and they have the most significant infrastructure outside of California," Hamilton notes. "So, that tells you something."

In 2006, Connecticut passed a law establishing the largest production tax incentive currently available in the U.S.: a 30% transferable tax credit on qualified productions with expenses in the state exceeding $50,000. Unlike incentives in many states, Connecticut's have no annual or per-production cap, nor do they have a sunset date, which means they will stay in effect indefinitely 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 state and have it count," Hamilton says. "So whether that be labor or equipment or other goods and services, you can bring it into the state, create your production, and earn a 30% tax credit for those expenditures. That won't be forever. But we had to really do something aggressive and upfront to get people to look at Connecticut as a good place to do business. It's a carrot to get people to come and try the state, and so far it's worked." Indeed, it has attracted two major 2929 Prods. features -- "In Bloom," starring Uma Thurman, and Warner Bros. Pictures' "What Just Happened?" starring Robert De Niro -- as well as Focus Features' "Reservation Road," starring Joaquin Phoenix, and the ESPN miniseries "The Bronx Is Burning."

Competing with Connecticut is nearby Rhode Island, which last year established 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 for in-state and out-of-state staff," marvels John Hadity, president and CEO of Hadity & Associates, an independent firm specializing in film and TV production planning and financing. "So, if Tom Cruise goes to Rhode Island and gets paid $20 million on his movie, but he doesn't live there, you're still going to get 25% of the $20 million."

In addition to the extra 5% offered in its tax credit, Connecticut has a leg up on Rhode Island because of its closer proximity to New York, which is home to so many A-list stars and top-flight crew and remains a place to shoot despite the combined 15% tax credit available to eligible productions from the city and state. But while Stamford, which has hosted the lion's share of productions to date, can be reached from Manhattan by express train in a mere 45 minutes, the state's only notable production complex, Sonalysts Studios, is 85 miles to the northeast in Waterford.

"One of the struggles that Connecticut will have is building its infrastructure," Hamilton admits. "There are only so many warehouses and airport hangars that you can use to convert to the kind of studio space that you would need."

The inspirations for the domestic incentive trend are Louisiana and New Mexico, which have been successful in both luring production and, more tentatively, building infrastructure since passing rich tax credits in 2002.

Louisiana's current incentive package is highlighted by a 25% tax credit on expenditures in the state of $300,000 or more and a 10% credit on in-state hires whose salaries do not exceed $1 million.

"At the end of 2005, the law changed from a 10% to 15% credit to the flat 25%," explains Alex Schott, executive director of the Louisiana Governor's Office of Film & Television Development. "Prior to the change, if it was over $8 million, it was one percentage, and if it was under $8 million, it was another. I think that having a streamlined process is key. Regardless of how enticing your program is, the perception of being complicated kind of scares off people."

Louisiana also cuts generous deals for those investing in the state's film infrastructure.

"All the equipment we have to buy, they give us back, like, bonus depreciation on it -- and the infrastructure tax credit, which is anywhere between 15% and 40%, depending on what you buy and how you fill out your application," says Jordan Kessler, co-founder (with Jerry Gilbert and Nick Thurlow) of Louisiana Media Services, a postproduction facility that opened in Baton Rouge in October. "Theoretically, if you spent a million bucks, you could get up to $400,000 back. The problem is, whenever you do something like that, every bozo submits a plan for a huge studio."

Last month, Economic Research Associates of Chicago unveiled a 115-page report that seems to support Kessler's bozo analysis. Currently, Louisiana has six soundstages. The report ascertained that the state needs more production facilities to handle the 25 film and TV projects it has been averaging a year, and it could probably support another 15 soundstages if its film industry grows as projected over the next decade. But the state already has been overwhelmed with applications to build a total of 32 new soundstages.

The wealth of productions lured by New Mexico's tax incentive package -- highlighted by a 25% tax rebate -- are what inspired Pacifica Film Partners to build the recently-opened Albuquerque Studios, a $74 million state-of-the-art motion picture and TV production facility that includes eight sound stages with a combined total of 168,000 square feet. But the studio's COO Nick Smerigan says the studio itself has not received any tax breaks or loans from the state.

"Right now, for all intents and purposes, we are not on the dole with either the city or the state at all," Smerigan says. "We're in this for the long run, and we're not looking at this point to take anything from those institutions."

The problem for Pacifica and others who invest in the production infrastructures of states that owe their booming film and TV business to tax incentives -- arguably all but California and New York -- is that if the incentives 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're not just a flash in the pan," says Lisa Strout, director of the New Mexico Film Office. "The law we just passed makes the 25% rebate permanent. There's no 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 the chance it will be bested by another state or country or repealed by a dissatisfied legislature. But Hadity, for one, is confident the domestic production-incentive trend has staying power.

"There are two groups of people when there's an argument about whether there should be an incentive," he says. "The first battle is always won by tax people. They say, 'Look at all the money we're giving away or we're not taking in,' and either the incentive goes away, or it doesn't happen. Then, the economic-development people come back and give them a list of all the dry cleaners and restaurants that have closed because there's no business, and the credits get on the books. The economic development people always win the war. Always. It's like I've seen that movie a hundred times."