Some States Cut Back Financial Incentives for Hollywood Productions, While Others Look to Pick Up Slack

April 10, 2011

Some States Cut Back Financial Incentives for Hollywood Productions, While Others Look to Pick Up Slack

By Hollie McKay

Hollywood may film even fewer of its movies and TV shows in the United States if cash-strapped states and local governments cut the financial incentives that have been used in recent years to attract productions.

“The state incentives were initially launched to combat runaway production to Canada, so in the beginning it was the U.S. versus Canada,” Jeff Steele, a film finance expert and owner of the entertainment consulting firm Film Closings, Inc. told FOX411’s Pop Tarts column. “40 states later, it’s devolved into state versus state, with many states trying too hard to outdo each other, and ultimately cannibalizing their own incentive programs.”

An Associated Press survey found that from 2006 to 2008, state governments dished out a whopping $1.8 billion in tax breaks and other advantages to the entertainment industry, but the recession now has some officials debating over whether the lost revenue from these incentives is really worth it. Film subsidy programs started under Democratic governors in states like Pennsylvania, Michigan and New Mexico are now under intense scrutiny by new Republican governors.

Pennsylvania Gov. Tom Corbett is under pressure to reduce the state’s film credit to help close a $5 billion budget gap. In February, New Jersey Gov. Chris Christie suspended his state’s incentive program for the 2011 fiscal year. Arizona, Iowa and Kansas have put on hold or eliminated their small incentive programs, and after a bipartisan review in Missouri, the state has been advised to do away with its film incentive.

“The Iowa Film Tax Credit program was a poorly managed program that left Iowa taxpayers on the hook for more than $200 million. The tax credits were actually used by out-of-state companies who could purchase and sell the credit, and very little oversight was given to the program, leaving Iowa with a black eye in filmmaking,” spokesperson Tim Albrecht from the Iowa Governor’s office told us. “This tax credit will not be revisited; however the governor is extremely interested in reviving the Iowa Film Office, which he started in the 1980’s. In addition to recruiting big talent and blockbuster films, the Film Office also puts local film technicians in contact with out of state organizations wishing to film here. This includes, but is not limited to, news organizations and 2012 presidential candidates.”

Last month New Mexico Gov. Susana Martinez trimmed $23 million from the state’s Hollywood incentive program in an effort to protect education and other public services. “The subsidy to Hollywood on the backs of our schoolchildren,” she said in a statement, adding that the film cuts “protected classroom funding and healthcare for those most in need.”

Not surprisingly, some in Hollywood think states are being short-sighted in the elimination of the sweetheart deals.

“It’s a win situation because of the attention it brings to the state or locale,” said producer Mark Joseph. “When I recently produced the independent film ‘Doonby,’ we shot in Smithville, Texas and both the state of Texas and the city of Smithville had film commissions. I believe for us and them, it was a positive situation as we enjoyed our time there and talk about it often in the press. In states where it does not automatically appear to help financially they must also take into consideration the ongoing public press which influences tourism and conversation about the state… It is a good business, and generally recession proof.”

Yet while several states are whittling down their incentive packages, a few others are waiting in the wings to take their place.

Tax credits for Hollywood were recently expanded in Florida and North Carolina, the Idaho House recently endorsed legislation to extend its incentive program for another five years, and a similar bill is moving through the Washington Legislature. Moreover, Connecticut Gov. Malloy is reportedly reconsidering the bid to cut back the state’s program, and Oregon Gov. Kitzhaber is pushing to increase his state’s incentive plan from $7.5 million to $10 million per year.

“There are quite a few movie operators and directors looking for a place to land and we thought we might have them come here,” Kitzhaber said.

In an attempt to combat California’s $25 billion budget gap, newly-elected Governor Jerry Brown is proposing to cut social services and state employee pay, however the $100 million in film and television tax credits passed under his predecessor, Arnold Schwarzenegger, remain intact.

So do Hollywood productions really boost a town’s bottom line?

Supporters of Kitzhaber’s bid to increase movie funding say so, and claimed that the state’s relatively small tax cuts have encouraged filmmakers to spend more than $178 million on projects in Oregon over the last four years.

“When a film production comes to town, it’s like a cruise ship pulling into port for two to three months: lots of people descend on the location, hire a lot of people, book a lot of hotel rooms, spend a lot of money, then leave,” Steele explained. “If a State uses incentives (rebates, refunds, or tax credits) to attract the production, then that’s more akin to luring a company to setup shop in your state. Under this scenario, a film is like a startup company that can be up and running in a few weeks, expend a lot of money, hire/train a lot of people, and then leave, as opposed to taking months/years to permit and build a factory that will then spend the rest of its days threatening to move to the next town over, in an effort to continually nickel-and-dime the city/state.”

Joseph Fichera, CEO of Saber Partners and financial expert/media analyst, said money from Hollywood is really only made in the very short-term. “There is no real evidence to say that it boosts tourism in the long run just because a certain movie was filmed there,” he said. “All it does is boost employment while production is in town.”

Nonetheless, if moviemakers are forced to go outside the U.S under the lure of better tax breaks and incentives, it could have an adverse ripple effect.

“Losing production to Canada, Eastern Europe, etc. would be a devastating loss for the United States,” Steele added. “But it is not the responsibility of state governments to ‘rescue the film industry.’ Times have changed and states are hurting. Producers have to follow the money to get their films made. If that trail takes them to other countries, then that’s collateral damage from the recession. Savvy states need to step up and increase their incentives to capture the mass exodus of those states opting out.”