Incentives That Work Take Work

Carol Patton and Steven Feinberg
Carol Patton and Steven Feinberg of the Rhode Island Film Office

Earlier this year at AFCI 2004, I had the opportunity to meet with over 30 countries and many states in the United States to learn about the current status of their incentive programs designed to lure billions of movie production and telefilm dollars. It is clear that the countries, states, and municipalities that invested in well designed and useful incentive programs were snaring the lions share of the billions of dollars now being spent mainly in Canada, Australia, Hungary and other incentivized hot spots on the globe. In Mark Litwak’s Legal Lens column in this issue of IMAGINE he reports that the U.S. Department of Commerce estimated in 2001, that foreign tax incentives cost the U.S. economy more than $10 billion per year. Read his report for the worldview.

The United States at the federal level has been unsuccessful at passing film production incentives. In 2001, IMAGINE reported and supported the passage of Senate Bill 1613 (originally introduced as SB 1278 in July 2001). The bill was read twice in September 2003 and referred to the Senate Committee on Finance, where it hasn’t been heard from since in spite of some significant support for the bill, which would have provided tax credits equal to 25% of the qualified wages paid on a production whose total costs range from $200,000 to $7.5 million.

On a by state basis aggressive tax incentive programs began to noticeably creep onto the American landscape in 2002. It became apparent to some states that offering bigger incentives would lure the business away from the states that would not offer as much. Several states have emerged as clear leaders and winners in this process and now it’s quite likely that we will see the war of the incentives as the not so ready states begin to jump on the incentive band wagon.

"Labor Day", shot in MA, 2013
“Labor Day”, shot in MA, 2013

Until recently New York did not have production tax credits at the city or state level. Their competitive edge was their focus on customer service through their superb state offices, free permitting, parking, and police assistance and their great locations, crew base, and laudable artistic talent. In August this year, Governor George Pataki has enthusiastically supported a series of landmark tax incentives for film and television production aimed at curbing his state’s runaway filmmaking. After all it is a $5 billion industry for New York.

While the governor did make 195 vetoes to the state budget tallying $1.8 billion in cuts, the film and TV legislation went through unscathed. The filmmaking law now provides $100 million over four years – $25 million annually – to cover tax write-offs for film and TV projects produced in New York. The bill also allows New York City to provide as much as $12.5 million in annual tax credits for production in the city.

To be eligible for the program, which covers below-the-line costs, production entities have to book 75% of a their stage work in-state, meaning that projects could not get credits simply by hitting town and filming New York exteriors, then heading elsewhere.

Eligible productions include feature films, television films, pilots and each episode of a television series. Commercials are not included, which may provide an opening for nearby competing states like New Jersey, Connecticut, Vermont and Massachusetts interested in developing a strong and lucrative commercial business.

Martin Scorcese discusses the dramatic roof-top scene in "The Departed" with co-stars Matt Damon & Leonardo DiCaprio
Martin Scorcese discusses the dramatic roof-top scene in “The Departed” with co-stars Matt Damon & Leonardo DiCaprio

Once the bug bites in a region the incentive game is on. Last month Governor Edward G. Rendell signed House Bill 147 into law, which provides for a 20% Film Production Tax Credit. “Filmmakers continue to discover that Pennsylvania is an ideal location for film production,” said Governor Rendell. “With widely diverse locales and innovative benefits, Pennsylvania is dedicated to helping filmmakers make their projects a reality.”

The tax credit is available for feature films, television series and television shows of 15 minutes or more in length, intended for a national audience. Production expenses that are eligible for a tax credit include wages and salaries, construction, operations, editing, photography, sound synchronization, lighting, wardrobe and accessories and the cost of rental of facilities and equipment. Marketing and advertising costs cannot be applied toward the tax credit.

In order to further qualify for the tax credit, 60 percent of the total production expenses must be incurred in Pennsylvania. If the taxpayer cannot use the entire amount of the approved tax credit for the taxable year in which it was first approved, the excess may be carried over to the succeeding three taxable years and used as a credit against the qualified tax liability of the taxpayer. In addition, upon approval by the Pennsylvania Department of Community and Economic Development, a taxpayer may sell or assign, in whole or in part, a Film Production Tax Credit. “The crucial carry over component will allow Pennsylvania’s budding filmmakers who may not yet have a tax liability to sell or assign their unused credits for cash to qualified taxpayers,” said Governor Rendell. “The increased cash flow will allow the developing filmmakers to continue or even increase their film production work flow.”

The Department of Revenue and the Pennsylvania Film Office will jointly administer the Film Production Tax Credit. Since 1977, the Film Office has been providing support services to the film industry as part of the Pennsylvania Department of Community and Economic Development.

Few states have been as aggressive with their incentive plans as the state of New Mexico. Not long ago, not much in the way of film production was going on in the state except for horse operas and an occasional historical docudrama. If you weren’t shooting a western, you just didn’t think of shooting in New Mexico.

Denzel Washington in "The Equalizer". Shooting utilized a studio space in Woburn, MA
Denzel Washington in “The Equalizer”. Shooting utilized a studio space in Woburn, MA

But that has changed since March of 2002 when Governor Bill Richardson helped institute a meaningful rebate program that refunds 15% of the total taxable dollars a production spends in New Mexico, along with this strong kicker: New Mexico also created the New Mexico Film Investment Program, empowered to grant no-interest loans of up to $7.5 million to productions that shoot at least 50% of their film in the state and fill at least 60% of their below-the-line payroll with New Mexico residents.

In no time BLIND HORIZON with Val Kilmer, Tom Cruise produced SUSPECT ZERO, and ELVIS HAS LEFT THE BUILDING starring Kim Basinger, were able to take advantage of the loan program. New Mexico is seeing the most production it has ever had and it is devastating for its neighbors, Arizona to the West and Colorado to the North, both most likely will be taking up incentives soon. Still it will be hard for them to compete as NM is also offering a 6% sales tax reduction plan obtainable at the point of sale for almost all taxable production expenses. The State continues to offer a Workforce Training Program and a Mentorship Program through the New Mexico Film Office and IATSE Local 480. To boot, productions have Fee-Free use of over 800 State Buildings including a closed 1940’s era penitentiary and a training facility that has been used for office, stage and construction space.

Well thought through, professionally administered, all encompassing, and now it’s not only westerns, but also thrillers, horror, and romantic comedies being made in New Mexico. New Mexico has become a magnet for the biz and the buzz. Boston’s own entertainment attorney and movie producer, Elaine Rogers, is arranging a shoot in New Mexico.

Film production in Chicago peaked in 1999 when $125 million was brought in by film productions like WHAT WOMEN WANT and TV shows like “Early Edition.” Then a dramatic drop began. That would be shortly after the Chicago Film Office lost their Executive Director to another western (not New Mexico) State that has really picked up over the last five years. The years 2002 and ’03 pulled in only about $25 million and, to add insult to injury, the movie CHICAGO was shot in Toronto.

Mark Wahlberg and Christian Slater film a boxing match in "The Fighter", filmed on location in Lowell, MA.
Mark Wahlberg and Christian Slater film a boxing match in “The Fighter”, filmed on location in Lowell, MA.

Chicago and by extension the state of Illinois fought back by passing new tax laws that introduced, among other things, a tax credit equal to 25% of the wages paid to Illinois residents working on television and film projects shot in the state. This year, OCEAN’S TWELVE, THE WEATHERMAN, and ICE HARVEST directed by Harold Ramis and starring John Cusack, have shot in Chicago and other areas of Illinois. BATMAN BEGINS held a massive extras casting and is due to start filming there – with Chicago standing in for Gotham City. THE AMITYVILLE HORROR also is due to lens in Illinois, even though the film is set on Long Island, N.Y.

To date, the expenditures total $75 million, and more than 8,050 jobs have been created, according to the Illinois Film Office.

There is a catch: the Illinois tax incentives expire by year’s end. But, if a production files intent to film by the deadline, it can qualify on any productions that shoot during the next two years.

The Illinois Senate has approved a four-year renewal, but the House of Representatives amended it to one. The one-year extension has been kicked back to the Senate for approval. Insiders are hopeful that it will pass in the next few weeks.

Robert Downey Jr. and Robert Duvall in "The Judge" shot in Canton, MA
Robert Downey Jr. and Robert Duvall in “The Judge” shot in Canton, MA

The Illinois initial legislation was difficult to get approved. Not everyone is convinced of its benefits and like other states we know, Illinois does not typically provide tax incentives. But, when you discover that your film office is sending police car decals and Cubby uniforms to Toronto its time for dramatic action! Yet, it appears some are still yearning for the old days when Illinois was a great place for film without any kind of tax incentive.

Fortunately for the city, it has some loyal alumni. It was Ramis and Cusack’s loyalty to their home state that pushed them to persuade the local unions to make the numbers work so that ICE HARVEST could film in Illinois. The Chicago budget they came out with narrowly came in under a proposed Toronto budget by a mere $50,000.

And State Street Pictures’ Bob Teitel and George Tillman Jr. hope to do what John Hughes did in the ’80s by making all of their films in Chicago. So far, they have shot five films in the city, even changing the setting of their current production, ROLL BOUNCE from San Diego to Chicago.

Louisiana’s Motion Picture Incentive Act has produced a robust slate of production for the state with Walt Disney Studios’ hoops drama GLORY ROAD shooting there as well as DreamWorks’ DREAMER. TV projects before the cameras include CBS’ “The Canal Street Brothel” and the Fox pilot “Thief.”

According to GLORY ROAD producer Jerry Bruckheimer, it is Louisiana’s tax incentives that attracted his production.

“They give you quite a break,” Bruckheimer told the Hollywood Reporter. “It turns out to be quite worthwhile, and you can save quite a bit of money. … It’s the only reason we’re there.” Bruckheimer says, “GLORY ROAD cut $4 million off its budget by going to New Orleans.”

The production bustle in New Orleans and the state of Louisiana are the direct result of tax incentives introduced in 2002. With films like Steven Zaillian’s ALL THE KING’S MEN also scheduled to shoot in the state, film production is still on the rise, and Louisiana should see more than $200 million in production this year.

The Burlington Mall stood in for a New Jersey shopping center in "Paul Blart, Mall Cop" starring Kevin James
The Burlington Mall stood in for a New Jersey shopping center in “Paul Blart, Mall Cop” starring Kevin James

The state offers a 20% payroll tax credit for the employment of Louisiana residents, an exclusion from state sales and use tax as well as a tax credit for investors who reside in the state. It’s a good idea to budget extra money for legal and accounting as the Louisiana plans are said to be complex and unwieldy

A common question being asked is can the town handle the boom? Are there enough experienced crews to work on the sets? Everyone says yes. But, just in case, the state and city are drawing up plans. “We are aggressively pursuing training programs with the unions, with other private institutions and with educational institutions,” says Stephanie Dupuy, Executive Director of the New Orleans Film & Video Commission.

In New England, modest film production incentives have been legislated in Connecticut, Vermont, New Hampshire and Maine. Both Rhode Island and Massachusetts have the issue “in play” at this time. Meanwhile, these two states are left to other devices to attract business, like buying it. And that’s not as uncommon as one might think.

Take North Carolina, for example, rising in the 90’s to a dominant position as the leading film and TV production center outside of NYC and LA. The state boasted experienced union crew at the low end of the IATSE pay scale, ample studio space (28 major soundstages) and locales that could stand in for everywhere from Massachusetts (THE HUNT FOR RED OCTOBER) to the moon (MUPPETS IN SPACE). But, without incentives, North Carolina saw their film and TV production revenue fall from their all-time high of $504 million in 1993 to $230.8 million in 2003.

HBO's "Olive Kitteredge" with Frances McDormand and Richard Jenkins used locations in Rockport & Gloucester, MA
HBO’s “Olive Kitteredge” with Frances McDormand and Richard Jenkins used locations in Rockport & Gloucester, MA

When “Dawson’s Creek” went off the air and the North Carolina epic, COLD MOUNTAIN, set in the state moved to Romania, the state devised a “way” to keep “One Tree Hill” in the state when it threatened to move to Vancouver. They did a three-way partnership with the city, the county, and the state. The city and the county each put in $125,000 and the state put up $500,000 to “give” the “Hill” production $750,000 to stay in the state. That’s buying the business and frequently it makes sense particularly if a film or TV program features the resources of the state in a desirable manner conducive to attracting more business and lucrative tourists.

Without a proper state sanctioned film office and no incentive programs in place, Massachusetts could not bring enough support together to garner the full production schedule of 50 days in Massachusetts for FEVER PITCH (final score Boston 10, Toronto 40), although some gave a good college try. The Farrelly brothers themselves and some quality state officials kept it from being just a 2 or 3 day-shoot. Speaking of a “good college try” Boston University played an important role.

Conversely, Rhode Island Film Office Executive Director, Steven Feinberg (see IMAGINE September 04 story by Vin Fraioli), managed an excellent effort to get every scene of “The Brotherhood” Showtime pilot, which committed $4.5 million for the pilot and on the pilot’s success, an additional $36 million to shoot the season. Feinberg co-coordinated the support of the city, the state, and members of the hospitality industry and the unions. As a result, Rhode Island elected officials are preparing to standardize production incentives in Rhode Island with legislation being introduced and acted on this fall.

Press in Massachusetts has been printing much about the prospects of the industry in the Commonwealth and now about the possibility of incentive legislation being filed here. Even a Boston business journal jumped on the subject noting the turf “squabbles” waged by two vying entities that have come at the expense of the local film industry. But, even their report didn’t fact check numbers, mainly looked at the possible formation of a separate Boston Film Office at City Hall. As in the Commonwealth, the City of Boston also has confusion in the marketplace about whether or not there is a film office to serve it. Their piece quoted that the Massachusetts Film Industry had averaged around $500 million in annual revenue before the state and city offices were shuttered. That is an unfortunate and grossly untrue assertion. My question is how did they check that out if they did?

"The Cider House Rules" shot in locations across Western MA in 1998
“The Cider House Rules” shot in locations across Western MA in 1998

The State needs “honest brokers” to explain to the people of Massachusetts that they can benefit from this business and that there will be a fair accounting to the taxpayer. Massachusetts has never approached $500 million in one year in film/allied production, not even with the use of the most generous of economic multipliers, much less average that amount.

The first consideration in the Commonwealth is to clear up the confusion and spell out its plans and legislation for a legitimate state sanctioned and controlled professional film office. Then the incentives plans can be developed and the Governor’s Office and the Legislature can establish which office of government will provide legitimate accounting, oversight, and administration of the myriad of details. It isn’t a willy-nilly task to be taken lightly, just ask Republican Governors Bush and Pataki, or Democrat Governors Richardson and Rendell among others. However, Massachusetts may be moving to a position to be up to the task as members of the House and Senate again roll-up their sleeves to initiate legislation. The Governor is also poised to act in the best interest of the state.

Connecticut offers substantial tax exemptions and business incentives for entertainment and media producers. There is a full exemption of sales and use tax. The 6% CT sales tax is waived for most production services and rentals.

There is a 5-year exemption on local property tax for machinery and equipment used in the production industry. The state also reimburses municipalities for taxes they waive for the “brick and mortar” facilities. Hotel taxes are waived after 30 days. The state offers fee-free locations of state owned properties, some of them quite incredible. Workforce development funds, a Challenge Grant Program, and special incentive programs such as Enterprise Zones are available to the production industry. Connecticut legislators are reviewing several potential models to see what else can be done to improve opportunities for film and television production in the State.

"American Hustle" shot in Boston and surrounding areas.
“American Hustle” shot in Boston and surrounding areas.

Vermont incentives are more modest. Sales and use taxes are exempted for goods and services purchased and used in the making of the film. A good example of this is a lamp purchased for the use of dressing a set is exempt; a lamp purchased for the use in the production office is not. And Vermont hotel taxes are exempted on stays of 31 days or longer, not to be confused with exemptions on the number of days over 31 days.

Maine’s industry incentives are a little more varied. Maine based production companies and out-of-state production companies working in Maine can apply for sales tax exemptions for equipment and machinery purchases, and fuel and electricity costs. Production companies staying in Maine hotels for more than 28 consecutive days can apply for a lodging tax reimbursement. And a number of Maine public lands, including many Maine state parks, are offered to qualified productions without location fees. Qualified productions may also borrow, free of charge, furniture and other surplus property from the State of Maine. In the past, productions have found free furniture and equipment to outfit production offices and to use as props.

New Hampshire, of course, has no sales tax. That is its built in tax incentive.

Amidst the fierce competition to bring the production business back to the good ole USA, almost every state and many cities either have or are” talking” about incentive programs they believe will work for them. There are other additional considerations like a film office that provides “one-stop shopping,” well trained casts and crews, friendly unions, easy access, varied looks and architecture, infrastructure, and a general eagerness to accommodate the needs of producers and major studios. The atmosphere and environment must be conducive to the production work.

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