What had been a tsunami wave of more and more states enacting substantial tax credits to entice film and television shoots from Hollywood not only seems to have crested but now appears to be receding.
In the last year, Massachusetts, Michigan, Alaska, Maryland and North Carolina are some of the states that have trimmed back or outright eliminated their entertainment subsidies, because they haven’t delivered promised returns to justify their costs, especially during a time of yawning state budget deficits. Even Ontario, home to Toronto’s bustling film and television industry, has recently whittled back some of its generous incentives because of fiscal constraints.
Interestingly, the incentives pullback is happening just as California has upped the ante by hiking its own subsidies to lure back production.
By far the biggest and loudest shoe to drop is Louisiana, self-styled as Hollywood South because of the large number of production shoots that have located there over the last decade, especially blockbuster features. The legislature recently enacted an annual cap of $180 million on what had been an unlimited tax credit program, including most controversially breaks for above-the-line talent such as actors, writers and directors as well as for crew and for equipment purchased from local vendors (though some of the gear gets ordered from Los Angeles suppliers but still qualifies for the liberal in-state spending tax credit).
This Louisiana incentive scheme, though plagued with scandals, has encouraged the build-up of a vast studio and crew infrastructure over the last 10 years in New Orleans, Baton Rouge and other cities. And that, along with the all-important subsidies, has helped Louisiana to attract shoots for big budget pictures like current mega-hit Jurassic World and Fantastic Four and Green Lantern as well as lower budget films like Oscar winner Ten Years a Slave and television series like cable ratings hit Duck Dynasty.
Despite fierce lobbying of Gov. Bobby Jindal to veto the bill by members of the local industry and Hollywood production companies, he went ahead and signed it last weekend, days before his announcement yesterday that he was entering the race for the Republican presidential nomination. In previous years Jindal had supported the expansive program. But facing the need to close a $1.5 billion state budget deficit which has tarnished his reputation for fiscal prudence, he felt he had to bite the bullet when the alternative was to cut the budget of Louisiana’s universities and colleges and other essential programs. He’s now being attacked by film industry moguls and also being lashed by Grover Norquist, head of the Washington-based Club for Growth, who considers even reductions in corporate benefits, like the cap on film and television incentives, to be a form of tax increase, Norquist’s anathema.
The signing, which effectively pulls the plug on the current program on July 1 and replaces it with the $180 million cap, set off panicked warnings by key players in the Bayou State that it could wind up being the death knell of Louisiana’s success story. “The uncertainty that has been injected into the program is going to have a chilling effect on production starting immediately,” said Will French, president of the Louisiana Film Entertainment Commission, which represents the local industry. “Productions that were planning to come to Louisiana right now are probably going to make plans to go somewhere else until this is resolved.”
“Louisiana will still have some incentives, so not everything is going to leave, but this will undoubtedly have a negative impact on the community and the industry there,” said Steve Dayan, the secretary-treasurer of Teamsters Local 399 who is also chairman of the California Film Commission, which administers the Golden State’s upgraded film incentives program. “Georgia (with no ceilings on its large film and television incentives) is still a very popular place to film and some of the work will go to Canada, and what I really hope is some will also come back to California, given our new program.”
California Gov. Jerry Brown earlier this year signed a bill for an enhanced five-year program of incentives amounting to $330 million annually or more than triple the previous $100 million plan. The purpose of the increase is to help counteract the presumed poaching – or, as many call it, “runaway production” – in order to lure back projects and otherwise bolster the local industry, especially in terms of below-the-line crew jobs. The program grades projects seeking to qualify for tax breaks by the number of jobs likely to be created. “It doesn’t go to producers, actors or writers,” said Dayan. “It goes to crew people; it’s about middle class jobs.”
“Some of these state incentives are not well thought out when they are implemented and they end up being too expensive for these states to bear the burden,” he noted. “Having it be both above- and below-the-line as in Louisiana costs a lot of money but that’s why they got as much filming as they did.”
The Hollywood studios, huge beneficiaries of the unlimited credits, amounting to 30% of a film’s local spend in the state, also chimed in. “Of course any changes to one of the most stable and predictable state production incentive programs in the U.S. cause concern,” said a spokesperson for the Motion Picture Association of America, the lobbying group for the big movie companies. “However, we will be working with the governor’s office and the legislature to clarify these changes and how the new provisions will be implemented.”
“I don’t doubt that the bill is going to cause some problems, and make some companies reluctant to do projects here just because of the uncertainty,” said Greg Albrecht, chief economist for the Louisiana state legislative fiscal office, who heads a non-partisan staff that serves both parties in the legislature. “However, I don’t agree with those who predict it will have a dire impact on the industry here. We still have $180 million on the table.” But he does expect some drop-off in activity for certain kinds of projects. “Those with budgets in the multi tens of millions of dollars are probably not going to take a second look at us, because they won’t know for sure whether they’re going to get in under the cap or not.”
A bigger problem might come for shoots currently under way, or even those that have finished but are still in the process of completing their complicated paperwork, but can’t hand it in before midyear. “We have a $1.5 billion budget shortfall we’ve got to cover for the next fiscal year which starts July 1,” Albrecht noted. “It’s a very myopic perspective, but we have to make sure we have enough for this one-year window. So we’re going to have to restrict those tax credits no matter when the activity occurred because we need the money right now. So you’ve got projects that are in play right now that all of a sudden face the added uncertainty of whether they will get the full benefit amount due to them. That is what’s most disturbing to the industry.”
Such projects caught in this limbo can apply for the following year and be first in line. But this will be of small consolation for those who have to wait another 12 months. Moreover “if you’ve done something that earned a tax credit,” he said, “in many case that credit will be worth 28 percent less.” He admitted that “this is pretty unusual what we’ve done. And I’m not sure if we are actually going to collect or retain all the revenues we expect. There’s a fair amount of uncertainty about that.”
A recent article in the Advocate, a statewide newspaper, in a piece titled “Giving Away Louisiana: Film tax incentives – State’s program is popular, fast-growing but a major money-loser” noted that Green Lantern which cost $200 million bombed at the box office. However Warner Bros. didn’t have to absorb all the losses. According to the Advocate, “Louisiana taxpayers promised $35 million through a generous subsidy program that covers 30% of a film’s local costs. And if state cost-benefit analyses are to be believed, the state recouped only about $8 million of its investment. By way of comparison, Louisiana sank more into Green Lantern than it is putting into the University of New Orleans this year.”
If only Louisiana had written its law so it could have an upside, participating in the profits of a film it had subsidized or in effect invested in, then it might be making a nice piece of coin from Jurassic World, which has already hit over $1 billion at the global box-office and stands to be one of the most profitable films ever made.