Great article on the Louisiana Film Industry and incentives! The Price of Film and Fame “People in Hollywood are going to make pictures wherever it’s the least expensive to make them.” - Wayne Rogers, “Trapper John” McIntyre, MAS*H Louisiana is justifiably proud of its perch on the cutting edge of the highly competitive film industry. In less than a decade, it has grown from a swampy backwater set for the occasional low-budget horror flick to a thriving multimillion-dollar industry with thousands of workers and the genesis of a truly indigenous infrastructure – but a recent report suggests that many residents are being left on the cutting room floor as a result. The report, from the Center for Budget and Policy Priorities, a Washington, DC-based think tank that studies spending programs and tax policy, suggests that the 43 states currently offering programs aimed at attracting filmmakers might be better off spending dollars on public services, and concludes that the net benefit of courting the film industry, even if effectively, is not worth the associated costs in tax revenues. The study, authored by Robert Tannenwald, a Boston, MA-based expert on state and local taxes and a senior fellow at the Center, says that, rather than try and entice a glamorous industry with low net value to the economy and high direct costs, states should focus on retaining capital to spend on public services. A history of film in LA In 2002, Louisiana adopted a film tax credit program that offered movie producers (working in the state on projects with a budget over $300,000) a 25-percent reduction on their tax liability. Producers could also transfer or sell unused tax credits to anyone willing to buy them, making the deal even more lucrative. This strategy was profitable in the way that Hollywood lemons were: under the right circumstances, as Mel Brooks noted in The Producers, one could make more money with a flop than with a hit (no revenues means no tax liability, only the profits from selling them – which means nothing to lose). According to the state’s entertainment website (LouisianaEntertainment.gov), the first film made in Louisiana as a result of the incentive program was Evil Remains, a plantation-swamp-ghost-murder flick that you almost certainly haven’t seen. It fell on its face. In 2010, less than eight years later, 62 movies were made, ranging from low budget (Zombie Hamlet) to respectable indie (Jeff, Who Lives at Home), to big-budget blockbusters, like Battleship and Twilight Saga: Breaking Dawn. (That last one isn’t on the list yet, but we’re no dummies… we know it’s happening.) The industry has changed dramatically in the seven years since its birth, and not without a little help from the state. In its original inception, the credits were to begin their sunset in 2010, phasing down to 15 percent in 2012. Governor Bobby Jindal gave it a boost when he signed House Bill 898 into law in July of 2009, making the tax credit incentive program permanent. The updated program also permitted film producers awarded credits to sell them directly back to the state for a guaranteed $0.85 on the dollar, an attempt to put capital directly in the hands of filmmakers, keeping it in the industry. Potential pitfalls With most of the 43 states offering incentive programs still reeling from the recession, suffering from high unemployment and terrifying budget deficits, Tannenwald is concerned that the programs are “robbing Peter to pay Paul.” “These film tax credits don’t pay for themselves. To pay them, [the state has] to take teachers out of the classroom, cops off the street, healthcare workers out of the clinic,” said Tannenwald, author of the critical report, in a phone interview. “And all these public workers, had they been on the job, would be spending more money on food, gas, cars…that would have a ripple effect, with benefits seen throughout the state.” His report focuses on state film programs generally, and is based on information provided by those states – so while the study doesn’t target Louisiana specifically, Tannenwald said that it not only pertains to this state, but that Louisiana’s program is even more generous to out-of-state producers and workers than most. “[Louisiana’s] tax credits reward non-residents to a much greater degree than other states,” he said. “The bulk of the payroll from these big film productions go to Hollywood pros; in-state workers tend to get relatively poorer paying jobs. I believe that Louisiana’s film officials don’t quite recognize that there’s a cost in terms of vital public services forgone, and those costs aren’t adequately recognized in evaluating these programs.” And the cost? “$139 million,” Greg Albrecht, the chief economist for the Louisiana Legislative Fiscal Office, reported in a phone interview. “That is the dollar amount of tax credits claimed against tax liability in the fiscal year of 2010.” Interestingly, though, the amount awarded is typically much higher than what is redeemed in a given year; in FY2007, $245 million credits were awarded, although only $30 million were claimed. (Current data is not yet available, although Albrecht expects the state to release another report this winter.) The credits are good for up to 10 years, however, and most will be redeemed long before that. Albrecht said roughly twice as much is handed out in a given year than what is redeemed. “If you don’t have enough liability to use the entire credit, than you could redeem the leftover the next year,” he said. “[So] there’s roughly a two-year timeframe for every dollar going out to come back. That exposure is real, and very likely we will realize all of that exposure,” he said. “If someone went to the trouble of getting the credit in their hands, they paid for it, most likely, and they aren’t liable to just throw it away.” That lag-time is partially because tax credits awarded to the film industry aren’t always used by the film industry; in fact, most of them are sold. An entire cottage industry has sprung up around specifically that market: Financial firms and insurance companies are especially eager to buy up excess credits, and leverage them against their own tax liability. Generally, the credits are worth between $0.80 and $0.90 on the dollar. This means that, if you owe Louisiana $100,000, you can probably spend $85,000 on film credits, saving the consumer (and thus costing the state) around 15 percent. Visible benefits, hidden costs Since the credits are often sold and used against tax liabilities outside the film industry, those are real dollars lost. If Louisiana were operating in the black, those would still be “real” dollars the state was not earning, but, as the state is staring down both barrels of a $1.6 billion deficit, those credits comprise a not-insignificant $139 million of that deficit. “For those who benefit, the benefit is highly visible,” observed Tannenwald, adding that, for college students paying their tuition with a part-time job on a production, or for service industries, such as caterers, the benefits are immediate and obvious: Jobs associated with the film industry wouldn’t be in Louisiana without the incentive programs. But, he said, the downside is not so obvious. “The cost to the taxpayers of Louisiana, and to those around the state who have less work because the state has to cut programs – those costs are much less visible, and not clearly attached to the film tax credit,” he observed. “They (at the film office) believe that, by bringing productions in, they are creating jobs in a cost-effective manner for Louisiana residents,” said Tannenwald, of the state. “Not so. By facilitating the sale of those tax credits, they are greatly increasing the net cost of every permanent job they create.” His report cites a 2009 study of the Louisiana’s incentive program by Economic Research Associates, a Chicago-based consulting firm hired by the state to assess the incentive program. The study found that the state loses $16,100 in revenue for every job created by the program – for residents and non-residents alike. Estimates on the economic impact of each tax credit awarded ranges widely, depending who you ask: Proponents will say that every dollar spent introduces around $6 that trickles back through the economy. Even if true, that certainly doesn’t mean that every dollar awarded generates six times that amount in state revenues. The best estimates available suggest that Louisiana’s treasury sees $0.14 for every dollar of credit redeemed, including peripheral multipliers, such as sales tax on goods purchased and income tax paid by employees, and even the sale of the credits to firms or individuals. (That’s right: you pay a sales tax when you buy a tax credit, which you will use to offset your own tax burden.) And for the price paid, the resulting jobs are crappy, according to Tannenwald. His study suggested the jobs being attracted by the incentives can be high paying jobs, but those are few and far between; these specialists, such as directors and cinematographers, are generally out-of-state imports, while the jobs offered to local workers tend to be more menial in nature, and temporary. Locals call bullsh*t Patrick Mulhearn, director of studio operations at the Celtic Media Center, said he thinks Tannenwald’s numbers are misleading. “Yes, at the end of production, those people get laid off in a sense, because that production ceases to exist, but they just go and hop on another production,” he said. “Most of the time, you have your next job lined up well in advance of wrapping on a project.” He called local film workers, especially the 1,000+ in unions, “some of the most in-demand people in the world right now.” “They are local, and the productions get an additional 5 percent [tax credit] for hiring them, for one thing,” said Mulhearn. “On top of that, when you are a local hire, [the production] doesn’t have to pay per diems, or housing costs, and things like that.” State representative Cameron Henry, a strong advocate for the state’s incentive program, also said that he had “issues” with Tannewald’s report. “It all depends on what numbers you look at,” he said. “If you look at straight dollar-for-dollar return, the state fiscal note only tells you how much it costs. None tell you how much come in.” Henry sponsored HB 898, which made the credits permanent and solidified the state’s buy-back policy. “We made them permanent because, at the time, they were phasing out,” he said. “What we found is that it takes more than six months to make a movie.” He noted that the program has directly created thousands of jobs for the state, and that the program permits taxpayers to keep more of their income, allowing them to spend it how they choose. “That’s where we want the money to be: back through the economy,” he said, adding that the spending program was designed to kick-start an industry, not garner the state a profit. “It’s not a miracle cure. It’s not something that within the first year or two, you establish a permanent workforce,” he said. “That’s the end goal: create a workforce. [The tax credits] are supposed to entice you to come to an area that you might not have been, and set up camp.” He also disagrees with the notion the program is causing unfair cuts in public services, noting that nearly three-quarters of the state’s budget is spent on healthcare and education. “Imagine you have a business and you have to cut something…if one entity takes up around 75 percent of your budget, isn’t that always going to get cut?” he asked. Indigenous “We’re looking at this as an investment into an industry,” said Chris Stelly, director of the state’s film and television office. “We’re still young, but remarkably mature. We’re looking at this as the long-term strategy, not a flash-in-the-pan approach.” He said that the study doesn’t take into account all that makes Louisiana attractive for filmmakers, and said he thinks that those intangibles will be the difference between a long-term plan and a failed program: if the program creates a real industry, with a local infrastructure, a consistently employed workforce, and a desirable environment for filmmakers, then the dollars were well spent. “It’s always been our office’s outlook that we have a long-term plan to make sure this industry is permanent and becomes a mainstay here in Louisiana,” said Stelly. “[Celtic Studios] is a wonderful example of what the state has invested in, and speaks to the strides that we have made in this industry. They’re employing people, the productions are employing people…there’s a lot going on, and we’ve done a lot to grow this industry.” Stelly also noted that “indigenous film industry” doesn’t just mean infrastructure for out-of-towners. “Fifty percent of the productions that are working here are from Louisiana,” he said. “Baton Rouge is a hotbed of indie film right now,” confirmed Mulhearn in an interview at his Celtic Media Center office. “Most of those are independent, but some of them are actually getting picked up by studios now,” he said. “You’ve got George Kostic, who does SyFy Channel stuff; he’s based out of here right now.” Mulhearn, who left his job at the state film office to take the helm at Celtic, compared the indie scene in Baton Rouge to that of Austin, Texas, where legends like Robert Rodriguez (Desperado, Machete), and Richard Linklater (Dazed and Confused, A Scanner Darkly), do projects there regardless of incentives. “Those guys are growing, here, and at some point in time, they’ll be our Rodgriguez, our Linklaters,” he said. The Intangibles Mulhearn also believes that some of the intangibles surrounding the program might be well worth the heavy costs they carry. “This is a state that was losing so many people – and we’re still losing people,” he said. “But now we’re also starting to steal people. We’re stealing people that have high incomes, that have saved a lot of money, and they’re buying homes here. Sometimes they’re second homes, but a lot of times they are their only homes, and they are relocating to Louisiana for a number of reasons. I see these ‘positives’ every day; I get the calls from people wanting to move here, and I think it’s one of the best things the state has going for it.” In his report, Tannenwald warned against banking too heavily on establishing a permanent film industry, citing both the pressure on producers to lower costs, and the increasingly mobile nature of film production. He cautioned that, with such geographical flexibility, productions will move to whichever location promises to be most cost-effective, thereby necessitating Louisiana maintain a “permanent subsidy” in order to stay competitive with other film-hungry states. Both Stelly and Mulhearn disagree; they think the incentives are necessary now, but believe Louisiana’s current holistic approach to film infrastructure and aggressive incentives might just drive other states right out of the Hollywood business. “Certainly, there’ll come a point in time where tax credits will no longer be the driving force in decisions being made, but we are looking at making ways to make sure this is a sustainable industry in the future,” said Stelly. “Incentives are certainly important to the overall package, though, in terms of what we are doing for economic development.” Competition is another factor in both the duration and extent of the incentives. “There’s an arms race between us and Georgia, there really is,” said Mulhearn. “Ten years from now, if we still have anything, I will feel like we’ve won, because I don’t know that other states are going to be able to catch up,” he said. “It simply won’t be worth having incentives for them.” Mulhearn said he understands the difficulty in justifying such spending when the state is in a budget crunch, but believes that looking ahead to the future is critical, and that pulling the rug out from under the program now would be a “colossal waste.” “I think that everybody has to think bigger picture about Louisiana. Louisiana has an image problem, and an economic development problem, in the sense that is has focused so much on one or two industries for so long that it has some catching up to do. It has to diversify,” he said. “Teachers and police officers will never be able to have what they deserve if we don’t have a tax base. You’ve got to be able to keep that tax base,” he continued. “You’ve got to be able to keep the young professionals, the creative class,” he continued. “If you can’t keep your creative class and grow your tax base in this day and age, then you’re in trouble. If you can’t convince people to live here, then you’re not going to have people that own property, or pay property tax. If you don’t have mansions to tax, then you are having just as much of a problem paying teachers and police.” Mulhearn gave me a tour of one of the many buildings that comprise the Celtic Media Center. It seemed nearly every space available was rented to a business that either made films or supported them. As we walked, Mulhearn pointed out businesses born in Baton Rouge, most of which have sprung up around the industry since the incentives began in 2002. Others, he said, had relocated to Baton Rouge to plug into the new scene. I saw several sound engineering companies; Hollywood Trucks, which produces production equipment (and is from Baton Rouge, not Hollywood); digital effects companies, and a myriad of other businesses that would not exist if it weren’t for the infrastructure that has grown up around the burgeoning film and entertainment industry. In his office at the Celtic complex, Micah Haley, head writer for Scene Magazine, Louisiana’s film-industry trade publication, pooh-poohed the Tannenwald study, and said that anyone familiar with the industry would know how hard it is to study the jobs that it creates. “Most of [the reports] come out and they’re salacious, and they’ll be like, ‘everybody that works in film is a part time employee,’ he said. “‘A grip is a part-time employee.’ Yeah, he works nine months out of the year and makes $100,000. I’ll take that part-time gig any day.” “These are not just average-paying jobs,” concurred Mulhearn. “You know, a grip can be making $50,000 right off the bat.” Haley also noted that the money coming into Louisiana from movie production is from outside the state. “These films are not financed here. They are financed in New York, they are financed in Los Angeles, so these are new dollars being brought in, and once the film brings them in, that dollar stays here,” he said. “Maybe it goes to a local restaurant, and then to the person working there, and it does make its way around six or seven times over…the important thing is that that dollar wasn’t here in the first place, and the film industry brought it here.” “It’s a really cool thing to see, people from grips to transportation drivers to writers and actors… and these are people who are really growing the tax base. Tannenwald doesn’t touch any of that stuff,” said Haley. “You can’t understand it until you are living and working here,” agreed Mulhearn. “Ask anybody who runs a hotel.” Valerie Rodriguez, a Dig columnist and a producer with the Louisiana Association of Movie Production, left Los Angeles to work on films here. “I think if you look at California, which doesn’t have any incentives, there’s a lot fewer films being shot there, and Los Angeles, at least when I lived there, was impacted … and that’s why I moved here,” she said. “There’s a lot more going on here.” According to Rodriguez, film jobs in Louisiana are some of the best possible options for many of the workers. “If you go to set, and talk to the crew, and get their résumés, or sometimes faxes, because they don’t have the Internet…they would have a really hard time finding a job that pays as well outside this industry,” she said. “This is the largest studio of its kind in this half of the U.S. You have to go as far away as Wilmington, North Carolina, to find anything larger,” said Mulhearn, glancing around the expanse of Celtic. At the time of this interview, two major films were being produced on-site, and it seemed people and equipment filled every possible inch of the enormous complex. “It is economic development, and it is unconventional, and it is a little bit different,” he said, “but it’s working, and this place is proof positive that it can work.” SOURCE:DIG BATON ROUGE
Posted on: Tue, 06 Aug 2013 00:16:07 +0000
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