High Noon for film incentives

The states are trying to outgun each other to lure movie production--a chance for reporters to analyze the returns on these big investments

PROVO, UT — When The Lone Ranger opened in theaters, viewers saw John Reid (Armie Hammer) and Tonto (Johnny Depp) acting against the iconic Western backdrops of Utah’s Monument Valley, Dead Horse Point, and Fossil Point (now nicknamed Thelma and Louise point).

But there was also something most viewers would have missed: scenes filmed in the New Mexico desert, with Utah vistas added by computer-generated imagery.

The reason filmmakers shot much of Lone Ranger in New Mexico and then dropped in some favorite Utah red rock backdrops, Salt Lake Tribune film critic Seans Means explained recently, is money—specifically, financial incentives, including tax rebates, offered by state governments. In short, New Mexico gave The Lone Ranger a better deal.

Here’s Means:

Marshall Moore, director of the Utah Film Commission, said Utah offered Disney a 20 percent tax credit to bring the production here. (It would have been 25 percent if 85 percent of the crew had been hired locally.) By giving up that tax revenue, the state draws more money into the economy — some $3.7 million spent in Utah by The Lone Ranger production, Moore said.

As Means puts it, there is an “escalating arms race” between states to one-up each other to lure Hollywood producers to their small towns, urban centers, and spectacular vistas. Just this year, the New Mexico legislature upped the ante for movie and television production even further, from a 25 percent credit to 30 percent. (Gov. Susana Martinez vetoed the original so-called Breaking Bad tax credit bill, but it was resurrected after lawmakers expanded tax credits to other industries.) That came after neighboring Colorado jumped back in to the film incentive game itself in 2012, hiring a former Hollywood producer to lead its film office and funding a $4 million incentive program that includes a 20 percent tax rebate, which has drawn a number of films and a Hallmark TV series to the state. In Arizona, by contrast, lawmakers this year did not renew that state’s film incentive program, which lasted four years and ended in 2010.

The incentives in Western states are not unusual. According to the Motion Picture Association of America and recent news reports, 37 states have some sort of film and TV incentive. In some of those states, such as Michigan, the incentives have become the subject of heated political controversy—and they’ve drawn coverage that reflects that.

Out here, though, coverage has been mixed, with some reporters more likely to capture the glamorous side of the tax-credit phenomenon while others do dig deeper. These two from Pittsburgh seem a bit soft on analysis. This story in the Wilmington (NC) Star News explained how state money was spent for filmmaking, but offered little analysis of the return on taxpayer investment for film incentives. But reporter Cassie Foss did more sourcing on this one.

And while the quality is not unexpected here, The New York Times told an in-depth story in December 2012 about Michigan film incentives, and how a plan for a production studio in Pontiac went south. It was part of a larger series on tax credits.

It can be hard to draw far-reaching conclusions about the effectiveness of state movie incentives, because there is variation from state to state. Michigan and Ohio for example, essentially offer cash reimbursements, while other states offer tax credits; some states have annual caps on incentives, others do not. There are some resources to help navigate this terrain: The Hollywood Reporter recently published this “Guide to the Latest Production Incentives,” and Entertainment Partners, a production management company with expertise in state incentives, maps incentives countrywide on its website. There’s also a database developed by The New York Times for a 2012 series on state tax incentives; the state-by-state breakdown of film incentives is here.

But in general, budget wonks across the ideological spectrum are skeptical of these deals. You can see that in the reports from the center-right Tax Foundation (“Based on fanciful estimates of economic activity and tax revenue… taking unnecessary risks with taxpayer dollars…attract[ing] mostly temporary jobs that are often transplanted from other states”) to the left-leaning Citizens for Tax Justice (“Not only do film tax credits cost states more money than they generate, but they also fail to bring stable, long-term jobs to the state.”)

In a recent article, The Washington Times’s Meredith Somers did a nice job both tracing the history of these incentives and plumbing skepticism about them, with assistance from the libertarian Mercatus Center at George Mason University.

Somers focused on Maryland, which has more than tripled its tax credits for film production from $7.5 million to $25 million in the coming fiscal year. (Maryland’s effort to lure the Netflix series House of Cards tops the list of reasons for the incentives.) She talked to Eileen Norcross, a senior research fellow at the Mercatus Center who said that the incentives “really don’t bring in as much in-state jobs and income as anticipated” and are “not the economic generator that [supporters] advertise it to be.”

So what would an effective film incentive program look like? To find out I spoke with Michael White, a Los Angeles-based reporter who covers the entertainment industry for Bloomberg.

For one, White said, reporters should examine how much the state is earning from on-location production and current filming infrastructure. Incentives might make sense if a state has developed a pool of film technicians and production companies. If, however, directors need to bring in most of the technical support from out of state, it may only mean small returns for the state on services such as catering, lodging, and minimal wages from acting extras.

States looking for the most bang for taxpayers’ bucks need to invest in post-production facilities which attract high-paying jobs, White said, and also support higher education programs to help supply talent for technical roles in filming and production.

In other words, an effective tax incentive program would be part of a broader effort to incubate a homegrown film industry. But the key economy-growing element of that industry is ultimately a pool of workers with specialized skills, not just some pretty scenery.

And logically, not every state can specialize in film production. This is a point Zach Schiller of Policy Matters Ohio made in a recent Marketplace report about Ohio doubling its film incentive program. “Let’s face it, having some big Hollywood stars in your town is a nice thing,” Schiller said, “But we certainly aren’t going to have 40 states building film industries based on their tax credits.”

Meanwhile, even as states compete to hand out more generous incentives, international competition is growing, Bloomberg’s White said. Canadian provinces have long fought over film dollars, and some now suggest a collective approach to counter Hollywood’s strategy of pitting popular-with-producers British Columbia against Ontario for tax breaks. (As Somers noted in her Washington Times piece, state-level giveaways actually began in the 1990s in response to Canadian incentives.)

And, White added, the United Kingdom has ramped up its efforts to attract American filmmakers and build post-production facilities. That might explain why Glasgow, Scotland—with a computer-generated New York City skyline—doubled as the Big Apple in World War Z.

The competition isn’t limited to English-speaking countries. At a July locations trade show in Los Angeles, people representing 160 film commissions from Fiji to Michigan to the Moroccan city of Ouarzazate attempted to lure filmmakers to their regions. Wrote The Hollywood Reporter’s Alex Ben Block:

There will be lots of gorgeous scenery on display at the competing film commissions’ booths at the locations show. But as Colorado came to realize, to remain competitive, a state needs more than commanding views and pristine skies. Specific incentives are necessary to clinch the deal. “If somebody wants mountains, we have gorgeous mountains,” says Donald Zuckerman, Colorado’s film commissioner, “but they have pretty nice mountains in Alberta and Utah, too. If you want to play the game, you have to step up with something.”

For reporters covering this “game,” it is important to help readers understand whether that “something” leads to more than just good PR—and whether there are lasting benefits for the state.

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Joel Campbell is CJR's correspondent for Utah, Colorado, Arizona, and New Mexico. An associate journalism professor at Brigham Young University, he is the past Freedom of Information chairman for the Society of Professional Journalists and was awarded the Honorary Publisher Award by the Utah Press Association for his advocacy work on behalf of journalists in the Utah Legislature. Follow him on Twitter @joelcampbell. Tags: , , , , ,