Lights out for “Hollywood South”?

Lights out for “Hollywood South”?

Lights out for “Hollywood South”? Unable to Pay Bills, Louisiana’s Film Incentive in Crosshair

In the world of film incentives, recent developments in Louisiana are MAJOR.  The future of the state’s film incentive is very uncertain.  Many have predicted Louisiana would end the incentive one day, including the state’s film office….

In April 2010, Louisiana’s Office of Entertainment Industry Development released a 30-page planfor building a permanent “entertainment economy” in the state, which contemplated the “possible” elimination of the film incentive:

The state is off to a good start, but it is imperative that it justify the taxpayers’ investment by establishing a plan for long-term sustainability. This plan must address how the state can maintain a viable and self sustaining entertainment industry even with the possible elimination of financial incentives. Or, more simply put – what is left if, in the future, the tax credits go away?

It appears a future without film incentives may become a reality as early as next year.  Louisiana, it seems, has been a little too generous in granting tax credits and can no longer pay its bills.  Facing massive budget shortfalls, during the most recent (and “contentious”) legislative session, the Louisiana legislature created a bi-partisan panel to review and evaluate the costly tax credit programs that divert more than $4 billion “that could be used to fund hospitals, colleges and other state services:

After a contentious session hampered by too little money to pay for the state’s expenses, a commission of legislators is scheduled to begin work soon on examining the state’s tax exclusions, exemptions, suspensions, deductions, credits, refunds, rebates and preferential tax calculation methods….

More than 400 tax credits and other exemptions are on the books, diverting more than $4 billion that could be used to fund hospitals, colleges and other state services.

This is bad news for film backers in the state, because lawmakers on both the left and the right are specifically mentioning the film incentive as one of the biggest targets.  In terms of inefficiency and high cost, the film incentive is one of the most expensive of the 400 tax credit programs.   Democratic State State Senator Jim Fannin said the film incentive was not “cost effective”:

State Rep. Jim Fannin, D-Jonesboro, who sponsors the state’s budget bill, said the film production tax credit program needs to be reviewed because it does not appear to be cost effective.

“It needs to be good for both parties. It needs to be good for the state and it needs to be good for industry,” he said.

Fannin also said tax credit programs that do not “pay for themselves” are in the crosshair, hence the film incentive.  As The Advocate newspaper points out, in 2010 alone only $1 in new tax revenue is returned to the coffers for every $7 paid out:

An economic analysis by BaxStarr Consulting Group showed that motion picture production generated $27 million in state tax revenue in 2010 while certifying $196.8 million in tax credits. Mathematically, that is roughly $1 of state tax income for every $7 in credits.

Republican State Senator Ronnie Johns also mentioned the $7 to $1 giveaway.  Johns said the math “just doesn’t add up” and astutely noted Hollywood was only coming for the free money, not “because they’re in love with our state”:

The film industry, Johns said, brings in a substantial amount of money into the state, all because of tax credits. “We give them some huge tax credits; they aren’t coming here because they’re in love with our state, I promise you. It’s all about the dollar.”

Johns said it was estimated that the state gives away about $7 for every $1 generated by the film industry in the state of Louisiana.  “That just doesn’t add up,” Johns said.

Indeed, Louisiana’s film incentive doesn’t add up at all.  In a post earlier this year, I added up all of the costs and revenues from 2002 to 2010:

The losses over this short 8-year period are staggering and slightly worse than the $7 for $1 figure lawmakers are mentioning.  And since $196 million of that cost came in just 2010, the escalation of costs has been out of control.  Is the program effective?  At two things, yes: luring films and bankrupting the state. Nothing like a good old “win lose” situation.

Governor Jindal is a fan of the film incentive.  In a one sentence response to the formation of the tax credit panel, he said is opposed to “raising taxes”:

“We’re opposed to raising taxes, but we’re open to any review of the tax code that would make it fairer, flatter and lower for Louisiana businesses and families,” the governor said.

Guess what Governor Jindal? If you eliminate the film tax credit, you won’t be raising their taxes.  The state film office makes it perfectly clear production companies almost never owe taxes:

A tax credit can be applied toward Louisiana state income tax.  Since most motion picture investors do not have Louisiana tax liability, the credit can not be personally utilized.  This is why the tax credit is fully transferable.

In short, eliminating the film incentive would not violate Jindal’s conservative fiscal ideology. That doesn’t mean eliminating the costly film incentive will be easy.  It won’t.  The examples from places like New Mexico and Michigan show that film backers will fight bitterly keep the incentive in place and the industry will finance its own army of high-paid lobbyists to influence lawmakers.  Governor Bobby Jindal and film backers are following same playbook used by the Emperor in Gladiator:

Indeed, given a slew of positive press articles about the “booming” film industry in recent weeks, the PR campaign may have already begun.  In The Advocate article, the star struck reporter mentioned one of the benefits is having “A-list stars” in the state:

The program is credited with drawing productions headlined by A-list stars to the state. In a recent interview, actor Tom Cruise talked about taking his wife and daughter for a walk around the LSU lakes while filming in Baton Rouge.

Wow!  Tom Cruise mentioned taking a walk through LSU in an interview?!?  That more than makes up for $491 million cut from the higher education budget just since 2009, right?  As if.  Journalists are more interested in being cheerleaders vying for a job on Entertainment Tonight than they are in asking the tough questions about the program.

In New Orleans, a news story from today noted 38 films had shot in the city so far this year, providing a “$480 million boost for the local economy”.  Again, no mention of cost.  If the $480 million is direct production spending, then it cost the state $144 million.  It may be great for New Orleans, but it’s not good for the state.  And, to his credit, even New Orleans Mayor Mitch Landrieu was not willing to defend the film incentive when it meant cutting things like health care.  When told the state could not afford the $100 million annual operating costs for a desperately needed  hospital in New Orleans, Mayor Landrieu didn’t hesitate to call for an end of the “huge subsidies for the film industry”:

“If it were out of the ordinary, people should raise their eyebrows about it, but it’s so ordinary,” said Landrieu. “Here are a couple of the specifics: in the recent years, the state has announced billions of dollars — that would be ‘B’ — in state subsidies for economic development projects.”

Landrieu rattled off a list that included $210 million for the Shaw nuclear module facility in Lake Charles, $50 million for the Foster Poultry Farm in Farmerville, $67 million for the V-Tech vehicle plant in Monroe, $160 million for the Nucor steel facility in Convent, and a $13 million annual subsidy for the Pennington Biomedical Research Facility in Baton Rouge. Plus of course huge subsidies for the film industry.

It’s much too early to say the “Hollywood South” empire is going to fall, but the fact the film incentive is getting this much scrutiny in Louisiana is a MAJOR development.  I don’t see the film incentive being eliminated, but a cap and/or a reduction in the rate seem very possible.  One thing is certain: this will be one hell of a fight to watch…

Film Works LA      Like Film This! on Facebook