State Film Incentive Wars: What is the Exit Strategy for “Anytown”?

State Film Incentive Wars: What is the Exit Strategy for “Anytown”?


Last year, The Tax Foundation predicted 2010 would prove the “peak year” for the amount of money doled out to film & TV productions from various state governments.  And while that may or may not turn out to be the case, the number of states considering enacting new film incentives or boosting existing programs is on the rise in recent months.  Efforts to increase the size, scope and duration of film incentive programs are underway in Alaska, Alabama, Mississippi, Maryland, Arizona, Hawaii, Nebraska and Minnesota (and that’s just off the top of my head).  Why are they doing this?  What do they hope to accomplish and what is the exit strategy?

Nine months from now, Louisiana’s film incentive will have been in place for a decade.  For 10 years, Louisiana has been attempting to build a sustainable film industry.   They see it as an investment.  They know they are losing money on the program and don’t try and fool anyone into thinking it’s making money for the taxpayers.  Costs are approaching $1 billion over the life of the incentive and have been exploding in recent years.  If estimates are accurate, the 30-35% tax credit Louisiana offers for ALL production expenses may cost the state over $400 million for last year alone.  Louisiana has not been able to scale back their incentive, they have needed to increase it.  They have not been able to put an eventual sunset provision on the program, they made it permanent.

I may not agree with what Louisiana is doing, but I do respect their efforts.  They are in it to “win” it, whatever the costs.  If state film incentives are going to keep getting pushed on naive lawmakers in US states, it’s time for the film backers to start answering some tough questions with some honest answers.

In Alaska, lawmakers are considering a bill to extend their generous film incentive (up to 44% back on expenses) for an additional 10-years with an additional $100 million allocated to the program (of the $100 already allocated, less than $60 million is left).  The bill sailed unopposed through the Alaska Senate, which surprised me given that over 80% of wages paid under the program have left the state to nonresidents.  What is the state trying to do?  If the state is trying to create jobs, do they realize they are creating them for nonresidents?  The Tax Foundation was invited to address a recent hearing about the bill and offered some excellent advice:

The idea is to subsidize each production as it flows through the state, in the hopes that enough productions will be cycling through, creating a critical mass that builds lasting infrastructure that in turn, at some future date, can survive successfully without ongoing state financial support of the industry. No state has achieved this economic development model with film tax incentives; the closest is Louisiana, which has seen substantial infrastructure investment but with no end in sight to annual state film incentive support.If Alaska wants sound stages, film studios, editing facilities, and other permanent infrastructure, it would be more direct and probably more effective to subsidize those projects directly rather than indirectly through individual productions.

Thank you.  How on earth states expect to build film industry infrastructure by funding productions instead of infrastructure is beyond me.  Productions use infrastructure, they don’t build it.  This not to suggest any state should invest in infrastructure.  They shouldn’t.  All of the talk about “building” a new industry needs to stop.  Building a new film industry implies it will one day be built.  News flash America, the US film industry already exists.

Individual states outside California and New York are not building anything new, they are just moving the productions around.  Note that I said moving productions, not the industry.  None of the major studios are moving to other states.  In fact, Paramount, Universal and Disney have major expansions underway in Southern California.  The state with the small incentive that may get chopped at any time, with super high taxes and expensive labor is where the major studios are electing to stay put.  Other states are not cheaper or better, they are just dumb enough to pay for 25-44% of the budget and not even get executive producer credits, much less ask for a share of any profits.

The major studios are not looking to help another state build an industry, they are simply sending them their expensive productions for as long as they are foolish enough to pay for 25% or more of the budget.  Thanks to North Carolina, $20 million of Iron Man 3′s” budget will be covered by the taxpayer.  Thanks to Louisiana, $35 million of the budget on “Green Lantern” was paid by the taxpayers.  Thanks to Michigan, almost $40 million of the budget on “Oz” was paid by the taxpayers.  Thanks to Pennsylvania, $37 million of the budget on “The Last Airbender” was paid by the taxpayers.  The list is long.  The states are many.  The costs are high.  The stupidity is breathtaking.

Those in the private sector who have been willing to spend money on movie studios in other states are starting to appreciate the massive risk they took building something that is 100% dependent on a cash-strapped state government continuously funding a costly film incentive program.  Seriously, what the hell were they thinking?  Nevertheless, film backers in many states continue to insist once a certain amount of infrastructure is in place, incentives can be scaled back.  In Michigan, many of the film backers said it was going to take five years.  Really?  Would Michigan advise folks in California to spend hundreds of millions on a new auto industry and tell them it would take just five years to build?  Let’s get real.

The film industry in California has been in place and (for the most part) growing for over 100 years.  All of the major studios have much, if not all, of their operations in the greater Los Angeles area and maintain studios and production facilities not only in California, but concentrated in Los Angeles and Southern California.  Concentration has been key to their success.  Hollywood’s home field infrastructure advantage is overwhelming.  In 2002, 69% of all digital and visual effects firms in the entire U.S. were located in Southern California (granted it’s probably less now, but still over 50%). In terms production space, soundstages and studio facilities in Los Angeles had a combined square footage of 5,049,000 in 2005. That’s more space than New York, Chicago, Orlando,Vancouver and Toronto combined.

There are over 6,000 business establishments that service (and depend on) Hollywood productions in the form of prop houses, lighting companies, practical effects shops, grip and stage services, picture car companies….the list is long.  There are many business services, like catering or waste haulers, that ONLY cater to the production industry because they operate in a manner designed to meet production needs.  Those 6,000 establishments, by the way, outnumber Star Bucks Coffee locations in California by 3 to 1, I shit you not.  And, lest we forget, most of the celebrities in the world also call Los Angeles home, even if part time.

Despite these overwhelming and unparalleled advantages, by 2009 even California was forced into offering a modest incentive to protect its core from further erosion.  The point is this:  if California cannot sustain its film industry without the need for a protective incentive, who in their right mind would believe their state could??

If Alaska thinks it can build a sustainable film industry by endlessly extending and throwing more money at its film incentive program, it will be spending taxpayer money on the ultimate “Bridge to Nowhere.”

States wasting their time and money trying to be “Hollywood South”, “Hollywood East”, “Hollywood Southwest” or “Hollywood Wherever”need to accept Hollywood already exists.  It’s in California.  The number of film and television productions that get made each year is not limitless.  It is a fixed pie.  In the case of major movie projects, the size of the pie is actually shrinking.  Hollywood cannot exist everywhere.  In the rush to dismantle the real Hollywood, perhaps blinded  by the glitz and the glamor, film backers in other states keep failing to recognize that the major reason Hollywood managed to become a global juggernaut is because it was not “Hollywood Everywhere”, but rather because it was (and is) overwhelmingly clustered around a single place: the actual Hollywood.  I am not trying to be pro-California when I point that out, it’s just reality.  Deal with it.  Had it landed in New Mexico, I would be accused of being pro-New Mexico.

The people who love to watch movies and the people who love to make them do not care about only making them in any one place.  Often they do make them in California for the obvious reasons of infrastructure, talent and convenience mentioned above.  Ideally, however, they want them made in the places where they can tell the best story.  A desire to shoot in Louisiana should be driven by the creative need to tell a story about that place, not because taxpayers in Louisiana are funding a third of the budget for a film about somewhere else.

I am sick of film commission after film commission selling their respective states as “Anytown USA” and boasting their locations can stand in for other cities, states or nations.  Stand in for yourself.  Promote your own state as the location, not a stand in for someone else.  Promote the culture of your own state or region rather than selling it as bland enough to be “Anytown.”  In short, if these states are going to keep their incentive programs, wouldn’t it be better if they required the projects to set the story there?  It’s the only way states will ever benefit from tourism and the only way they will benefit from free publicity and exposure.  For the audiences who see a movie like “Battle: Los Angeles”, the publicity and exposure benefited Los Angeles, but not where it was made at great cost to the taxpayer: Louisiana.

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