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Sunday, January 30, 2011
Impact Studies Scarce in Film Credit Debate
By Winthrop Quigley
Copyright © 2011 Albuquerque Journal Journal Staff Writer
As the political debate heats up over Gov. Susana Martinez's proposal to scale back New Mexico's subsidy to the film industry, policymakers are confronted more with rhetoric than useful analysis.
There are some hard numbers: Filmmakers have spent $1.2 billion in New Mexico and brought 155 major productions to the state over the past eight years, and the state paid $228 million in taxpayer-funded incentives to attract them.
Depending on what is being produced at any given time, an estimated 2,000 to 3,000 people work in New Mexico's film industry. Two major studios operate in Albuquerque. The industry buys goods and services from hundreds of local businesses.
The question is, are the incentives worth the jobs they create?
The state of New Mexico doesn't know.
It also doesn't know whether the subsidies will lead to a permanent industry here or whether we become one of dozens of states offering ever-sweeter incentives to a mobile industry in a race to the bottom.
Complicating the political equation is the fact that the direct benefits from the industry have been felt largely in the Albuquerque and Santa Fe areas, giving other state lawmakers little incentive to support what they see as money that could be used for education or other pressing needs. It doesn't help, either, that state law prohibits the public release of detailed information it collects about what the industry purchases, and, therefore, what expenditures taxpayers are helping filmmakers buy to the tune of 25 cents on the dollar.
There is no doubt the state has become a player. New Mexico's incentives are credited with transforming the state from the occasional site of a movie location shoot to one of six states that analysts in California have warned are taking a noticeable piece of the nation's $57 billion film industry from its traditional Hollywood home.
Martinez contends that the industry gets too much help. She says a state that faces a $200 million revenue shortfall can't afford to give a single industry the $65.9 million it received in the last fiscal year.
She proposes to cut incentives from 25 percent of qualified expenditures to 15 percent — with no cap on either individual projects or annual spending — the amount offered when the program began in 2002. She says that would save $25 million next fiscal year.
Her proposal has prompted cheers, protest and predictions of doom, but neither side has much in the way of persuasive data.
State government commissioned two studies to try to answer the question of how much return we get on the incentives we pay. The first study, performed by New Mexico State University's Arrowhead Center, said the state spends $1 for every 14 cents of tax revenue it collects from film industry activity. The other was from the consulting and accounting firm Ernst & Young. That study said the state spends just $1 for every $1.50 of revenue collected by state and local governments combined.
Neither study has escaped criticism.
Arrowhead Center was directed to look only at pieces of the incentive program and almost certainly underestimated the value of film incentives. The Ernst & Young study was critiqued by the state Legislative Finance Committee staff, the Center on Budget and Policy Priorities and the New England Public Policy Center at the Federal Reserve Bank of Boston. They found enough problems with the study's assumptions and execution to permit serious skepticism of its optimistic conclusion.
Re-evaluating the program
New Mexico isn't the only state re-evaluating its film program.
While 43 states still offer incentives, some of them more generous than New Mexico's, three states have recently suspended incentive programs, and more are evaluating whether to cancel them or scale back.
The industry collected $1.48 billion in state incentives nationwide in 2010, according to the Center on Budget and Policy Priorities, a Washington, D.C., think tank. At $350 million, New York was by far the most generous.
Neither study done for New Mexico was designed to capture the full economic benefit of the incentives from things such as new company startups due to film activity or increased spending by film companies and their employees.
Only Massachusetts has done such a study, according to the CBPP.
Massachusetts, which like New Mexico pays a credit equal to 25 percent of all production expenses incurred in the state, found that every dollar of film tax credits it gave producers generated less than 69 cents in income for the commonwealth's residents.
Rick Clemente, CEO of I-25 Studios (the old Philips semiconductor plant), acknowledges that no one knows what sort of return on investment the state is getting for its incentives, a failing he wants to see corrected.
He said the industry estimates that it is responsible for $200 million to $300 million in economic activity annually, has created 10,000 jobs either in productions or in the economic activity movies and movie workers' spending generates, and supports 250 small businesses in New Mexico.
Film industry incentives do at least some of what supporters said they would. Film production, spending and hiring soared in New Mexico and other states that offer incentives. The New Mexico Film Office said the industry grew from seven major productions in 2004 to a peak of 30 in 2008. Production declined to 16 in 2010, partly because of the recession. Fourteen major productions were in the works during the first six months of the 2011 fiscal year.
Industry supporters say Martinez's proposed reduction would send producers to other states. The filmmaking jobs New Mexico has created in the past decade would disappear.
There is plenty of competition.
Georgia increased the credits it paid from 17 percent of qualified movie company expenditures to 30 percent in 2008, resulting in a 150 percent increase in production spending, according to the Milken Institute, a Santa Monica, Calif., think tank.
One film was shot in Louisiana in 2002. That state, like New Mexico, now offers a 25 percent credit for in-state expenditures and hosted 51 film and 11 TV series productions in 2009. Louisiana paid $139 million in incentives in its 2010 fiscal year.
Michigan offers the nation's most generous incentives, a 40 percent credit, plus investment credits for construction of production facilities. The year before the incentives were enacted in 2008, two movies were made in Michigan. The year after incentives were in place, 32 projects came to the state.
New Mexico productions are concentrated in a few areas of the state, according to the Film Office. Albuquerque has hosted 98 film and TV productions since 2003, 61 productions have shot in Santa Fe, 22 in Rio Rancho and 19 in Las Vegas. One film did some shooting in Roswell, three productions have used Las Cruces and none has shot in Silver City.
Filmmaking in New Mexico has significantly improved the lives of workers and some small businesses.
Ray Ortega, a Santa Fe native who got his TV production degree at New Mexico State University, has worked in the film industry since 1991.
Jobs "used to be very sporadic. There were long periods between jobs," he said. When work wasn't available in New Mexico, Ortega "chased the business around the country. It was rough."
Ortega is now best boy (a middle-management job in a production's electrical department) for "In Plain Sight," a TV series shot at Albuquerque's I-25 Studios. He makes about $30 an hour. In the past six years, "I've been working nonstop," Ortega said. "It used to be I knew everyone in the local (labor union). Now I don't even know all the electricians in town."
Steve Vigil is a prop-maker on "In Plain Sight." He had worked in residential construction. "Ten hours is a short day," Vigil said. "I can't speak for everybody, but I've been off six months in four years."
Virginia Hopkins, lead painter for "In Plain Sight," moved from San Francisco to New Mexico in 2000. Bay Area costs were too high, and California was starting to lose some productions, many to Canada. "I was prepared to buy a home a month ago, because I can afford it," Hopkins said. "Everybody is terrified" at the thought of job losses if incentives are cut, she said. "I'll move on to something else, but I won't move. This is home."
Alan Trever, who runs the media arts program at Eastern New Mexico University in Roswell, has been able to place in New Mexico jobs between 80 percent and 90 percent of the 40 to 50 students his program produces. "The industry is now sustainable for my students to stay in New Mexico," Trever said.
The housing recession cut business at RAKS Building Supply 76 percent, said sales manager Wes Young. The company's 12th Street store went from 140 employees to 30. "What has kept some of those 30 people alive is the movie industry," Young said. "I was able to retain about 10 employees just to work with the movie industry."
JLS Security and Investigations gets about 40 percent of its business from the movie industry, said Scott Bass-Salazar, president. The company's staff of 90 employees can double when a movie company needs on-location security, he said.
"We are certain a reduction to a 15 percent credit will drive away business in droves," Clemente said.
A very different take
That is precisely why analysts at the CBPP and the Tax Foundation, another Washington think tank, are skeptical of film incentives.
They say that, outside of California and New York, the industry isn't committed to anyplace, so it goes temporarily to states where it can get the best deal. The analysts say that moviemaking doesn't become a real and permanent industry in a new state, because the instant another state offers a better incentive, the industry is gone.
New Mexico's strategy has been to get the industry to anchor here, and think tank analysts say that, if any state has a shot at getting out of the incentives rat race by building a permanent movie industry, it is New Mexico.
Producers need more than incentives to prosper, according to the Milken Institute. They need moviemaking infrastructure, postproduction facilities, a critical mass of talent and a friendly regulatory environment.
California accounted for 40 percent of North America's film and video employment in 1997, Milken analysts said. It was down to 37.4 percent in 2008, a loss of 10,600 jobs. The high cost of living and doing business in California and "an onerous permitting process" to get state and local government approval to use movie locations "have prompted producers to look elsewhere."
When enough productions move out of California, some workers who make movies will move permanently, too, Milken said.
Seeking 'critical mass'
New Mexico has "built a true critical mass of production and postproduction activity that can sustain ongoing work rather than just landing one-shot individual projects," according to Milken's analysts. New Mexico could eventually compete with California strictly on the basis of the cost of doing business, the analysts said.
In addition to helping pay moviemakers' expenses, New Mexico offers them incentives to train and employ local workers. It provided incentives to get Sony Imageworks to build a postproduction facility at Mesa del Sol.
"Research and state-of-the-art technology in computer graphics, 3-D and digital design at Sandia National Laboratories in New Mexico support companies working in the digital arts, and Digital Media Garage at the University of New Mexico offers advanced training to workers in the field," Milken said. Film workers get training at several of the state's postsecondary schools.
"If any states have made progress in establishing a media cluster, they are New Mexico and Louisiana, the two states that have been offering large-scale film subsidies the longest," the CBPP said. To ultimately succeed, however, New Mexico will have to overcome "pressure on film producers to minimize costs and producers' extreme geographic mobility."
The CBPP said that the way movies are made today works against any state becoming another California.
A small number of highly trained, well-paid producers and technical experts can move into any state or country, set up a temporary base of operations, hire whoever is available locally and import talent not available locally, shoot a movie, take the state's incentive money and leave. Thanks to the Internet, postproduction facilities in New Zealand are as easy to use as one in Los Angeles. The high costs and high risks of moviemaking mean producers will always look for the better incentives, according to the CBPP.
California and New York both have huge talent pools and all the infrastructure a producer could want. Even they offer incentives designed to help keep productions. The CBPP says states that offer incentives are in an endless race to nowhere.
Dropping out of the race
Some states have dropped out of the race.
Kansas suspended film credits in 2009 and 2010 to help balance its budget. Iowa suspended its program in 2008 when state auditors found that as much as $32 million in credits had been awarded to filmmakers improperly. Arizona let its program expire last year. Rhode Island has imposed a cap on its subsidy. New Jersey suspended its program last year to help balance its budget, but the Legislature reinstated credits this month.
Lawmakers are considering changes to incentive programs in Connecticut, Pennsylvania, Michigan and Missouri.
New Mexico has to determine through a meaningful, independent study what the film industry is doing for the economy, Rick Clemente said.
He said the state should guarantee that incentives will be in place for a long enough period of time that film businesses can make intelligent investments, say five years. The incentives should be phased out when the industry has the critical mass that will make it self-sustaining without government help, Clemente said.
In the meantime, the political debate over incentives has already cost the state business, he said.
His own I-25 Studios is reluctant to invest in improvements that won't pay off in a year, because there is no knowing if production companies will want to use the studios absent 25 percent incentives. At least two productions have already decided against New Mexico locations because of the incentives' uncertain future, he said.
On the other side of the ledger, if lawmakers don't trim the $25 million from the film subsidy, they'll look elsewhere for cuts.
Popular film states
Six states, New Mexico among them, consistently attract more movie and TV productions from the industry's traditional California base than any others.
Three states have suspended or killed film incentive programs:
• Kansas used the savings to help balance its budget.
• Iowa's program became embroiled in a scandal.
• Arizona, faced with cuts to education budgets, allowed the law enabling film incentives to sunset.
Not made in California
1. Louisiana: "The Curious Case of Benjamin Button"
2. New York: "Black Swan"
3. New Mexico: "True Grit"
4. North Carolina: "Talladega Nights: The Ballad of Ricky Bobby"
5. Michigan: "Gran Torino"