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NM film business slows over past fiscal year

Copyright © 2018 Albuquerque Journal

Direct spending into the state economy from New Mexico’s film industry dropped by more than half and worker days decreased dramatically over the past year as the number of big-budget projects fell by about 25 percent.

Recently updated figures from the state Film Office show that after three straight years of increases, direct spending fell from $506 million in fiscal year 2017 to $234 million in the 2018 budget year, which ended June 30.

Meanwhile, the number of worker days dropped by 42 percent from 448,304 to 259,961. That can likely be explained by the fact that the number of film projects with budgets of more than $1 million fell from 52 in 2017 to 38 in the fiscal year that ended June 30.

Nick Maniatis, director of the New Mexico Film Office, said it’s not because New Mexico is losing its marquee status as a preferred location to shoot film projects. He pointed out in a recent interview that while the number of $1 million projects dropped 27 percent from 2017 to 2018, the 38 projects were the second-highest in six years.

“We’ve seen more projects with smaller budgets,” he said, explaining why Fiscal Year 2018’s direct spending and worker days are lower than what was a record-breaking 2017.

Maniatis said he felt the decline was “cyclical.”

“We had the same issue in fiscal year 2014,” he said.

Fiscal year 2014 was the last time there was a decline in three measures the Film Office uses to track film production in New Mexico: direct spending into the New Mexico economy; the number of projects budgeted at over $1 million; and the number of worker days accumulated by film crews.

Alicia Keyes, director of the city of Albuquerque’s film office, used the same word as Maniatis to describe the drop off.

“One thing about the film industry is it is super cyclical,” she said.

She said the incentives being offered by the state have been stable and support for them has not wavered.

“I think it all has to do with the ebb and flow of the industry,” she said, adding that right now things are flowing. “We’re super busy right now.”

Maniatis predicts we’re now in the midst of a big bounce-back year.

“The pipeline for this year is looking to be a record year, or near record year,” he said.

A tax credit backlog?

But Eric Witt, director of the city of Santa Fe’s Film Office, wonders if there may be other forces at play that account for the decline in all three measures. He fears New Mexico may be losing its grip on what has become an increasingly competitive, and lucrative, film industry.

“We’re continuing to have success in attracting projects to New Mexico. Film companies like coming here because of the weather and crew, and vendors that we have here,” he said. “We’re seeing the $70 million to $80 million (budget) films, but the $100 million to $200 million films – those big monster tent-pole films – we haven’t seen those recently.”

Those projects, like “The Avengers,” “Thor” and “The Lone Ranger,” spend big money at hotels, restaurants and local shops, which benefits the state economy and adds gross receipts tax revenues to the coffers of local governments, he said.

Witt says the number of projects in Santa Fe doubled from 20 to 40 over the past year, but they aren’t the $100 million productions. Instead, they are smaller projects, like foodie or travel shows, PBS documentaries, commercials or fashion shoots.

He thinks New Mexico may be a victim of its own success. Because the state’s film production tax credit program – an incentive for production companies to shoot films, television shows and other film projects in the Land of Enchantment – has worked so well, other states, and countries, have offered their own incentive programs that are taking business away from New Mexico.

Also, Witt says the success of the program has created a backlog in paying out what is actually a tax rebate for film production, thus discouraging film companies from shooting here.

“The long and short of it is since 2011 there’s been a $50 million limit on how many credits could be paid out. But there isn’t anything concurrent to that for how many could be earned,” he said.

So, for example, if $80 million worth of credits were earned in a year and $50 million was paid out, that leaves a $30 million balance that can’t be paid out and has to be carried over to the next year.

“The accrued backlog starts to build up over time,” he said.

By his math, that backlog could be as much as $150 million now. And if the state can pay out only $50 million per year, he says it may take years for a production company to receive its rebate. Film companies know that, he said, and so are discouraged from filming here.

New Mexico used to offer a 15 percent tax rebate on spending by film companies. To stay ahead of other government entities offering incentive programs, that was increased to 20 percent and then to 25 percent for most direct, in-state expenditures. Some long-running television programs are also eligible for an additional 5 percent, or 30 percent overall.

A big year in which qualified expenses for film production in New Mexico hit $500 million would mean rebates of at least $125 million – well more than twice the $50 million annual rebate cap. Any year with more than $200 million in qualified expenses would exceed the cap.

In an interview last week, Maniatis acknowledged there was a backlog, but he didn’t know how big it was.

He disputed that the backlog was hindering New Mexico’s ability to attract film projects.

“We have the ability to pay out future debt,” he said.

He acknowledged film companies may experience a delay in getting their tax credit rebate. “But instead of getting your payment Jan. 1, you get it July 1 of the next fiscal year,” he said.

How big, exactly, the backlog is may be unclear.

Witt said he’s asked the state Film Office about the backlog, but he’s never gotten an answer. Maniatis said he doesn’t have the records, but they are publicly available through the state Tax and Revenue Department.

The Journal on Aug. 14 submitted a public information request to the state Tax and Revenue Department seeking records that would show how many tax credits were paid out and how many were accumulated each of the past five years.

The department responded seven days past the legal deadline for providing the information or notification that more time to gather the information was needed, a department spokesman saying the lapse was due to a transition of personnel in the role of records custodian.

In its response, the department said it could not legally release information regarding accumulated or unpaid film tax credits for claims that have not been filed or the names of the companies that have applied for the credits. It also said it would need additional time to provide the names of companies that have received credits.

The department did confirm that it had paid the statutory maximum of $50 million in film tax credits each fiscal year since 2014.

Good year coming?

Witt says New Mexico was the first state to offer a viable incentive program for film production. Other states and countries caught on and started offering their own incentive programs.

Meanwhile, New Mexico has scaled back.

But the mounting rebates – $96 million in a single year at one point – became controversial as questions were raised about whether the state was giving out more than it was gaining from the film business. In 2011, Gov. Martinez signed legislation that enacted an annual limit on film rebate spending, capping it at $50 million and adding conditions for what types of projects could qualify for the rebate.

Witt, who served as deputy chief of staff under Gov. Bill Richardson, a Democrat, and was responsible for helping launch the state’s film incentive program, insists he’s not being partisan when he talks about declining numbers under Gov. Martinez, a Republican.

“This is empirical. They (the Film Office) are providing the numbers,” he said.

Direct spending has fluctuated somewhat under the Martinez administration. In Fiscal Year 2008, which ended six months into her first term as governor, direct spending was was $275 million. It dipped moderately the next year and fell to $206 million in FY 2010, but rebounded to a record $278 million the next year. In has been above $200 million every year during her term, except 2014. Then set records each of the next three years, climaxing at $506 million in FY 2017.

Worker days have remained fairly steady, above 150,000 every year except FY 2012. Records were set in fiscal years 2013, 2015 and 2017.

Witt says the state of Georgia has now emerged as “the default” place to go film because of the generous incentive package it offers.

The Atlanta Business Chronicle reported earlier this year that film and television productions had a $9.5 billion economic impact in Georgia during Fiscal Year 2017. That includes $2.7 billion in direct spending, up from $67.7 million in 2007.

Witt says that’s an indication that New Mexico is missing out on billions of dollars.

“If we can fix the challenges, we could double production in 18 to 20 months,” he said.

Taking care of the backlog and simplifying the film tax credit program would be two steps in the right direction, he said. And a window of opportunity may be opening. He cited several things that could help turn the tide in favor of New Mexico.

One is happening overseas. He says the United Kingdom is the biggest competitor for film projects internationally. The U.K. relies on sourcing with other European Union countries, but the Brexit decision could change the landscape.

“If they pull out of the E.U., no one knows what will happen,” he said.

Stateside, changes are coming in Georgia. A new governor will be elected in November. Push back from Georgia taxpayers who think the state is giving away too much – similar to the debate in New Mexico before the rebate cap – could lead the next governor to scale back its incentives, he said.

New Mexico will also have a new governor. Witt said that both Democrat Michelle Lujan Grisham and Republican Steve Pearce have both expressed support for New Mexico’s film industry.

In addition, changes to the U.S. corporate income tax under the Trump administration may make filming at home more appealing to U.S. film companies.

“So global forces may make producing films in the U.S. and New Mexico more attractive going forward,” he said.

Maniatis says New Mexico may be in for a blockbuster year, anyway. While he’s sworn to secrecy about exactly what may be coming, he says the pipeline is full and may include a $100 million production or two.

“We’re shaping up to have one, maybe two, this year,” he said. “In a year when that happens, everything goes up – direct spend, worker days, everything.”

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