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NM debt to filmmakers approaches $250 million

Seth MacFarlane looks over footage while filming at Bonanza Creek Ranch in 2014. New Mexico legislators are discussing what do about a backlog of nearly $250 million in unpaid film credits.

Copyright © 2018 Albuquerque Journal

SANTA FE – New Mexico’s backlog in unpaid incentives for the film industry could hit $250 million by summer and reach $700 million in four years – an amount that would take 14 years to pay off, even if filming stopped, a state economist said Monday.

In a presentation to legislators, Jon Clark, chief economist for the Legislative Finance Committee, said New Mexico is on track to reach a “breaking point” eventually under the current system, which offers movie companies a 25 percent tax rebate but limits the state’s annual payout to $50 million.

The state is reaching the limit each year, running up an unpaid tab of film incentives.

No consensus emerged Monday on how to address the cost. Some lawmakers suggested lifting the $50 million cap, while others questioned whether it makes sense to subsidize filmmakers at all.

And some legislators said they’re aiming for a middle ground.

Senate Majority Leader Peter Wirth, D-Santa Fe, said filmmaking has been an important part of the economy, especially over the past few years when other sectors struggled.

“There’s no question that this industry is a huge deal in our part of our state,” Wirth said. But “I really hope we can find a way to restructure this.”

New Mexico offers a 25 percent tax rebate to film companies for most direct, in-state spending, and long-running television programs can get 30 percent.

Gov. Susana Martinez, a Republican whose term ends this month, signed legislation in 2011 imposing the $50 million annual limit as a way to provide budget certainty and protect state finances.

Clark, the economist, said he is still studying the numbers but expects the incentive backlog to hit $250 million by the end of this fiscal year, June 30, up from about $180 million in the previous fiscal year. The backlog represents film credits that have been approved or are in the approval process.

At the current rate of growth, he said, the backlog could hit $700 million in fiscal 2023, about four years from now.

Eventually, the rebate won’t be effective at attracting film work, Clark said, because companies won’t want to wait years to get their money.

“At some point,” he said, “we’re going to reach a breaking point where companies will stop investing.”

Even then, Clark said, it would take the state 14 years at $50 million annually to pay off a $700 million backlog.

Debate over the backlog comes as New Mexico enjoys a revenue boom – driven by the oil industry – and a new governor is set to take office. The state is on pace to ring up a $950 million surplus this year, unless new spending is authorized.

Democratic Gov.-elect Michelle Lujan Grisham said Monday that she will work to either raise or eliminate the film cap as part of a plan to double film production in New Mexico.

“I’ve been very clear that under my leadership New Mexico is open for business again and the film industry is a huge part of that, including Netflix,” Lujan Grisham said in a written statement.

She will take office Jan. 1, two weeks before the 60-day legislative session begins.

“We need a solid number on the credit backlog,” Lujan Grisham said, “and I will work with the Legislature to develop an aggressive plan to pay what New Mexico owes and eliminate the backlog.”

The backlog generated plenty of debate during Monday’s meeting of the legislative Revenue Stabilization and Tax Policy Committee.

Sen. Mark Moores, R-Albuquerque, questioned whether “corporate welfare” is appropriate for the film industry.

“We need to be careful about what we’re doing when we pick winners and losers and what actual benefit we’re getting,” he said during Monday’s meeting of the legislative Revenue Stabilization and Tax Policy Committee.

Rep. Antonio “Moe” Maestas, D-Albuquerque, said the state should take a fresh look at the film incentive law in light of the deal announced in October to bring Netflix’s first U.S. production hub to Albuquerque. The company – an entertainment giant that allows customers to stream movies and TV shows online – is buying Albuquerque Studios.

Maestas said the state may want to ensure Netflix doesn’t “squeeze out smaller filmmakers.” In the past, he has proposed eliminating the $50 million cap.

Sen. Clemente Sanchez, D-Grants, said it’s “dangerous” for the state to build up an “unfunded liability” in the film program. He compared it to the state’s problem funding its pension system.

Sen. Jim White, R-Albuquerque, said the film industry “helps us diversify our economy, but somehow we’ve got to find a way to balance this problem we’ve got.”

No one in Monday’s meeting challenged the legality of allowing of the film credit backlog to grow, though officials said it will have to be shown as a liability in annual audit reports.

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