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Plan to kill film rebate cap renews debate

Copyright © 2019 Albuquerque Journal

SANTA FE – Gov. Michelle Lujan Grisham’s call to raze the roof on New Mexico film incentives – by scrapping an annual $50 million cap on film rebate spending – could rekindle a long-running debate over the subsidies’ effectiveness.

The new governor, a Democrat, had said on the campaign trail she favored raising or eliminating the annual $50 million cap, but it wasn’t until her inaugural address Tuesday that she laid out a more specific plan.

In addition to eliminating the annual limit, Lujan Grisham also said she favors paying off an estimated backlog of $250 million of submitted claims that have yet to be paid out because of the cap.

“We will send a clear signal that we are open for business and will double film and television production in coming years,” Lujan Grisham said in her address at the Santa Fe Community Convention Center.

Olivia Jackson-Padilla, the governor’s Finance and Administration Department secretary-designate, said Wednesday that lifting the cap could lead to between $100 million and $150 million in film credits requested annually, though more detailed estimates are still being crafted.

Such a figure would mean at least $400 million – and likely more – of annual in-state spending by film or TV productions. New Mexico offers a 25 percent tax rebate to film companies for most direct, in-state expenditures while long-running television programs are eligible for an additional 5 percent – or 30 percent in all.

New Mexico spending on film incentives was unlimited for years, but former Gov. Susana Martinez signed 2011 legislation that established the annual cap after a surge in spending.

Under the current $50 million cap, qualifying expenditures in excess of the annual limit are placed in a queue to be distributed in future years. Recent attempts eliminate the cap have stalled at the Roundhouse, with Martinez defending the cap as necessary to ensure budget stability.

However, the political landscape has now shifted with a new governor in office, and several top-ranking lawmakers have said they also support doing away with the annual limit on film rebate spending.

House Speaker Brian Egolf, D-Santa Fe, said Wednesday that taking action on the film incentive cap will be a priority in the 60-day legislative session, which starts this month.

But he also said legislative staffers are still studying options – including the possibility of leaving the annual spending cap in place for movies but eliminating it for television productions.

Egolf also said the backlog might not be paid off in one lump sum, because state law already allows for big-dollar rebates to be paid off over three years.

“Everyone who has earned a production tax credit is going to get the money,” Egolf told the Journal.

However, some critics of the film incentive program have described it as “corporate welfare” for the film industry and suggested the money could be better spent on other programs.

House Minority Leader James Townsend, R-Artesia, said the film subsidies’ impact should be closely scrutinized before lawmakers vote to do away with the spending cap.

“Just because we have some extra money this year does not relieve us of the burden of spending wisely,” Townsend said, referring to a projected $1.1 billion in “new” money that’s expected to be available in the coming budget year.

While New Mexico was among the first states to enact a film incentive program, in 2003, and was the backdrop for the hit television series “Breaking Bad,” some industry executives say the annual cap has hobbled the industry and prompted some productions to go elsewhere.

Crew members working on the film "Back to Earth" light the outdoor set near Los Picaros and Ira Sprecker SE in 2017. (Greg Sorber/Albuquerque Journal)

Crew members working on the film “Back to Earth” light the outdoor set near Los Picaros and Ira Sprecker SE in 2017. (Greg Sorber/Albuquerque Journal)

During the 2018 budget year, direct spending into the state economy from New Mexico’s film industry dropped by more than half and worker days decreased dramatically, compared with the previous year. Those trends were largely due to an overall drop in big-budget productions being filmed in New Mexico.

However, state and local officials have said the state is still a top destination for film productions, and Lujan Grisham said in her speech Tuesday that New Mexico’s film industry can be the most lucrative state media business in the entire country, while specifically referring to Netflix’s recent agreement to purchase Albuquerque Studios for more than $30 million.

“With Netflix in Albuquerque and moviemakers in California recognizing our world-class crew base and brilliantly talented homegrown writers, performers and filmmakers, we will take off the shackles and let it rip – and in the process we will put New Mexicans to work,” Lujan Grisham said.

A 2014 state-sponsored study concluded that film production activity – both movies and TV shows – generates an estimated 43 cents in tax revenue for every incentive dollar spent by the state. It also found that 15,848 full-time jobs were created by the film industry during a roughly four-year period.

Meanwhile, some other states have been moving in a different direction.

In neighboring Texas, for instance, lawmakers are considering legislation to abolish the state’s film grant rebate program, and Florida ended its program in 2016.