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State’s Film Credit Tab Soars

Copyright © 2011 Albuquerque Journal

New Mexico will shell out an estimated $20 million to $30 million more than expected in film rebates – around $95 million overall – after film and television projects rushed to beat a July 1 effective date for a new state cap on the subsidies.

“People who didn’t know what was going on during the legislative session rushed to get them in (after finding out),” said John Hendry, union agent for film workers, referring to a limit on rebate money adopted by the Legislature earlier this year. “Can you blame picture companies for doing that?”

Approved rebates for the budget year that ended last month were originally estimated to be about $65 million, but will likely end up being about $20 million to $30 million higher, said Tom Clifford, policy and research director for the state’s Taxation and Revenue Department.

Surge in incentives
2006 – $10.7 million
2007 – $17.7 million
2008 – $46.2 million
2009 – $76.7 million
2010 – $65 million
2011 – Estimated $85 million to $95 million
(Information courtesy Taxation and Revenue Department)

Rep. Luciano “Lucky” Varela, D-Santa Fe, the vice-chairman of the Legislative Finance Committee, said higher-than-expected revenue levels – the state is on track to take in at least $87 million more in the just-ended year than forecast – will help offset the film rebates’ price tag.

“We might have underestimated that during the session, but I think we’ll be OK,” Varela said Monday.

The new rebate numbers, which will be presented to a legislative committee later this week, mean the state probably will spend an unprecedented amount on annual checks to the film industry for the final year before a $50 million-per year cap, or total, for film rebates took effect.

It also means film productions spent at least $340 million in New Mexico in the past fiscal year.

“At this point, we’re still estimating, but we’re certain there will be more paid out than we anticipated during the (legislative) session,” Clifford said.

Gov. Susana Martinez pushed earlier this year for the film incentives – which offer a 25 percent rebate to film companies on most direct, in-state expenditures – to be trimmed, saying the state could not afford to pay for an unlimited amount to film companies.

However, instead of reducing the percentage, lawmakers approved the annual cap and other restrictions.

The rush to file for rebates before the new law took effect didn’t surprise film industry insiders, such as Hendry, the business agent for International Alliance of Theatrical Stage Employees Local 480. Hendry also said he believes the rush means the number of applications filed in the current budget year will be deflated.

“We’re not going to hit $50 million this year,” Hendry predicted.

Money for the film rebates comes out of the state’s general fund and essentially functions as a refund to film companies, which must submit a claim for the rebates.

The total rebate amount paid out by the state has grown from about $10 million five years ago to $65 million in the 2010 budget year. If rebates for the recently ended budget year end up closer to $100 million, that figure would represent nearly 2 percent of the state’s $5.6 billion budget.

In addition to levying an annual cap, the new law also imposes daily limits on how much money is available for rebates on certain expenses. That includes a limit of $100 per day on vehicle rentals and no more than $150 per day on lodging.

Under the new law, the $50 million annual cap – the total amount available for rebates – will be paid out on a first-come, first-serve basis. Some payments will be spread over three years, depending on the size of the rebate.

If rebate funding for the year runs out, any subsequent film productions that have their applications approved will automatically be placed at the front of a “queue” for the next budget year.

Meanwhile, Martinez administration lawyers recently reached an agreement that will allow those film companies that signed tax agreements with the state prior to the more restrictive legislation being signed into law to continue operating under the old provisions.

However, the $50 million cap will still apply.

The issue was the subject of lengthy negotiations between state and industry lawyers before the agreement was reached last month, Clifford said.

“The administration reached a compromise that not only honored previous agreements, but ensured a responsible transition from a costly and unpredictable program to one that is more predictable and prudent with taxpayer dollars,” Martinez spokesman Scott Darnell said.

Hendry said the Martinez administration had done the “right thing” by agreeing to the arrangement.

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