Box office bargain: Film Production Tax Credit continues to help economy, drive productions in the state

The New Mexico film industry continues to be an economic driver due to the state’s Film Production Tax Credit.

Despite the success, a report from the Legislative Finance Committee has found that the film tax credits are less effective at attracting private investment, costs more per job and have a lower return on investment than other incentive programs.

The state supports economic development through a variety of programs, including the Local Economic Development Act (LEDA) program and the Job Training Incentive Program (JTIP), 14 individual tax expenditures to encourage economic development and a variety of other, targeted business incentives at the local level.

According to the LFC report, in fiscal year 2022, film incentives were nearly 10 times larger than the next biggest economic development tax incentives, and film incentives were twice as large as all other economic development tax incentives combined.

The report also said in the next five years, tax expenditures through the Film Production Tax Credit (FPTC) could grow by 171%, increasing from $100.2 million in fiscal year 2023 to $272.1 million by fiscal year 2028.

In July, Gov. Michelle Lujan Grisham said the film industry spent more than $794 million in the state from July 1, 2022, through June 30, 2023.

“Investments by the film and media industry are delivering higher wages and creating cascading positive economic impacts in communities large and small across the state,” said Lujan Grisham.

The estimated payout for the rolling cap is $73 million for fiscal year 2023.

Data shows that median hourly wages for industry workers was $35.51 in fiscal year 2023, up from $29.36 the prior year.

According to the LFC report, in fiscal year 2022, film industry incentives were 37% percent of total economic development spending and cost more than twice as much per job as the other largest economic development incentives.

Jobs supported directly and indirectly by the film industry made-up 0.82% of total private employment.

According to the New Mexico Film Office, the FPTC was first enacted in 2002 and amended nine times with the most recent in 2023.

Republican and Democrat support

Since its inception, the measure has seen bipartisan support by lawmakers and Republican and Democrat administrations.

“Its success is because lawmakers recognize this as an economic development incentive that benefits the entire state and all types of businesses,” said Amber Dodson, New Mexico Film Office director. “As reported in the film impact study on the film production tax credit on nmfilm.com, for every $1 dollar invested into the film production tax credit program, there is a nearly $8 economic return on investment.”

Dodson said rural and tribal communities are seeing more benefits from production spend, and large metros are seeing capital investment and dollars flowing to the many small businesses that partner with this industry.

“Economic experts and lawmakers who have looked at this credit over the years recognize that these dollars are dynamic and grow the economy because it is money coming into New Mexico from outside the state – you cannot just look at the tax payments made by production companies and studios,” Dodson said.

Dodson said the tax credit payouts per fiscal year can and will fluctuate due to production schedules, budgets and other unforeseen circumstances.

According to the LFC report, the tax incentive program is the state’s eighth largest tax expenditure in fiscal year 2022.

With its amendment earlier this year during the Legislative session, the credit provides between a 25-40% reimbursement for eligible spending by film production companies. During each legislative session, there have been bills that help streamline the tax incentive program.

Per statute, the program is designed to establish the film industry as a permanent component of the state’s economic base, create jobs, improve economic success and create infrastructure for the film industry.

Film companies apply for the tax credit with the New Mexico Taxation and Revenue Department and receive reimbursement for the eligible spending.

One of the successes of the FPTC is the rural uplift credit, which gives a production an extra 5% in rebates for filming at least 60 miles outside the Albuquerque-Santa Fe corridor.

According to the New Mexico Film Office, the credit brings productions to every corner of the state – which is a goal for the film office.

In fiscal year 2023, the direct spending for productions receiving the rural uplift credit was $16.5 million, which is down from the $50 million in fiscal year 2022.

Finding space

In February, the New Mexico Film Office added eight new qualified filming facilities around the state to help ease the studio space need that is industry wide across the United States.

“Finding studio space is an industry-wide problem,” said Dodson. “With the newly certified sites, it helps create the space we need for productions because there is so much demand for space.”

Productions utilizing qualified facilities in New Mexico, as per the state’s film incentive, are eligible for a 5% uplift on qualifying expenditures.

With the eight additions, the list of Qualified Production Facilities is now 21 statewide.

“The film and television industry and the demand for content is growing globally,” Dodson said. “Thus, a global, industry-wide soundstage and crew shortage has existed for a few years. New Mexico is not exempt from these challenges. Our office continues to support the expansion of soundstage facilities and movie ranches statewide to address the demand for infrastructure.”

Dodson said the state works with educational institutions, film partners and other organizations to continue to sustainably and effectively grow the industry to benefit New Mexican residents and business owners.

The New Mexico Media Arts Collective is working closely with 16 New Mexico post-secondary film and media programs across the state, as well as local unions, film partners and organizations, to develop a highly effective workforce training program to scale up the workforce for the industry’s high-paying and in-demand jobs, which have a median wage of $35 per hour, Dodson said.

“We are open to additional film partnerships with companies that make at least a 10-year commitment to purchasing or leasing, improving soundstage infrastructure, committing to significant production spend and job creation, and providing workforce development support and collaboration,” she said. “These long-term investments by our film partners solidify New Mexico’s position as a premier production hub while ensuring our resident workforce, infrastructure, and economic benefit to New Mexicans scale up as well.”

As an example, Dodson said New Jersey has emulated New Mexico’s model of having stable, long-term partnerships with production companies.

“Partnerships such as these lead to more capital investment in the state and consistent jobs for professionals in this industry,” Dodson said. “The physical studio spaces in New Mexico are also becoming a redevelopment magnet in their neighborhoods, creating opportunities for other partner businesses and industry service providers.”

Incentives to increase

According to the LFC report, in fiscal year 2023, the state spent $100.2 million on the FPTC, a 65.6% increase over the previous fiscal year.

According to the most recent consensus revenue estimates, the cost of the incentives are expected to grow in the next few years, with spending growing from $160.9 million in fiscal year 2024 to $216.6 million in fiscal year 2025, which is a 34.6% increase.

“By (fiscal year 2028), total film incentive spending is expected to grow to $272.1 million, a 171.4% increase over (fiscal year 2023),” the report stated. “Had film credit expenditures been appropriated, film industry incentives would have made up 1.2% of recurring general fund appropriations in (fiscal year 2023). For comparison, in (fiscal year 2023) the state spent about the same amount of general fund on state criminal prosecution offices ($88.8 million or 1.1%), child protective services ($110.5 million or 1.3%), or state funding for school buses ($114.7 million or 1.4%).

The state’s incentive program continues to be gold standard and other states are using it as an example.

Despite the state’s small population, New Mexico’s film industry competes with larger market states like Georgia, New York and California.

The state has the:

 14th largest film industry by employment level.

 6th highest location quotient, a measure of industry concentration.

 4th largest share of employment in the film industry.

 5th leading industry wages.

The report said New Mexico is competing with states that have much larger populations, higher average wages, and a more diverse private industry that make it easier for film companies to establish a presence.

The state pays about the same or more than much larger states like Illinois, Massachusetts and Pennsylvania.

At about 1.2% percent of total general fund expenditures, the state spends the second most in the country as a proportion of total general fund spending, coming in only behind Georgia, which spends about 3.4% of its total general fund appropriations on film incentives.

In contrast to New Mexico and Georgia, other states with film incentive programs spent, on average, about 0.3% of total general fund appropriations on film incentives, according to the report.

Industry rebound

Since July, the SAG-AFTRA strike has impacted the film industry – far and wide.

Yet, Dodson said during the pandemic, the industry rebounded in full force when it was ready to resume.

“We expect the same rebound once the industry strike is resolved,” Dodson said. “New Mexico productions are being crewed by New Mexicans by and large. In FY23, 83% of the below-the-line crew across all productions registered with the New Mexico Film Office, were New Mexico residents. This high percentage of residents crewing productions has been growing, even as the state’s industry has grown at unprecedented levels in recent years.”

Dodson said by tending to the programs such as the Film Crew Advancement Program and the state’s robust educational ecosystem, including 16 film and media post-secondary programs, and the establishment of, and partnership, with the New Mexico Media Arts Collective, the industry will continue to grow.

The local unions and guilds have been steadily adding new members since 2020, and International Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists and Allied Crafts of the United States, Its Territories and Canada (IATSE) has been adding about a new member per day.

“New Mexico is a small state by population, and we will not reach the soundstage capacity of California or Georgia, nor the number of industry workers,” Dodson said. “That will remain a limiting factor and why we think the expected growth is sustainable and manageable. Further, New Mexico’s film incentive works differently than others, such as Georgia. Ours strategically incentivizes hiring resident workforce and talent and sourcing from in-state businesses.”