Film tax credits: A hot topic for state budgets

You might have heard that many states use film tax credits as a way to attract production companies to make movies and TV shows within their borders, resulting in jobs for residents and publicity for the state. With budgets tightening, some states are suspending or reducing the incentives, while others are enhancing their existing programs and creating new ones, in the hope of enticing the entertainment industry to their locales.   Take a look at a few states that have made the news lately for their handling of film tax credits. 

Saying Good-bye: New Jersey

For the last 11 years, "Law and Order:SVU" has been using certain New Jersey towns -  Fort Lee, Hackensack, Little Ferry, Alpine, Rockleigh, Ridgefield, Northvale and Closter - to film parts of their shows. Whotv.com says the presence of that made the areas good for spotting celebrities and stronger for the revenue that came to local businesses. Local restaurants benefitted from the presence of hungry workers. And the hardware stores and other retailers enjoyed added business as well.

Tom Myers, the executive director of the Fort Lee Film Commission told reporters, "We, in Fort Lee, worked hard to get 'Law & Order: SVU' and other productions in Fort Lee on a regular basis and we were so successful, 'Law & Order [SVU]' established a property in Fort Lee as the house of their main character, thus they came back to shoot often."

But, that may be all over with now. Previously, the state budget allowed for $15 million in credit for film and television production companies.  But the new budget has suspended the credit, and the producers of "Law and Order: SVU" are saying, "Exit, stage left." 

Now, says Myers, with most of the economic benefit gone, "Law and Order: SVU" will still occasionally shoot in New Jersey, but the visits will be limited. Other productions that have been using New Jersey locations will do the same, he says, as they find states that offer a better deal.

For Myers, this is particularly frustrating because bringing productions to the north Jersey area, he said, was no easy task.  He worked closely with Steve Gorelick, the director of the New Jersey Motion Picture and Television Commission, to attract shows, including "One Life to Live," which shot in Fort Lee and other sites in the state.

 "Until the end of the year, we won't know what the affect is going to be," said Gorelick in an article in North Jersey's The Record. "The only thing we can do is market our excellent locations, the depth of our town pool, and cooperation of towns such as Fort Lee, so readily offered. We'll see what the future brings."

One tax incentive does remain for the entertainment industry, and that is the seven percent sales tax exception on certain purchases of materials used in the production process, like hardware and camera supplies.

While some critics have lashed out at New Jersey's Governor Christie, claiming that he cost the state 200 jobs and $50 million in revenue with this decision to cut film tax credits, Gorelick takes a more reasoned approach. He points out that before the decision was made to cut these credits, there was no study done to show how much revenue the film tax credits brought into state coffers.   The state's Treasury Department is now studying that issue, and may consider bringing back the tax credit.

The Old Pros at Entertainment: California

On the opposite coast, California is paying homage to its entertainment industry through tax credits. Governor Arnold Schwarzenegger announced earlier this month that the California Film and Television Tax Credit Program has been successful in keeping film and TV productions in the state. The Screen Actors Guild (SAG) says the program has brought more entertainment industry jobs to California, making the program well worth keeping. 

"This is a terrific success and further reinforces the importance of tax incentives to the state economy. The positive effects of these tax credits echo throughout California and bring widespread benefit to the entire state," said SAG Manager of Government Relations & Policy Jenn Heater in a press release. "This is just the beginning of what we can achieve through the incentive program, and by working together bring entertainment and related industry jobs back to California."

Last year, the California Film Commission allocated $200 million in tax credits to 77 projects. Those projects will mean the hiring of roughly 18,200 crew members, 4,000 cast members, and over 100,000 extras. The projects include 51 feature films, seven TV series, and 14 made-for-TV movies. Beginning on June 1, 2010, production companies were able to apply for state tax credits for the second year of the program. Thirty projects have been approved and the fiscal year funding has already been exhausted. The approved productions include 19 feature films, eight TV series, and three made-for-TV movies.

A press release from SAG stated that the projects are expected to bring in $2 billion in new spending within California, including $736 million in wages for crew members such as electricians, grips, drivers, costumers, and others. 

"This is exactly why I fought so hard for tax credits in last year's budget," said Governor Schwarzenegger.  "Already, the film and television incentive has led to thousands of retained jobs and increased economic activity. Just the first two years of this incentive will generate $2 billion in direct spending, with even more to come. It is the private sector that will bring California's economy back, and our tax incentives are clearly helping employers along the way. That's why it's important that we continue to be a partner to employers and not a roadblock."

 Schwarzenegger signed a bill in 2009 that started the tax credit program as part of a targeted economic stimulus package. The program is authorized for eligible productions through fiscal year 2013-14. To receive their tax credit certificates, productions must have completed post-production. The credits do not become effective before January 1, 2011.

"The enormous interest in our tax credit program shows that a targeted incentive can keep tens of thousands of high-paying jobs in California," said California Film Commission Executive Director Amy Lemisch. "I am thrilled with how effective this program has been."

The up and comer for film and TV production: Michigan

Michigan takes a different approach to enticing the entertainment industry. A 2008 press release from Michigan Film Productions calls the program the "most lucrative film production tax incentives program and infrastructure development in the United States and the world. Rather than a sellable film tax credit Michigan offers a cash rebate."   The program has as its goal, providing studios and producers one-stop shopping for their production needs. Michigan Film Production seeks to assist producers and financiers to find all the resources they need, from locations, contacts, vendors, crews, information, and of course, film tax credits. 

Here is further proof of how intent Michigan - famous for auto manufacturing - is on attracting a big piece of the entertainment industry. They are currently transforming a former General Motors truck and bus manufacturing plant in Pontiac into a film and teaching studio complex.  The transformation of the plant into Raleigh Michigan Studios should be complete next year. This project - which is estimated to cost between $60 million and $80 million - began two years ago, shortly after Michigan enacted its tax incentives program.  Once it is up and running, Raleigh Michigan Studios is expected to create 3,000 jobs in three years.

"You've heard of a teaching hospital; this will be a teaching studio," said Linden Nelson, the chairman and CEO of Michigan Motion Pictures Studios, LLC. "We want to be able to show the Sonys, Screen Gems, and other major studios there is plenty of local talent to hire in Michigan."

Chris Baum, senior vice president of sales and marketing at Detroit Metro Convention and Visitors Bureau and head of Film Detroit called the new studio "a major step to create permanent infrastructure."

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