North Carolina Tea Party directs film industry back to NOLA

8th September 2014   ·   0 Comments

By Christopher Tidmore
Contributing Writer

Republican legislators in North Carolina adjourned their 2014 session without renewing the Tar Heel state’s generous tax incentives for film and television production out of a belief that the program constituted ‘handouts for Hollywood’. Absent a special session to enact a last-minute extension, much of that movie production might be headed to Louisiana.

Or Canada, upon which the Pelican State originally based its generous tax incentive program for film and TV production. Louisiana may benefit in the short term, but prominent voices here are also calling for the state to revamp or eliminate its incentive packages. North Carolina, which had risen to a leading position in the movie industry, may provide a cautionary tale to the coalition of Republican and Democratic legislators who tried to weaken and potentially kill the LA Credits.

Many in the North Carolina film industry believe that when the credits expire, TV and movie production will simply leave. Carole Peterman, a unit production manager and line producer from Wilmington, N.C., told The Washington Post that the loss of the credits have already provided an immediate impact on three of her projects—a pilot now shooting in Virginia, a $14 million feature film that could now head to Louisiana or Georgia, and a movie of the week that will film in North Carolina only if it’s able to wrap up filming before the end of the year when the incentive program expires. If not, it’s heading to New Orleans or Toronto.

“The work will follow the incentives,” she said.

“It essentially renders North Carolina no longer competitive in the industry,” Katy Feinberg, vice president of McGuireWoods Con­sult­ing added to the Post. The state has previously offered about 25 cents for every dollar filming projects spend in the state, which last year totaled about $61 million in tax incentives. Unless Gov. Pat McCrory ® calls a special legislative session, those incentives will end come January and will be replaced with a grant program with an annual cap of $10 million.

The previous program was already less generous than Lou­isiana’s, which offers a 30% credit on direct production Louisiana expenditures and an additional five percent tax credit for payroll expenditures to Louisiana residents. More­over, the credits may be used to offset income tax liability in Louisiana (corporate or personal), sold back to the State for 85 percent face value, or brokered on the open market.

Just this summer alone, Louisiana State tax credits were hailed as responsible for several big budget Hollywood productions including the Fantastic Four, Terminator 5, Pitch Perfect 2 and Jurassic World, the fourth film in the Jurassic Park series, as well as the television series “NCIS: New Orleans” and “American Horror Story: Freak Show.”

Louisiana ranked ahead of California — and anywhere else — in the number of live-action movie shoots in a study of 2013 releases from Hollywood’s largest studios. Louisiana Entertainment, the state-run film office, certified nearly $810 million in production company spending on 123 projects in 2013 and issued $251 million in tax credits. And, that’s the problem, according to fiscal conservatives on the Right and corporate watchdogs on the Left.

In the strictest sense, since the tax credit can be swapped for a direct cash payment from the state, it constitutes a ‘subsidy’ That’s the reason why national conservative organizations like the GOP-leaning Americans for Prosperity have campaigned to end them. Labeling them “Hollywood handouts” went a long way to denying them North Carolina Republican votes for their renewal.

In precise terms, Louisiana’s Hollywood South incentive programs put out more money than is collected by the state in direct taxes on film production. The state treasury lost $168.2 million on the program in 2012, according to a Louisiana Economic Development (LED) study . Put another way, should a producer spends more than $300,000 making a movie, state government essentially pays him, with the Taxpayer’s money, almost a third of what he spent.
Government constantly spends money to support the private sector, Greg Albrecht, the Louisiana Legislature’s chief economist, noted to the Baton Rouge Business Report. Yet, should the taxpayers construct a road to attract business, that thoroughfare will be built eventually, and state residents will get jobs at businesses that locate along it. Likewise, investing in the education of a child occurs with the hope that the child will grow up and pay taxes.

Albrecht told the Business Report’s David Jacobs, with film, the more movies get made, the more we have to pay. “It’s not an investment. It’s a subsidy,” he argued.

While the film credits hardly qualify as the biggest incentive program offered by the state, but “dollar-for-dollar it’s probably the most wasteful,” writes blogger and LSU-Shreveport political scientist Jeffrey Sadow of the film program. “It distorts the marketplace by sucking in dollars to an activity that the market otherwise wouldn’t support and away from other activities that would be more productive.”

Yet, defenders of the program note that the state gets back the incentives in increased personal income tax and below the line spending. Support industries for the film industry have grown up in the state, slowly, but in strong enough terms to argue that the State Treasury, at least, breaks even. The film program, however, is essential to parish economies, particularly in New Orleans, that contribute nothing to the incentives, but reap millions in economic impact.

State Sen. J.P. Morrell, a New Orleans Democrat and film industry supporter, admitted to the BR Business Report that the state subsidy benefits some parishes far more than others, yet he added that one can claim that about all sorts of incentives. There aren’t many people in his district getting a horizontal drilling tax break, he observed.

Morrell last year authored a resolution creating the Entertainment Industry Development Advisory Commission to review all state entertainment incentives, of which film is the most expensive and high-profile. He hopes the commission crafts recommendations that will make the programs cheaper and more predictable.

Yet, the New Orleans-area Senator conceded, “There’s going to be a reckoning at some point with tax credits in general.”

The movie industry does spend far more than it gains in tax credits, $717 million in 2012 alone. And, long-term economist reason that the film industry will concentrate in four or five hubs around the nation. Louisiana could be one of those hubs, if it invests now.

Spend enough money on subsidies, and the state could entice any industry to come, critics counter. Regardless, the North Carolina example seems to indicate that states who repeal their incentives lose the film/TV business.

The problem is so acute that on Wednesday, August 27, California Governor Jerry Brown California signed off on a deal that would more than triple funding for California’s film and TV tax-credit program, to $330 million a year up from the $100 million that the state currently allocates.

Even increased, those incentives pale beside Louisiana’s Film Tax Credit program, and it shows. While the Pelican State and other hubs have gained business, feature film production in Los Angeles County has fallen by half since 1996, and the region’s share of TV pilot production has fallen 73 percent since its peak in 2007, according to FilmLA. Inc.

This article originally published in the September 8, 2014 print edition of The Louisiana Weekly newspaper.