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Business Observer Thursday, Apr. 2, 2009 9 years ago

Film incentives - Take Two

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The once $29-billion Florida film and entertainment industry is now struggling and looking for love by other, more welcoming states and countries. But the state is fighting back.
by: Jay Brady Government Editor

The once $29-billion Florida film and entertainment industry is now struggling and looking for love by other, more welcoming states and countries. But the state is fighting back.

REVIEW SUMMARY

What. More film incentives, based on tax credits instead of cash rebates.
Issue. Gov. Crist's proposed $10 million cash rebate incentive for the film industry might get cut or increased, but a new take on tax credits could be a bigger.
Impact. A recent film industry study claims there's been a 7 to 1 return on investment on the film, television and digital media incentive program.

Filmmaking can be expensive — very expensive.

And while major studio productions may cost in the tens of millions of dollars, many independent films, or “indies,” are often at the low end. But all producers desire to have their work subsidized, if not paid for, with other people's money.

More and more, other people's money can mean taxpayers' dollars. Those dollars typically come from states in the form of cash rebates or tax credits against sales and corporate income taxes.

And in these tough economic times, filmmakers not only say they will leave Florida if they can find a better deal elsewhere, they are leaving for places like Michigan, Louisiana and New Mexico. Even California, with its $42 billion budget deficit, recently upped the ante by adopting a five-year, $500 million incentive program to encourage film productions to return to the state.

Today, 41 states offer some form of incentive plan to filmmakers and their industry kin, and about half offer tax credit programs. For the last state fiscal year, Florida's Office of Film and Entertainment (OFE) had $25 million for a cash rebate program; for the current fiscal year it was reduced to $5 million.

Legislative drama
Although Gov. Charlie Crist's 2009-2010 budget proposes to double the cash rebate to $10 million, it may be augmented or replaced with a tax credit program. One House committee wants to up it to $12 million, and although a
Senate committee proposes to cut it back to $5 million, the Senate Select Committee on Florida's Economy is looking to add the tax credits to an economic stimulus bill it's crafting that can bypass the committee structure and go straight to the Senate floor for a vote.

Senate Bill 350, and its companion, House Bill 47, are the state's latest efforts to garner a larger share of the high wage, high skills film industry that accounts for 207,800 jobs in Florida according to a recent study out of the
University of West Florida in Pensacola. The report also cites a 2008 employment study claiming film industry jobs are projected to grow 20% in 10 years, higher than any other Florida industry cluster.

Jeanne Corcoran is Director of Sarasota County's Film and Entertainment Office and legislative co-chair for Film Florida, the state-wide film industry group. Corcoran, who worked in the Nevada film industry, says Film Florida backs the shift to tax credits. The trade group reasons it makes more sense with fewer tax dollars to go around, but Corcoran admits they won't complain if there's two incentive plans.

Plus, she argues, there's no tax credit if there's no taxable revenue from filmmaking, and credits are expected to be made available for five years ,making them more reliable than an annual appropriation.

Corcoran's message to legislative leaders about the film industry in Florida is to the point: “It's this type of business that is a huge tool for economic recovery. We need to pursue them with all resources available, and incentives are key. If we can't compete ... then we're going to lose hundreds of millions of dollars in potential revenue and we really need that money in Florida.”

This year's $5 million was all spoken for by January thanks to USA Network's “Burn Notice,” the successful ex-spy, cable TV series thriller filmed in Miami. “Burn Notice” got about half of the funding — which left little for everyone else.

Thanks to a multiple “queue” system that sets aside cash rebate dollars for different types of film projects, a few independent films and documentaries filmed in the Gulf Coast area have received state incentive funds.

One, is “Misconceptions,” a light-hearted film about a young, married evangelical Christian woman who becomes a surrogate mother to a married gay male couple. The 95-minute movie, starring A.J. Cook and Orlando Jones, was filmed in St. Petersburg.

The film's producer/director is Ron Satlof, an independent filmmaker, who also teaches a film course at St. Pete's Eckerd College. He says the $46,200 reimbursement for his $1.1 million film made all the difference in keeping the filming plus 20 jobs in Florida.

Speaking by phone from L.A. recently, Satlof says, “My film wouldn't have gotten done without it. It was really, really hard to come up with post-production money. The film would not have been near as good a film if I had not had the incentive money.”

As happy as State Film Commissioner Lucia Fishburne is when the small fry “indie” filmmakers are able to take advantage of the cash rebate program, she's more than just disappointed when she knows she's lost a big fish.

In a recent interview in her 20th floor office in the Capitol, she laments, “We had a $40 million picture that wanted to come here — a major film production that we lost because we didn't have the incentive money. There are a lot of projects like that that don't even look at Florida because we don't have any money.”

Just two years ago, the state revamped the program with the $25 million appropriation thus setting the stage for funding 48 film and video productions (including “Misconceptions”) and five digital media projects including Madden NFL 2009, Tiger PGA Tour 2009 and the Health Science Channel.

That all changed last year as the economy softened and lawmakers cut agency budgets. Says Fishburne, “It was a shock when we went to $5 million. We had key people in the industry saying, 'What are you thinking? You're crazy!'”

Conservative approach
Enter tax credits, stage right.

Florida and 16 other states offer rebates with varying reimbursements levels and structures. Several states, such as Maryland, Michigan and New Mexico, offer more generous rebates than Florida.

The Florida program, enacted in 2003, is described in a Senate staff report as “a cash reimbursement of qualified expenditures.” Many states also offer hotel occupancy tax relief and/or sales tax relief for productions. Florida only offers sales tax relief.

Local film commissions like Corcoran's also offer location scouting, permitting assistance and referral help. There's one in each Gulf Coast county offering varying levels of industry support.

The more politically conservative approach of uncapped transferable tax credits against sales and corporate income taxes is gaining a strong foothold in Tallahassee and other state capitals across the country.

Instead of doling out cash, tax credits are given against actual tax liabilities that “but for” the production would not exist. And in Florida's proposal, if they can't be used by a certified production company, they still have value because they could be transferred, that is, sold to a Florida-based company, potentially at a discount.

Tax credit programs exist in 21 states. Puerto Rico has an infrastructure tax credit program, plus the United Kingdom, Australia, New Zealand, Canada and Mexico offer incentives that include tax credits, rebates, and grants to help pay production costs. There's also a federal tax deduction program due to sunset at the end of 2009.

So everyone is giving away some form of taxpayer money to lure the film industry in much the same way that everyone provides taxpayer money for professional sports teams.

Florida's film industry wants the state to be competitive and is working several bills through the Legislature this session. The mostly likely bills would replace the cash system with transferable tax credits, increase the percentage amount of incentive for film and digital media productions from 15% to 20% of qualified expenditures, but reduce the percentage for commercials and music videos from 15% to 10% of qualified expenditures.

Another significant change would strike the current $8 million maximum incentive payment for films, TV shows and documentaries and the $1 million maximum for digital media. Now, there would be no maximum, but a cap on tax credits is expected to be part of the debate.

Different scripts
The bills have Gulf Coast support.

Sen. Nancy Detert, R-Venice, is the co-introducer of SB 350 and Rep. Doug Holder, R-Sarasota, is a co-sponsor of the House version. Rep. Kevin Ambler, R-Tampa, is the sponsor of a similar bill (HB 43) in the House and is known as a key film industry supporter. Ambler's bill contains many of the provisions of HB 47 and also proposes to establish the “Florida Graduate Film Investment Program.”

Even so, there are more hurdles to overcome. A big one is a state constitutional requirement that laws having more than an insignificant negative fiscal impact on counties and municipalities must be approved by at least a two-thirds vote of both the House and Senate.

According to data from a March 25 Revenue Estimating Conference calculation, the tax incentive program will result in an $11.8 million loss to local governments in fiscal year 2009-10. Over time, the revenue loss to local governments is projected to increase by about $860,000 over each of the following three fiscal years. The loss of state revenues is estimated at $67.7 million at first and projected to grow to a loss of $83.4 million in fiscal year 2012-13.

However, those number are not the whole story. According to Florida Department of Revenue staff, the figures do not account for increases in revenue that may occur due to the tax credit-inspired increased activity, and thus may offset the projected revenue losses.

Wall Street Journal highlighted the issue when it took “30 Rock” actor Alec Baldwin to task last month for lobbying New York Gov. David Paterson to save the state's 35% tax credit for films shot in New York City. The editorial summed up their view saying, “As a general principle ... states shouldn't chase smoke stacks or film production crews with specific tax breaks. It makes much more sense for cities, states and the federal government to lower tax rates for everyone.”

State Sen. Mike Bennett, R-Bradenton, also expressed some concern recently saying he wants to be sure non-Florida businesses don't benefit at the expense of Florida companies. Bennett sits on the Finance and Tax Committee, one of five Senate committees to act on the bill.

It may come down to a battle of experts' numbers and which ones to put more faith in, but film producers seem to have the upper hand in this drama — they know that almost everyone wants them and the economic and fiscal impact that comes with a high wage, high skills, growth industry.

Corcoran puts it bluntly: “In Florida, if the state wants the industry to show us the money, then we'd better show them the incentives.”

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