The New Mexico Independent,Great Article

NM paid out $181 million in film tax credits over nearly three years
By Trip Jennings 5/31/10 12:25 PM Digg Tweet

New Mexico can be found a lot on the big and little screen these days. Watch AMC’s critically acclaimed Breaking Bad, featuring two-time Emmy winner Bryan Cranston, and there are the Sandias. It’s hard to tell, but, yep, there’s Galisteo in Legion, a thriller with a God-is-angry-with-humanity-so-here-comes-the-apocalypse storyline that was released earlier this year.

That steady activity of film and TV shoots is raising New Mexico’s profile in Hollywood as several films or TV series shot here have racked up Oscar and Emmy awards in recent years. But the bigger profile is also raising the amount of money New Mexico is paying out to film and TV productions through a controversial tax credit program.

Over the past 33 months, 118 film and TV productions were paid $181 million through the program, including $60 million this fiscal year, state documents show.

This year’s payout appears likely to eclipse the $61,464,418.56 New Mexico doled out last year. This year’s total –$60,519,012.63 — was through April 14, more than two months shy of June 30, the end of the fiscal year, documents show.

The film tax credit program is wearing a bigger bulls-eye these days as New Mexico’s lagging economy, and a strained state budget, add urgency to critics’ calls for an end to the program.

Citing pared-down state services, higher unemployment and forced state worker furlough days — most state workers took their fifth, and final, furlough day of the fiscal year Friday, opponents say 2010 isn’t the time to be handing out money.

“We’re cutting services, furloughing state employees. And we’re sending tens of millions of dollars to Hollywood. That ain’t right. It’s wrong,” said first-term Rep. Dennis Kintigh, R-Roswell.

Kintigh, along with two top Senate Democrats, has emerged as a vocal critic of the program, citing worries about the state paying an industry to do business here at a time when New Mexico is hurting.

“We’re told if we don’t provide these incentives they will pack up and leave. If that’s the case the industry doesn’t have any roots here,” Kintigh said. “We don’t do that for the newspapers or the TV business.”

Doing away with the program is short-sighted, advocates say. The tax credits go toward reimbursing a portion of money production companies already have spent here in New Mexico, not to subsidize Hollywood.

Plus the incentives have helped grow New Mexico’s local film and TV industry from a few dozen folks several years ago to about 3,000 individuals earning a living, they say.

The average salary for someone working in the industry is “between $17 and $22 an hour, and that’s for the first 8 hours and then you go into the overtime and double time,” said Lisa Strout, director of the New Mexico Film Office.

At the same time the program helps bring in much-needed tax revenue for the state and local governments, thanks to the 24 major projects a year between films and TV series that New Mexico hosts, Strout said.

End the program, and you risk losing the jobs, not to mention the tax revenue, generated by the tax credit program.

“When certain people say, I don’t believe Hollywood will go away, well, call,” said Lisa Strout, director of the New Mexico Film Office. “I’ve had people tell me, ‘If this goes away, well, yeah, see ya.’”

The tax credit and how it works

The film tax credit isn’t a true tax credit, it’s more like a rebate. The film productions spend money in New Mexico and then the state reimburses a quarter of what each production spends in ‘qualified expenses,’ a broad category that contains any direct production expense purchased in New Mexico that has a state tax attached.

That could mean lumber purchased in New Mexico to help build a set, meals bought from a local caterer or receipts from a local car rental company for vehicles used by producers.

The money New Mexicans earn while working on the production, as carpenters or electricians or technical crew, also qualify as expenses eligible for the 25 percent reimbursement.

Restrictions keep a film production from claiming expenses for non-residents, although there are exceptions. A production company can get a rebate on money paid in rent for non-resident actors and stunt performers (but not for directors or producers), according to rules on the New Mexico Film Office’s website.

A production company also can claim what a non-resident actor or stunt performer is paid as a qualified expense, but only after they are paid through a “New Mexico entity and the non-resident actors agree to file a New Mexico personal income tax return,” the rules say.

If the state has given a rebate of 25 percent, then the 118 productions that were paid $181 million since July 1, 2007, have spent at least $724 million in New Mexico.

That’s a pot of money that likely would not exist without the tax credit and other incentives, including New Mexico’s no-interest film loan program, the state has used to attract film and TV productions, supporters say.

“You cannot just look at the half the connection,” Strout added. “You can’t just look at money going out. You have to look at the money coming in. This is money that came in to this state that is new. The benefit that we’re looking at is to New Mexicans.”

Fact checking and audits

Strout said the state has put in safeguards to ensure the production companies aren’t reimbursed for more than they’re entitled to, including two types of audits performed by the state’s Taxation and Revenue Department.

Rick Homans, the state’s tax and revenue secretary, told the Independent that his department asks smaller productions to document “every single expense.”

“On the larger ones, where there’s mountains of paperwork, we will randomly select invoices or receipts,” Homans said. “If in that random selection we see discrepancies then we will go deeper and deeper. We don’t commit the resources to go through every receipt.”

After going through receipts and invoices, his department then does a line-by-line audit of a production company’s application to confirm that every expense being applied for is eligible for the 25 percent reimbursement.

“If there’s any doubt about a transaction qualifying, then we ask for additional documentation until we’re satisfied,” Homans said.

The tax department has added personnel to its film tax credit division, which does 90 percent film tax credit work to “make sure we are paying these things out appropriately,” Homans said.

A competitive market

It’s not hard to find signs that New Mexico has raised its profile in Hollywood.

In addition to Breaking Bad, two other TV series are shooting in Albuquerque these days – USA’s In Plain Sight and Scoundrels, an ABC series premiering next month.

Meanwhile, dozens of films have been shot in New Mexico, from small character studies like Crazy Heart, for which Jeff Bridges won an Oscar this year, to the 2007 Oscar winner No Country for Old Men, based on Cormac McCarthey’s book by the same name.

But Strout said New Mexico can’t take that steady activity for granted. The competition for film and TV productions is fierce, with 40 other states offering incentives to lure productions their way.

The 25 percent New Mexico reimburses production companies for ‘qualified expenses’ is lower than the rate offered by 12 other states, including Michigan and Louisiana, Strout said.

“We are talking about one of the top exports from this country – the film and media industry –it’s like No. 2 or 3,” Strout said. “That’s why everyone is offering incentives.”

Not a convincing argument

Kintigh doesn’t find Strout’s argument convincing.

“This is a business bailout in advance,” Kintigh said. “We’re paying people to do business in New Mexico. That doesn’t work in any economic sense.”

Kintigh was unsuccessful this past legislative session in trying to stop the program with sponsored legislation. But he had some powerful allies in his fight, including Sen. President Pro Tem Tim Jennings and Senate Finance Committee Chairman John Arthur Smith. Smith has consistently questioned the economic worthiness of the program while Jennings suggested that Gov. Bill Richardson should shut down the program if he vetoed legislation restoring a state tax on food. (Richardson vetoed the tax but did not take Jennings up on his suggestion.)

Kintigh said he realizes what might be lost if the state stops the tax credit program.

“I’m scared they might” leave the state, Kintigh said of the film production companies.

The Roswell lawmaker said he has spoken with supporters of the tax credit program and feels for them.

“If these businesses leave their dreams are smashed,” Kintigh said. “I don’t want to destroy people’s dreams. That really grates on me, the people who have poured themselves into this. They have been sucked into something that isn’t sustainable.”