By Alex Ben Block, Backstage/The Hollywood Reporter

Threat to Film Subsidies
By Alex Ben Block

March 28, 2011

As the point person for state governments for the Motion Picture Association of America, Vans Stevenson keeps a close eye on tax incentives as states compete for movie and television productions that bring with them tax revenue, jobs and local expenditures.

Since 2002, the number of states Stevenson tracks that seek to seduce Hollywood has rocketed. Today more than 80 percent of the states have programs offering tax breaks. At least 40 U.S. states offer direct cash rebates.

Now, however, that may all be in jeopardy.

Heralding a new austerity, in February Michigan's new Republican Gov. Rick Snyder declared his desire to eliminate tax credits and replace them with a $25 million grant to promote the state to productions — which means no more free (or reduced) lunch for Hollywood.

Existing state incentives have provided plenty of choices for movie and TV financiers. And thanks to digital technology and clever art direction, audiences can't tell the difference. So when "Secretariat" was born in Virginia in last year's Disney film, the scene was actually shot in Louisiana, which provides not just a generous 42 percent tax incentive but also additional breaks from individual cities and parishes.

"Louisiana also stood in for Kentucky and Belmont [racetrack] in New York," says the movie's executive producer Bill Johnson. "It stood in for all the different tracks. That sweetened the deal."

Michigan, New Mexico and Georgia also have been aggressive in their pursuit and paybacks. But Louisiana has been tops. Last year it ranked third in productions behind California and New York, both of which have instituted tax incentive programs. Since 2006, more than 300 movies, from indies like "I Love You Phillip Morris" to blockbusters such as "The Curious Case of Benjamin Button" shot in Louisiana.

Michigan has also come on strong. It is where ABC shoots the TV series "Detroit 1-8-7," which, despite the title, could be shot anywhere. Movie productions have included "Transformers: Dark of the Moon," "Gulliver's Travels" and "Scream 4." A former General Motors plant in Pontiac is being turned into a movie studio.

Snyder's proposal to eliminate credits in Michigan hasn't passed yet, but it is already having an impact. The Marvel/Disney movie "The Avengers," among others, decided not to shoot in the state because of the threat.

"The worst possible situation for any motion picture or TV production is uncertainty," says Stevenson. "These days, cost is a huge factor for our member companies and motion picture and television entities. Budgets are determined and figured out based on these credits. If it is uncertain whether they're going to be there, they are going to look elsewhere."

Stevenson is concerned but not surprised that many states are rethinking the incentives. "Because of the fiscal challenges facing states, everything is on the table," he says.

That is why producers have to constantly check for the best incentives. "It changes from year to year," says Larry Thompson, whose two dozen TV movies include "Lucy & Desi: Before The Laughter" for CBS.

If the deal is right, "then you look at your script to see if it can be shot in the state that has the best tax incentives," adds Thompson. "If it doesn't match geographically, then you go to the next state."

That is the kind of analysis Thompson did to get his $3 million production "Amish Grace" made for Lifetime. The story is set in Pennsylvania, but he first considered Canada and Michigan. But Thompson was on a tight timetable and it was winter. "I didn't want a dark and gloomy movie," he says, "and it gets dark early in Canada, Michigan and Pennsylvania."

At first California wasn't even on his list, because of its lack of incentives. That changed last November. "All of a sudden they had this new tax law that just had passed," says Thompson. "That became the difference. I said, 'Why not make it here? I'll get a little tax incentive and I'll sleep in my own bed at night.' "

Thompson's movie became the first under the program. Soon the rolling green grounds around the Sherwood Country Club in Thousand Oaks were passing for Amish country.

California's incentive program "definitely had an impact," says Amy Lemisch of the California Film Commission. "The issue is we exhaust the credit so quickly in the fiscal year that we're still losing many, many productions."

Still in less than two years the program has resulted in 116 features, TV movies or cable TV series that stayed or returned to California. They spent $2.2 billion, which generated $6 billion in economic activity.

With Gov. Jerry Brown looking for budget cuts, it's unlikely that the ceiling will be raised. But there is a push to extend the incentives five more years. California Democratic Assemblyman Anthony Portantino, one of the sponsors, held a hearing in Pasadena March 18 to "let taxpayers know that $100 million spent every year is money well spent. It's creating a significant economic benefit at a time we need that shot in the arm."

This is about jobs, says Portantino: "This is about the restaurant, the caterer, the grip, the electrician — the kind of middle class jobs we want in this state."

Portantino knows, because he did many of those jobs, along with being a producer, line producer and art director on everything from the 1987 indie film "Time of Tears" to NBC's "Unsolved Mysteries" to commercials.

"The key here is accountability," says Portantino. "This program should be a model for others to emulate because you actually have to make the movie to get the credit."

Those details can be an issue. Iowa's incentive program was suspended last fall after five filmmakers and a broker were caught inflating invoices to get excess tax rebates. One pleaded guilty to first degree theft, and the former head of the film office faces criminal charges.

None of that surprises Robert Tannenwald, a fellow at the Center on Budget and Policy Priorities in Washington, D.C. Last year he authored a controversial study that said movie incentives did not deliver what was promised. He claimed that Massachusetts only got back 16 cents for each dollar spent.

Stevenson calls Tannenwald's "research flawed" and says "he didn't even have the right average salaries" or know about related revenue sources like payroll services.

Other critics claim the incentives don't really create many jobs. "Economic benefits are greatly exaggerated and they often ignore a lot of the costs," says Mark Robyn, staff economist for the Tax Foundation in Washington, D.C.

Stevenson says what is true is that states are looking at everything. "Unlike the federal government, they have to balance their budgets," he adds, "so it's natural in these economic conditions where sales and use taxes are down, corporate income taxes are down, income tax is down, federal funding is significantly down, that they are looking at everything."

So far few have actually pulled the plug. "The majority of states that have competitive credits are being sustained," says Stevenson. "That's not to say they're not looking at them and in isolated cases trying to change them."