Come Back, Woody — Lots of U.S. States Are Still Good to Hollyw’d!

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Though some states are still finding their way, not even a bad economy and a scandal in Iowa can slow the growth of tax incentives for film production — including in New York

Woody Allen may have abandoned New York for Europe, griping that the city has become too expensive for filmmaking, but it's not like the state isn't trying.

Just weeks ago, New York passed a new budget with some $450 million in tax credits for film and television production.

And New York isn't alone. Despite the current recession and some political backlash — not to mention a headline-grabbing scandal involving Iowa's film office — there's an enormous appetite in this country for the film industry.

In what has been likened to an arms race, more than 40 states currently offer some form of tax incentives for movies and television shows shot within their borders. These range from the 12 percent rebate Maine gives filmmakers who employ state residents to the whopping 40 percent across the board credit Michigan offers movie productions that shoot there.

More? Virginia signed production credits into law in June, North Carolina hiked up its refund from 15 to 20 percent in January, and Oregon has ramped up its courtship of Hollywood in recent years attracting more than $62 million in film production in 2009 alone.

“These programs can be fantastic for local economies,” William French, a lawyer who specializes in film tax credits, told TheWrap. “Productions can come in and drop hundreds of millions of dollars in a given jurisdiction. It’s a non-polluting, clean industry that is a good fix in a bad economy.”

"Given that the majority of states have enacted credits and have overwhelmingly continued to sustain them, it is clear that these incentives are stimulus packages that have created thousands of jobs," Vans Stevenson, senior vice president of government affairs at the Motion Picture Association of America, told TheWrap.

Indeed, other states are finding it easier to compete with the film industry's hometown, Hollywood.

"California no longer has the infrastructural advantage that it once did," Kevin Klowden, director of the Milken Institute's California Center and the author of a report on the effect of runaway production on California, told TheWrap. "Other states and countries have built facilities and shown that it's perfectly reasonable to consider doing a movie in Georgia, Canada or even New Zealand."

In fact, Klowden says California has lost  more than 25,000 related jobs, $2.4 billion in wages and $4.2 billion in total economic output since 1997 due to runaway film and TV production to other states and countries. The culprit — incentives.

Not that film-incentive programs haven't been the subject of some controversy — and some bad publicity.

Susan Christopherson, professor of city and regional planning at Cornell, argues that film production rarely has the positive economic impact that states hope.

“All the studies indicate that even with those multiplier effects, such as a star needing a special hotel room, states are paying out more tax money than they are actually taking in,” Christopherson told TheWrap. “Now states are saying, ‘We’ll build an industry here.’ But then they build studios, and they are really trapped. They have to keep putting money in to keep the studio full and subsidizing things. It’s like a baseball stadium.”

In addition to fostering a race to the bottom mentality where states keep upping the ante to stay competitive, Christopherson says that the money the states are allocating could be put to better use for other needs. She cites a Massachusetts Department of Revenue finding that showed that the state spent on average  $94,000 in credits on jobs that only offered salary and benefits of about $68,000.

For the short term, though, that might be a deal that states with high unemployment numbers are willing to make.

"Many voters are OK if states lose money, so long as they seem to be creating jobs," Adrian McDonald, a lawyer who covers incentives on his blog stoprunawayproduction.com, told TheWrap, cautioning that as states are forced to lay off teachers and public employees, more  people may grow disenchanted with money going to Hollywood.

"Anything that gets public funding gets some criticism," Vince Porter, executive director of Oregon's film office, agrees. "I think what is the hard thing is finding the sweet spot that works to give the least amount of money to bring in most amount of work and to build an industry over a long term basis."

Oregon appears to have found the right formula — but then there's Iowa.

With criminal charges looming against a trio of moviemakers and its former film office chief, that state’s production tax credits have become synonymous with corruption and bureaucratic neglect.

Iowa’s stab at becoming a mid-western outpost for film production appears to have been susceptible to a catalogue of abuses. Among the more colorful scandals are producers that used tax credits to buy luxury cars. As a result, last fall, the Iowa legislature suspended its tax incentive, throwing dozens of Hollywood productions into limbo.

When Iowans woke up to a mounting catastrophe, the 50 percent production tax credit for films shot in the state had left taxpayers on the hook for nearly $150 million. Had the system been reformed instead of jettisoned, the state might have seen some positive return on its investment, film tax boosters say.

But Iowa State Senator Joe Bolkcom, who led the charge to put the incentives on ice, now believes that such tax breaks are inherently flawed, despite the fact he initially supported them.

“We should only do them if there is actually a benefit to Iowans,” Bolkcom told TheWrap. “We’ve had some big films in Iowa that were produced without any tax credits, but it’s become an arms race among states."

Additionally, states such as New Jersey have joined Iowa in souring on credits and others such as Rhode Island and Massachusetts have flirted with axing incentives. Even New Mexico, which has paid out some $181 million over the past three years and lured such projects as “Breaking Bad” and “Indiana Jones and the Kingdom of the Crystal Skull” to the desert, is finding its program under attack by some of its politicians.

Other states have similarly struggled with corruption and abuse — but then, like Oregon, found a film tax incentive formula that worked. Louisiana, for example, sent its film commission head Mark Smith to jail for two years after it was discovered that he had accepted $135,000 in bribes. But it came up with a slate of stricter oversight that has set the program back on the track.

Citing some $2 billion in revenue generated by film productions such as “Jonah Hex” and “The Road,” Louisiana actually increased its incentives from 25 percent to 30 percent last year.

Giving credence to the state's reputation as the Hollywood of the Deep South, Summit recently announced that the two-part finale to its “Twilight” series will be filmed there.

"Louisiana is smart because they established an infrastructure," McDonald told TheWrap. "These incentives are going to recede eventually. The states that will still be standing will be the ones that built up their industry."