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Budget Crunch! Hollywood Tax Breaks Under Siege by States

Michigan is reviewing its production incentives and New Mexico might cut its. Could tightening belts squeeze the life out of indie film production?

Political currents in a number of financially troubled states are sending a chill through Hollywood — a tax-incentive chill.

Worry that such vital incentives will be cut significantly – or entirely — have producers and studios worried about how they will finance domestic film and TV production, with several important tax-credit states seriously reconsidering their programs.

"We're at a critical stage right now," Rob Carliner, who produced the Oscar-winning "Crazy Heart," which was filmed in New Mexico, told TheWrap. "The state of the incentives all over is changing radically, so we’re all communicating with one another just to make sure we have the most accurate, up-to-date information.”

“They are as important as any talent attachment,” he said. “They are critical. You just can’t make a movie in this environment without chasing the rebates. It’s just not economically viable.”

Indeed, New Mexico is just one of a number of states reviewing their incentive programs. There, the state's newly elected Gov. Susana Martinez has said she wants to cut that state’s popular tax credit from 25 percent to 15 percent.

And in Michigan, Gov. Rick Snyder, a Republican elected this past November, has ordered a review of the state’s incentive program — one of the most popular and generous in the nation. Snyder said he wants to reduce the 42 percent credit, which currently makes it the second most generous in the nation after Alaska and its 44 percent credit.

Both governors cited budget concerns in calling for the cuts.

Even small incentive programs attract filming. The movies “Winter’s Bone” (pictured) and “Up in the Air” were filmed in Missouri. But that state, too, is considering ending its incentive package, said state Sen. David Pearce, a Republican who favors the incentives.

“Right now, there is somewhat a backlash against tax credits,” he told TheWrap. “The governor has not included it in his budget package for the year … For this upcoming year it’s on life support.”

Bruce Deichl, co-founder of Tax Credits LLC, a New Jersey company that helps filmmakers get incentives, said that without incentives in the United States, more filming will occur in Canada and Europe.

He said that each state that has incentives benefits from them. "Why did Disney shoot the movie 'Annapolis' in Philadelphia instead of Maryland? Because of the film credit," Deichl said.

Peter Dekom, an entertainment lawyer in Los Angeles and consultant for New Mexico, said that tax incentives are "mission critical" to motion pictures, and that they will continue in some form — somewhere.

Fortunately, not all the news is bad.

Vans Stevenson, senior VP for state government affairs at the Motion Picture Association of America, pointed out that although the Illinois legislature recently increased the state’s income tax, “their tax credit was not even on the table,” and that New York, North Carolina and Florida recently increased their incentive package.

Florida offers a 20 percent credit, plus 5 percent for off-season filming and 5 percent for “family-friendly” projects.

On Jan. 1, North Carolina’s refundable credit increased from to 25 percent, and last year, New York increased the amount of money it has available for its 30 percent credit. The state had previously budgeted $85 million for 2010, $90 million for 2011 and 2012 and $110 million for 2013. Now, the state has $420 million available each year.

And of course the home state of Hollywood has its own place in the game.

A spokeswoman for Gov. Jerry Brown told TheWrap that despite the cuts he is recommending, “the budget that Gov. Brown proposed maintains the same tax credits for the film industry that the previous governor had in place.”

Paul Audley, president of FilmL.A., said that California’s incentive plan has increased the number of feature filming in the state by 26 percent.

“In the first year, with $200 million in tax credits, we were able to show a $2 billion tax expenditure in California, and about 20,000 jobs,” he said. “And every single bit of that increase was a result of incentivized filming.”

Another benefit to the incentives, he said, is that skilled workers stay in California.
He said that tradespeople, like producers, follow the incentives.

Skilled people, he said, permanently moved to other states as work became available in them. If the tax incentives in those states vanish, he said, those people will have to move elsewhere.

Stevenson said the credits “create jobs, they create economic activity, they create, in some cases, sustainable businesses.”

They’re also complicated, said Marco Cordoba, director of business development and production planning at Entertainment Partners, who provide detailed information of tax incentives and production credits across the United States and the world.

“Right now, there is some uncertainty,” said Missouri's Sen. Pearce. “However, there are some very stable states, and also states that have more incentives this year which have drawn more business to them.”

"If one state stops, another state will pick up and Hollywood will follow," he said. "Where states have amazing infrastructure and quality production but lose their incentives, Hollywood will leave."

Filmmaker Rob Carliner is not so sure. If New Mexico, a destination for numerous film and TV productions, cuts its program, he told TheWrap, “there will be a domino effect all over.” And without tax incentives, he said, "there is no independent movie business."