Film industry watching NC tax credit debate
Posted August 16, 2013
Raleigh, N.C. — Twenty-six years after Patrick Swayze's character first declared "nobody puts Baby in a corner," more than 2,000 fans of "Dirty Dancing" are expected to converge on Lake Lure's Dirty Dancing Festival this weekend to watch the movie, cut a rug and maybe enter the Lake Lift contest.
"It's a comedy of errors for most people," festival co-founder Michelle Yelton said of fan attempts to recreate an iconic scene in which Swayze hoisted Jennifer Grey, playing Frances "Baby" Houseman, above his head standing in waste-deep water. Lake Lure stood in for the Catskill Mountains, and fans from the movie have fun finding out just how hard it is to pull off the move, Yelton said.
"For the one or two that can actually nail it, the applause is tremendous," she said.
The festival is an example of the lingering impact a movie or television production can have on a community even decades after production wraps and the critical buzz dies away. More recent films, including "The Hunger Games" and "Safe Haven," and television shows such as "Under the Dome" and "Sleepy Hollow" are drawing Hollywood lights and tourists.
But those who work in the entertainment industry say North Carolina will watch productions go elsewhere if lawmakers do not extend a key tax break for production companies that is due to expire Jan. 1, 2015. Already, some insiders say, television producers are taking a pass on North Carolina locations in favor of states with tax credits that are not due to expire soon.
"If the film incentives were to sunset tomorrow, the trucks would be loaded tomorrow and go back to California or somewhere else. The finances drive the industry right now," said Dale Williams, a unit production manager for the CBS drama "Under the Dome."
Under North Carolina law, films can receive a tax credit good for 25 percent of all the "qualified" in-state spending up to $20 million. The biggest qualification is that salaries for actors and other highly paid workers count only up to $1 million. If the production earns more in credits than it owes in taxes, which is frequently the case, the remaining amount is refundable, which means the company gets a check from the state. Television shows are not subject to the per-project cap.
In 2012, North Carolina granted $62.3 million in offset taxes and cash payments to production companies based on qualified spending of $278.1 million on wages, sets and other production expenses. The state is on pace to surpass that total in spending – and credits offered – for this year, according to officials with the North Carolina Film Commission.
"Television and film companies make an enormous investment in the state," Williams said.
She argues that no other industry gives such an instant cash infusion directly into an area's economy. But opponents of the credits argue that the show business boon is more sizzle than substance and that North Carolina should invest its tax dollars elsewhere, or at least demand more in return.
Running the numbers
While industry figures on spending can be eye-popping, there are skeptics. Nationally, the Tax Foundation argues that such credits costs states far more than is ever returned to state treasuries.
In North Carolina, Rep. Paul Luebke, D-Durham, is the lead sponsor on a bipartisan bill that would keep North Carolina from paying more in film incentives than is owed in taxes.
"The cost of this program is likely to be more than $60 million this year," Luebke said. "I don't think the public understands this program provides a check to the company."
If credits are to continue, Luebke said, the state should demand guarantees of minimum wage rates for workers on set and assurances that out-of-state workers or the same home-grown workers aren't benefiting over and over again as they skip from production to production.
An analysis of North Carolina's film incentives by the legislature's nonpartisan fiscal research staff estimated that film credits created only 55 to 70 jobs in the state in 2011. That report said the state would have generated more economic activity by an across-the-board tax cut of the same amount, which would have created at least five times more jobs.
Calling the tax refunds "welfare checks to Hollywood," Rep. Paul "Skip" Stam, R-Wake, told WRAL News earlier this year that production companies were gaming the system.
"We have been had," he said in an email.
Backers of the credit say the fiscal research study doesn't measure the true impact of the movie and television business.
"It does create jobs. It does induce spending in North Carolina. That's real economic impact," said Aaron Syrett, director of the North Carolina Film Commission.
In a letter to Commerce Secretary Sharon Decker last month, Vans Stevenson, senior vice president for the Motion Picture Association of America, estimated that Fox's "Homeland" series and the pilot for "Sleepy Hollow" have already created 1,500 jobs.
Stevenson said North Carolina was "at a crucial economic development tipping point" and warned that the state was already losing productions to other states.
Syrett said that North Carolina was having a "strong" 2013 in terms of entertainment industry investment, but he did not directly quibble with Stevenson's assertions. He did say that the state was beginning to see more obstacles in recruiting new television series to the state. That's because television show productions plan in three-year cycles, roughly the amount of time it takes to produce enough shows to get into syndication.
"I can tell you the projects we have are safe," Syrett said.
That may not be the case past 2014, says Williams, the production manager for "Under the Dome," who said calls inquiring about the availability of television crews that normally come in over the summer stopped in June.
"Normally at this time, my phone would be ringing off the hook," she said.
Even "Under the Dome's" future in North Carolina past 2014 isn't certain.
"I can tell you if there is no movement between now and next June, I will be scouting the rest of the country for a new location," she said.
That would be a big blow for her and most of those who work on the show, she said, since virtually all live in North Carolina year-round and some have been here for decades.
Unlike other state incentives that repay investments spread over a number of years, movie and television shows provide an injection of spending into local economies.
"It's an immediate cash investment," she said. "What we're getting money back on is the carpenters that we hire, the construction workers we hire to build our sets, the prop makers....The hotels can tell you when there's a production in town."
Revamping the credit
Although lawmakers may have to return for a special session to deal with a pair of gubernatorial vetoes shortly after Labor Day, they are unlikely to tackle any tax policy bills until the General Assembly's next session begins next May. Just as opposition to the bill crosses party lines, there are both Republican and Democratic boosters of the credits among lawmakers, with geography and business ties doing more to draw the battle lines than party ideology.
"The question is, do we want the film industry to grow in North Carolina," Decker said this week.
At several points this year, Decker has publicly called on lawmakers to extend the credit, singling it out among economic development tools Gov. Pat McCrory's administration would like to keep on hand.
Extending and perhaps making the credit permanent, she said, would not only give individual productions certainty, but could induce studios to invest more in permanent production facilities and headquarters, such as the EUE Screen Gems facility in Wilmington.
Decker acknowledged what North Carolina pays in terms of the credit can expand rapidly and that she wanted to discuss modifications that could make the program "more predictable" in terms of its costs to the state.
"We are looking at what kind of modifications we should make to (the credits), but I'm not ready to talk about what they can look like," she said.
Jeff Coffey said North Carolina should do what it can to put the odds in favor of keeping the film industry here. While he still runs a commercial cleaning business, Coffey and his wife started The Hunger Tours to capitalize on the popularity of the "Hunger Games" movies, the first of which was filmed in North Carolina.
"We've had people come who have mocking jay tattoos," Coffey said, describing body art that depicts a key icon from the movie. "You wouldn't believe how obsessed some people we take around are."
Tour prices range from $100 for a four-hour excursion to see the cave two lead characters used as a shelter to $350 for a two-day tour of many locations, including the mill town that served as a backdrop for the gritty hometown of the story's principal characters. Coffey said his business has tours booked through Thanksgiving already, estimating that his gross ranges somewhere between $5,000 to $7,000 per month.
"We've got to have some kind of major industry," Coffey said when asked about whether the state should continue the film credits.
He's hoping that filming for the trilogy's third movie returns to North Carolina. "I can tell you this – there are a lot of people that come to Asheville that wouldn't be here if it weren't for that movie."
In Southport, the town is kept hopping as it provides the backdrop for many scenes in "Under the Dome." Meanwhile, the coastal town has seen the number of tourists dropping into its visitor center increase by more than 40 percent this summer over last year. Cindy Brochure, director of Tourism & Economic Development for the City of Southport, attributes that jump to "Save Haven," a romantic movie based on a book by Nicholas Sparks.
"It's a younger group. The people who are coming now are kids between the ages of 14 and 25," Brouchure said.
"Safe Haven" showcased the town so well, one reviewer said, that Southport should get a supporting actor nod for the film. While good for the economy, those sorts of tourism effects are not measured by the official cost-benefit analysis.
Industry insiders say North Carolina will have to make a move in order to create more of those tourism opportunities.
"I wish it were otherwise," said the film commission's Syrett. "But without the incentive, the industry will leave North Carolina."