NC taxpayers invest in the movies
Posted March 22, 2012
Updated March 23, 2012
Raleigh, N.C. — Movie fans of a certain age know “Dirty Dancing” is a story of young love set in New York’s Catskill Mountains. But it was filmed further south – at a resort in Virginia and in areas around Lake Lure near Asheville.
Producers planning a remake of the film say they'll return to the region, including some locations in North Carolina, for one reason: money.
“New York is not even being considered for that movie,” said Timothy Bourne, a Wilmington-based producer who also serves on the North Carolina Film Council. Sure, New York, Virginia and Tennessee have locations that might work for the film.
“None of those places were an option based on one criteria, and one criteria only: what they offered in tax incentives,” Bourne said.
Of at least 44 states with some sort of government-funded program designed to lure movie productions, North Carolina ranks among the 10 most generous. Along with Louisiana and Georgia, North Carolina is one of the top three players in the southeast.
When North Carolina boosted its offers to film companies starting in 2011, the state rekindled a movie-making boom that is poised to continue for some time.
But critics question whether the state should use tax dollars to help bankroll Hollywood productions, such as “The Hunger Games,” which opens in theaters this Friday.
"The Hunger Games" producers spent $60 million in the state, according to the North Carolina Film Office. If an audit by the N.C. Department of Revenue confirms that number, the production company will receive a tax credit worth roughly $15 million.
Film boosters say without that kind of inducement, neither “The Hunger Games” nor any other movie would film here, and many of those who make their living in the industry would be out of work.
“It factors in immediately, in most cases before anything else ever gets done,” Bourne said.
North Carolina's program plays out as refunds
Films, television shows and commercial productions that spend more than $250,000 in the state are eligible for a tax credit worth 25 percent of what they spent in the state up to a maximum of $20 million.
Movies that have gotten tax breaks include “Talladega Nights,” “Nights in Rodanthe” and “Piranha 3D.” The long-running television show “One Tree Hill” has also gotten state backing, as did an unnamed medical drama that filmed its initial episodes in 2010 but was never picked up by any network.
Movie, television and commercial producers spent a total of $221 million in North Carolina in 2011, roughly triple the spending in 2010, according to the North Carolina Film Office. Industry experts say the increase is almost solely attributable to an increase in the value of North Carolina’s film tax credit that went into effect Jan. 1, 2011.
|Year||Direct Spending1||Qualified Amount2||Credits Claimed2||Credits Refunded2|
|$221 million||$120.8 million||$30.2 million||N/A|
|2010||$75 million||$47.5 million||$9.3 million||$5.2 million|
|2009||$78.5 million||$50.2 million||$7.7 million||$6.7 million|
|2008||$91.9 million||$75.8 million||$11.5 million||$9.6 million|
1Source: NC Film Office
2 Source: NC Department of Revenue
3 2011 information incomplete and will change.
There are limits on what producers can claim as a “certified” expense that counts toward the credit. For example, only the first $1 million of an actor’s or director’s salary counts toward the movie production’s total for tax credit purposes.
Still, the credits more than wipe out the amount many productions owe in taxes. Since the credits are “refundable,” filmmakers get the difference between the amount of the credit and their tax bill in a check drawn on money collected from other taxpayers.
In 2010, North Carolina issued $9.3 million in film tax credits and wrote $5.2 million in refund checks. Numbers for 2011 won’t be available until audits are completed later this year.
“It’s hard to argue that’s anything except a grant program that the government has decided to funnel through the tax code,” said Mark Robyn, an economist with the Tax Foundation, a conservative Washington, D.C.-based think tank that has written numerous reports critical of film incentives.
Robyn and critics like him take issue with how film incentive supporters calculate their benefits. But beyond those numerical questions, his most fundamental critique is that incentives merely push film productions from one state to another.
“Basically, you have states playing tug of war over a finite amount of productions,” he said.
Even if that’s the case, say film industry boosters, North Carolina should work hard to lure those productions.
“If you look at the crew positions, those are people who make $50,000 to $75,000 per year,” said Aaryon Syrett of the North Carolina Film Office.
Advocates tout jobs created
Syrett estimates that between movies, television shows and commercials, the industry supported 5,000 jobs in North Carolina last year. But many of those jobs were temporary. Movie extras may only work for as long as it takes to film a single scene and even skilled tradesmen won’t be needed after a production wraps after three-to-nine months.
But Syrett said that by bringing in multiple productions, the state provides steady work.
“You have one film, and then you keep rolling over to the next and the next and the next. So it is full-time employment for people in as much as we can keep these films going over and over,” he said.
Movie productions film throughout the state, but the industry has two big geographic clusters. Wilmington is home to a EUE / Screen Gems Studios. The massive complex provides the infrastructure needed for big budget pictures like "Iron Man 3," which is scheduled to begin filming in May.
Winston-Salem is home to the North Carolina School of the Arts, which has produced artists who call North Carolina home and are filming here.
Those geographic ties provide a defense for the film incentive credit even among self-described fiscal conservatives who deride other state-funded inducements used to lure businesses.
“It is the only incentive that I’m in support of,” said Sen. Thom Goolsby, a Wilmington Republican. He lauds the fact that film incentives are only issued after a production has spent money in the state.
“We’re one of the top-taxed states in the country. We have to pay bribes to get people here. It’s ridiculous,” Goolsby said. North Carolina will need to keep the film tax credit until it can rework its tax code, he said.
Other incentives critics are less forgiving of films. Rep. Jennifer Weiss, a Cary Democrat, observed that North Carolina expects to grant roughly $50 million on film tax credits for the 2011 tax year once all productions file reports and are audited. “That’s $50 million in a year when we were firing teachers and teacher’s assistants. We choose to subsidize the film industry at the expense of teachers and people who protect our air and water.”
The Tax Foundation and others, she points out, have found that film incentive programs spend more money than they spark in state tax revenue. Incentive backers say those studies only look at direct spending by film companies, and not the "multiplier effect" spending has as it moves throughout the wider economy.
Credit's future in question
North Carolina rose to prominence as a movie-making destination in the 1980s. But when other states began to use film incentives around 2003, North Carolina saw a drop in productions filming here.
Republican leaders were critical of the film tax credit when it was created in 2006 and argued against its expansion in 2010. However, Sen. Bob Rucho, a Mecklenburg Republican, said lawmakers want to undertake a comprehensive rewrite of the state’s tax code, not examine credits one-by-one.
The soonest that rewrite could happen, Rucho said, would be in 2013, after elections this fall. Still, the Finance Committee Chairman said he is skeptical that the film credit delivers jobs as its boosters suggest.
“Whenever we look at film credits or other incentives, we need to know what it achieves and whether we receive a long-term benefit,” Rucho said.
It’s hard to pin down firm numbers about just how many people actually make a full-time living from the film industry. The Wilmington Regional Film Commission says it has a database of more than 700 professionals producers can tap for productions. That doesn’t count caterers, hoteliers and others who benefit.
And data from other states do suggest that productions would drop out of North Carolina should the state's incentive program end.
States compete in luring movies
From Jan. 1, 2006, to Dec. 31, 2010, Arizona offered filmmakers a tax credit similar to North Carolina’s. And during that time, movie productions like Will Ferrell’s “Everything Must Go” spent $109.5 million throughout the state.
When the tax credits ended, so did the attraction for movie producers.
“All of these studios basically have a pecking-order chart. They’ve got all the states ranked on where to go,” said Phil Bradstock, director of the Phoenix Film Office.
After Arizona’s law fell off the books, the state fell off those charts, he said. Some commercial and lower-budget television shoots have still come to the state, he said. But the major projects that spend tens of millions of dollars went elsewhere.
Arizona lawmakers are debating this month bringing back the credit after watching business go across the state line to New Mexico.
Rita McClenny, who heads Virginia’s film office, describes her state as a “bit player” in the movie business. That’s because Virginia’s incentives are limited when compared to North Carolina’s.
“We’re investors without the benefit of a back-end,” she said of states who grant movie productions incentives. Private investors who bankroll films, she said, are repaid with a percentage of the money a movie makes. But states are repaid only in the jobs a film creates and perhaps some publicity and after-the-fact tourism.
McClenny said North Carolina isn’t in a position where it can afford to get rid of the credit. Doing so would leave North Carolina with empty sound stages and little to show for the money that has already gone out the door.
“If you’re not going to do it on a long-term basis, you shouldn’t do it at all,” she said.
As an added benefit, film industry professionals say locations that become famous through the movies generate tourist dollars. It may be too soon to tell if places used as a backdrop for the "Hunger Games" will draw travelers, but Syrett said that locations used in "Bull Durham" and "Last of the Mohicans" have helped generate tourism.
Avoiding the sweepstakes
Those who watched Bernie Mac play aging baseball star Stan Ross in “Mr. 3000” may have recognized Miller Park, the home of the Milwaukee Brewers, as a backdrop for the movie.
The rest of the movie, which was released in 2004, was filmed in Louisiana. Bourne said that movie was one of the first caught up in the film incentive “sweepstakes” in which a production moved based on a government subsidy. “The only reason we were there (Louisiana) was for the tax incentive program,” Bourne said.
In recent years, some states have dropped their film incentive programs, often because lawmakers didn’t like giving tax breaks to Hollywood producers as their economies struggled. Iowa suspended its program following a scandal that has seen a filmmaker sentenced to prison.
To be sure, there are some movies that don’t have a choice of where to film. Nowhere else can provide Seattle’s Space Needle or New York City’s Empire State Building, for example.
But for scripts with more flexibility and less recognizable settings, North Carolina can provide a wide variety of settings from the beach to the mountains and from the big city to rural fields.
And while Louisiana and Georgia offer more generous credits than North Carolina, the Tar Heel workforce and existing industry provides an added advantage.
Nationally, Michigan used to offer the most generous credits. But the state has since put its program on hold, and some productions that might have gone there are coming to North Carolina and Georgia.
Syrett said you should not expect to see North Carolina film boosters argue for more generous incentives any time soon.
“We found our sweet spot and it’s working,” he said.
Productions, costs and credits
Choose a column heading below to compare the amount spent by various productions in North Carolina, and the tax benefit received.