Buyers’ Remorse on Film Breaks Leads States to End Tax Deals

Randy Murray is in the second month of filming a six-episode series in Regina, Saskatchewan called “Edge of War” for television networks owned by Discovery Communications Inc. (DISCA) He says he’d rather spend the $2.5 million budget for the project back home in Arizona.

That isn’t realistic, Murray says, because Arizona let a 20 percent tax credit for film production expire on Dec. 31. He and his crew are now filming more than 1,500 miles away from Arizona to take advantage of a 40 percent tax credit in Regina.

“It’s great news for us because we still got a TV series on the air,” said Murray, who owns Phoenix-based Randy Murray Productions. “But we don’t get to support our local businesses and our local industries.”

After a decade-long battle among states competing for a slice of Hollywood, some states and municipalities struggling with budget woes are backing away from film-tax incentives.

Lawmakers in Washington state allowed a film tax credit to expire in July. Michigan, where a tax credit of up to 42 percent was one of the most generous in the U.S., this month will replace its incentive with an expenditure totaling $25 million a year for film projects it deems worthwhile.

“It very much is becoming an issue,” said Nancy Fox, the national director of government affairs and policy at the Screen Actors Guild in Los Angeles. “All states are struggling with budget issues and we’re seeing many of those states that implemented tax credits reconsider them or slashing them.”

Expanding Incentives

Other states are moving in the opposite direction. Alabama, Illinois, Maryland, Mississippi and Utah have expanded film incentives while Kansas has resumed its program.

In 2000, four states offered incentives for the film sector totaling $2 million, according to the Tax Foundation, a Washington group that advocates lower taxes. The trend peaked in 2010 when 40 states offered incentives reaching almost $1.4 billion. In 2011, the Tax Foundation says 37 states will offer incentives of about $1.3 billion.

Tax incentives for the industry gained national attention last month when New Jersey Governor Chris Christie blocked a $420,000 credit that would have supported the production of MTV’s “Jersey Shore.”

Mark Robyn, a Tax Foundation economist, said the issue goes beyond the so-called Snooki-subsidy.

Can’t ‘Be Hollywood’

“They’re just not good policy,” he said. “Not every state can be Hollywood. There’s not enough movies.”

The Center on Budget and Policy Priorities, a Washington research group that favors programs to assist low-income individuals, reported in December that the tax incentives often don’t benefit the states as planned. The report found that such programs tend to lose revenue for states, and the projects might have gone forward without tax breaks. Permanent, high-paying jobs related to TV and film production also don’t materialize as promised, the report said.

“The economic activity induced by these subsidies generates insufficient tax revenue to offset their cost,” according to the report. “Given that 49 out of 50 states have a balanced budget amendment, states offering film subsidies must therefore cut public services or increase taxes elsewhere to make ends meet.”

Michelle Begnoche, spokeswoman for Michigan’s film office, said the state must be more selective about which projects to back now that the state can’t offer tax credits. The office’s $25 million pot of money for film production is a “significant difference” from the $115 million in tax incentives Michigan awarded in 2010, she said.

Different Criteria

Previously, the state would approve a project if the producers provided a script, a list of Michigan hires for the project, a budget and proof that financing wasn’t contingent on winning a tax break, she said.

“Now we’re looking at different criteria,” she said. “Is the production financially viable and are they using Michigan infrastructure? How many Michigan people are they going to hire and is it something we can use to help promote Michigan?”

Michigan didn’t have a problem with this film tax credit, Begnoche said. Instead, there was a desire to limit industry- specific tax breaks.

“It wasn’t strictly a film-related issue,” she said.

Vans Stevenson, senior vice president for government affairs at the Motion Picture Association of America in Washington, said the tax incentives create jobs. States that abandon the tax breaks risk losing business and jobs to neighboring states that have retained them, he said.

“If you have a stable credit program that creates certainty and predictability, the productions are going to gravitate there,” he said.

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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