When N.C. couldn't sweeten deal, the Mouse walked

Miley goes to Georgia

Staff WriterJune 9, 2009 

  • Then-Gov. Mike Easley signed North Carolina's film incentive into law in August 2006.

    The incentive returns to filmmakers 15 percent of the money they spend on qualifying expenses in the state -- spend $1 million, get back $150,000. Qualifying expenses include compensation to workers and money spent on catering and other goods and services.

Savannah, Ga., is getting its own economic stimulus this summer, courtesy of Mickey Mouse.

Walt Disney Pictures is filming "The Last Song," written by North Carolina author Nicholas Sparks, in the city by the sea. Savannah leaders expect the movie to give an $8 million boost to the local economy.

Then there's the Miley factor. Teen sensation Miley Cyrus, best known as her character Hannah Montana on The Disney Channel, will star in the film, drawing fans to the region.

It all could have come to North Carolina.

Wilmington was the preferred location for the shoot, and state leaders, after almost three months of negotiations, came within five minutes of making it official. The deal fell apart over a $125,000 disagreement with the state's tax collectors, causing North Carolina workers to miss out on as many as 500summer jobs, costing state businesses as much as $17.5 million in movie-related revenue and prompting a public misstep for Gov. Beverly Perdue.

Records just made public by the N.C. Department of Commerce at the request of The News & Observer reveal the tension between the business interests and creative demands of major motion pictures. They also show the large role that incentives now play in filmmaking and the pressure on leaders -- who last week slashed the tax bill to bring Apple to North Carolina -- to keep up.

What about Wilmington?

At 11:34 a.m. Jan. 26, Aaron Syrett, director of the N.C. Film Office, made a note in his files:

"Met with Mary Ann Hughes at the Sundance Film Festival. Disney has Untitled Nicholas Sparks Film slated to star Miley Cyrus. Wants Wilmington and in-depth conversations about incentives."

Syrett knew Hughes from his days as film commissioner in Utah. Disney filmed about 30movies there and he dealt regularly with Hughes, whose job is to reduce production costs by maximizing incentives.

From the start, expenses were a focus. Georgia and North Carolina were the best fit, but location scouts also went to Michigan. A March trip there was cut short because it was 13 degrees, snowy and windy, according to the Commerce Department records.

Wilmington made the most sense because "The Last Song," like many of Sparks' works, is set on the North Carolina coast.

"I had a nice conversation today with Dara Weintraub," one of the movie's producers, Bill Vassar wrote March 5 in an email message to Syrett. Vassar manages EUE/Screen Gems Studios' Wilmington complex.

"She said, 'the story takes place in Wilmington and we want to be there,'" Vassar wrote.

Disney spokeswoman Heidi Trotta said the company doesn't talk about production finances. But Commerce records make clear that financial considerations were complex.

Housing costs in Savannah were about $1.1 million more than in Wilmington, in part because Disney would have to bring people from North Carolina to work on the film. But Georgia has a better film incentive than this state.

The Georgia Legislature in 2008 raised the credit for movie companies, giving back as much as 30percent of money spent in Georgia on fuel, catering, compensation and other costs. North Carolina refunds 15 percent.

That meant, despite the higher cost of housing, Disney would spend about $1 million less in Georgia. Officials with the company suggested they would still come to North Carolina if the state could cut that gap by roughly half, according to the Commerce Department records.

Syrett consulted with his bosses at Commerce and with staff in the Governor's Office on where to get the money. They considered a grant from a fund that Perdue controls, or Golden LEAF, the foundation that oversees about $600 million in public money intended for economically distressed areas. Neither of those options was viable.

Perdue, who is a neighbor of Sparks in New Bern, and Senate leader Marc Basnight put their support behind legislation that would boost North Carolina's film credit to 25 percent.

The timeline for feature films is tight. Big stars have small windows for filming before moving on to other projects. Disney executives didn't want to wait on legislation and instead decided to maximize existing benefits.

One major sticking point was the "story rights" payment Disney made to Sparks. The company wanted to count it toward total expenditures so they could get an additional $125,000 to $225,000 refund from the state.

A back and forth ensued with the N.C. Department of Revenue over state tax law.

On March 27, Hughes told Syrett that the executive in charge of the movie had decided filming would take place in North Carolina. She put him in touch with Disney's public relations staff to coordinate the announcement.

But that was before Revenue issued its final interpretation. On March 31, it ruled the Sparks payment didn't qualify.

Syrett was to have been copied on that e-mail message. He wasn't. Instead, at 12:53 a.m. April 1, he got a final news release from Disney naming North Carolina the selected location. He contacted the Governor's Office. Her staff wanted a news conference in Wilmington that afternoon.

As Perdue's talking points were drafted and logistics confirmed, Hughes fired off an e-mail message to other executives involved with "The Last Song" to express her dismay at the Revenue Department's decision.

"We are totally getting screwed in NC!" she wrote. "Are we totally embedded to producing in NC?"

Syrett found out about her unhappiness minutes before Perdue was to speak. The news conference was scuttled.

The Commerce Department issued a three-sentence statement saying last-minute details needed to be worked out.

Eight days later, Hughes called Syrett to say "The Last Song" would go to Georgia.

Johnny Griffin, director of the Wilmington Regional Film Commission, ticks off all that North Carolina missed out on: jobs, full hotels, packed restaurants and rabid pre-teens who love to shop. He talks of a bigger fear, too.

"Disney makes feature films. They also make television series, they make individual movies for the Disney Channel," he says. "By losing this one project, in essence, we've lost all of those opportunities."

Losing the race

North Carolina was early to the game of attracting movies from California, aspiring to become Hollywood East. There's cachet in being a destination for the stars. Since "Nights in Rodanthe," based on another Sparks novel, was released last year, inquiries to the Outer Banks Visitors Bureau have increased 20percent.

Many movies have been made in the state without benefit of a film incentive. Our artisans, scenic beauty, low wages and non-union workers were lure enough. But as North Carolina's profile rose, other regions wanted in, prompting an incentives race that is only intensifying. North Carolina has fallen behind. In 2007, the first year after the state offered a film incentive, North Carolina saw $161 million from the film industry. Last year, that number dropped to $91 million.

Now state leaders, who are grappling with a $4 billion budget shortfall, are considering an increase to the film incentive. Perdue thinks "the film industry has great potential for growth in North Carolina," said Chrissy Pearson, her spokeswoman. "We should capitalize on it."

Opponents argue that the state would be better served working to attract permanent jobs, not fleeting positions that come with movies. Even Jay Self, director of Tourism and Film Services for the City of Savannah, urged caution. "North Carolina will never be able to do enough for them," he said. "Neither will Georgia. ... The more you give them, the more they want."

Other times, it takes nothing at all. Miley Cyrus will still come to North Carolina this year, to Greensboro and Charlotte for her concert tour.

The cost to the state: Nothing.

jonathan.cox@newsobserver.com or 919-836-4948

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