RALEIGH — North Carolina lawmakers are pushing through a hefty increase in the tax credit for movie makers even though a study commissioned by the state film office says the state would lose money on the deal for at least two years.
The experience other states have had with film credits suggest such an incentive might not pay for itself, leading some Republicans to question giving such a tax break as the state's cash crunch puts teachers in the unemployment line.
But representatives of the film industry and North Carolina's film office say the payoff will be down the road. They argue that the tax credit will lure jobs to the state.
As a bonus, Screen Gems Studios, which already operates studios in Wilmington, has pledged to build a production studio in Charlotte if the state increases the handout to Hollywood.
"Screen Gems has told the governor that if this [tax credit] goes to 25 percent," said John Merritt, a lobbyist for the film industry, "they will make a major investment in Charlotte in building a new film studio."
The Senate on Wednesday gave final approval to legislation that would raise the film tax credit from 15 percent to 25 percent of qualifying expenditures in the state. That means that a production company totals the money they spent in North Carolina on salaries, hotel rooms, renting land and buildings, supplies, food and assorted other expenses. They report that to the state the following year and get a 25 percent rebate on qualified expenses such as salaries, hotel rooms, car rentals, construction supplies and other costs.
The bill now goes to the House.
Proponents argue that the financial sweetener will help North Carolina boost its already considerable film production business. They say states are escalating the battle of giveaways to studios. Georgia, which beat out North Carolina in April for a movie featuring teen star Miley Cyrus, last year boosted its credit to 20 percent, plus an additional 10 percent if film makers include an animated Georgia logo in the final production.
"Every time we go to consider making a movie in a state, we look at incentives," said Hollywood producer Nan Morales, who last year produced in Wilmington the coming feature "The Marc Pease Experience," starring Ben Stiller. "It's a business like anything else. Who offers the best rate? Is there a tax incentive?"
A study by the accounting firm Ernst & Young, commissioned by the state film office, showed the state would recoup 69 cents for every dollar given in the tax credit during 2010 and 67 cents in 2011. If local tax revenue is included, the tax credit garners 92 cents for each dollar in tax credit during the first year and 89 cents in the second, according to the study.
Aaron Syrett, director of the N.C. Film Office, said the figures are intentionally conservative.
"A lot of indirect spending is not in there," Syrett said. That includes film-generated tourism, such tourists wanting to visit the sites from "Nights of Rodanthe," which was filmed on the Outer Banks in 2007.
If the 2006 passage of the initial 15 percent tax credit is a guide, the state will make money in the first year, he said.
'Madoff math' alleged
Critics, primarily Republicans, aren't buying.
"We are out of money. ... At the same time, we are opening up the drawers, opening up the safe, opening up the piggy bank of the people of this state to increase the incentives given to the film industry," said Senate Republican Leader Phil Berger of Eden.
"Can you really expect to spend more and more money and expect to get more and more back? That's what I call Madoff math," he said, referring to Bernard Madoff, accused of orchestrating a mammoth Ponzi scheme.
Some economic analysts and, at least one other state, question the arithmetic. Connecticut's Department of Economic and Community Development concluded last year that one dollar of its tax credit reaped 8 cents in new state tax revenue.
Jennifer Weiner, a policy analyst with the Federal Reserve Bank of Boston, analyzed similar studies that Ernst & Young did for New York and New Mexico and raised fundamental questions about the firm's methodology and results. She said the studies, among other flaws, didn't clearly spell out how they reached their conclusions and didn't account for the states' requirements to balance budgets. States will have to cut spending or raise revenue to balance what they pay in tax credits.
"Either action is likely to have negative effects that offset the economic benefits of the credit," Weiner wrote in her April report, adding later: "We urge caution in drawing the conclusion that the return on investment estimated for one state's film tax credit can necessarily be achieved by another state."
Morales, who runs Early Evening Productions, said she saw the benefits of the tax credit firsthand. She described how she rented a house during a recent production in Michigan. The rent helped the homeowners avoid foreclosure, she said.
The tax credits are "a win-win situation," she said.
"Otherwise, why would every state be doing it?"
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