New reports show effect of sweetened subsidy for film industry in NC

acurliss@newsobserver.com pgannon@ncinsider.comApril 30, 2014 

  • A refundable tax credit

    The state’s incentive for film productions, written into the tax code, offers 25 percent back on film-related spending.

    Companies qualify for the refundable tax credit based on their spending, and receive 25 percent for every $1 they spend. The credit first wipes out any tax liability and then, because it is a refundable credit, a check is cut to the company for the rest of the amount of the credit. It is the only refundable tax credit remaining on the books.

    The claims filed by film production companies are made public under state law that discloses certain information about incentive programs. The state Department of Revenue will not disclose information about any refund checks, saying it is confidential information.

  • New numbers on film incentive

    The state Department of Revenue issues two sets of data on the state’s film incentive program.

    One involves the “cost of credits,” which relates to claims made by film production companies. It is tracked on a calendar-year basis.

    A second set is the actual cost to the state’s general fund, which relates to refunds issued to film companies. It is tracked on a fiscal year basis, which ends June 30 of each year. Here are the numbers for the past five time periods covered:

    Tax credits claimed

    Time period – Cost of credits

    Jan.-Dec. 2013 – $61.2 million

    Jan.-Dec. 2012 – $83.4 million*

    Jan.-Dec. 2011 – $32.6 million

    Jan.-Dec. 2010 – $9.3 million

    Jan.-Dec. 2009 – $7.7 million

    (*In April 2013, the Department of Revenue reported this figure as $69.2 million. It has been revised twice as claims continued to be processed.)

    Cost to state general fund

    Time period Cost

    July 2013-April 24, 2014 – $35.5 million*

    July 2012-June 2013 – $60.1 million

    July 2011-June 2012 – $24.3 million

    July 2010-June 2011 – $15.1 million

    July 2009-June 2010 – $6.6 million

    (*Amount is for partial fiscal year. The comparable figure for July 2012-April 2013 at this time last year was $48.8 million.)

Three years ago, lawmakers and Gov. Bev Perdue sweetened incentives to help lure TV shows, movies, commercials and other film projects to the state. The results have been dramatic, both for film activity and claims for tax breaks.

About $236 million a year has been spent on projects in the state since the change, according to new and revised reports released Wednesday by the state Department of Revenue. In the three years prior to the increased incentives, about $57 million had been spent per year on filming in North Carolina, which has long enjoyed interest from productions and is home to a major studio in Wilmington.

The reports also show a similar jump in the cost to taxpayers. Claims for incentives by film companies averaged $59 million a year since 2011. In the three prior years, the claims averaged $9.5 million per year.

The film subsidy will disappear at the end of this year unless lawmakers extend it. Film supporters say the industry in the state will fade to black, too. Opponents of the incentives say the money should support workers whose jobs last, not part of film efforts that come and go. The legislative session begins May 14.

The latest reports will be used by both sides. The reports track claims for subsidies by the film companies as well as payments the state has made to the companies.

An analysis of the data shows:

• Film activity appears to have dipped in the past year. As of last week, companies had claimed about $61 million in tax credits for productions staged in 2013, a figure expected to rise as new claims are filed. Still, that compares with $69 million in claims filed about this same time last year.

• The biggest claims in the last year were all related to TV shows. The top productions for 2013 were “Banshee,” a crime show; “Revolution,” an action drama; “Under the Dome,” a sci-fi drama; and “Eastbound & Down,” a comedy that just filmed its last season.

Those four shows alone reported total spending of $178.7 million. They are seeking about $44.6 million in subsidies.

• Not all projects in 2013 were big. Among the claims were a car-related TV series that lists one employee, with wages of $100,000; commercials for Planters and Pepsi; and an indie flick, “Grass Stains,” that was filmed in Raleigh.

• Film production companies have now been paid about $120 million to make movies, TV shows and commercials in North Carolina during a span of nearly three years from July 2011 to last week. For the fiscal year that will end June 30, about $35.5 million has been paid in refunds as part of the film incentive.

At this time last year, about $48 million had been paid out. (That figure later was revised to $60 million as claims continued to be paid through the end of the fiscal year.)

• Wages last year averaged $10,078 per worker. The number of “people employed” by the film productions for 2013 was 13,649. In both cases, thousands of extras are included in those figures.

A legislative debate

The film industry has argued that the film incentives are important for preserving and supporting 4,000 or more full-time jobs in an industry that is “clean” and high-tech.

State Rep. Ted Davis Jr., a Wilmington Republican, said he is “fighting like the devil” to keep the film incentives in the state because they are important to people in the Wilmington area who elected him. He said he believes lawmakers should extend the program for at least five years so that film companies can plan ahead.

Davis said he hopes to meet with Gov. Pat McCrory soon to encourage him to extend the incentives in his proposed budget, which he is expected to release in May.

“If we want 4,200 jobs in this state with an average pay of $60,000, then we have to have the incentives,” Davis said, citing numbers from a recent study commissioned by the film industry that was immediately criticized by legislative staffers.

Opponents have argued the cost is too much for jobs that come and go, that the program requires sustained subsidies year after year and that the money could be better used on other ideas. A News & Observer report last year found there is no connection between the number of jobs on a project and the amount of the incentives.

Rep. Mike Hager, a Rutherford County Republican and House majority whip, said the money spent on film incentives would be better spent on raises for teachers, state troopers and other state employees.

“I feel we’ve got to get government back to doing our core business and doing it well before we do anything else,” he said in an interview Wednesday.

A spokeswoman for House Speaker Thom Tillis said Tillis will consider renewing the program as it makes its way through the process.

“We’re always looking to find ways to increase jobs in North Carolina and will consider this incentive package accordingly,” spokeswoman Anna Roberts said in an email message.

Representatives for Senate leader Phil Berger and McCrory could not be immediately reached.

Industry offers concessions

On Wednesday, an association lobbying to preserve the incentive said the film industry is willing to accept modifications in an effort to keep the program alive.

The N.C. Production Alliance – a group that represents EUE/Screen Gems Studios in Wilmington, production companies, film industry workers and others in the industry – said it is willing to prohibit late-night talk shows, reality TV shows and “sports entertainment,” such as professional wrestling, from receiving incentives.

The group also wants production companies to have to spend at least $500,000 in the state to qualify for incentives, up from the current $250,000. The alliance said that would eliminate very low budget movies from using the program, though the minimum spending for commercials and student projects would remain at $250,000.

The group’s proposal would also cap at 10 percent the cost of goods and services that could be acquired from out-of-state sources and require film companies to pay an application fee that would go toward an “NC Film Trail” to boost film-related tourism, among other changes.

Patrick Gannon writes for the NCInsider.com, a government news service owned by The News & Observer. www.ncinsider.com

Curliss: 919-829-4840; Twitter: @acurliss

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