Senate proposes replacing film tax incentives with grants

Posted by Lynn Bonner on June 5, 2014 

Filming Homeland

Claire Danes, star of the Showtime series “Homeland,” films a scene in 2013. Much of the filming of the drama took place in Charlotte. In the 2013 tax year, the series claimed about $9 million in tax credits.

ROBERT LAHSER — rlahser@charlotteobserver.com Buy Photo

The state Senate wants to transform North Carolina’s film incentives from tax credits to a grant program with financial caps.

The $20 million grant program would replace the 25 percent refundable tax credit that expires at the end of this year.

Grants to films and television series would be capped at $5 million, much less than major productions now claim in tax credits.

The $20 million would cover grants for the first six months of 2015. The legislature would decide with each budget how much to give the film grant fund.

“This allows us to look at it every single year,” said Sen. Harry Brown, a chief budget writer. “We can always add more. If it’s not producing the jobs that it should, we don’t have to allocate anything. That’s a choice we can make.”

The grant plan was presented as a way to lure and keep productions while grabbing control of the costs. Its supporters argue the current system is open to abuse and doesn’t create enough lasting benefits to justify the costs. But proponents of the film industry say the grant plan doesn’t go far enough. They argue tax incentives are important to a growing industry and are essential at a time when other states, including Georgia and Louisiana, are working hard to attract productions.

Film tax credits cost the state about $60 million in 2012, the last tax year the state has complete data for. Final numbers aren’t in for this year, but preliminary figures put the cost of the tax credit so far at $35.4 million.

The Senate gave preliminary approval to the proposal Thursday, the day after representatives from the film industry and their supporters in the legislature held a news conference to promote extending the tax credits.

Grants come with strings

Under the Senate plan, the state commerce secretary would be in charge of reviewing and approving applications.

“We’re giving the secretary some leeway and some negotiating powers,” said Sen. Bill Rabon, a film industry supporter who helped push the grant proposal. The grant program would end in 2020, and grant terms could be as long as three years.

“I believe it shows we want to be good partners, that we’re serious, that we’ll continue to look at this and hopefully expand this in the future,” the Southport Republican said.

Among the requirements to receive a grant:

• A movie production must spend at least $10 million.

• A TV series must spend a minimum of $1 million per episode, and the minimum for commercials would be $500,000.

• Talk or game shows, live sporting events and productions containing obscene material, as defined by state statute, would not qualify.

• Priority would be given to productions based on the percentage of permanent state residents they employ, whether they feature identifiable state attractions in a way that would increase tourism, and whether they invest in permanent improvements.

Needs more ‘meat’

But the proposal raised questions about whether $20 million would be enough and whether production companies would want to go to a state where long-term funding was uncertain.

The $5 million cap for movies and TV series is far below what some big productions – such as “Iron Man 3,” which was filmed at locations around the state – have claimed in tax credits. Under the tax credit program, the maximum payout is $20 million on most productions, with no limit on television series.

In the 2013 tax year, the television series “Revolution” claimed about $14.3 million and the TV series “Banshee” claimed more than $16.8 million in credits. “Iron Man 3,” the 2013 blockbuster, claimed $20 million in 2012, and the TV series “Homeland” claimed about $9 million that year.

“I believe in the film industry and what we can do for our state,” said Sen. Joel Ford, a Charlotte Democrat. “If we want to get into the film business, I think we need to do it in a meaningful way. And so I question the sincerity of us wanting to see this industry successful as relates to what we’ve done in the past and what we’re looking to do in the future.”

Rep. Susi Hamilton, a Wilmington Democrat who wants to keep the tax credits, said Republicans talk of the importance of consistency to business and industry, but the grant proposal does the opposite.

“A one-time, nonrecurring appropriation doesn’t do a thing to create stability in the industry,” she said. “How can you enter into a multiyear contract with nonrecurring money?”

The grant is far from a done deal. The House has not voted on a film incentives proposal. Gov. Pat McCrory’s budget included changes to the tax incentives, capping them at $6 million and connecting credits to specific expenditures on wages and services.

Calling grants “a good alternative,” Commerce Secretary Sharon Decker said some type of incentive is important to keeping the industry, calling it “a job creator in this state.”

She was not prepared to say whether $20 million was enough to fund the grants.

Katy Feinberg, a spokeswoman for the N.C. Production Alliance, said the group appreciated Rabon’s work on the grants. But as the proposal moves forward, she said, “we hope there will be more meat on the bones.”

The film industry says the state is competing with Louisiana and nearby Georgia for productions. Georgia offers tax credits up to 30 percent with no limits. Louisiana offers tax credits up to 35 percent without caps.

Wilmington Mayor Bill Saffo said that when city representatives talk to productions about filming there, “we’re talking to accountants who know the bottom line.”

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