Part II of our series about Louisiana film tax credits focuses on the 'catch-22': After creating so many jobs, how can lawmakers dial back the tax incentives without sending the industry somewhere else?
Regardless of the optimism of Hollywood South advocates or arguments made by its detractors, one thing is inarguable: The state's motion picture tax incentive program is pricey. Scholars and policy analysts have called state tax credits for film and television production "embarrassingly generous," "madness" and "costly giveaways" that fuel an interstate "race to the bottom."
According to a 2012 study produced by the Louisiana Budget Project, the state has recovered a steadily diminishing proportion of tax revenue lost to the credits: 16 percent in 2008, 14.2 percent in 2009 and 13.7 percent in 2010. (An additional 7 to 15 percent of the total value of the credits granted in these years was recovered in local taxes.)
"[W]hile the [Motion Picture Investor Tax Credit] is generally an effective means to incentivize film production," Amelia Hurt wrote in the Louisiana Law Review earlier this year, "the overaggressive nature of the MPITC renders it inefficient and inequitable."
Louisiana now confronts a classic "catch-22" — to use a term coined by novelist Joseph Heller and popularized by Mike Nichols' film adaptation of Heller's book of the same name.
The incentive program, the mechanism by which the state sought to "achieve an independent, self-supporting industry," has become the mechanism on which that industry most depends. With the construction of Hollywood South apparatus, from the growth of homegrown companies such as Second Line Stages and Hollywood Trucks and the development of a resident crew base to the proliferation of Louisiana filmmakers, producers, investors and tax credit brokers, the state's motion picture industry has been born in a little more than a decade. Yet most agree that an abrupt reduction or elimination of the tax incentives would deal a serious blow to Louisiana's motion picture industry.
"This is on the edge," says Renee Henry, the writer/producer behind "The New LA Filmmakers" documentary short that played during this year's New Orleans Film Festival.
Critics of the incentives don't disagree that Louisiana tax policy has encouraged significant investment in the state's film and television industry, nor do they dismiss the effect industry spending has on ancillary sectors such as the service economy, whose hotels, caterers and rentals of all kinds help Hollywood South run smoothly. Rather, their concern is that the state has overextended itself to support a profitable business with wealthy investors, and in turn has given schools, hospitals and other public accommodations short shrift.
"We've spent so much money through the tax code that it's creating this perpetual crisis in the state budget," says Jan Moller, director of the Louisiana Budget Project (LBP), a fiscal watchdog group. "We're both right. The economic activity argument is not wrong, but the taxpayer impact is also not wrong. It's really a question of, 'What do you find more persuasive?'"
According to State Sen. J.P. Morrell, who serves on the legislature's Entertainment Industry Development Advisory Commission, the more pressing issue is the unpredictability of the state's year-to-year expenses when it comes to the motion picture tax incentives.
"In any given year, [the incentive program] could explode well beyond what it currently is," he says. "[Legislators'] primary concern is that when budgeting going forward, they feel like the amount we're paying out has to be a predictable amount."
Sherri McConnell, executive director of Louisiana Entertainment from 2007 to 2011 and principal of entertainment business consulting firm McConnell & Associates, says Louisiana's incentive program encourages project-based (as opposed to permanent) economic development. Though she cautions against drastic changes to the motion picture tax credits in the short term, McConnell argues the long-term direction of the film and television industry requires shifting the focus from Hollywood to digital technology and distribution, indigenous talent and homegrown entities such as Shreveport's Moonbot Studios and New Orleans' Court 13 Films.
"I think Hollywood has been done, and I cringe at the name 'Hollywood South,'" she says. "I feel strongly that we should have our own brand, but [the name] is appropriate, because it is Hollywood that we're feeding here."
In addition to recommendations contained in the Government Efficiencies Management Support analysis released in May, including a streamlined audit process and the disqualification of "soft costs" such as airfare and interest payments, Morrell says the advisory commission, which is set to report on the credits early next year, is examining a number of possible reforms to the incentive program. Among these are tax withholding on salaries for "above-the-line talent," including actors and directors; an effort to encourage the production of more syndicated, as opposed to reality, television series; limitations on third-party transactions; and a sliding scale for measuring the amount of credits awarded to productions that hire Louisiana residents, with preference given to those that employ skilled, higher-wage labor.
"I do have a concern, as well as [do] several other legislators, that the industry is not really creating supremely high-paying jobs," Morrell says. "As long as the highest-paid people on any film are being imported into the state, we're not getting as much bang for the buck."
Yet with the exception of a hard cap on the total value of credits awarded, which Morrell opposes, there is no clear mechanism for guaranteeing against annual fluctuations in expenditures on the tax incentives. As the state faces a $1.2 billion budget shortfall, Moller says the number of jobs created by the state's subsidy of Hollywood South is not worth the cost to other policy priorities.
"I was a little shocked that the number was that high," he says, referring to the LBP's 2012 calculation that each direct job created in motion picture production costs taxpayers $60,000. "There are people who talk about 'multipliers,' but we were concerned with how many direct jobs we were creating. I thought we would have had more permanent jobs in the film industry for what we're actually spending."
Industry advocates say that focusing on the fiscal impact of the incentives ignores the overall benefit to the state's economy. Moreover, the per-job cost of the credits has declined since the LBP report. The most recent data available, from calendar year 2012, show that the state effectively subsidized each of the 5,976 direct jobs in motion picture production by $28,146. Factor in the 8,329 indirect jobs created and the amount drops to $12,005.
"We're sinking billions of dollars into the state," says producer and production manager Todd Lewis. "Does everybody get to share it, or is it just being spent in New Orleans and Shreveport and Baton Rouge? The easy answer is to say, 'We dump a lot of money into the hotels, lumberyards, car rentals, caterers, etc.,' but what people care about is getting a paycheck."
The proliferation of productions also boosts the state's tourism industry, says Lt. Gov. Jay Dardenne, who oversees the Louisiana Department of Culture, Recreation and Tourism. Films and television series such as Treme, 12 Years a Slave and Duck Dynasty improve the state's visibility.
To mark the third anniversary of the reality series Swamp People, for instance, the state partnered with the History Channel to build a swamp in New York City's Chelsea Market and gathered 11,000 email addresses from potential visitors. (The History Channel funded the project.)
"I think the impact has been dramatic," Dardenne says. "Each of those series has generated national recognition for Louisiana. ... Movies and television series that have been about Louisiana and Louisiana subjects have helped identify Louisiana as a fascinating place to visit."
Whether the incentive program constitutes a canny investment or a hand on the scales, however, depends on one's perspective. Even Dardenne, who wrote the original legislation, acknowledges the initiative has become more costly than expected.
"I don't remember that we had a discussion that at some point we were going to have to cut this off," he says. "That's become a legitimate topic of debate. ... I think you'll see the legislature, even though it's an election year, taking a serious look not only at the film industry tax credits but at all tax credits."
"We've built a very recognizable, trusted and valuable brand as a location for these productions," Louisiana Entertainment's Chris Stelly says, citing the state's improving motion picture infrastructure and expanding ranks of trained, experienced crew. "If you didn't have that, then the incentive is only as good as you can get in a particular area. All you have is a number at the end of the day."
"Nobody disputes that the dollars we put up as a state bring in dollars from outside in terms of production," Moller says. "The same would be true of any industry. If there was a 30 percent tax credit for journalism, the staff of Gambit or NOLA.com would grow exponentially, and that would create economic activity."
Sherri Strain, a producer of 45 movies (including straight-to-DVD and made-for-television titles), left New Orleans in 1980 to attend the University of California at Los Angeles and returned to the Crescent City three years ago, a move she says was made possible by the tax credits. The decision to continue her 20-year career in the motion picture industry while living near her family and enjoying a higher quality of life has paid off professionally and personally.
"It's gotten to be a really hard place to live over the years," Strain says of Los Angeles. "Everything's expensive, traffic is terrible, people are angry, the film business has moved away. ... The red tape I used to go through in Los Angeles just to get film permits would be enough to make you crazy. I never have that problem here."
Henry moved here from North Hollywood, California with her husband, Peter Santoro, vice president of feature and commercial services for the post-production company FotoKem. She, too, cites the combination of career opportunities and New Orleans' distinctive vibe as the lure of Hollywood South.
"The fact is that my husband and I both reached a certain level in L.A., and we had all the outer comforts — the cars and the house and all that — but I can't say that we were as happy as we are now," Henry says. "Because we don't have to dress up for anyone, we don't have to wash our car, we don't have to have dinner parties."
Lewis, who comes from Mobile, Alabama, met his wife, a costume designer from Lafayette, in Los Angeles. "There was a future in Louisiana, and we were working on the road all the time," Lewis says. "We were never home. So we moved. We packed it up and moved out of L.A., and it was right around that time that they started lobbying to raise the tax credits. ... I think it's come miles since that time. We always call it a boom town. That's what we think New Orleans is."
Broader indicators of motion picture industry employment, both in greater New Orleans and statewide, support this anecdotal evidence. According to Katie Williams, director of Film New Orleans, the number of television series and feature films produced in the New Orleans region increased from approximately 15 in 2009 to 60 in 2013, resulting in additional payroll spending and more consistent employment for the estimated 1,294 film workers in the region. (Because of the temporary, transient nature of motion picture production, these workers filled 2,093 so-called "discrete" jobs.) Phil LoCicero, president of the International Alliance of Theatrical Stage Employees (IATSE) Local 478, which covers Louisiana and southern Mississippi, says membership has grown from 300 to 1,300 since the adoption of the incentives in 2002.
"I do have a concern, as well as [do] several other legislators, that the industry is not really creating supremely high-paying jobs. As long as the highest-paid people on any film are being imported into the state, we're not getting as much bang for the buck."
— State Sen. J.P. Morrell
"We've had quite a few people locate here, move here and establish residency and join our local, and some have transferred from other locals," LoCicero says. "We can crew up seven to eight shows [simultaneously] ... and do a job a producer would be satisfied with."
Other advocates say the state's investment in preparing the next generation of skilled employees has not kept pace with the expansion of the incentive program.
"We have not created a comprehensive educational structure to train up new talent," Morrell says. "When you talk to people [in the industry], we have some of the most talented artists in the country, but it's frustrating to them at times that they have to train up these raw artists to be competitive nationally. ... On the education bit, we've failed."
Strain acknowledges the film and television industry in Louisiana is unlikely to achieve the breadth and depth it has in New York and Los Angeles as long as the decision makers (studio executives, agents, managers) and major infrastructure (soundstages, post-production facilities) remain based there. She adds, however, that investments in Louisiana's film and television industry will be for naught if the incentive program is dismantled.
"I don't necessarily think it's productive to cap the incentives," she says. "And people will go elsewhere. Georgia will get these jobs and these films. If Louisiana gives up on it, someone else will pick up the slack."
"If the incentives got cut in half, would we do half the business we currently do? I don't think so," LoCicero says. "I think the drop would be more drastic than that. We can't cut back. We have to stay on the same competitive level as the other states are now."
As Louisiana Entertainment's Chris Stelly notes, Hollywood South remains in its infancy compared to production hubs such as New York and Los Angeles. "You're really not looking at a very long period," he says. "We are making significant strides toward creating that indigenous industry."
As Louisiana's film and television industry grows, however, so does its impact on the state's budget, increasing the likelihood that officials eventually will see fit to cap, curtail or eliminate the incentive program. Both supporters and skeptics of the tax credits suggest that such a move could lead to a crisis of runaway production — the very problem that led to the establishment of the tax credits in 2002. Dardenne and Morrell say they expect next year's legislative session to feature a healthy debate over the costs and benefits of the incentive program — including employment of Louisiana residents in the industry, the multiplier effect of the economic activity it generates and its sizable impact on the state's ongoing budget crisis.
The motion picture tax credits are not the sole culprit in these fiscal woes. A recent investigation by The Advocate found annual tax subsidies for six key industries, including film and television, retail and oil and gas, increased 420 percent in the last decade, from $208 million to nearly $1.1 billion. As one of Louisiana's newest areas of economic development, however, film and television production is likely to be first on the chopping block if legislators attempt to delay revisions to the motion picture incentive program beyond next year, or if Gov. Bobby Jindal vetoes such changes, according to Morrell.
"I think the greater issue is that [Jindal] has historically viewed any change to the tax credits as a tax increase," says Morrell, who predicts that many lawmakers will support the Entertainment Industry Development Advisory Commission's forthcoming recommendations. "My concern is that in 2017, when we have our next fiscal session and the state is in dire financial straits, there will be an effort by the more mature industries to sacrifice the younger industries to keep themselves solvent," he says. "Rather than there be a holistic approach to tax credits in 2017, they'll just want to get rid of the last person on the boat."
Matt Brennan is a New Orleans- based writer.