One of the big knocks on Louisiana’s tax credit program for film productions, apart from its huge cost, is that it hasn’t built an industry that is grounded here.
Critics say the state is just “renting” jobs, attracting productions by the score by dangling an incentive that is as generous as any in the nation. The minute Louisiana quits paying them so handsomely, filmmakers will move on, they say.
Proponents acknowledge as much, and history shows the industry is quick to abandon states that cut back. But they urge patience. The movie business is in a period of reorganization, they argue, and Louisiana will benefit if the state — currently North America’s busiest locale for feature films — is still a moviemaking hub when things settle down. Any curtailment of the film incentive now, they say, would cut into Louisiana’s share of the business and hurt the state’s chances of building an industry with real lasting power.
In fact, filmmakers are expected to ditch North Carolina after that state’s decision to limit tax credits to $10 million a year, about 4 percent of what Louisiana gave away in 2013. It was a cutback of 84 percent for North Carolina, which had been one of a handful of states, along with New York, Louisiana, Georgia and New Mexico, that was luring away a substantial chunk of the work that once went almost exclusively to California.
Recognizing the impermanence of the local industry, Louisiana lawmakers responded with yet another giveaway, this one to help encourage the film industry to put down roots here by helping to cover the cost of brick-and-mortar projects. That program, since eliminated, was even more generous than the film-production credit, covering 40 percent of the cost of all eligible projects.
It worked, after a fashion. New Orleans, Shreveport and Baton Rouge now all boast large soundstages that can play host to Hollywood blockbusters.
But the problem is that the big players in the film industry — that is, the major studios and production companies based in California — are not invested in those projects. They rent the facilities, which typically have few full-time employees, and they don’t have any stake in whether they fail or succeed. Louisiana taxpayers, on the other hand, are on the hook for almost $70 million of the $170 million cost of the projects.
“Hollywood is still very much in Hollywood,” said consultant Sherri McConnell, who oversaw Louisiana’s film program for four years as head of the Office of Entertainment Industry Development and now is one of 16 people serving on a legislative panel convened to examine the state’s entertainment incentive programs and recommend possible reforms. “The money still starts and ends there. If we are interested in just being a venue for people to come here and shoot, that’s one thing. But if, in fact, we are interested in building a sustainable industry, we should be finding a way to get those businesses to move and expand here.
“It’d be great if we had Sony or Disney or Warner Bros. set up shop here instead of coming here and making a movie and leaving. But unless and until we really want to cause these companies to invest in the state and be Louisiana taxpayers, the (film production) credits will never make sense.”
Not only are the big studios not invested in local infrastructure, but their earnings also are not subject to any Louisiana taxes. Each film production made here sets up a limited liability company that serves essentially as a payment vehicle for costs associated with the movie. The LLC has no tax liability itself because it does not earn income.
Whatever profits a film makes are subject to corporate income taxes, but those taxes are paid by the backers of the film itself, who generally are not based here, so the money goes to other states.
State Sen. J.P. Morrell, D-New Orleans, who chairs the legislative panel scrutinizing the credits and is generally a booster of the industry, says he hopes that, with time, the industry will become more grounded in Louisiana and will thus find it more difficult to leave. As an example, he cites efforts by the city of Montreal to incentivize the video gaming industry to put down roots there.
The program has been so successful, Morrell said, that as Quebec officials begin scaling back the credits there, the industry is finding it difficult to pick up stakes. “It’s reached such critical mass that the industry can’t just leave,” he said. “They’re stuck there. You have to put the industry in a position where if you scale back, you’re still competitive. But we’re not there yet.”
It’s worth noting, however, that many video game makers are at least threatening to leave if Quebec follows through with planned cuts.
There’s fairly broad agreement that for Louisiana’s film program to really become a permanent feature of the local landscape, a bigger slice of industry decision-makers must be based here.
Boosters point to a few successes in that vein: Some local people have begun investing in film productions, with “Dallas Buyers Club” being a notable example. Film producer Scott Niemeyer, who has offices and homes in New Orleans and Hollywood, has co-produced four films made in Louisiana in the last four years, including “Pitch Perfect” and “Pitch Perfect II,” which filmed over the summer.
Niemeyer, a New Orleans native, left the city for Hollywood after graduating from Tulane Business School in the late 1980s. He’s thrilled to be working here again, and he’s trying to put together capital for what would be the biggest film production facility between Atlanta and Albuquerque. Called Deep South Studios, it would include 11 structures on an 18-acre campus underneath the Crescent City Connection in Algiers.
Hollywood Trucks is another Louisiana-owned firm with real skin in the game, although state taxpayers put up 40 percent of the money for roughly 300 of the company’s 400 trucks. And those are obviously mobile investments that could easily be moved elsewhere were Louisiana’s film program to dry up.
But Andre Champagne, the company’s CEO, says Hollywood Trucks is a perfect example of what the infrastructure program was meant to do. The state “helped us build a company based in Louisiana, and helped it expand globally,” he said. “It was beyond successful.”
The company hasn’t needed a subsidy to buy its last 100 trucks, he noted, and it plans to buy more next year without any taxpayer aid.
Moreover, the firm pays Louisiana corporate income taxes on its out-of-state profits — an inversion of the typical film production, where taxes on a movie’s profits generally accrue to other states.
Niemayer and Champagne both say there would be far more Hollywood investment in Louisiana — and more locals doubling down — if there wasn’t a continual cloud of doubt hanging over the state’s film program.
A major challenge Niemeyer has faced in raising capital for his proposed Algiers project is that investors have no assurance that the tax incentives will stay.
“That’s certainly a concern,” he said. “The biggest risk inherent in the business … is that we’re beholden to the legislation. If it changes or goes away, so do these businesses. And that’s not generally attractive to capital providers.
“The stability of the program, I think, will help breed more of my kind. The more that there is perceived to be a commitment to the program on a long-term basis, the more we’ll see real deep roots planted in the industry in Louisiana.”
There’s general agreement, though, that that hasn’t happened yet.
Not only has Hollywood yet to sink much money into local infrastructure, but most of the key people who work on films — in particular, the writers, producers, actors and directors — are still not based in Louisiana. “Maybe 95 percent of those people are from out of state,” McConnell said. “And we’re not getting any economic benefit out of that.”
Those people not only take most of their money back home with them, but they have no particular allegiance to filming in Louisiana, outside of the financial incentive to do so.
Will French, president of the Louisiana Film and Entertainment Association and a leading voice of the local industry, concedes the lack of high-level film horsepower based here is a real problem.
“We want to be responsible for the development of the work down here and not be reliant on California sending work to us, farming it out to us, and have all the decisions, the back-office work, still being done in California,” he said.
French, Morrell and others, including local union officials, say the state should consider giving filmmakers a bigger incentive to use bona fide Louisiana residents than it does now, especially in higher-paying jobs. Currently, state taxpayers pick up 30 percent of the tab for a film’s Louisiana costs; the number is boosted to 35 percent for certified Louisiana residents on a film’s payroll.
If the split were bigger, Mike McHugh, business agent for Local 478, the film workers’ union, thinks filmmakers might be tempted to hire more locals — for instance, if the state covered 40 percent of Louisiana payroll but only 25 percent of other in-state spending. French says the notion of a wider gap has general support in the industry, although there is not yet a consensus on what the numbers should be.
“It’s not enough to hire people to build sets; we have to have people in middle management,” Morrell said. “We’re kind of just creating the lowest tier of jobs. It’s great that we’re having lots of artisans working on films, but we’re not building a management structure.”
Morrell also is interested in lowering the threshold for companies to participate in the program. Currently, a production must spend at least $300,000 in Louisiana to be eligible for credits. Lowering it would both increase the cost of the program and potentially open it to far more filmmakers, prospects that may make it a difficult sell.
“Most local filmmakers can’t make the $300,000 cap,” he said.
Follow Gordon Russell on Twitter, @gordonrussell1.