Not only will West Virginia offer movie makers production tax credits — practically ubiquitous these days — but it will even throw in a complementary river.
The West Virginia Department of Commerce will offer up the state’s Gauley River as a free white-water rapids location, as part of its “River on Demand” program, a film location service operated by the Army Corps of Engineers, said Jamie Cope, the location services manager at the West Virginia Film Office.
A raging river is only one example of the baubles states are willing to dangle in front of Hollywood in hopes of landing the filming location of the next big-screen sensation, but also is an example of how heightened competition among states is proving too costly for some states that have bowed out of the race.
Louisiana was the first to offer incentives in 1992 to lure Tinseltown beyond the California hills. By 2009, 44 states, the District of Columbia and Puerto Rico were offering some form of incentive to the movie industry, according to a 2010 report by the Tax Foundation, a nonpartisan tax research group based in Washington D.C.
However by June, in an update to the 2010 report, the Tax Foundation found eight states abandoning their film programs by not funding them and another nine states had capped or scaled back their movie incentive programs, or were in the process of considering reductions, largely because of budget-balancing struggles many states are facing this year.
In 2010, the Tax Foundation found that 40 states offered $1.4 billion in film and television tax incentives. All told, taxpayers have provided nearly $6 billion for such programs over the past decade.
“The ultimate winners are the film companies,” said Mark Robyn, an economist at the Tax Foundation. “They’re the ones that can play states against one another in order to get the best deal, and especially because it’s such already a mobile industry.”
The Tax Foundation report goes on to argue that a better approach would be “reducing tax burdens across the board and removing cumbersome regulations.”
“Ideally, you would have a system where states provide a low tax burden — as low as possible — a good regulatory environment that isn’t damaging to business, and a simple tax system that gets rid of special benefits and deductions,” Robyn said.
Louisiana, with its generous tax credits of up to 35 percent toward instate qualified expenses if the production uses Louisiana workers, has become the third-busiest state after California and New York when it comes to movie and television production.
Since January, the state has received 66 applications for film projects with total budgets anticipated at $778 million, with more than $561 million being spent in Louisiana, said Chris Stelly, director of film industry development at the Louisiana Office of Entertainment Industry Development, otherwise known as Louisiana Entertainment.
“We are on track to meet and or exceed the numbers for 2010 — which so far was our best year on record,” Stelly said in an emailed statement. “As it stands now, we have projects in the state and many that are considering our state that have not applied yet.”
An economic analysis of the Louisiana’s film incentive program by the BaxStarr consulting group concluded the state’s film industry supplied 7,990 jobs in 2010, generating more than $330 million in salaries. However, each of those jobs cost the state about $24,600 in tax credits, according to the BaxStarr.?In 2010, the film industry generated about $27 million in tax revenue, according to the report, making the program’s overall fiscal cost to the state $169.8 million in 2010.
“No matter any way you cut it, all the good studies show that this is a revenue loss, ultimately,” Robyn said. “So if you stop giving away this revenue to film productions, you may lose some productions, but you know what, you’ll have more revenue to spend on maybe other government services that are necessary or lacking, or leave it in the taxpayers pockets and the taxpayers can do what they want with it.”
The state’s philosophy has been to use the incentives to grow an indigenous film industry in the state, further diversifying Louisiana’s economy. The industry has put down roots deep enough in Louisiana to allow film companies to invest 80 percent to 90 percent of their budgets in the state, Stelly said.
In the last decade, a number of businesses have cropped up that serve the industry. Most of those, like Celtic Media, a 23-acre campus of sound stages and other film production and support facilities in Baton Rouge, was built in part with a portion of the incentive program geared toward offering tax credits for infrastructure-type businesses.
“Without those credits we wouldn’t have been able to not only grow, but we wouldn’t have been able to survive” the economic downturn in 2008 and 2009, said Andre J. Champagne, one of the owners and founders of Hollywood Trucks in Baton Rouge. It was founded in October 2007 and now operates a fleet of about 250 support trucks used to haul cameras and equipment as well as costume and actor trailers.
The state discontinued the film infrastructure portion of the incentive program in 2008, Louisiana Entertainment officials said.
“Our growth has been substantial,” Champagne said. “Even right now our fleet isn’t large enough to sustain what we need. We’re expanding as
Hollywood Trucks now employs about 15 full-time workers earning a median salary of about $50,000 a year, Champagne noted. And at any given time, the company also has 10 or 15 part-time workers.
“What is probably the most substantial area, which most people do not take note of, is every time we license and register a vehicle in this state, that gives another local union driver a job,” he said.
Incentives geared toward capital investment like these businesses are not necessarily bad, said Robyn, of the Tax Foundation.
“A better strategy would be to subsidize the infrastructure and let the individual production happen on their own,” Robyn said.
“I think the idea of paying individual companies per film is absolutely bad policy. It doesn’t make sense, economically,” he added.
But even offering incentives for infrastructure means the state is competing against many other states for an industry, “everyone seems to want,” Robyn said.
Those in the industry insist the movie money trickles through the local economy, helping everyone along the way.
“The caterer on ‘Battleship’ insisted on buying nothing but the freshest local produce for the crew,” pointed out Patrick Mulhearn, director of studio operations at Raleigh Studios at the Celtic Media Centre. “They made a lot of mom-and-pop farmers pretty happy.”
But payments per production are not likely to go away soon, Robyn noted, particularly as so many states offer Hollywood a swag bag of freebies ranging from waived sales taxes to reconfigured rivers.
“Having been the first, Louisiana probably made out pretty well, compared to the other states,” Robyn said about the Louisiana film industry.
“But Louisiana hasn’t stopped offering film tax credits and if they stopped now, I don’t see the industry living on,” Robyn added. “Other states are willing to give money. So even in the best-case scenario, I don’t think you’re ever going to get around what we’ve termed, ‘this race to the bottom’, a permanent arms race of incentives.”