Film Tax Incentives – Another One Bites the Dust
In my recent post on Hungary’s financial woes, I cautioned filmmakers to steer clear of state incentives that are based on transferable credits, due to so many losses in the private sector. Subsequent to that, The Incentives Office reported that New Jersey canceled their tax credit program – I’m reasonably certain that Pennsylvania and Michigan will follow suit. Michigan, with its two recent fraud cases(both involving proposed film studios), as well as the departure of its film commissioner, Janet Lockwood, has become too risky to shoot in. Michigan’s tax credit program has always had very vocal political opposition, which may now finally have the foothold necessary to kill the program. I know at least one filmmaker who was prepping in Michigan, but has since left for Canada, in the wake of what’s happing there. I hear that Pennsylvania, with its $2bn in debt, is also teetering on the verge of discontinuing their program.
New Mexico, which has been one of the best tax credit success stories in the country, is no longer riding high on the inflated natural gas prices that bolstered their ability to create the credit as well as the state’s film investment fund. I won’t go so far as to say that their tax rebate is in imminent jeopardy, but I will predict that their film fund (which served as little more than an interest free facility for Lions Gate) will not survive the states mounting debt, coupled with its diminishing gas revenues.
Georgia has been seeing a drop in its retail pricing to end-user tax payers; in turn, producers should not expect to net more than 70 cents on the dollar as an advance on its credit. Puerto Rico and Illinois, however, appear to be going strong and have great crews and resources; in addition, Chicago has a talent and crew base that’s hard to beat.
Louisiana, however, is still going strong. With the state’s buy-back guarantee of 85 cents on the dollar, they’ve pretty much become a de facto rebate state (like Massachusetts). This makes Louisiana the only other transferable credit program that can be banked by senior lenders, which means you can get your presales, gap and tax credits all wrapped-up in one loan (lending up to 90% of the 85% guarantee — that’s almost as good as Canada!) If you can sell the certified credit on the open market for more than 85 cents, then the overage will help to pay down your loan that much faster. It’s still not as lucrative as most rebate states, which give you dollar for dollar, but Louisiana does have the infrastructure, post, and crew that many states lack.
The good news is that most tax credit loans are relatively short in duration, when compared to your production loan, so there can be some degree of foresight into what the political and economic landscape of any particular state will be, nine months from now. The key is to work with somebody who knows. The film commissions will never copto any impending doom on their own horizon, but they’ll be quick to point out what brewing in other states.
Bottom line, there are still many states with great programs, just do your homework and keep your eyes open and ear to the ground.