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Film Closings’ Response to Chicago Tribune & Screen

by Jeff Steele

Film Closings was featured this week in a Chicago Tribune article.  And what ultimately appeared in print and online was adistillation of numerous phone calls and emails over the course of a week, with reporter Nina Metz.

The article provided a juxtaposition to what others in the state were saying and rallying for.

Film Closings considers the Illinois and Chicago film offices as friends. They are run by Betsy Steinberg and Rich Moskal, respectively, who are fighting the good fight. Ultimately, both Senate bills SB4 and SB398 were passed. Extending the Sunset to 10 years.

Before the article went to print, Julie Friedman Steele (who is heading up our Chicago office) got on the phone with Betsy and Rich to give them a heads-up, as we knew that this publicity (as well as my previous post on IL) may not sit well with their respective offices.

As somebody who structures Finance Plans for indie films with budgets from $1m to $60m, I spend a lot of time advising producers on the best locations to shoot in; there are only a handful of people who understand film tax incentives so granularly as to be able to make recommendations like this. And for the most part we all know each other and I could name them all right here in this post.

Recently, Mark Hogan (Business Manager of IATSE 476 and President of the Illinois Production Alliance) pointed out in response to my interview in Screen, that the IL incentive is the most fiscally responsible tax credit and gives businesses a shot at making some of the production money spent.  Hogan is correct in pointing that out. IL’s credit is trying to be a Goldilocks credit: not too generous and not too conservative, which is good for attracting series pilots and intermittent productions.  “Straddling the fence” is a safe strategy, but it also leaves you immobile, not growing or evolving.  Credits should aspire to be workhorses, not Goldilocks.  Workhorses are dependable survivors – they’re long-lived and keep plowing forward.  So when Hogan went on to say that “Illinois WILL be the last one standing because our incentive is fiscally responsible“, that could be true if the credit evolves but…

by completely excluding non-resident ATL and capping their local resident cast/crew, they’ve effectively tethered their workhorse to Goldilocks’s fence.

Let’s look at the major points.

RESIDENT TALENT: If you’re a state that has resources (stages, cast/crew, post houses) and wants to grow conservatively, then you should aggressively target television series and low-to-mid budget indies.  This requires that the wages paid to above-the-line talent (actors, directors, producers, writers) who are residents of that state qualify for tax credits, and that any caps on resident wages are increased to at least $1m or more.  This is how you retain successful television series and grow your indigenous talent pool — local actors should not be punished for elevating their craft beyond the Screen Actors Guild’s $65k “Schedule-F” minimum rate.  Also, allowing up to $500k of non-resident actor spending to qualify for tax credits, would be a big game changer for the local industry, as that would attract significantly more low-to-mid budget films, for minimal cash outlay, becoming the cornerstone of a self-sustaining industry. (IL caps their resident wages at $100k)

NON-RESIDENT TALENT: Whether or not a state should qualify non-residents is a divisive issue that can make or break an incentive program.  If a state is trying to create an industry, but has no resources to offer (like stages, cast, crew, etc.), then it’s probably a good idea, but that state needs the political wherewithal to stick it out for many, many years.

States can still keep their programs conservative by offering a very small, capped non-resident ATL (above-the-line) tax credit, which can go along way toward attracting studios and major independent films.  For example, a 10%-15% tax credit for non-resident actors (capped between $2m – $5m in wages) could generate a tax credit sufficient enough to attract larger films, without breaking the state’s bank; there’s a reason Walmart sells diapers for below cost.  States do need to tread carefully because non-resident credits are often viewed by detractors as “cutting checks to Hollywood”, which is easy fodder for politicos.  Non-resident ATL credits are only recommended for states wanting to make an aggressive play for studio and major independents.

IT’S NOT REALLY  A 30% CREDIT: (everyone eventually figures this out), when it comes to rebates vs. transferable tax credits, there is a market risk on what the value of the transferable tax credits will be when films are finally certified by the state, 6-12 months after shooting.  Therefore, studios and large indies will generally look first to states that offer rebates before considering states with transferable tax credits.  I am not advocating that states switch to rebates, but if studios are your target customer then it’s worth understanding their motivations, and the motivations of the financiers that back mainstream indies.  You get 100% of every rebate dollar back, whereas transferable tax credits often have to be advanced at 75% of that.  That’s a TWENTY FIVE CENT loss on every dollar, or a $1m loss for every $4m gross tax credit.  That’s big money that can’t be overlooked. (Put another way, IL’s 30% gross tax credit gets diluted to roughly 23%, net to the production, whereas a rebate is dollar-for-dollar.)

POLITICS: a state’s legislative climate toward it’s film incentive is the single most important factor in recommending a location; political stability is key and I need to be reasonably certain that from 6-12 months prior to pre-production (when the financing is coming together), to 9-12 months after spending in that state has completed, there will not be any legislative changes that could threaten the film incentive.  That is a long time to be exposed to political whims, so any recent, adverse wrangling in a state’s legislative halls sends up a red flag that their incentive does not currently have political support; this means filmmakers will need to spend additional money on insurance and completion bond coverage.  Underwriters read the newspapers too, so if they’re not confident about a state’s program then the production will have to move to another state.

POP QUIZ:

What is the longest running and most successful film incentive program in the world? (The answer may surprise you)

8 Responses leave one →
  1. Shawn permalink
    April 10, 2011

    There is no doubt, this is the best film blog around. I hope everyone appreciates this as much as I do. Don’t stop writing. It would be a very depressing day in Hollywood.

    What does the winner of the pop quiz get?

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    • Tim Decker permalink
      April 11, 2011

      Agreed

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  2. Bernard Bourret permalink
    April 11, 2011

    Two guesses as to which TC is the oldest:
    1) the Province of Quebec / Canada
    2) the Canadian Federal TC

    BB

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  3. Andy Halmay permalink
    April 11, 2011

    This is a keeper, Jeff. I highlight-copy-&-paste with gratitude. Will add the answer to the quiz once you reveal it. Muchas gracias.

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  4. Scott Hillman permalink
    April 11, 2011

    Good article. Its comes to the old chestunut-by most fiscially prudent film incentive i would assume it would be some place like mississipi or alaska-which have the advantage of probabbly being very small state outputs as no one ever uses them.

    And I am not sure its quite the anwser but the country with the longest and best govermental support for its industry I would guess the anwser is England.

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  5. Jeff Steele permalink
    April 12, 2011

    The Answer is Luxembourg!!!!!

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  6. April 17, 2011

    Jeff,

    Thank you. As a Producer and a Professional Instructor teaching “Line Producing: The Business of Filmmaking”, I truly enjoy your blog. Keep it coming and thanks again for your insights and candor. Knowledge Is Power!

    Roni

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  7. April 26, 2011

    Hey guys-

    Stumbled upon this blog. I really appreciate your candor. Good information for all producers out there in Chicago and throughout the country too. Art and commerce is tricky game, but nonetheless winnable. Keep asking the hard questions and revealing the hidden truths.

    -john

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