Divergent and the Illinois Film Tax Credit
The Illinois Watchdog interviewed me earlier this week regarding what role the Illinois Tax Credit played in bringing “Divergent“, a $40-million teen action/romance sci-fi feature film, to shoot in Chicago for 60 days. You should read the interview, but I’m also going to elaborate on it, so you get the full picture.
Divergent (based the novel/trilogy) takes place in a futuristic dystopian Chicago, so fan appeasement and the intrinsic savings from not having to fake Chicago are already heavily-factored into where the producers’ would shoot. If Chicago did not have the IL tax credit, then the producers (Red Wagon) would undoubtedly shoot elsewhere: NYC, L.A. and Toronto are all viable production cities with healthy tax credits (or other savings) that can reasonably fake Chicago (they have in the past and continue to do so.)
That said, my point in this interview is that, if the story was set in Anytown, USA, then the production would not come to Chicago, because the Illinois tax credit does not attract (and is not conducive to) mainstream independent feature films (i.e. budgets over $2-million). The IL tax credit, however well-meaning, was ill-conceived; it was crafted to attract out-of-state productions, but rather than appealing to the financiers who fund movies, it sought to promote and protect the in-state, resident, below-the-line crews. In short:
- Productions get a 30% transferable tax credit on their qualifying in-state spending (most production spending qualifies, but wages only qualify for cast and crew who are Illinois residents).
- Productions can only earn credits for the first $100k in wages, per person.
That’s a great credit, BUT FOR the resident restriction and wage cap. Those two restrictions are what make the IL credit only conducive to low-budget films under $2m (whose entire cast/crew are predominantly locals) and large studio size films (like Divergent) that swoop-in because they just need the location, fan-base credibility, or major talent appeasement (like Chris Nolan for Batman), after which, the tax credit is a necessary box that their finance department can check-off. Don’t get me wrong, studio films collect very large tax credits from Illinois, but nothing for their out of state cast, directors, writers, producers, or key department heads (i.e. Costume Designer, Production Designer, DP, UPM, Make-up, etc.).
According to a ReelChicago.com, Divergent is bringing in at least 20 department heads from Los Angeles, none of whom will qualify for the IL tax credit, even though they’re working in IL and paying IL taxes. I want to make something very clear: Chicago has world class crews, but it does not have A-list, bondable, department heads – they are required by the bond company to be flown in from L.A. or NYC and put-up in a hotel (plus per diem). It’s incredibly expensive to put-up crew for a 30-60 day production shoot, and to not get earn tax credits for their wages (which are significantly higher than the rest of the crew) is a loss that large studio films can begrudgingly bear, but is untenable to producers and financiers of mainstream independent films (i.e. $2m – $20m budgets). Nevertheless, the completion guarantor (bond company) on any given film is going to require that key department heads come from L.A. or NYC, which means that mainstream independent films (which comprise the vast majority of film productions in the USA) are forced to shoot in locations more amenable to out of state productions, like Georgia, Louisiana, and others.
The Illinois tax credit was designed (with great fanfare) to attract out-of-state productions, but then penalized those productions for having to bring in the out-of-state resources that aren’t available in the state (but are necessary to get the film made), i.e. above the line talent and below the line department heads. The result being that the credit, in its current incarnation, actually disincentives and deters mainstream independent films from shooting in Illinois AND deprives the Illinois crews the mentorship opportunity to work with and learn from world class department heads.
Here is how I would fix the Illinois Tax Credit, to develop a self-sustaining film industry:
- Allow wages for out-of-state department heads to qualify for the credit. This helps everybody.
- Allow wages for out-of-state above-line-talent talent (who are working in the state and paying state taxes) to qualify for the credit. If a wage cap on non-resident ATL is necessary, then cap it at $1-million.
- Completely remove the wage caps on Illinois resident cast and crew. This is how you keep your aspiring talent from leaving the state, and how you entice successful talent to stay or move here (especially TV series stars). More than anything else, the wage caps penalize home-grown talent for becoming successful, especially when they’re the ones who will eventually have the clout to lure productions to film here.
- To bolster a feature and television post-production industry, allow productions to file twice for their tax credit certification (but only if they’re posting in Chicago).
- This allows productions to apply for certification after they wrap physical production (which is where the majority of spending is). This affords producers the opportunity to pay down the majority of their tax credit loans, which usually have an interest clock running.
- Then file a second time to capture the credits generated from IL post-production spending, which can take months to complete (the second filing is usually a smaller credit, but one that takes take a long time to claim.)
- Louisiana has been doing this for years and they have a vibrant post-production industry across multiple cities.
The conventional wisdom in the Chicago film community is to never speak-of or tamper with the Film Tax Credit. There is a deep-seeded fear that any attempt to do so, will create an opportunity for legislators to kill it, dilute it, or hold it hostage. So it’s better to have a credit that deters more business than it brings in? That might be the case if there were no other reasonable alternative, but this can and should be corrected, possibly on the Executive level.
It’s sad and frustrating, because Chicago has world-class crews, great supporting actors, it has all the stages and equipment you could need… and access to plenty of capital. It’s a one-stop shop that has almost everything it needs to be a self-sustaining production hub (like L.A., NYC, Louisiana, and Georgia), yet, it’s only a “location city” (when you need a certain look, like London or Las Vegas). A big studio film every few years is not sustainable. It’s time for Illinois to acknowledge the resources it lacks and modify the credit to be inclusive, not exclusive, to the global industry. Everybody wins.