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Income Forecasting
“There’s a great infrastructure, and the credit is solid,” said Entertainment Partners (EP) executive vice president, John Hadity, in these pages one year ago about the New York State Film Production Tax Credit Program. Governor Andrew Cuomo had just extended its sunset date until 2022, with $420 million in annual funds appropriated. “That means television series that do their planning 18 to 24 months in advance have certainty that the program is going to be around for another few years,” he said.
But just a year later, Hadity cites the New York program as one of his worries when surveying the US landscape for film and television incentives. “New York is of great concern to a lot of people because the burn rate is as high as it is,” he says. In other words, New York’s credit has been so successful and has drawn so much work to the state that the annual $420 million allocation may not be enough to fund all the qualifying films and television programs.
“Nobody used to worry about the allocation year,” Hadity says, referring to the funding year a film’s tax credit is drawn from. But because of that burn rate—for example, the program burned through funds allocated to 2017 productions in just two months last year—monies anticipated to last through 2022 are quickly being depleted. Producers with loans against their credits must now actually worry about their allocation year because as these years advance, the date when they’ll receive their funds is being advanced, too. “It’s a problem for producers borrowing money from a bank because there’s no tolerance for missing a maturity date,” Hadity says.
And that’s to say nothing about the looming larger issue: The program itself could run out of money. “It’s possible that they will run out of funds in 2019 for the program overall if this burn rate continues,” says Hadity. “People in Albany need to do something—they need to extend [the program] past 2022, hopefully for at least $420 million [annually], and that could be a struggle.”
A survey of film and television tax incentive changes occurring across the country includes a mix of states coming online, states going offline and states tweaking their programs either to be more competitive or to deal with local budget pressures. One state struggling with the success of its film incentive program is New Mexico. The state’s program guidelines allow for the return of between 25 and 35 percent of qualified expenses to a film’s production company. At the same time, however, rebates were capped at $50 million per year by the state legislature, creating a giant funding backlog. Using figures provided by Jon Clark, chief economist for New Mexico’s Legislative Finance Committee, The Wall Street Journal reported in December 2018 that the state’s program would be $700 million in debt by 2023, with filmmakers due to receive credits that year having to wait 14 years for their funding.
In February of this year, however, new governor Michelle Lujan Grisham promoted a bill that would lift the tax credit cap as well as pay off the current $324 million backlog. “We have seen a very lucrative return on our investment in the film industry,” Senator Nancy Rodriguez said at a news conference. “So, why wouldn’t we do everything we can to remove these inhibitions?”
With New Mexico production surging—Netflix recently chose the state for its first production studio complex and has plans to spend $1 billion there over the next decade—the film industry is welcoming the bill. However, its passage is not guaranteed, with some legislators as well as editorial writers arguing that funding caps are necessary. “How can taxpayers afford unlimited rebates when the amount owed keeps going up every few weeks?” asked the Albuquerque Journal’s editorial board in a recent editorial.
Hawaii is another state where a yearly budget cap affects its film tax credit program. On January 1, Governor David Ige signed a bill that—good news for filmmakers—extended the state’s program through 2025. But, there’s a $35 million per year cap to the program. When funds from a given year run out, films are eligible to draw from future years. The Hawaii program pays out from 20 to 25 percent of eligible expenses, has a per-production cap of $15 million and requires a minimum in-state spend of $200,000. (Another bill is currently before the state’s legislature that would increase the yearly budget cap to $45 million and decrease the amount a single film could receive to $12.5 million.)
In other US news, “New Jersey is back on the map,” says Hadity. Expressing dislike over the way his state was depicted in MTV’s Jersey Shore, then-governor Chris Christie suspended the state’s film tax credit program in 2010 and vetoed a bill reauthorizing it in 2016. Now, however, the program is up and running—“$75 million in credits for film and television and $10 million in digital,” notes Miguel Batista, director of tax credit management at GreenSlate. New Jersey’s credit is 30 percent of qualified expenses for film and television and 20 percent for digital productions. An additional five percent is granted for expenses incurred in several designated counties, and an additional two percent is granted to productions satisfying diversity criteria by hiring women and minorities. To qualify, films must spend 60 percent of their total spend in the state, and this state spend must be at least $1 million. (For digital productions, this floor is $2 million.)
Mississippi’s rebate, which requires a minimum spend of only $50,000, has been a solid 25 to 35 percent of qualified expenses. Formerly, the credit included out-of-state labor costs, but that qualification was rescinded. Now, there are bills in the state legislature to reinstate it.
West Virginia’s tax credit was eliminated in 2018, but just a year later, in February 2019, a bill has been introduced in the state legislature to reinstate it. Minnesota’s so-called “Snowbate” film tax credit is in danger of melting; a bill was introduced at the end of 2018 in the state’s house of representatives to repeal it. Connecticut’s film tax credit disappeared—only TV currently qualifies there—but there’s a bill currently pending to reinstate it. There’s also a bill pending to launch, for the first time, a film incentive in Indiana.
And, returning to New York (specifically, upstate Rockland Country), a bill is currently pending that would add Rockland to the list of counties whose shooting locations would qualify films for an additional 10 percent credit.
Despite the legislative back-and-forth in many of these states, Hadity says that “the film tax-incentive programs in place now are strong—no one is hanging by a thread. There’s real infrastructure [across the country], and people are taking advantage of these programs.”
EP has been in the business of loaning production financing against tax credits, and Hadity now says the company is expanding into pre-sale loans. “We are doing MG loans,” he says. “If you have done a pre-sale on a project with a qualified distributor, we can loan against that pre-sale.”
Batista’s GreenSlate gets involved in financing, too, although it’s not in the loan business. GreenSlate doesn’t “provide direct financing,” Batista says, “but we have relationships with all the major lenders, from banks like City National and Leumi, to Ingenious Media, The Fyzz, 120 db, Piccadilly Pictures and more.”
For a complete list of current film tax credits in the United States and abroad, visit EP’s website (ep.com).
[Disclosure: This writer has produced films that have received New York State tax credit loans from EP.]
