News: CJ Exclusives

Bipartisan House group seeks to revive tax credits for filmmakers

The EUE-Screen Gems Studio complex in Wilmington. Backers of film subsidies want to expand them, saying productions will leave the state without them. (CJ photo by Don Carrington)
The EUE-Screen Gems Studio complex in Wilmington. Backers of film subsidies want to expand them, saying productions will leave the state without them. (CJ photo by Don Carrington)

How are North Carolina lawmakers different from movie directors? They find it hard to say “cut,” especially when giving Hollywood producers taxpayer subsidies to make films here.

A bipartisan group of state representatives filed House Bill 751, resurrecting a 25 percent tax credit program. Legislators voted in 2014 to end a similar subsidy, which paid filmmakers $69 million in 2012 and $61 million in 2013. Lawmakers replaced the credit the next year with the Film and Entertainment Grant Fund.

Reps. Jason Saine, R-Lincoln; John Autry, D-Mecklenburg; Becky Carney, D-Mecklenburg; and Deb Butler, D-New Hanover, are primary sponsors of H.B. 751. It re-enacts the $20 million tax credit cap per film. It revives the refundable nature of the credits, meaning the state would pay cash to production companies even if they don’t owe enough taxes to claim a credit.

“We’ve got to do something to recreate what we had,” Butler said Tuesday, April 23. When North Carolina ended the tax credit program production companies migrated to Georgia, which lavished subsidies on them. Many residents in her district who worked on films followed filmmakers south.

Critics say the tax credit is an open draw on the state treasury. Indeed, other states are pulling out of the film incentives business.

Lawmakers replaced the tax credits with a $31 million annual grant program. Unused money rolls over to the next year. A state Department of Commerce spokesman said $32.2 million was in the fund as of Tuesday.

Butler said movie companies want to do business in North Carolina even though the grant program hasn’t gotten much use.

“I’ve heard it’s unwieldy. I’ve heard the process is difficult. For whatever reason it doesn’t serve the purpose of the studio,” Butler said of the grant program.

She cites other reasons movie studios may have pulled out. Killing the tax credit sent a negative message. They were vexed by passage of House Bill 2, the so-called bathroom bill which restricted use of restrooms to people of the corresponding biological sex.

“They want an environment that is welcoming of all people. They want a political climate that is stable, mature, and rational, and we haven’t portrayed that image very well,” Butler said.

Even though H.B. 751 has bipartisan sponsorship, and both parties have resisted killing film incentives, Butler isn’t sure the bill will pass.

Lawmakers in 2015 OK’d $10 million a year for the grant program, but the current budget tripled the amount to $31 million. In 2017 legislators removed a July 2020 sunset date, making the grant program permanent.

The present program lets production companies collect grants up to $12 million for a TV series season, $7 million for feature-length films including made-for-TV movies, and $250,000 for commercials.

Gov. Roy Cooper’s recommended state budget continues funding the film grant program at its current level for fiscal years 2019-20 and 2020-21, state Budget Director Charlie Perusse told Carolina Journal. Cooper’s 2017 budget recommendation called for reverting to the tax credit system. The governor didn’t do that this budget cycle.

Jon Sanders, director of regulatory studies at the John Locke Foundation, says reviving film tax credits is a bad idea. States are reversing course on film handouts because they aren’t the economic catalyst advocates claim. North Carolina’s nonpartisan legislative fiscal staff shredded claims about film subsidies industry insiders made in 2014 before the tax credit was killed.

Among other findings, Fiscal Research said the state lost $45.3 million on the tax credits, receiving just 54 cents back for every dollar invested. And those losses didn’t account for opportunity costs — the ways money spent on the film credit could have been used for other purposes in the general economy or to reduce public sector spending.

Fiscal Research staff said a glowing report by the film industry citing economic benefits of subsidizing filmmaking was replete with errors and mistaken assumptions. The staff attributed the mistakes to a series of misunderstandings about state tax laws.