News: CJ Exclusives

Impact of Film Industry On N.C. Jobs Unclear

State Commerce Department offers three different counts

RALEIGH — At an early March meeting in Charlotte of the N.C. Governor’s Conference on Tourism, state Commerce Secretary Sharon Decker admitted that a 25-percent refundable tax credit for the film industry, scheduled to expire in January, may be in trouble.

“It’s an issue that is [of] great concern to us because the film industry is very important to North Carolina,” Decker said, according to the Charlotte Business Journal. “It is an industry that has impacted both our cities and our small communities.”

New legislation may be drafted to preserve incentives for filmmakers, but it’s not clear how many jobs the film industry provides in North Carolina, and whether offering tax credits is a net economic benefit to the state or simply a drain on the treasury.

As for jobs, the numbers for 2013 are not available, but for calendar year 2012, at least three different numbers are claimed, depending on the unit of the Department of Commerce you ask: 792 jobs, 2,004 jobs, or 4,100 jobs.

In addition to the Commerce numbers, the N.C. Department of Revenue’s annual reports claim that 36 film projects employed 17,730 people for the fiscal year ending June 30, 2012; and 39 film projects employed 14,002 people for the fiscal year ending June 30, 2011.

Department of Revenue spokesman Trevor Johnson told Carolina Journal that the 17,730 count came from a department total of the number of individual paychecks from all projects that claimed a tax credit.

The number of employees almost certainly is lower than the number of paychecks issued, because the count reflects payments made to individuals for each project that employed them. Each paycheck is considered a “job.” For example, one member of a camera crew who received a paycheck for five separate projects in a given year would count as five people employed.

In addition, a paid assignment lasting only one day — a movie extra, for example — would be counted as one employed person.

The 25-percent refundable tax credit for qualified production-related expenditures cost taxpayers $77 million for tax year 2012.

One company that took advantage of the tax credit was Safe Haven Productions LLC, which was established to produce the movie “Safe Haven,” released in 2013. Filming took place in Alleghany, Brunswick, New Hanover and Wake counties. The company reported to the Department of Revenue that it spent $17,162,312 on goods and wages in North Carolina, so it was eligible for 25 percent of that amount — $4,290,578 — as a refundable tax credit. The maximum credit per project is $20 million, which was the credit issued to Iron Works Productions III, LLC for the movie “Iron Man 3 — Caged,” also released in 2013.

It’s not unusual for production companies to be created for the purpose of producing one film project and then shutting down soon after the film is released.

Refundable tax credits are applied to a business’ tax liability and any excess is refunded back to the business as a payment from the Department of Revenue.

The tax credit originally was 15 percent. It first applied to tax year 2007. The General Assembly increased it to 25 percent for tax year 2011. The entire program is set to expire Jan. 1, unless the General Assembly renews it in this year’s short session, set to open May 14.

Advocates of the program claim it is necessary to compete with other states as a location for film production. They maintain the economic benefits far outweigh the costs. Critics generally claim the program is unfair to other businesses and there are no net benefits to the state’s economy.

Job count sources

The job counts are produced from a number of sources. The Bureau of Labor Statistics team in the Labor and Economic Analysis Division, or LEAD, is responsible for the federal government’s job counting programs in North Carolina. The average annual employment in motion picture and video production from the BLS Quarterly Census of Employment and Wages is 792 jobs for the year 2012. (See table)

The Market Analysis & Strategy Team, a separate unit of LEAD, produced a PowerPoint presentation on the impact of film incentives for the NC Economic Development Board. The presentation stated that there were 2004 direct jobs in the film industry in 2012.

The North Carolina Film Office, also located in the Commerce Department, is responsible for assisting companies that want to make films in the state. A December 2012 press release prepared in conjunction with Gov. Beverly Perdue stated, “Year end projections show productions had a direct in-state spending in excess of $376 million and created more than 4,100 well-paying crew positions for the state’s highly skilled work force.”

As stated earlier, the Department of Revenue arrives at its job count based on the number of paychecks issued by companies that claim a tax credit.

Bureau of Labor Statistics

The QCEW program is the nation’s key program for the entire job counting system. It essentially counts the paychecks each business issues. It includes all businesses that are covered by the state’s unemployment insurance system. Payroll data on each employee should match the data each employer reports to the Internal Revenue Service and the North Carolina Department of Revenue. Commerce employees are responsible for assigning a North American Industry Classification System code for each business. The code for Motion Picture and Video Production is NAICS 512110.

BLS and LEAD publish the data. For calendar year 2012, the QCEW average annual employment in Motion Picture and Video Production was 792 jobs. Monthly figures are not published, but the 792 count would be an average over all 12 months of the calendar year.

BLS counts for the broader category of Motion Picture and Video Industries reports 2012 total statewide employment at 4,076 jobs, but 3,073 of them are jobs at movie theaters — such as ticket sellers or concession servers — unrelated to movie production.

Market Analysis & Strategy Team

A presentation prepared last fall by Jeff DeBellis, director of market analysis and strategy in LEAD, concluded that 2,004 direct jobs were created by the film industry in 2012 — more than double the BLS count. Even with the higher job numbers, the report concluded that incentives for the film industry led to a $62 million net loss to the state budget for calendar year 2012.

The numbers were included in a 22-page PowerPoint presentation titled “Impact of North Carolina’s Film Incentives.” The presentation is not available through any Commerce Department Website, but you can see it here.

CJ asked why the report did not mention the BLS numbers. In an email, Commerce spokeswoman Kim Genardo replied: “The BLS data may be somewhat low because it includes just those businesses coded in the industry. It might not include workers from employers in other industries that may have been involved in film production more tangentially— such as contract workers employed by a staffing agency or carpenters from a construction firm. Those employees could be listed in the BLS data under another industry like a temporary staffing agency or construction firm. Our modeling would likely cover that employment since it’s based on total spending and thus be a bit higher.”

Neither she nor DeBellis would provide the precise calculations used to expand the BLS number.

North Carolina Film Office

In June 2009, Ernst & Young, an international accounting and consulting firm, prepared a study for NC Film and the regional film commissions. The study, titled “Economic and Fiscal Impacts of the North Carolina Film Credit Program,” looked at the impacts of raising the tax credits from 15 percent to 25 percent.

The study included a table showing the BLS job counts from 2001-07, but noted the following: “While data published by the BLS does not fully capture the contribution of film production activities on the North Carolina labor force due to the industry’s large number of contract employees (not included in the BLS figures) … it provides a useful starting point from which to evaluate trends” in North Carolina.

The report said increasing the credit to 25 percent “would create an estimated 1,301 direct film production jobs in 2010 and 1,561 jobs in 2011.” While the tax credit increase became available for expenditures in 2011, the BLS numbers barely have moved, remaining below 1,000.

CJ could find no mention of the BLS employment numbers on the NC Film Website. NC Film uses a much higher number of “4,100 well-paying crew positions for the state’s highly skilled work force” for year 2012. NC Film Director Aaron Syrett told CJ that the BLS numbers do not cover all the employment in the industry. “We get numbers directly from the production companies,” he said.

Rob Handfield, a professor of supply chain management at N.C. State University, is preparing a film industry study that is funded by the Wilmington Regional Film Commission. Handfield’s study is not sanctioned by N.C. State, even though some have referred to it as the “N.C. State Study.”

Handfield released some of his findings Nov. 8 in a two-page letter on university stationary to Wilmington Film Commission Director Johnny Griffin.

“Obviously, the major fiscal impact of the film incentive non-renewal is the direct loss of income tax revenue to the state, as a large majority of the 3,500-4,000 highly compensated and skilled workers will be forced to move to another state to pursue their careers,” Handfield stated.

Referring to film industry employment, the letter stated, “State data reports that over 4,000 individuals were paid for work in Southeastern North Carolina.”

CJ contacted Handfield to discuss his employment estimates. “We have not released the study,” he replied by email. “I cannot provide any responses yet.”

Don Carrington is executive editor of Carolina Journal.