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Tax credits, the sequel: Film incentives ready for another closeup at State Capitol

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Thursday, Nov. 15, 2012
By Melanie Yamaguchi
Cronkite News

PHOENIX – Reviving tax credits used to lure movie productions to Arizona – and expanding the program to include other forms of multimedia – would make Arizona more competitive with states such as New Mexico that offer such incentives, supporters say.

“We’re asking the state to level the playing field, give the industry a chance to regain something that’s been around for 99 years here,” said Michael Kucharo, president of the Arizona Film and Media Coalition.

Arizona’s motion picture tax incentive program expired in 2010, and bills aiming to restore it have failed the past two legislative sessions.

Kucharo said Arizona, once a location of choice for Hollywood productions ranging from “Oklahoma!” to “Revenge of the Nerds,” is losing roughly $250 million a year in production dollars to states like New Mexico simply because it lacks tax incentives.

“It’s critical to the survival of the industry here,” Kucharo said. “If we don’t have one, we’re going to continue to lose work. We are losing industry workers at an astounding rate.”

Last year’s bill would have offered a 20 percent tax credit to companies that spend more than $250,000 and 30 percent to those that spend more than $1 million, with a $70 million cap. Those incentives are the same as the state offered previously, but the bill also sought to include those creating other media such as music and video games.

Shelli Hall, director of the Tucson Film Office, said Arizona’s proximity to Los Angeles, predictable weather and diverse landscape make it preferable to New Mexico, but she added that those attributes do nothing without tax incentives.

“All the things that makes Arizona an attractive place to film, those are all true, but really what studios and producers, especially for feature films and TV series of the studio kind, they want incentives No. 1,” Hall said.

New Mexico offers a 25 percent refundable tax credit with a $50 million cap for productions such as feature films, television, animation, commercials and video games.

F. Miguel Valenti, Lincoln Professor of Ethics at Arizona State University’s Herberger Institute for Design and the Arts, said Arizona’s withering film industry not only limits internship opportunities for students but also deters new workers who can rebuild the industry here.

“We’re spending time, money and energy educating these kids,” he said. “We’re turning out some great filmmakers and the first thing they’re doing is getting on a bus out of here, so it is a tragedy from an educational point of view.”

Valenti said lawmakers need to understand that tax incentives are really about growing Arizona’s economy through film companies spending millions of dollars in the state as well as creating jobs.

“We’re talking about potentially thousands of jobs in Arizona and these are highly skilled jobs,” he said. “Film jobs pay well, they’re highly skilled. They used a trained workforce so we’re talking about thousands of jobs and we’re talking about millions of dollars going into the economy.”

While supporters haven’t identified a lawmaker to carry the bill in the upcoming legislative session, Rep. Bruce Wheeler, D-Tucson, said he supports the idea and would sign on as a sponsor.

“I think this is common-sense legislation to have the incentive to bring the film industry here because the spinoffs for all other kinds of businesses, suppliers and construction and infrastructure,” he said. “It’s just a no-brainer really.”

But Stephen Slivinski, senior economist for the Goldwater Institute, said tax incentives favor one industry over another, in this case one that includes multibillionaires.

“The whole premise of tax incentives and tax credits is that you’re lowering taxes on one group of people, but you’re doing so at the cost of keeping taxes high on everyone else because government’s still gotta generate revenue,” said.

Slivinski said most of the created jobs would be temporary and wouldn’t have a measurable effect on the economy.

“What you’re doing as a matter of policy is you’re substituting one group of jobs, which might actually be less productive, at the cost of other jobs that might have higher rates of production,” he said.

Jarl Kallberg, professor of global finance at Thunderbird School of Global Management in Glendale, said tax incentives could indirectly boost the economy, but because the film industry isn’t permanent, there’s no way to tell if the incentives would help.

“The tax incentives really seem to work where you develop some kind of permanent infrastructure that you’re hiring locally and only locally and those people are going to be employed for years,” he said, using rail and water projects as examples.

Kucharo said he remains optimistic that 2013 will be the year multimedia tax incentives win legislative approval.

“What we have to do is show the Legislature that it’s not really about an industry or an individual,” he said. “It’s about rebuilding the industry here. It’s about Arizonans and Arizona jobs.”