This is how reputations get made.

This summer, Terminator: Salvation, filmed mainly in Albuquerque, received loads of attention—at least before tickets went on sale. Perhaps in compensation for the lack of Schwarzeneggerage, actor Christian Bale was recorded during production screeching at a crew member that he'd "fucking kick your fucking ass."

Last year, No Country for Old Men, shot in and around northern New Mexico, took the Oscar for best picture. Based on the novel by local recluse Cormac McCarthy, the film proved New Mexico could pass for Texas in a pinch.

But it was an off-camera scene at the Hotel Santa Fe some three years ago that signaled New Mexico filmmakers are not to be trifled with.

In December 2006, the hotel hosted the first New Mexico Filmmakers Conference, sponsored by a venture capital group. Speakers included top entertainment lawyer Peter Dekom, who has made Premiere magazine's Hollywood "Power List" and Variety's list of "dealmakers."

Dekom also is the brain behind New Mexico's film incentive program, which has been copied by states around the country and has lured dozens of productions to the Land of Enchantment.

The conference was billed as a friendly place to talk shop. But Dekom's role as arbiter of New Mexico's $244 million film loan program created some tension with the locals—or, at least, one local producer, purportedly frustrated by his inability to access what Dekom calls "free money."

"I almost got punched out by a filmmaker," Dekom tells SFR. (Several conference attendees confirmed the incident, but none would name names.)

The assault was more than a random scuffle. It represented a clash of interests—between art and commerce, labor and capital, Hollywood and Tamalewood.

"This is the Wild West. If Peter can't take it, he shouldn't do the job. People here are very opinionated," Jon Hendry, business agent for a local filmworkers' union, says. By contrast, "California is a viper's pit, where you can have lunch with somebody, and they'll be talking [smack] about you on the cell phone, right after the lunch you paid for."

In Dekom's telling, the filmmaker attacked him "for being the messenger." But Dekom is more than a messenger. When it comes to the state's film loan program, he is a decider.

And so far, he and state bureaucrats have decided that seven years into the state's lauded incentive program, homegrown New Mexico productions don't qualify for the zero-interest film loans that have benefited major studios.

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"The message" may as well be this: New Mexicans are good enough to make movies—to hold microphones and plug in wires and design special effects—but not to produce and profit from them.

Santa Fe producer Karen Koch sought but did not receive state financing for Luminaria's first project, Living and Breathing, starring Angelica Huston and Tom Wilkinson, in October of 2006. [[Ed. note: This story originally and incorrectly stated Koch had sought funding for Luminaria's most recent film, Spoken Word. That film was developed independently.]

"As a local, I think I was as good a risk as anyone," Koch says. She had previously produced films with Jennifer Love Hewitt, Johnny Depp and Jim Jarmusch.

Dekom, who receives "thousands" of film loan proposals (but doesn't read the scripts), has heard it all.

"Everybody in New Mexico believes the marketplace is slanted against them, as opposed to realizing it affects somebody born in Beverly Hills just the same as it affects somebody born in Farmington," he says.

If that message doesn't demand a sock in the mouth, it does raise questions about what the film program is trying to accomplish. The program offers loans, tax incentives and rebates—most importantly, a state subsidy for crew members' wages.

Is New Mexico supposed to remain a cheap labor colony for Hollywood? Or to nurture its own production talent?

Better a labor colony than a ghost town, some argue.

"There's no point in spending 60 percent of our budget on education if our best-educated people are leaving to California because there's no jobs here. Where are those jobs going to be, if not in the film business? We're not going to get the next Toyota plant," Hendry says. "As a state, what are we supposed to do? Sit around and throw up our hands and teach everybody to make pots?"

But until New Mexico starts producing more, uh, producers, taxpayers are in effect padding bank accounts in Los Angeles and New York.

"The fact that there's a lot of stardust flung around New Mexico now is great. But that stardust is not going to settle into a foundation. It can just go away," Santa Fe producer Luca Ceccarelli says.

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New Mexico's film incentives began under Republican Gov. Gary Johnson, but it was Gov. Bill Richardson who put them on the map.

Today, the film incentive program has two chief parts.

Most important are the rebates. These are what producer Ethan Coen was talking about when he told hollywood.com in 2007 that "we shot [No Country For Old Men], as everybody is in New Mexico now really for economic reasons."

The rebates include a 25 percent refund on state taxes, such as personal income and gross receipts taxes, for qualified film productions. As a further enticement to producers, the state pays 50 percent of the hourly wages for New Mexico "trainees" in certain crew positions. That means labor here comes cheap for employers, even if the film crews make respectable union wages.

"This is a way for guys with high school educations to put a pair of boots on and go make 400 bucks in a day," Hendry says. "That's why [conservative critics] don't like it."

Like it or not, incentives did bring business to New Mexico. Though the state has not cracked the top 10 production states outside California and New York, according to the Motion Picture Association of America, New Mexico ranks third in terms of the film industry's relative importance to the state's economy.

Back in 2001, Dekom says, "We had one full crew in New Mexico, and I think there's one word to describe what it was like: unemployed." As of 2007, nearly 1,700 people worked in film crews around the state.

Even those competing with New Mexico for movie business tip their hats to this state's film program.

"Top notch," Chris Stelly, Louisiana's film and television director, calls his New Mexico counterparts. "We kinda got our scars together," he says.

Times have changed since New Mexico and Louisiana's programs got rolling. At the turn of the millennium, those two states, plus Oklahoma—and, of course, Canada—were the only states offering incentives.

Today, more than 40 other states offer deals to production companies. "Incentives are huge. They drive the business now," Louisiana Office of Entertainment Industry Development spokeswoman Amber Havens says.

And as incentive programs have spread, there is a growing awareness that states have begun to undercut one another in the race for production business.

"The industry has been able to play off North Carolina against South Carolina against Louisiana against Georgia. Louisiana raises its incentives, and it puts pressure on South Carolina, North Carolina and other states to do likewise," incentive critic and former North Carolina Supreme Court Justice Bob Orr told the Associated Press last week.

Michigan now offers tax rebates higher than New Mexico's. Even California is getting in on the game, trying to reclaim some so-called runaway productions.

Is this a threat? New Mexico film industry figures put a brave face forward, citing the "stability" of the film program here and the strength of the talent pool.

"You want to shoot your picture in Iowa or Michigan? Go ahead; knock yourself out. I don't care if they're giving 50 percent back; there's no crew there," Hendry says. "We're in the investment stage of a major business. Now we're really starting to see the rewards. Other states have gone to 35 percent [rebates] to attract movies. We're still attracting movies at 25 percent."

Perhaps no one sells New Mexico's production advantages—even against worldwide competition—better than state Film Office Director Lisa Strout.

"We're doing better than LA this last year. They didn't have any movies in LA—it was so dead—at a time when we had 10," Strout says. "They passed an incentive, which is really funny: 'Come home, little Sheba.'"

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But if New Mexico's incentive program has spurred copycats, other states have not rushed to follow the state's other film incentive—the loan program.

It's a bit of alchemy, devised at the start of Gov. Richardson's first term, which takes coal and turns it into finance guarantees for low-budget horror flicks.

The film loan funds come from a small slice of the state's "severance tax permanent fund," a multibillion-dollar pot of tax money paid by energy companies that extract—or "sever"—natural resources from the earth.

The interest rate on the film loans is a whopping zero percent. The state is supposed to make its money on the back end by taking a stake in a production: If the film makes a profit, the state makes a profit.

It hasn't quite worked out that way yet. Still, Dekom says he's done better than most stockbrokers.

"We haven't lost a single dollar of principal," he says. "We rock. The taxpayers should be smiling and grinning."

The first film to get a loan was 2002's Suspect Zero, an old script originally intended for Tom Cruise. It had a $27 million budget and grossed $11 million worldwide—enough to pay back the $7.5 million state loan, but an otherwise embarrassing
performance.

The only film with a New Mexican producer to get a loan was Cruel World, a horror flick, in 2004. The film remains unreleased. The $1.7 million loan for Cruel World amounts to less than 1 percent of the film loans given out by the state. Producer Nick Maniatis did not return a message left at his Albuquerque office. The number for his company, Primetime Pictures, is disconnected, and its physical address turns out to be a mailbox in Beverly Hills.

While the film loan portfolio may not have lost money, not many borrowers are in a great hurry to pay back their debts.

As of Feb. 28, the last time the state published an accounting, film studios owed New Mexico $127 million in principal on production loans—only $87 million had been repaid.

The single biggest debtor was Lions Gate Entertainment, or Lionsgate, with more than $80 million outstanding on six loans. Most of that was for three seasons of the ABC Family TV series Wildfire, which the network cancelled last year.

Lionsgate owes nearly double the amount owed by the four other studios with outstanding loans. And three years after state officials approved the first of those loans, Lionsgate hasn't paid back a dime in principal.

Last year, the state "rolled over" $15 million of Lionsgate's debt to finance another production by the studio: the TV series Crash, co-produced by the Starz network and based on the Paul Haggis movie that robbed the 2006 Best Picture Oscar from Brokeback Mountain.

Haggis also directed In the Valley of Elah, a 2007 movie about Iraq war veterans, which got $15 million from the State Investment Council.

Haggis is a client of Dekom's, information the attorney disclosed to the SIC before that group approved the Crash loan. Asked by a board member, Film Office Director Strout "had no problem" with Dekom's previous relationship, according to minutes of the meeting.

"You can't be in this business for 35 years and not know a lot of folks on some level. But if it's someone who's a client, he will bring that up," Strout tells SFR.

Haggis isn't Dekom's only past connection to Lionsgate.

US Securities and Exchange Commission filings show that Dekom was a director of Trimark Pictures when Lionsgate purchased the company in 2000. According to a trade publication, the Weekly Corporate Growth Report, Lionsgate paid a 54 percent premium—good news for Dekom and his Trimark stock holdings.

Dekom still holds Lionsgate stock but he says he's not sure how much.

"I've got so miniscule an amount—which, of course, I disclose—I don't even know what I've got," Dekom says. "I think I just hold on to it for nostalgic reasons."

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There's little place for nostalgia in the pitiless business of entertainment.

Practicality, not nostalgia, led Strout to keep a cell phone with a 213 area code—signifying downtown LA—for a couple of years after relocating.

"The moment I came to New Mexico, it's like, 'Oh, she's got a 505 number,' you know what I mean?" Strout says. "I think we've done a tremendous job of breaking that myth and proving ourselves."

Thanks to the rebate programs Strout runs, New Mexico has cemented its reputation as a good, cheap place to shoot a movie. The loans have been less important to that reputation. Of 115 movies shot in New Mexico between 2002 and January 2009, only 29 took state film loans.

Why so few? For starters, the largest studios don't want to bother with the paperwork. Dekom says obtaining the state's maximum $15 million loan isn't worth the trouble for a producer on a movie with a $200 million budget. Besides which, studios don't enjoy sharing the profits with the state should a movie succeed.

At the other end of the spectrum, smaller independent producers might love to take a loan through the State Investment Council—but simply can't qualify.

"They would say that everyone has the same opportunity, that it has nothing to do with being local or not," Luminaria Films producer Koch tells SFR. "But…the film adviser [Dekom] has advised them of a certain standard to look for that really made it difficult for any independent film to access the money."

Luminaria Films' latest film, Spoken Word, is about as local as a movie can get. Written by co-producer Bill Conway and Santa Fe poet and DJ Joe Ray Sandoval, the plot centers on a young poet's return to New Mexico from California.

Koch told Variety last year about Luminaria's frustration in obtaining state financing for Spoken Word. The magazine concluded that her "experience reveals a blind spot in a program aimed primarily at luring big-budget projects and training inexperienced locals for film industry jobs."

Dekom rejects this argument.

"I will tell you absolutely categorically there is nothing in the film investment programs that is discriminatory against New Mexico filmmakers. Anything to the contrary is a complete myth," Dekom says.

There is, however, a requirement the Film Office introduced, after getting flooded with scripts by would-be filmmakers: Before even applying for a loan, producers must sign a contract "with an appropriate, experienced and economically stable distributor."
(YouTube doesn't count.)

This rule eliminates most small filmmakers from consideration. Dekom says there's a reason for this: Fewer than 1 percent of the tens of thousands of indie flicks made every year find their way into US theaters or even video stores. Even films that get sold often lose money.

"The taxpayers of New Mexico have said, 'Please don't waste our money,'" Dekom says. "When you have 200-to-1 odds of getting a movie picked up in the domestic marketplace in any meaningful way, what are we supposed to do?"

The upshot is a handful of "mini-major" studios like Lionsgate—which work with smaller budgets than the majors and have access to distribution—are in the best position to take advantage of New Mexico film loans.

"I don't control the channels of distribution. That isn't something I do," Dekom says.

Once again, he is only the messenger.

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Earlier this year, Sen. Sue Wilson Beffort, R-Bernalillo, introduced legislation to level the playing field. Her proposal, a "memorial," asked the State Investment Council and the Film Office to "study the potential benefit of establishing a fund to promote, invest in and finance small independent films produced in New Mexico."


The goal would have been to have the state finance films with budgets under $2 million or series with budgets under $5 million. Producer Koch hopes such a system could be "as secure as that investment program was, but maybe directed only for locals," she says.

A watered-down version of Beffort's memorial—removing the word "benefit" and cutting the budget directives—unanimously passed the state Senate. But the memorial died before it could make it through the House.

Beffort, whose son works as a cinematographer in Hollywood, blames "Senate-House politics."

Asked by the Legislative Finance Council for an analysis of Beffort's memorial, the State Investment Council replied that the efforts to encourage local producers were "duplicative" of what the state was already doing. The SIC also suggested local filmmakers would never be satisfied, writing, "We are skeptical that any findings [from the proposed study] will be found as acceptable by New Mexico's independent filmmakers who are looking for state investment."

This echoes Dekom's lament.

"Everybody says, 'Why shouldn't we be doing A, B, C, D and E,'" Dekom says. "It bothers me a lot to have a wildly successful program that's put billions of dollars into the economy labeled by some people as a failure because they're not getting free money."

Beffort's attempt wasn't the first to benefit local producers. In 2007, Sen. Peter Wirth, D-Santa Fe, introduced legislation creating a task force that would devise ways the film program could benefit locals.

"I think it is important that it not just be focused on bigger film productions and that we also focus on local, independent productions," Wirth says.

Among those who lobbied for Wirth's memorial was Luca Ceccarelli, owner of Santa Fe production company HDNM. Today, he has a new perspective on those efforts.

"We were barking up the wrong tree," Ceccarelli says. "That [loan] program was designed for return on investment. Film very seldom has a successful ROI. What that means is the clients of the loan program are companies like Warner Bros., like Lionsgate—that are bonded, have big marquee names and some serious backing."

In short, local producers became "a contingency of whiners," Ceccarelli says, and failed to realize the state loan program was not meant for them in the first place.

Hendry, business agent for Local 480 of the International Alliance of Theatrical Stage Employees, takes that criticism further.

"The problem with local producers is, as much as we'd like to work with them…you don't wake up one morning and say you're a producer—or get a certificate from the College of Santa Fe. The college might say you're a producer, but that doesn't mean you're a producer," Hendry says.

In other words, New Mexicans got no game.

Some, like Santa Fe producer Alton Walpole, who made The Tao of Steve, will cop to this. "One of the reasons I haven't applied is I haven't felt I had a film product that was in a place of development that could achieve that loan," Walpole says.
He says if New Mexico's filmmakers are to come into their own, it won't be the state's doing: It'll be the artists.'

"The government can't do everything for everybody. People have to go out and pull things up by their own bootstraps," Walpole says. "You just don't go out and get millions of dollars without a lot of work. It is disappointing, but ultimately the film industry is a business."

Ceccarelli came to the same conclusion.

"The core business of the Film Office is to attract runaway productions. The core business of the State Investment Council is to make money. So if we're going to have some homegrown film revolution here, I don't think either of those two is going to make that happen," he says.

Dekom says a well-developed crew base will eventually turn out star directors and producers. "Look at the courses available at [University of New Mexico], New Mexico State—there are hard courses that are training the producers of the future," Dekom says. It just takes time. And effort.

"You've gotta pay your dues," he says.

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The pay-your-dues argument might be easier to swallow if state loan recipients had produced better films.

Artistically, they haven't all been duds. In The Valley of Elah, for instance, got nominated for an Oscar.

But commercially—which is how state film officials judge their efforts—loan recipients have underperformed. Some have been downright disasters.

For instance, in 2005, the SIC approved a $15 million loan for Bordertown, starring Jennifer Lopez and directed by New Mexican Gregory Nava. The producers defaulted after a dispute with Nava, causing the interest rate to rise from 0 to 9.32 percent.

According to meeting minutes, Dekom told the SIC the state "might make more money on interest than it would have made had it depended on the release of the motion picture." (Bordertown reportedly drew unintentional laughter at a Berlin film festival and went straight to DVD in the US last year.)

Which calls into question the assumptions underpinning the loan program. If every film—even one starring J-Lo!—represents a risk, why not take a chance on local talent?

"I really do believe [in] the tax incentive—without it, we'd be out of the game, period. But I don't think we still need the loan incentive. It no longer serves its purpose," Koch says. "It might have originally helped jump-start us but, at this point, we're on the map."

Even the film union's Hendry, who designed the loan program with Dekom, believes its future is limited.

"The loan program will eventually die out on its own," Hendry says. "The more people I have trained, the less we have to lend to get people to come here. Eventually, we won't need to do this because the movies are coming here."

Eventually could come sooner rather than later.

The SIC only has $21.5 million in remaining loan capacity—enough for a handful of films, at most.

And conveniently for Richardson, who boosted the program—and for Lionsgate, its chief beneficiary—most of the outstanding loans won't come due until after the next election. If the producers go bust, that'll be some other governor's problem.

With the current dismal state of the movie business, going bust is a possibility.

Last week, Lionsgate reported losses of $163 million for the year so far—performing even worse than Wall Street analysts had expected, according to Reuters.

"We're living in a managed depression, in my world," Dekom says. "A lot of studios can't even access credit. The number of people who are over 30 going to movies has dropped by 36 percent—that's not been good for the independent market at all."

Still, eventually the economy will recover, Dekom says, as will the movie business. And people will keep asking for his help whether or not they stand a snowball's chance.

"Everybody thinks they're a filmmaker," he says.  SFR