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Anson Stevens-Bollen

Action!

The film industry brings big money to New Mexico, but does the incentive cap mortgage its potential future success?

January 4, 2017, 12:00 am

After enjoying a surge of activity in the state, mid-2011 came as a dark time for the film industry in New Mexico. The arrival of Susana Martinez in the governor’s office and the subsequent session of the state Legislature presented threats to the future of film here. Citing what they said were alternative priorities like education, lawmakers aimed to limit incentives and rebates meant to draw film productions.

Direct film spending in New Mexico plummeted as much as 42 percent between 2011 and 2014, according to a recent economic report. Insiders say the threats and the actual changes to incentive programs dealt a major blow, and years later, the industry is just beginning to return to a place of stability.

To illustrate, think about Marvel Studios productions like Thor or The Avengers—the first installments, released in 2011 and 2012, respectively, were shot in New Mexico; their sequels, debuting in 2013 and 2015, were not.

2012’s The Avengers filmed in New Mexico; its 2015 sequel, Avengers: Age of Ultron, did not.
Marvel Studios

To Eric Witt, the exective director (and sole employee) of the new city/county Santa Fe Film Office, the notion of scaling back New Mexico’s courtship of the film industry was absurd. Film not only puts hundreds of millions of dollars into New Mexico’s economy (the state Film Office estimates the 2016 fiscal year brought $387 million in direct spending into the state), but it creates hundreds of jobs. The second phase of a four-phase report by Canadian accounting firm MNP on the effects of film and TV incentives released in October 2015 suggests that the industry employed between 2,500 and 4,000 New Mexico residents annually between 2010 and 2015. During this time, 74 percent of the industry’s full-time positions filled went to New Mexicans. Additionlly, in the last two fiscal years, spending surpassed the previous highs.

Those hefty numbers were part of the reason that Witt counted on widespread support in 2002, when he helped draft a film incentive program under outgoing governor Gary Johnson which essentially issued rebates to producers for part of the money they spent here. In the years that followed, Witt would become deputy chief of staff and director of media industries developments for the incoming governor, Bill Richardson. With his prior knowledge of film and finance, Witt assisted in turning New Mexico into one of the go-to territories for production.

“I knew what I needed—I knew what we needed,” Witt says. “Major film and television production does not take place anywhere in the world anymore without an incentive, and that has changed the entire nature of the business. … It has this whole new language.”

Major film and television production does not take place anywhere in the world anymore without an incentive.
                            -Eric Witt

Witt grew up in New Mexico, but made for California where he pursued a degree in entertainment finance at the University of California, Los Angeles. In 1990, he went to work for famed producer Dino De Laurentiis. “Dino built studios [and] we made films all over the world, and I got a lot of experience, and it’s how I learned to speak the language,” Witt says.

Witt formed a production company called Asylum Entertainment in 1996, which, he says, “imploded after a couple years.” He retreated home to New Mexico in the early 2000s to lick his wounds, but the plan was always to return to a studio job. “And then I got roped into politics,” he says. “Bill Richardson was becoming governor, and he really wanted to strengthen the film industry and we had a lot of success with that.”

Richardson built on the original Johnson-era version of the incentives program and successfully lured big-dollar productions shopping for the best deal. Beginning in 2003, film projects were eligible for a 15 percent rebate on money spent for certain qualifying expenditures such as wages, vendors and other costs that can be attributed directly to the production. By 2006, lawmakers had upped rebates to 20 percent of the total qualifying spend, a number that later jumped to today’s 25 percent. This made New Mexico very popular, according to Witt. So much so, he says, that other states attempted to emulate New Mexico’s film-luring programs. “By 2011 there were 42 or 43 other states with similar incentives,” Witt points out.

Santa Fe Film Office head Eric Witt.

And then came Martinez, elected in 2010 after Richardson termed out. Martinez and her allies proposed slashing the rebates back to the original 15 percent, even the threat of which many in the industry blamed for potential New Mexico productions choosing other states, such as Georgia or Louisiana, for superior incentives. But after a hard battle, state lawmakers instead agreed to keep the rebate at its current level but do something that conservatives in the Roundhouse had been pushing for for years: impose a cap on how much the state would pay.

The $50 million annual limit remains in place, yet the governor appears to be coming around.

“To [the Martinez administration’s] credit, they eventually started to realize that more films meant more money for the state, and last year we started to see that uptick in productions again,” Witt says.

New Mexico lawmakers even sweetened the deal with the passage of 2013’s Breaking Bad Bill, which allows a recurring television series to take advantage of a 30 percent rebate on a production’s total qualified expenditures. Productions started to trickle in once more, and the capital city region stood to make a ton of money. Thus, the Santa Fe Film Office was born in July of 2016 to aid in bringing productions to the region. “We’re looking at a sizeable economic impact,” city Councilor Signe Lindell, who voted to approve the joint venture, tells SFR. “I think it’s a matter of we want to keep ourselves out in front, we want to attract film projects to Santa Fe and we want to find any way we can be helpful.” In a mere six months, numerous productions have funneled through Witt’s office. Four major films and two television programs are in progress and additional projects are scheduled to begin early this year, he says. Witt aims to smooth the way for productions with permit navigation, hospitality information, tax and revenue queries and scheduling changes. Whether it’s helping secure permission to close a street for a shoot or reserving hotel rooms for out-of-town crew, he’s on the case. Witt performs all these duties for now but plans to hire another worker to help this year. The office is a $330,000 investment from the city and county governments—that price tag also accounts for marketing, web design, inclusion in location scouting expos, membership dues for national and global entities such as the Association of Film Commissioners International and day-to-day operations. It’s all spending that Witt says is “being adjusted as we find we need more of this or less of that.”

Added up, the county and city’s cinematic resources are operating at nearly full capacity. “We’re pretty busy all the way through 2018,” says Octavio Marin, director of operations at Santa Fe Studios. “It’s absolutely becoming busier and busier.”

This obviously means more money for the state and more money for Santa Fe. “You just don’t have enterprises in the state that drop this kind of money in eight weeks—a typical vendor list for a movie covers, like, 300 things, from babysitting and pet walking to food and drinks, office supplies … Just look around your house, and every single thing you see is something needed for a film, because they’re recreating an entire world for every production,” Witt says.

That’s not even to mention the benefits to service and hospitality industries as well as tourism. Tourism is already a cash cow in New Mexico, but it’s even more lucrative when tourists come in search of locations featured in films like Independence Day: Resurgence or Crazy Heart and television programs like House of Cards or Manhattan. According to the third phase of the MNP study, released in July 2016 with a focus on tourism, 16 percent of people surveyed from out of state noted that the film industry would have a “great influence” on their decision to visit.

“The reality is that, for the year of 2016, Santa Fe had a lot of filming, a lot of interest in future filming, and the net result is that all the hotels saw a definite uptick,” says Rich Verruni, president of the Santa Fe Lodgers Association. He says 2016 was “absolutely a banner year.”

But not all the news is good. And it might not last. According to Witt, there’s cause for concern that we may begin to exceed the incentive cap as soon as the 2018 fiscal year. Whereas payments prior to the cap adhered to what was essentially a pay-as-you-go timeline, current productions eligible for rebates will receive deferred payments in the event they are owed $2 million or more. “They instituted a turning system wherein, depending on the credit you earned, they’d pay in installments.”

Value of New Mexico Film and Television Industry

The amount of money spent by film productions shot in New Mexico started to fizzle after 2011 amid concerns that the incentive percentage would be reduced. After the passage of 2013’s Breaking Bad Bill, film dollars coming into the state began to rise once more.

Source: MNP Tax Incentive Study

Since the state divides the big balances into several years’ worth of payments, it goes into the next year owing millions to productions, he says. “And what is going to happen is that we will owe more credits—even with a spread-out system—than the $50 million we have allocated.” The most recently available information from the New Mexico Taxation and Revenue Department states that nearly $7.5 million has been paid out as of Oct. 31 for the 2017 fiscal year, but this doesn’t include deferred payments. As of press time, repeated requests for a comment from the New Mexico Film Office went unanswered.

Witt says delays won’t affect the major studios as much. But for smaller, independent productions with private investors looking to recoup their money as quickly as possible, it could mean they look elsewhere. “If a production is looking at us or Toronto, and they’re going to have to wait another year for their credit [from New Mexico], that could be the tipping point.” He continues, “I never liked this cap to begin with. I personally think we should just get rid of it altogether, but I know that’s not going to happen with the current political environment; I really don’t think anyone anticipated the economic shape we’d be in.”

Witt calls the cap an “arbitrary number,” and says increasing payouts is a smart move. “When productions are looking for a place to film, they look at three major things: What’s the cap, do they have any stages and do they have a decent crew.” Witt says. “Two out of three isn’t going to cut it, and it would be hard to keep going as we are without an increase.”

Witt is not alone in advocating for a return to greater incentives. Jon Hendry, president of the International Alliance of Theatrical Stage Employees Local 480, Santa Fe’s “below-the-line” film union, says the state will need to “catch up with inflation” and revisit the incentive cap to ensure productions will continue to choose the state and make sure full-time New Mexico residents continue to get hired.

“If this were up to me, I’d say increase the cap; we’re not asking to blow it off completely. With any program you do, there’s going to be a percentage of people who are against it,” Hendry says. “[Opponents will] say it’s because films aren’t being shot in every single county, but it isn’t like people in California say they hate the film business because they live in Fresno instead of Hollywood. And really, we’re putting our resources and our dollars back here—this isn’t money for Hollywood, it’s money for main street.”

Incoming Democratic state Rep. Daymon Ely plans to introduce a bill to strengthen film.
Courtesy Daymon Ely
Hendry and his members have put their support behind incoming state Rep. Daymon Ely, D-Corrales, who plans to introduce a bill during the upcoming legislative session that links the incentive numbers to market data.

“We’re still working on what we’ll tie the bill to, but the idea is to create stability within the industry,” Ely tells SFR. “What we’ve learned is that if you don’t have predictability, you lose business. But we aren’t looking for an arbitrary increase of the cap; you’d index it with some standard, which we’re working on right now.” Ely says that as a freshman legislator, he won’t be able to prefile the bill, but that he’ll introduce it on Jan. 17.

“At least right now, the film industry is working, and I do think that creating an unpredictable environment is something we can’t afford to do,” he says. “Look at how difficult it is for us to attract jobs here. … My hope would be that it won’t be controversial. I’m not so naive to think there’s not going to be opposition from somewhere, but the last thing we want is a repeat of 2011.”



 

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