The competition for Hollywood's cash has become more and more frenzied in recent years as states and foreign countries increasingly try to outbid each other with tax incentives.
It's become a race — some say, to the bottom — that now pits out-of-state programs not just against L.A. and California, but against one another as they battle for Hollywood's business.
Canada was one of the early adopters of the incentive system in the 1990s, with Louisiana becoming the first state to do so in 2002. Now 42 states, and more than 30 foreign countries, offer them.
“We certainly grew rapidly throughout the '90s when our dollar was relatively weak against the U.S. dollar,” said Peter Leitch, president of the Vancouver area's North Shore and Mammoth Studios and chairman of the Motion Picture Production Industry Association of British Columbia. “We've had incentives for the last 20 years and they've increased over time as our dollar has strengthened, which has been helpful in terms of attracting production here.
“As the competition around North America started introducing and increasing incentives, we kept up with that in terms of historically matching the increased incentives of some other jurisdictions,” Leitch added, noting that production brings about $1 billion a year into the province and supports some 25,000 local jobs. “In the last five years, they've increased in some places to the point where we haven't matched them.”
British Columbia has a basic tax credit of 33 percent for local labor costs, which can be augmented by 17.5 percent for expenditures directly related to digital animation or visual effects activities. These can be stacked with a federal tax credit of 16 percent.
While B.C.'s incentives are labor-based, others are tied to a production's total, in-state expenditures. Georgia offers a transferable income tax credit of 20 percent of all in-state costs. (Transferable means if the producers want their cash quicker, the credit can be sold to the highest bidder — whether a dentist or construction firm or whatever — usually for less than face value.) That credit gets knocked up to 30 percent for approved projects that add the Georgia Peach logo to their title crawls.
Louisiana has a 30 percent transferable tax credit plus an extra 5 percent off salaries for state residents in some cases. An economic impact report on the louisianaentertainment.gov website noted that in 2012, the state's tax credit program resulted in $1.1 billion in sales at Louisiana firms, $770.6 million in household earnings and 15,184 jobs.
However, another table in that report indicates the growth came at a price to government coffers. Film production alone, by far the biggest category, cost the state treasury $168.2 million, and the cost per job to the state was $12,005.
Some states, such as Michigan and New Mexico, have adjusted their incentives in recent years to try to make them more palatable to capital bean counters.
“When this governor took over we had a huge deficit, like many states did back then,” Nick Maniatis, director of the New Mexico Film Office, said of Gov. Susana Martinez, who came in three years ago. “They were looking for ways to cut, and one thing they looked at was the unlimited cap we had for film. They put on a $50 million rolling cap, meaning that we can go over that cap in a given year but the people that are over it will get paid in the following fiscal year.”
British Columbia, Georgia and Louisiana have no yearly caps.
“In our last legislative session, the governor increased the incentives for television by 5 percent and in certain areas for film, like if they use our soundstages for a certain amount of days,” added Maniatis, a former Hollywood stage manager who returns to L.A. to promote New Mexico as a filming location four times a year.
Among additional inducements, the state offers the Film Crew Advancement Program. If a production promotes a New Mexican crew member a notch, Santa Fe will pay half their salary up to 1,040 hours. There are some restrictions and exceptions, but an extra spot is also available if the project promotes a military veteran.
The Motion Picture Production Industry Association of British Columbia, a nongovernmental professional group whose members include suppliers and unionized labor, provides a myriad of services to help make productions easier and more cost-effective in the province. These include constant conversations with the local business community to try to keep fees for location shooting close to cost-recovery rather than a chance to make a killing.
They and the government agency that administer the tax incentives, Creative B.C., also negotiate with local municipalities to keep permitting fees and regulations, as well as prices for police and safety coverage on sets, reasonable. That and production cost-efficiencies, such as the ability to buy out members of the B.C. Performers Union's contracts rather than have shows pay the actors residuals, are constantly scrutinized by the association.
“The reason they come here is because it's cheaper, it's one of the big reasons,” the association's Leitch reckoned. “We recognize that it's a privilege having the business up here, and we try to fight for every production. I would think we all charge less up here. We base our prices, really, on historical cost. We don't really look at ‘What are they charging in Los Angeles?'”
Of course, there are extra expenses Hollywood productions face when they go out of state to shoot. Major among those are the travel and housing costs of their stars and key production people, most of whom live in Southern California.
Still, it's usually more than worth it to producers. Vans Stevenson, senior vice president for state and government affairs for the major studios' trade and lobbying organization the Motion Picture Association of America, ran some hypothetical numbers for what a blockbuster movie could save shooting outside of California:
“Let's say the gross total budget of a big tent-pole is $251 million,” Stevenson said. “If you take that film to Vancouver, for example, that same picture, before credit, would be $259-$260 million. You've got the (extra) cost of hotels and housing for cast and key crew you bring from L.A. as well as people you hire on the ground. But the incentive there is worth about $18 million. So you're reducing that budget from $251 to $241 million. That's a big savings.
“In Pontiac, Michigan, it would be $270 million to go there,” Stevenson added. “But the credit is almost $35 million, so instead of $251 you're down to $235 million. And in California, any movie over $75 million doesn't qualify for the credit, so if you're shooting a tent-pole you get no credit in California.”
Out-of-state film commissioners expect an increasing, worldwide battle for their share of production.
“It has become increasingly global,” Creative B.C. President Richard Brownsey said. “You're seeing U.S. companies in China, Europe, Canada and in all the other states. I think the competition for production around the world is going to be intense going forward, for Los Angeles, for British Columbia, for all jurisdictions. It's just going to be a very competitive planet.”
Some sound satisfied with their slice of the pie, though.
“I think there's enough work to go around,” said New Mexico's Maniatis, noting that “Breaking Bad,” “Lone Survivor,” “The Lone Ranger,” “Longmire,” midseason replacement shows “Killer Women” and “Night Shift” and Seth MacFarlane's comedy Western “A Million Ways to Die in the West” recently filmed in his state.
“We've already done better than we were before the law changed,” Maniatis said. “I think we're still one of the top states to shoot. I feel like it's a healthy competition; I really don't get bothered if something we've been working on a long time goes somewhere else. I let it steam for about 10 minutes and then I'm on to the next one.”
For Californians hoping to keep more of L.A.'s signature industry at home, Maniatis had this advice:
“It's kind of one of those deals where the genie's out of the bottle here. You can't just put a cork in it and all production's going to come back to L.A. States are going to have to decide if giving away this money gets the return on the investment and gets the economic impact that they're hoping for. L.A. and California is going to be just the same.
“I don't see a flood going back into L.A.,” Maniatis concluded. “I think they could stem the tide and go after more production, but again, it's a competitive market now.”