Gov. Pat McCrory’s administration is taking a fresh look at the state’s film incentive in advance of its expiration date in just over a year, taking a pragmatic approach to its future considering the state’s current political climate and some legislators’ reluctance to renew it.
Commerce Secretary Sharon Decker said she supports tools to grow the film industry in North Carolina, but added that top state officials are “evaluating what our options are and looking freshly at it (the film incentive).”
She was light on details, noting that her office is still in the research and planning phase.
Lawmakers will have to take up the film incentive during the 2014 session in advance of its expiration on Dec. 31, 2014, or let it expire. Facing pushback from some conservative Republicans, it may take a retooling of the incentive for it to gain support in the Republican-controlled General Assembly.
Decker has generally been a supporter of the state’s film incentive but is working behind the scenes to build a consensus with state officials and film industry leaders.
“We are looking under every rock and at all the options,” Decker told the StarNews. “The big question on the table is, ‘How do we continue to help this industry grow in the state?’ I think it’s very clear when you look at it financially that there will have to be some changes in what we might continue to do.”
Tough fight ahead
Film industry supporters are revving up for a fight to defend the incentive while conservative voices beat a steady drum against its renewal.
In a recent column in Carolina Journal Online, a conservative publication, Jon Sanders, director of regulatory studies for the John Locke Foundation, argues that the credit as structured is unconstitutional – because it is an “open-ended draw on the state treasury without appropriation by the General Assembly” – and that efforts to compete with other states for the film business amounts to a “race to the bottom.”
He concludes: “Stripped of all the rhetoric, the issue is essentially this: whether the people of North Carolina, given a full understanding of the trade-offs involved, would wish to keep paying film production companies for the vanity of saying North Carolina is the home of such famous productions as ‘Homeland,’ ‘Sleepy Hollow,’ ‘Under the Dome,’ and ‘Iron Man 3.’
The latter three are being or were filmed in Wilmington.
Rep. Rick Catlin, R-New Hanover, and Rep. Chris Millis, R-Pender, sponsored legislation during the most recent session to rewrite the incentive in a way they said would have righted its constitutionality – but that the film industry said would have gutted the incentive.
Currently, if credits allowed under the state’s film incentives package exceed the amount of taxes the production company owes to the state, the state writes a check to the company for the difference. The Catlin/Millis bill would have eliminated that and instead waived any tax liability the company accrued over five years up to the credit limit.
Since most film companies have no tax liability in North Carolina, that would have killed any financial incentive to film here, industry supporters said.
In an interview this week, Catlin said the state has to date paid out $84 million to the largely out-of-state film industry, an amount of money that he said could get the state 60 percent toward a 1 percent raise for all the state’s teachers. Catlin said he and many of his colleagues may be more open to the incentive if these concerns are addressed.
“If there’s a compromise to do it like Georgia, a true tax credit that stays in the state, there’d be a lot more support for it,” Catlin said. “There’s some conversations about ways to address the constitutional concerns and about ways to keep the incentives in North Carolina.”
Bill Vassar, executive vice president of EUE Screen Gems, said the studio “recognizes the common misunderstanding about the film industry.”
“We’re not just talking about attracting glamorous, big-name productions to North Carolina,” he said in a statement. “It’s about the vendors, skilled workers, and crew. These are the people whose jobs depend upon the future of the film credit. These are the folks we need to protect.”
Vans Stevenson, a senior vice president with the Motion Picture Association of America, based out of Washington, D.C., said the industry is “gratified that the secretary (Decker) has interest in the tax credit.” He hopes the end result will be something more competitive for the state, noting specifically the uncertainty caused to the industry by regularly setting the legislation to expire only a few years out from passage. That particularly hampers the state’s ability to draw television series, he said.
“There’s more original programming in terms of television than ever before, and there’s enough to go around,” Stevenson said. “Those states with competitive programs are continuing to attract productions, economic development, and they’re creating jobs.”
Rep. Susi Hamilton, D-New Hanover, said she’s encouraged by discussions ongoing with McCrory’s top leaders about the incentive.
“As long as mature, responsible public policy discussions go on and we determine what’s best for the citizens and how we can grow the industry, I don’t care what we call it or that it might change in a positive way that grows jobs in North Carolina,” she said.
So committed is the film industry to showing its worth that it’s commissioned a new study. Rob Hanfield, a professor of supply chain management at N.C. State, is currently undergoing a complete “supply-chain study on film” that he says will capture the true impact of the industry here.
Traditional economic impact studies, he said, don’t capture “the dynamic project-based nature” of the film industry, he said in a statement.
Hanfield said he is conducting an analysis of the multiple economic impacts on the community that has occurred over the past 20 years, “demonstrating how this highly specialized set of professional craftspeople have established North Carolina as a creative hub for film production.”
“The study will help not only to educate people on how the film industry works, but will illustrate the value to small business and the community,” he said.
Decker said she looks forward to seeing results from the study later this year.