In Australia, for example, the issue of qualifying for the incentive hinged on the level of Australian “content” etc. in the case of Alex Proyas’ recent film, “Knowing.”  There, the government seemed to waiver on its commitment to grant incentive funds to the film because it was not “developed from inception by Australians.”  To read more about this, click HERE.

Earlier this year, a state lawmaker in Florida ignited a controversy when he amende the film incentive legislation to include language about supporting “family friendly” content, which many saw as a potentially anti-gay provision to prevent any funds from going to anything not representative of “traditional family values.”  The lawmaker denied this was his intent, to his credit, and the language was soon removed from the final version of the bill, which you can read about HERE.

And then there is Texas.  On Texas Governor Rick Perry’s (R) film commission site, a film or TV production is ineligible for the state’s film incentive if (among some other items I am omitting here) it is “obscene material, as defined by Section 43.21, Texas Penal Code.”  In case you are curious on how that statue defines “obscene material”, as I was, then you will be spared doing legal research.  Since Perry’s film site didn’t offer that information or relevant link to the penal code, I went and grabbed it from onecle:

(1) “Obscene” means material or a performance that:

(A) the average person, applying contemporary community standards, would find that taken as a whole appeals to the prurient interest in sex;
(B) depicts or describes:
(i) patently offensive representations or descriptions of ultimate sexual acts, normal or perverted, actual or simulated, including sexual intercourse, sodomy, and sexual bestiality; or
(ii) patently offensive representations or descriptions of masturbation, excretory functions, sadism, masochism, lewd exhibition of the genitals, the male or female genitals in a state of sexual stimulation or arousal, covered male genitals in a discernibly turgid state or a device designed and marketed as useful primarily for stimulation of the human genital organs; and
(C) taken as a whole, lacks serious literary, artistic, political, and scientific value.

I’m going to let the Texas code speak for itself and not say anything more on that.  The much more interesting provision on Perry’s site is the following:

The State of Texas is also not required to make payments to projects that include inappropriate content or content that portrays Texas or Texans in a negative fashion.

And I thought the penal code definition was ambiguous.  So what does this mean? In 2009, Texas “unofficially” rejected granting film incentives to the producers of “Waco”, a planned $30 million “docudrama” about the 1993 FBI raid on a the Branch Davidian compound in Waco, Texas.  An article by the Dallas Morning News reported:

The Texas Film Commission unofficially rejected filming incentives for Waco , a planned big-screen tale of the 1993 raid on David Koresh’s Branch Davidian compound. The commission cited a previously untested 2007 provision barring incentive payments to movies that “portray Texas or Texans in a negative light.”

So is Hudgins’ move censorship? And, as the Austin American-Statesman wondered on its editorial page, would this content provision have kept Giant and The Last Picture Show from shooting in the state? The first answer depends on who’s talking. The second answer is no because the content provision only applies to films based on actual events.

First off, Waco producers have yet to submit an incentives application. Hudgins says he showed the script to both a law enforcement official featured prominently in the script and a journalist closely involved with the story. Both people, whom Hudgins declined to identify, questioned the accuracy.

Waco co-writer and director Rupert Wainwright, who remains interested in a $30 million Texas shoot if incentives are offered, wants to know what the alleged inaccuracies are. “We have spent a lot more time investigating this story than the head of the film commission of Texas has,” he said.

That includes, he says, talks with retired FBI agent Byron Sage, former assistant U.S. attorney Bill Johnson and a few surviving Branch Davidians. He and co-writer James Hibberd, a University of Texas grad now writing for The Hollywood Reporter, also scoured court transcripts and brought on documentarian Michael McNulty (Waco: The Rules of Engagement) as a consultant.

Wainwright goes so far as to hint that unnamed federal officials have put pressure on Texas officials to quash the film. That’s a charge Hudgins flatly denies.

Interesting, but a little confusing.  The article claims “Waco” was denied funds because the “don’t portray Texas or Texans in a negative fashion” provision only applied to “films based on actual events.”  So either that is not true, or “Machete” must be based on “actual events” (its not) because Rodriguez’s film seems to be rubbing some people the wrong way, apparently jeopardizing granting incentives.

An August 28th article on Austin360.com provided an excellent overview and, in my opinion, Texas Film Commission head Bob Hudgins is handling this very, very well:

When “Machete” opens nationwide Friday, moviegoers will see crooked Texas politicians and a shoot-to-kill immigration policy, all wrapped up in Robert Rodriguez’s signature grindhouse style. Such a controversial topic has already spurred debate, but it’s the opinion of one man that counts the most when it comes to filmmaking in Texas.

A little more than a year after telling the producers of “Waco” that they need not apply for state film incentives, Bob Hudgins, the head of the Texas Film Commission, faces another big decision: whether to approve funds for the locally filmed “Machete,” which has a special sold-out Austin red-carpet premiere Thursday night at the Paramount Theatre.

Some opponents say “Machete” has an incendiary political message and shouldn’t qualify for funds, especially in light of the ruling on the “Waco” script, which Hudgins said was historically inaccurate. But backers of “Machete” — which, unlike “Waco,” is fictional — say critics are jumping to conclusions about the new movie’s content, mostly based on a fake trailer from earlier this year, and see no reason for a denial of incentives.

“Am I thrilled at the prospect of having to tell the most prolific filmmaker in the history of Texas no?” Hudgins said recently. “No! I wouldn’t be excited about doing that. If I have to make that determination, I have to make that determination. I am not saying I am. But, gosh, you know especially when these filmmakers have brought so much to Texas.”

As Hudgins knows, Rodriguez is one of the biggest filmmakers in Texas history.

Since his 1992 feature film debut, “El Mariachi,” Rodriguez’s movies have grossed more than $620 million, according to thenumbers.com, a website that tracks box office totals. That kind of success translates into jobs for Texas film professionals.

And that was the point when the Legislature passed in 2007 — and then strengthened in 2009 — a bill that would increase incentives for people who spend money making movies in Texas.

The debate over providing incentives for “Machete” started in May, when Rodriguez’s Troublemaker Studios released a trailer for the high-profile production, which stars Danny Trejo, Michelle Rodriguez, Robert De Niro, Lindsay Lohan, Jessica Alba, Don Johnson and Steven Seagal. The trailer, which came out just after passage of a new immigration law in Arizona, featured one of the stars, Trejo, saying he had “a special Cinco de Mayo message to Arizona.” He then proceeded to use a variety of weapons in inventive ways.

The clip ignited a controversy about the content and potentially incendiary political message of the movie.

KLBJ radio talk show host Alex Jones, who said he received a final script of the movie a few months ago, raised some of the earliest questions, telling the Fort Worth Star-Telegram in May that funding should be denied. However, he recently told the American-Statesman that he has changed his mind, even though he still thinks “Machete” paints white people as a “bunch of blood-thirsty, foaming-at-the-mouth killers” and “reflects bad on Texas.”

“I support tax incentives for industry and for film and the arts,” Jones said. “Robert Rodriguez has a right to make any movie he wants. If he’s putting out this hard-core, race war film — if he’s releasing it the way the script states — I think it should get its funding, but they had better remove any controls off of any other films. … If they let this go forward and give it funding but then block other things, it’s outrageous.”

Hudgins acknowledged that the immigration-themed trailer raised eyebrows and caused alarm, but he’s recommending that people not rush to judgment.

“For whatever reasons, Robert chose to make that trailer, and that’s his right and privilege to do,” Hudgins said.

“But I never thought that that trailer was truly representative of the story that was going to be in the final product. I have to make my determination on the final version of the film. I have to be Switzerland about it until they say, ‘Here is the final version of the film, and please watch, Bob.’”

Rodriguez has 60 days after the spending for the production of “Machete” has ended to submit the movie to the Film Commission for review. And Hudgins said it could take months to decide whether “Machete” qualifies for incentives. As with “Waco,” which focused on the 1993 Branch Davidian siege, Hudgins said the final decision rests with him.

“I have to do my best in making a determination on the intent of the Legislature. It’s not as cut-and-dry,” Hudgins said of his upcoming decision. “Wouldn’t it be nice if we lived in that tidy little world where all the decisions were easy and black and white. But, you know, with this program comes this responsibility.”

My advice to Hudgins: let the process take as long as possible until after the mid-term elections are over.  Once immigration dies as a wedge issue for the election, no one will notice what the Texas Film Commission grants funds to.  Rodriguez is one of the only film icons in Texas’s corner and the state should not be pissing him off if the goal of the incentive is to lure AND RETAIN production already here.  The man is, after all, a Texan.

And while the milk folks bent over backwards to justify the shoot and defend themselves, albeit with some good points (which I respect, honestly), someone over there should have been saying “so what! what the hell were you thinking?!”  That they could not have foreseen the outcry over their decision to shoot in Middle Earth….well, the incompetence is breathtaking.

The AP article Lauren sent along reports:

SACRAMENTO, Calif.—Television commercials promoting California tourism and agricultural products must be filmed inside the state under a bill now going before Gov. Arnold Schwarzenegger.The Senate approved a bill Monday by Sen. Alan Lowenthal requiring that taxpayer-funded ads to promote the state also help boost California’s jobs and economy.

Democratic Assemblyman Ted Lieu of Torrance introduced the bill, AB1778, after the California Milk Advisory Board filmed part of a “happy California cows” campaign in New Zealand.

Lowenthal, a Democrat from Long Beach, carried the bill in the Senate, where it passed on a 24-12 vote without debate. It now goes to Schwarzenegger.

It is available in the “Report Library” under Louisiana and is also available HERE.

I told Brent that it is one of the better articles on incentives I have read in a while because of the large number of people he interviewed for the article, all of whom seem to know what they are talking about…unlike me .  Please take the time to check it out.

So what is the good news?  Apparently, it looks like they will owe less than feared to unfunded film projects that were trying to qualify for Iowa’s incentive.  In fact, it’s a LOT less:  instead of a maximum potential hit of $330.5 million (wow!), it’s now “around $200 million”:

TRAVERSE CITY, Mich. — For generations, Americans viewed films in stately, single-screen theaters that were pillars of city business districts — an experience that faded with the rise of suburban multiplexes and the decline of downtowns.

Michael Moore wants to bring those theaters back. The Academy Award-winning documentary filmmaker has a plan to refurbish or prop up downtown movie houses in his home state of Michigan — and eventually nationwide.

The way to rescue downtown movie houses, Moore says, is to run them as nonprofit ventures staffed mostly with volunteers. That slashes costs and gives the community a stake in the theater’s survival, he says.

Moore plans to provide grants and training to theater operators who use those methods.

The best part is how Moore plans to pay for this:

The money would come from a fund he’s creating with his rebate from a state film tax credit earned by producing his documentary, “Capitalism: A Love Story,” in Michigan. He expects the refund to total about $1 million.

“One of our goals is to create an economic boost, particularly in struggling downtown areas,” he told The Associated Press this week during the annual Traverse City Film Festival, which he and others established six years ago. “Another is to save the art of cinema and encourage great films to be made.”

To be fair, I was a somewhat critical of Moore when I learned he qualified for the incentive, seeing as he was opposed to the incentive program initially.  However, I think this plan is laudable and, perhaps, the best use of an incentive rebate to date (considering that it will directly benefit Michigan).  Not everyone shares this view, however, and the Mackinac Center for Public Policy remains critical:

Michigan’s film industry tax credit is one of the nation’s most generous, refunding up to 42 percent of a company’s qualified expenditures. Moore said the $1 million he expects to receive will become seed money for his grant fund and he hopes other filmmakers who shoot in Michigan will contribute.

Michael Jahr, a commentator with the Mackinac Center for Public Policy, a free-market think tank in Midland that opposes Michigan’s film tax incentive, said Moore should use his own money to revive downtown theaters.

“In effect, he’s taking a windfall he’s gotten from taxpayers in an economically depressed state and turning around and handing that out,” Jahr said.

Moore said Mackinac was conducting a smear campaign:

Moore said the Mackinac Center puts “out misleading and false statements to smear good people who do good things.”

While I am not going to accuse Mackinac of such, I do think they could at least recognize that what Moore is doing will directly benefit the state.  It’s certainly good press if nothing else and might encourage other filmmakers to take similar actions with their share of a film rebate.  As Moore said, Michigan is trying to save itself:

“One theater is not the be-all and end-all to create an economic recovery,” Moore said. “But our state is deep in the toilet and the rescue party is not coming and the only way we’re going to work our way out of this is to essentially save ourselves.”

Let’s start with the article’s second & third sentences:

In the 1990s, filmmakers often traveled to Canada.  But that eventually became less fashionable, and these days the industry is migrating in a different direction — to Louisiana. “L.A. South” has become the go-to spot for shooting movies.

First, filmmakers have “often” been traveling to Canada for decades, not just the 1990′s.  Second, Canada really took off as a filming destination in 1997, when the first major film incentives were put in place there; Toronto did well and Vancouver was dubbed “Hollywood North.”  Filmmakers did not (do not) go to Canada because it’s “fashionable”, they went there because the film incentives were too generous to pass on.  Economically, it was just the smart thing to do, if nothing else.   If Canada is capturing fewer US productions now, it’s not because it “became less fashionable”…it became less attractive financially due to the race to the the bottom in the US.  And what is this whole “L.A. South” BS?  I think they use and prefer “Hollywood South”, but I digress.

Perhaps the fourth sentence is less problematic…perhaps not:

Even before the economic recession hit Hollywood, the state of Louisiana had been quietly gaining stature as the place to make quality movies and stretch dollars.

Has the recession “hit Hollywood” all that hard?  Certainly the L.A. industry workers have seen better times, but that’s not because the economy was better or worse…they see less work now because other jurisdictions are spending millions to steal an industry.  The major studios and the conglomerates that own them (with the exception of MGM) are doing fairly well.  The box office had a record year in 2009 and while DVD/Blu-Ray sales are not seeing the record growth they had in the past, they are still essentially static (at some point, Americans can’t grow their film collection if they own all the movies they want).  As for the claim that Louisiana has “quietly” gained stature as a film location?  Maybe it’s news to many Americans, clearly  USA Today was out of the loop until now, but in the film industry, news of Louisiana has been anything but quiet.  Being “quiet” about the incentives in Louisiana is not how the state became the third largest filming center in North America.

It seems to me like the article had an identity crisis about how to characterize Louisiana:

The state subbed for Texas, Colorado and New Mexico in Drive Angry, Lussier says.

The consummate versatile character actor, Louisiana has also played Utah, Washington, D.C., and London. “The film industry wants to find places it can reinvent and make look like anything it needs,” Lussier says. “There’s a lot of opportunity do that in Louisiana.”

The subsequent heading in the article was titled “New Orleans as ANYTOWN, USA”.  In my opinion, most people have a love affair with New Orleans because it is not “anytown”, the Crescent Moon City, its French Quarter and the dynamic rebuild of the Ninth Ward are unique and distinct.  It’s not that New Orleans or Louisiana can’t sub for “anytown” or even “anynation”–it has.  But virtually anywhere movies are made can serve as proxys for “anytown”, Los Angeles comes to mind.  In short, filmmakers are not flocking to Louisiana because they celebrate its generic nature.  Why is Louisiana so “fashionable”, according to the article:

Those who have shot there point to several factors contributing to the region’s appeal: diversity of scenery, financial incentives and proficient crews.

I’ll address the “diversity of scenery” in a moment.  As for the “proficient crews”, while the state has made progress of growing a small Louisiana-based pool of industry workers, much of the filming taking place there in recent years brought in their out-of-state film crews with them.  In fact, I wrote about efforts in the state to relocate California film workers to Louisiana HERE.  Let’s face it, no doubt Louisiana offers a flavor and charm for some films, Benjamin Button comes to mind, but the ONLY tangible factor “contributing” to Louisiana’s appeal to filmmakers are the film incentives.  Period.  And while the article does acknowledge the film incentives, it seems to downplay their significance.  Most of article gushes on how charming and versatile the scenery is and the segment on the tax incentive is buried deep in the article and factually inaccurate:

Tax incentives best in USA

The hauntingly creative vibe may be palpable, but the bottom line is equally alluring.

The state offers the most competitive economic and tax incentives of any in the country. A system of financial perks was enacted after Hurricane Katrina destroyed $81 billion in property and killed 1,836 people in 2005.

“We approached it like a business, and it keeps (filmmakers) coming back, based on our reliability and stability,” Stelly says. “For every dollar you spend in the state, we’ll give you 30% back (in rebates). And we give you an additional 5% for hiring Louisiana residents on productions.”

Tax incentives can be sold as credits or used to offset personal or corporate income tax, he says.

“As things get more expensive, you have to go wherever you get the budget relief,” Lussier notes. “You can no longer use Mulholland Drive for your backwoods road movie.”

If “best” tax incentive means the biggest, then Michigan beats Louisiana by a wide margin.  Louisiana is among the most competitive, but it’s tied with places like Georgia, Massachusetts, Connecticut etc.  That the USA Today would get such a fundamental fact wrong is inexcusable.  Do they fact check anything over there?

Like most sweeping articles about the Louisiana film industry, this one included some discussion on how Hollywood is helping rebuild the state after Hurricane Katrina in 2005.  But here again, there are problems:

There is also the sense among filmmakers that they are helping an area that sorely needs a hand in bouncing back from one of the worst natural disasters in history.

“Louisiana has been through so much, and I’m glad to be able to make a film there,” says Nicole Kidman, who is shooting the 2011 film Trespass in Shreveport this summer with Nicolas Cage.

“The economy desperately needs the film business,” Lurie says. “And it’s fantastic watching people get employed. We hired a thousand people to be extras and put a couple of hundred bucks in their pockets, and that’s helpful to the economy. The film commission is among the most proactive I’ve ever seen.”

Between that obliging spirit and the financial incentives, Lurie says, “It doesn’t pay to make movies in Los Angeles anymore. You can save too much money by going out of town.”

I have no doubt that many, if not most, Hollywood celebrities and above-the-line people like directors or producers are genuinely altruistic and think they can only be helping the poor and battered state of Louisiana.  And no doubt, any Louisiana resident who is gainfully employed by the industry will also feel like Hollywood is lending a helping hand…they have a job when many do not, after all.  But what is the cost of this perceived good will?  Would a new Louisiana film worker feel the same way about this perception if they met their California-based counterpart who is under-worked, if not unemployed because of the state film incentives hollowing out Hollywood?  And while I am sure Nicole Kidman has a good heart, her comments rang hollow to me.  She is not making a film in Louisiana to help the state recover, she is in Louisiana shooting a film for the same reason she shot “Cold Mountain”, the US Civil War epic, in Romania:  economics.  On that shoot, extras in her movie were compensated less than for the use of a goat.

In almost every state that has a film incentive, backers of the program talk about how their economy “needs the film business.”  I am very sympathetic to the hard economic times around the nation, some places even more than others.  But the only economy (sans perhaps New York) that “desperately needs” Hollywood is, in fact Hollywood and California.  Thousands of jobs now going to Louisiana or Iowa or Michigan etc. means they were taken, or come at the expense of, the jobs, careers and, often, the family legacies of thousands of skilled Hollywood craftsmen and artisans who made Hollywood a defacto center of the world.  True altruism and an “obliging spirit” to help should be those in the industry committed to it’s home and core in California.  People like Micheal Bay, John Favreau, Joss Wheedon and so on are better examples of an “obliging spirit,” at least towards the industry they work in.

I do think the article was tapping into something real, however, with the following:

The combination of skill and energy is something particularly appreciated by those coming from Hollywood.

“In L.A., everyone is exhausted by the film business, with all the noise and shooting at night,” Stamm says. “Down there, everyone is not jaded. There is still an enthusiasm about the whole thing.”

Without a doubt, one of the biggest problems for Hollywood and L.A. is that people there, the larger community, takes the industry for granted.  Hollywood films are not new or exciting to many, they are a reality of every day life that has been there before most of them were born.  Perhaps now that California is getting an idea of what it means to lose the magic of movies, they will be shaken from apathy and learn to fall in love with the industry all over again.  And I think there are signs this is finally happening.  In the following bit, I got the sense that enthusiasm was not prompting industry workers to move to Louisiana, but rather basic survival.  As the property master mentioned below said, they “have to go where the work is”:

So much enthusiasm, in fact, that some Los Angeles residents have moved south with the jobs.

Producer Joshua Throne made several films in the state, the latest being The Expendables. He has homes in both Louisiana and Los Angeles. Throne’s next project is The Technician, co-starring Kevin Bacon and Kurt Russell, which will shoot in Louisiana in January.

“There’s such a zest for life here,” he says. “There’s lots of good food, good people, wonderful history, and it still has the Southern charm.”

Lewis and his wife also have made the move to New Orleans. “I love L.A., I really do,” he says. “And I’m sorry that productions are running away from L.A., but this is a really easy and cost-efficient place to make movies.”

Ed Borasch Jr., a property master, moved from Southern California. “I have to go where the work is,” he says. “It’s just so much nicer and quieter here, and the traffic’s not as crazy, and the people are super friendly. You feel like you’re welcomed here. I lived in Los Angeles for 15 years, and that was a great run for me, but the work dried up, and now my time is here.” Meanwhile, he’s gotten married, had a baby and laid down roots.

There was absolutely no mention whatsoever of cost concerns for financing the film incentive or whether it’s a sound public policy option given budget shortfalls, which really did not surprise me.

In any event, Governor Schwarzenegger’s office released a press release on July 30th about the film incentives contributions to the state.  At first glance, I was rather taken aback by the claim that the spending for incentive-qualified projects was “estimated  to bring $2 billion in direct spending to California communities.”  How could a $100 million-per-year program result in $2 billion worth of direct spending?  In fact, the $2 billion estimate is based on roughly $300 million of incentive qualified spending for roughly 107 projects over several years.  In other words, yearly direct spending from incentive-qualified projects is not $2 billion:

In its first year, the California Film Commission, which administers the Program, allocated $200 million in tax credits to 77 projects. This year, another 30 projects are set to receive an additional $100 million in tax credit allocations. Together, they are estimated to bring $2 billion in direct spending to California communities, which includes $736 million in wages paid to “below-the-line” crew members (electricians, grips, drivers, costumers, etc), according to data compiled by the Film Commission.

If the economic value of film incentives is questionable (in terms of if they generate or drain revenue or are neutral), their ability to create jobs (permanent or not) is beyond question.  That said, the employment numbers from the California Film Commission seemed rather extraordinary:

The California Film Commission reports that the 77 first-year projects approved for tax credits will hire 18,200 crew members, 4,000 cast members, and over 100,000 background or “extra” players. These approved projects include 51 feature films, both studio and independent, seven television series and 14 made-for-television-movies.

If these numbers are accurate, then it is great news for California as it fights to stem runaway production.  And since California (and perhaps New York) is the only state fundamentally threatened by runaway production, I like to say that it is the only state that can legitimately claim its film incentive is actually a weapon to fight runaway production.  In states of opportunity (LA, NM, MI etc.), on the other hand, film incentives have been enacted to cause runaway production…not prevent it.

The employment data and direct spending numbers from California still seemed almost too high to me and I decided to compare the initial success to that seen in Louisiana.  In 2007, roughly 74 projects shooting in Louisiana were credited for the creation of   6,230 direct and indirect jobs.  This is less than half of the “18,200 crew jobs” (which I assume means just direct jobs) attributed to the 77 projects in California.  However, of California’s 77 qualified projects, 51 were feature films whereas in Louisiana, the number of feature films that qualified there in 2007 was roughly 19.  Assuming feature films employ much greater numbers than tv shows or other projects, this alone could explain why California’s employment success was seemingly much greater.

The following is from the 2009 ERA Report for Louisiana:

the State of Louisiana will issue an estimated $115 million in tax credits for projects with certified and estimated expenditures incurred during 2007. Combined these projects had an estimated $429 million in qualified expenditures which generated a total economic benefit to the State of $763 million. This represents an economic stimulus of $6.64 for every $1 in tax credits issued for qualifying motion picture expenditures during 2007. This has grown 4.6 percent since 2005. The $115 million in tax credits supported the creation of 6,230 jobs (direct + indirect) throughout the state. These jobs paid an average annual salary of $32,690 at the cost of $18,460 in tax credits each during 2007. The State of Louisiana directly received $14.6 million in taxes and fees resulting for the $763 million in economic output.

One researcher who questions the value of the escalating incentives war calls the dynamic, “sexy meets desperate.” Others call it a potential “race to the bottom,” where too much of the economic benefit is given back.

“You can have a project set for Savannah, and if Charleston offers a higher subsidy, (the producers) will pack their trucks and move in a day,” said film incentives researcher Susan Christopherson, a professor at Cornell University. “They are looking for film finance; they are not looking for an alternative Hollywood East.”

Is Illinois getting bang for its buck?  In three years, from 2005 to 2008, the state paid out almost $40 million under the film incentive to projects that “generated more than $470 million in spending”:

Filmmakers spent $155 million in the state in 2007, the peak year, up from $25 million in 2003, the year before the incentive program started, according to data from Chicago’s film office. An equivalent of 4,262 full-time jobs were created by various projects in 2007, when projects included a Batman film, “The Dark Knight,” which spent $35.6 million on everything from car rental and catering to carpenters and security.

Other than “The Dark Knight,” Chicago played host to filming for “Transformers 3″, which one producer said would likely have chosen to shoot in Illinois with or without the incentive:

Ian Bryce, one of the producers of the “Transformers 3″ sci-fi action film, painted a softer picture, saying the film likely would have come here without the incentive because of the skyline, the architecture and the skilled crews here, among other factors. “You never know,” he said. “But it’s kind of moot; we knew we were going to get a rebate.”

I am inclined to believe they would have shot in Chicago regardless of the film incentive, seeing as they were also shooting in Wisconsin (which has no incentive) and shot in Egypt (also sans incentive) for “Transformers 2″.  Nevertheless, “Transformers 3″ did qualify for a likely $6 million credit for roughly $20 million worth of Illinois shooting.  Not a bad deal for the robots.

Not a bad deal for the robots, but what about the state?  Again, Bergen gave voice to incentive critics, including Christopherson, who had my favorite quote in the article (its highlighted):

Still, a number of researchers say the costs associated with luring filmmakers to locales are significant and growing. There are the hard costs: Potential tax money that never makes it to strained state coffers. And there are the less tangible costs: Could this money have been spent in more economically productive ways, perhaps on education or social services, or on industries that produce more permanent jobs?

Some observers say such costs often are overlooked in policy discussions because the high visibility of the film-subsidy programs are so appealing to politicians.

“They can say, ‘Look, we’re bringing “Transformers 3,” or outside our windows, there’s “The Dark Knight,”‘” said John Nothdurft, a budget and tax legislation specialist at the Heartland Institute, a free-market research organization. “It’s something the government subsidizes that everyday people can see.”

“I’m sympathetic to the need to create jobs, but these are not a good investment 90 percent of the time,” said Christopherson, of Cornell. “The problem is, this creates work, it doesn’t create jobs.”

To read the entire article, click HERE.

California, home to Hollywood, is arguably the most significant cultural production center in the world. No other location on earth, past or present, can match the global cultural influence that Hollywood and, by extension, California can lay claim to, if only in terms of the sheer number of people it reaches. In addition to being the Mecca of the motion picture industry, California captures large swaths of the recording industry and is home to Silicon Valley, whose digital and high-tech advancements are employed by the film and television to create groundbreaking special effects and filming techniques that were simply impossible to do 15,perhaps just 10 years ago. California offers unmatched depths of talent. Despite these advantages, continued hegemony is anything but certain.

Thus, it was music to my ears when I read the following in the Milken report:

Whether it’s programming from studios in Burbank or cutting-edge special effects and animation conjured up by digital artists in the San Francisco Bay Area, film and television production is a significant part of the California economy—and a bedrock element of the state’s identity and image. But past and present dominance is no guarantee of future prosperity.

Make no mistake: Motion picture and television production in California remains strong. Hollywood is still the clear leader in terms of economic output and innovation, and California’s industry employment levels dramatically outpace the rest of North America. The state’s robust infrastructure and critical mass of talent in all aspects of the industry, combined with strong allied industries, have contributed to maintaining its supremacy.

But California’s mantle is slipping. Once upon a time, Hollywood’s highly centralized studio system gave rise to such a concentration of infrastructure and talent that the state had a virtual lock on the majority of film production. But that structure is a thing of the past, and today production is highly mobile.

This tone, which conveys a sense of urgency in the face of lingering complacency, has not been typical in much of the literature.  Adding to the sense of urgency, the Milken report claims that California’s inability to stem runaway production has cost the state thousands of jobs and billions in lost wages and economic output:

The state’s share of North American employment in the movie and video industry (encompassing production, post production, and independent artists) has declined from 40 percent in 1997 to 37.4 percent in 2008.

If California had managed to retain the 40 percent share of North American employment it once enjoyed, 10,600 jobs would have been preserved in the state—more than 6 percent of the 2008 industry base. (In 2008, the state actually had 166,775 jobs in this industry. In the hypothetical scenario with its share maintained, it would have had 177,380 jobs.)

The 10,600 jobs that would have been retained in this scenario would have in turn generated an additional 25,500 jobs after rippling through other sectors, for a total impact of 36,000 jobs.

Similarly, the preserved wages and output would have totaled $2.4 billion and $4.2 billion, respectively, after rippling through other sectors.

The 10,600 jobs that would have been retained under our hypothetical scenario would have paid nearly $92,000 annually on average, with the additional indirect jobs yielding an average annual wage of $56,000. The output per employee associated with the direct jobs in the industry would have averaged nearly $149,000.

The Milken report also proposes some specific policy options to combat runaway production in California:

Specifically, in order to continue to thrive as a leader of film and television production, California must:

• develop a series of production incentive programs designed to keep all types and sizes of productions in the
state, whether they are network broadcasts, cable television shows, commercials, independent films, or studio
blockbusters
• adopt policies to encourage long-term investments and upgrades in infrastructure and technology at production and post-production facilities. As competing locations continue to improve their facilities, California needs to provide incentives for studios and companies to invest within California, not elsewhere.
• make tax incentive programs permanent, thus creating a stable policy environment and signaling long-term
commitment
• consider implementing a new digital media tax credit to attract and retain developers of digital animation, visual effects, and video games
• empower key ombudsmen positions at the state and local levels to simplify and expedite the permitting
process. This has been done successfully in other states and countries, and needs to be done here.
• educate politicians and the general public alike about the economic importance of the film industry, focusing the message on job creation and investment, not just the appeal of the end products

The report acknowledges the massive deficit crisis facing California and offers a fairly pragmatic response, which I appreciated:

Unfortunately, the current economic picture for California is not pretty. Given its gaping budget deficit, there’s no denying this is a tough time to afford any additional tax breaks—but in this case, California can’t afford not to. The state can’t squander any opportunities to retain and add significant numbers of high-paying jobs. Given the trends we have seen over the last decade, the long-term payoff that would be realized by shoring up a major industry far outweighs the short-term cost to revenues.

The state should not attempt to match incentives from other locations that provide large upfront cash advances and unsustainably large film credits. Given California’s current fiscal state, this approach is infeasible. However, by providing somewhat expanded and more effectively targeted credits that lower the cost of production to a reasonably competitive level, California will position itself to win over producers based on its strengths in human capital and facilities as well as its reputation for excellence.

Even if tradition keeps the headquarters of the main studios and production houses in the state, it will mean very little if all of the actual production work is done elsewhere. Over the past few decades, California has watched a number of its major industries pack up and move to greener pastures. Los Angeles County, in particular, was once a leading center in financial services, aerospace, and the garment manufacturing industry—but these have all eroded sharply. Especially in the current climate, California cannot allow another key industry to slip away.

Again, the Milken report reminded me my own writings, such as my exchange with LA Times Columnist Micheal Hiltzik (available HERE) and an earlier opinion piece I wrote HERE.

I did have some problems with the Milken report.  There was no mention, much less a discussion, of the actual cost of state film incentives to their respective state treasuries.  That said, the report, in not arguing film incentives actually create revenue or, conversely, drain it, it could be seen as neutral and, therefore, objective.

The bigger problem I had with the report was the multiplier it employed to arrive at the numbers of lost jobs, wages and output.  The report claimed “California’s film industry employment multiplier is nearly 3.5—that is, for every job created in California’s film sector, another 2.5 jobs are created in other sectors.”  This is on the very high end of multipliers used in the majority of film/runaway production reports/studies.  And, therefore, the multiplier used in the Milken report will be criticized as overblown immediately.  In her 2002 report prepared for the California Legislature, Dr. Martha Jones offered a sampling of multipliers employed by various sources:

Economists calculating the multiplier to apply to the film industry come up with vastly different numbers; most range from 1.724 to 3.6.

·  The lowest of these multipliers is 1.724, which the Department of Commerce’s Bureau of Economic Analysis computed for “amusements and recreationalservices” in the National Income and Product Accounts. This number representsthe 1998 output produced by all industries in order to provide one dollar ofamusements services to GDP. In 1996, the amusements multiplier was 1.798.

·  The Monitor Group used a multiplier of 3.1 for wages and a multiplier of 3.6 for goods and services in its report on runaway production. These numbers are taken from RIMS II model, created by the Bureau of Economic Analysis. RIMS II stands for Regional Input-Output Modeling System II.

·  Ernst & Young questioned Monitor’s use of the RIMS II multiplier, asserting that more appropriate multipliers are 1.99 for California and 3.02 for the U.S.

·  Arthur Anderson Economic Consulting used a multiplier of 2.12 for income and labor effects in its study of independent filmmaking, done for the American Film Marketing Association.

·  Economics Research Associates used multipliers of 2.33 for output and 2.61 for earnings effects in its study of television commercials in Chicago.

·  The Boston Consulting Group’s June 2000 study of traditional media business in New York City surveyed all aspects of media spending, from pre- to post production and all types of media. The study showed that traditional media direct spending was about $5 billion per year and total direct and indirect spending was
about $10 billion. This assumed a multiplier of 2.0.

·  The Center for Entertainment Data and Research (CEIDR) estimated that a $610  million increase in Canadian film production in the year following the enactment  of their tax incentives would produce over $2 billion in economic activity. CEIDR used a multiplier of 3.3.

That said, I am not an economist.  I have no idea if the multiplier used in the Milken report is too high or not.  It is, however, higher than most.