Thu August 29, 2013
Paying For Film, Part 2: What We're Spending
One billion dollars. That's what production companies have spent filming in the state since 2007.
Now here's another number: $100 million. That's about how much the state has paid those companies in incentives in that time.
Good deal, right? Spend $100 million to get one billion? But there's more to the story.
When you file your taxes each April, you claim a bunch of credits: your kids; your house; your charitable giving, so you can get a refund on some of what you paid into the system. It works the same way with tax credits we give businesses to incent them to come to North Carolina: they pay taxes and the state gives some of that money back - with one notable exception.
That word "refundable" is tricky in this case, so forget what you think it means and just know this: film production is the only industry in North Carolina that can take more money out of the tax coffers than it puts in.
That's the nature of a refundable tax credit.
"So, as a result, we're paying out a lot of cash directly to the film industry, rather than - as we do in all our other tax credits - forcing the company to gradually use their tax credit over future years," says Lane.
Here's how it breaks down: The North Carolina Film Office estimates production companies have spent about one billion dollars in the state since 2007. (The NC Department of Revenue doesn't release payroll and sales tax data on individual businesses so all we can do is estimate what film companies have paid in taxes.)
Based on NC Film Office director Aaron Syrett's "back of the napkin" evaluation, about $600 million of that $1 billion in spending went toward wages.
The crew and stars who earned that money paid something like $42 million in North Carolina income taxes. The rest of the $1 billion went to buy whatever it takes to make the magic of Hollywood. Film companies paid sales taxes on that stuff.
The total guesstimate is about $67 million film companies paid in state and local taxes since 2007.
But during that same time, North Carolina has written checks to film companies in excess of $110 million. So as a state government, we're down at least $40 million.
What's more, says Lane, "In the tight budgets North Carolina has right now, one of the most disquieting aspects of our film incentive program is that there's no limit to what it may cost us."
Any movie, TV show or commercial to come here, and spend at least $250,000 can turn around and get 25 percent of its money back at the end of filming - up to $20 million per project.
There's no cap on the number of film projects the state will fund in a year. Just since 2010, North Carolina payments to film companies have increased sevenfold.
Some state leaders have begun to wonder whether we can afford to keep offering this deal to Hollywood, but Aaron Syrett at the film office says studios follow the money: Stop offering incentives and they'll just go to some other state.
"You just have to ask yourself this question," says Syrett. "Either you want this business in North Carolina or you don't. It's that simple."
The epicenter of Hollywood in Charlotte these days is an industrial park off Sunset Road where Showtime's Homeland has set up shop in a 94,000 square foot warehouse and Cinemax's Banshee is in a similar warehouse across the street.
Were it not for North Carolina's film incentives, "Homeland would be somewhere else," says Michael Klick, co-executive producer of Homeland in Charlotte.
Inside the warehouse, Klick weaves through darkened sets representing various rooms in the homes of Homeland's main characters.
"And all this stuff to the west over here is the CIA," gestures Klick as we weave toward the back of the building.
This is where the benefits of film incentives are most obvious. Lumber, paint, costumes, props – most everything it takes to convince you that what you're seeing on screen is actually CIA headquarters instead of a warehouse in Charlotte – is purchased from North Carolina businesses that use the revenues to pay their employees, who turn around and pay taxes and buy houses and so on.
The state government may be losing money on film incentives but communities where the filming takes place often stand to gain.
At the back of the warehouse, crew members scurry around a "safe house" set moving cameras and lights.
"Most of the time when we have a safe house it means somebody's gonna die in it, but somehow this safe house actually ends up being safe," says Klick, chuckling.
One of the show's stars, Claire Danes, is getting her make-up fixed for the next scene. Mandy Patinkin walks by and heckles Klick in the middle of an interview.
Apart from the stars, the director and some other high-level creative types, Klick says most of the people working on Homeland are locals. They'll earn an average of $50,000 in the six or seven months it takes to film a season.
The North Carolina Film Office estimates the number of people in the state working full-time in film has more than doubled to 4,000 since the incentive program kicked in six years ago.
But filming for the third season of Homeland is winding down. In a month or so, Klick will kill the lights, unplug the generators keeping this warehouse cool and head back to L.A.
"We're very much gypsies," says Klick. "The circus comes to town and we do what we do and when the season is over, or the show is over, we go away" leaving a plain, old warehouse behind.
This is the other big difference between the way North Carolina treats the film industry and other kinds of businesses that get incentives from the state.
"Right now the way the incentive program is being run, it doesn't leave much of a legacy," says Wells Fargo senior economist Mark Vitner.
Take Chiquita Brands International: It had to promise to keep its headquarters in Charlotte for ten years and create 400 new high-paying jobs in order to qualify for incentives of up to $22 million. The payments will come only as Chiquita pays taxes and meets certain milestones over the next ten years.
But a film company? All it has to do is spend at least $250,000 in North Carolina. And in the case of a TV series, the spending clock restarts every season.
"Sort of like the little hamster on the spinning wheel – it doesn't get us anywhere," says Vitner.
And Brent Lane of the Kenan Institute says it's like we're renting the jobs, rather than buying them: "The simple question should be asked: Why is the film industry, and jobs they may or may not create, somehow more worthy than all the other industries in the state?"
That's a question North Carolina lawmakers will have to answer before the end of next year when the film incentives program is set to expire. And they're not alone. After years of escalating their incentives to outbid each other, half a dozen states have recently scaled back - or suspended - their programs.