June 13, 2013

Bill would woo movie, TV production companies with tax break

Financial incentive sought to augment state's natural beauty, unusual quality of light as lure for production companies

By Bob Keyes bkeyes@pressherald.com
Staff Writer

Neal Baer never considered filming his TV adaptation of the Stephen King novel "Under the Dome" in Maine. He took the production to North Carolina.

click image to enlarge

Eric Matheson is working to convert the South Portland Armory, seen here on May 22, into a movie sound stage.

Maine Sunday Telegram photo by John Patriquin

"There are no financial incentives to shoot in Maine," said the TV producer, who is best known for his work on the shows "ER" and "Law & Order: Special Victims Unit."

"These shows are like a bee going to nectar," Baer said by phone from Los Angeles. "We leave L.A. and go to states that have the best incentives."

Right now, those states are North Carolina, Louisiana, New York and Massachusetts. When "Under the Dome" airs on CBS beginning June 24, viewers will see scenes shot in North Carolina even though King set his book in a fictional Maine town, Chester's Mill.

A bill before the Legislature might prompt Baer and his Hollywood colleagues to reconsider Maine as a destination for their TV shows and movies.

The bill, L.D. 1409, formally known as "An Act to Promote Tourism and Foster Economic Development," is designed to lure major movies and TV shows to the state.

Among other things, it would offer a refundable income tax credit up to 25 percent if the overall budget is more than $1 million. A previous provision that would have allowed a 35 percent credit for a movie costing $100 million or more was removed.

"It will be a game-changer, no doubt about that," said Rep. Scott Hamann, D-South Portland, who authored the bill. "Even people who may not be for it, they agree that passing this bill will lead to the creation of a major film in this state. We have to at least match other states if we want to be competitive. Right now, we're not even in the game."

Luring big players

The Maine House is expected to take up the bill this week.

As written, the Maine Visual Media Incentive Plan offers film, TV and commercial production companies that spend $75,000 or more up to a 12 percent rebate of wages paid to Maine residents working on a production, and a 10 percent rebate on nonresident wages. Filmmakers also can claim tax credits equal to 5 percent of nonwage production expenses, as well as breaks on lodging taxes, fuel and electricity.

By comparison, Massachusetts offers a 25 percent payroll credit and a 25 percent production expense credit. Pennsylvania and North Carolina also offer a 25 percent tax credit, while Nova Scotia offers a tax credit that ranges from 50 percent to 65 percent. The tax credits remove a portion of income tax owed to a state by a production company if it meets minimum spending requirements.

Movie production incentives vary by state, and range from tax credits and exemptions to cash grants, breaks on fees and refunds for expenses, including lodging for cast and crew. At present, 42 states offer them.

Proponents like them because they say incentives lead to economic development, job creation and tourism. Opponents argue that the cost of the incentives, mostly lost tax revenue, outweigh the benefits.

Both sides have recent studies to bolster their argument.

Many small, independent filmmakers choose Maine because of its natural beauty and unusual quality of light. If the bill passes, their big-budget brethren may have competitive financial incentives to go along with Maine's rugged coast, verdant forests and quaint small towns.

"We just need to level the playing field," said Joel Strunk, an independent filmmaker from Union who filmed his coming-of-age drama about a trio of boys who grow up together on a Maine island, "Anatomy of the Tide," in 2011 and 2012. He has finished the movie and is shopping for distribution.

Strunk spent $1.5 million making his movie, including $400,000 in and around Rockland on food, lodging and supplies. He raised almost the entirety of his budget through individual investors, who put up a few thousand dollars each.

It took him more than two years to make the film, shooting segments each time he raised enough capital. His total out-of-pocket expenses were $37,000.

"I hired the helicopter right off my credit card," Strunk said. "It's been beg, borrow and steal all the way."

Making a movie in Maine is challenging, Strunk said, because the state offers a relatively small incentive package to filmmakers compared with other states in the Northeast and the Canadian Maritimes.

Email records from the Maine Film Office, procured through a Freedom of Access Act request from the Portland Press Herald/Maine Sunday Telegram, showed that in the past calendar year, the vast majority of filmmakers who inquired about shooting in Maine were small, independent artists.

The dozen or so producers, directors and others who emailed the office mostly were curious about the process of applying for incentives or had questions about specific locations.

According to those records, the Maine Film Office had no contact with large producers such as Baer. That's because Maine is known in the industry for having poor to mediocre incentives, said Timothy Rhys, editor of the California-based MovieMaker Magazine and a former Portland resident.

Until those incentives improve, he said, filmmakers won't consider coming to Maine.

"Maine seems to be trying to attract filmmakers to the state by saying, 'It's Maine.' But that's just not the way films are made," Rhys said. "Lower-budget, independent films might have a shot with that kind of strategy, but it is not going to attract the big players.

"The game-changers are the feature films. If Maine had a string of those like Louisiana has had, like Massachusetts has had to some degree, then Maine could compete. Maine does not need to have the best incentives in the country, but it does need to be competitive. Maine's leaders have not allowed the industry to be competitive in a place where it should naturally be."

Maine enacted its first tax-break incentives for filmmakers in 2007 and has improved them once. Other attempts to beef them up have failed.

Moviemakers are waiting for an incentive package that provides tangible financial benefits before they will consider filming in Maine, Rhys said.

Questions about incentives

Incentives are a big issue in the movie industry, and they've become a hot-button topic in legislatures.

Louisiana was the first state to offer incentives for filmmakers, beginning in 1991. Other states followed, and now video production companies factor incentives into their budget-planning process.

"From our standpoint, we look at it as a key component to activating a production. It has become a part of how we put together our financing plans," said Brian Gary, a senior vice president at Sennet Entertainment in Los Angeles, which made the movie "Bag of Bones," based on another Stephen King novel, in Nova Scotia instead of Maine. "It's become intrinsic in how we put together film and TV projects."

House Speaker Mark Eves, D-North Berwick, promises a vigorous debate on L.D. 1409.

"The bill has merit," he said. "Anytime we look at doing something for the arts is a good thing for the state of Maine. It can be a niche that can fit right into what many people think of the state of Maine.

"But at the end of the day, we need to figure out how to fund it. That is where the challenge will come. There are a lot of competing priorities in the budget right now."

Rep. Lance Harvell, R-Farmington, authored a similar bill earlier in the session. Elements of his proposal were incorporated into L.D. 1409. "It's pretty bad when movies about Maine are filmed in North Carolina," Harvell said.

Advocates position film incentives as progressive economic development and a sound way to generate tourism and jobs. Detractors say the bill would give money to big-time movie producers from out of state. Numerous studies in recent years have questioned the cost and value of movie incentives.

According to an April report in the New Orleans Times-Picayune, the Louisiana Legislative Auditor's Office estimated that tax credits cost Louisiana almost $170 million in 2010. In return, it received about $27 million in direct tax revenue.

The Boston Globe reported that Massachusetts' film subsidy program cost taxpayers $44 million in tax credits in 2011 and created the equivalent of 1,200 full-time jobs. The Department of Revenue said most economic benefits went to Hollywood and other locales.

Only 35 percent of the $176 million that production companies spent in Massachusetts in 2011 went to residents and companies in the state, according to the Globe story. The state recouped just 16 cents in new tax revenue for every $1 it gave up in subsidies in 2011, the most recent year with complete data.

Massachusetts enacted its incentive tax plan in 2006. Since then, more than 40 movies have been made there, generating more than $1 billion in direct film-related revenue, according to one film-industry estimate. Among the big ones: "Gone, Baby, Gone," "Shutter Island" and "The Town."

It's worth noting that the opening sequence for "Shutter Island" was filmed at Acadia National Park in Maine; after that, the crew moved to Massachusetts.

Among those who question the value of incentives are Maine residents Bernard Martin and Cameron Bonsey, who lobbied to bring King's "Bag of Bones" to Maine. They worked with the production team from Sennet Entertainment and the Legislature to improve the incentives in 2009. They set up meetings among the producers, the author, then-Gov. John Baldacci and legislators.

Their efforts failed. Lacking a better financial package in Maine, Sennet took the film to Nova Scotia.

"Halifax doubled very well for us," Gary said. "Halifax looks a lot like Maine."

Gary urged legislators to think about incentives not as a subsidy for a wealthy industry, but as a jobs bill. Movies support skilled labor and help create jobs, he said.

To demonstrate that point for a skeptical state, Gary said his company paid a local crew in Arizona its per diem wages with $2 bills. The company asked merchants and local policymakers to track the greenbacks.

"Within four or five days, those $2 bills were everywhere -- in restaurants, bars, movie theaters, gas stations, clothing stores," he said.

King declined an interview request for this story, but a spokeswoman for the Bangor-based horror writer said he remained committed to the cause.

"He would love to have more movies made here, but there is not much you can do," King aide Marsha DeFilippo said. "As they exist now, the incentives are just not enough to entice moviemakers to come here."

Martin and Bonsey both have reconsidered their support for overly generous incentives.

"I believe less and less in film incentives as I go along," said Bonsey, a former TV producer who works in marketing in Portland. "I think it's silly to simply pass incentives to bring projects to Maine. Yes, there is an economic impact, but I think you really have to look at what a project does to market Maine."

Rather than enact sweeping changes to the incentive package, Maine might be wiser to choose a single major movie project to support, and test the economic effect of more generous incentives, Martin said. That way, with hard evidence in hand, movie advocates would have an easier time proving to legislators and skeptics that incentives not only bring movies to the state, but help create jobs and spur tourism.

"Let's find a project that we like and that we could bring to Maine, put the resources behind it and make it good for the producers and for the state of Maine, then take a surgical look at how the project represents the industry and see how well it does for Maine -- or not," Martin said. "Let's do it once, evaluate it, and then figure out where to go from there."

Bonsey suggested capping incentives and creating a film board to evaluate the merits of each project that applied for tax incentives.

"I think we should pass some legislation, but limit it and set up parameters," he said. "Maine is a beautiful place. We have wonderful lighting and great scenery, and so many different things that Hollywood producers love.

"We don't want to just give that away. We're unique, and we should celebrate that uniqueness. We need to come up with an incentive plan that is not like every other state's incentive plan. We should have one that's unique."

'Guaranteed to create jobs'

Eric Matheson, founding partner of Fore River Sound Stage in South Portland, testified in favor of the bill in April. He said he was encouraged by the tenor of the conversation in Augusta. As are others in the industry, he is frustrated that Maine's incentives have stifled the market for filming in Maine.

He believes the bill would create jobs and put Maine tradesmen to work. "We've got people all over the state who are really, really good, and they're ready to work," he said.

Toward that end, the Maine Film Office recently updated its online production guide, which lists all the qualified talent in Maine. That helps video producers gauge the quantity and quality of labor in the state who are available for hire.

Matheson is busy at Fore River, "but I could be a lot busier. I still have to go to Massachusetts to earn a living."

He has a 15-year lease on the former armory in South Portland and is in the process of converting it into a sound stage for filmmakers. Last month, he built sets for the horror film "The Hanover House," by independent Maine-based filmmaker Corey Norman. Featuring local actors, it was shot mostly in western Maine over the winter. Final scenes were filmed at Fore River.

"There seems to be a perception that these film incentives amount to giving money away, but that's not accurate," Matheson said. "The way I look at it, 75 percent of something is better than 100 percent of nothing. We're not going to get these movies if we do not have incentives that are competitive. It's that simple."

Hamann, the bill sponsor, said Maine is sitting on a great opportunity: Because other states are reconsidering their incentives, now is a perfect time for Maine to improve its film recruitment plan.

"We have an opportunity to step in and compete for that business," he said. "One thing that has not been disputed, even by opponents of film tax incentives, is the fact that it is guaranteed to create jobs. We talk a lot about closing the skills gap by training workers to fill jobs. In this case, we can close the employment gap by bringing in an industry that can employ unemployed and underemployed Mainers who already have the skills to fill film-industry jobs. Construction workers can join a film crew building sets. Electricians could become gaffers. Creative professionals all over the state -- many of whom currently travel out of state to work on films -- could find work locally. Students graduating from Maine's film production programs could remain in the state after graduation rather than having to move out of state to make a living in their profession. We have the crew; we have the talent. This is an opportunity to tap into these creative professionals and employ them at their full potential."

How the bill would work

The last major movie made in Maine was "Empire Falls," starring Paul Newman, Ed Harris, Philip Seymour Hoffman and Helen Hunt. It was filmed mostly in Skowhegan and released in 2005, two years before Maine enacted its incentive program. The movie generated about $13.5 million in direct spending in Maine, said Karen Carberry Warhola, director of the Maine Film Office.

In testimony before the Legislature's Taxation Committee in April, Carberry Warhola said eight productions qualified for the existing incentive program in 2012. Those productions generated $1.5 million in direct spending in Maine, and the program cost $38,711 to administer. That means that for every dollar paid out by the program, it generated almost $40.

While declining to take sides on the issue, Carberry Warhola told legislators that increasing the incentive program would "put Maine on the map as a location for filming. We don't need to give away the bank. We don't need to provide incentives for the wages of highly compensated actors. The plan can be tailored to make good sense for Maine -- for its workers and its businesses."

As now written, L.D. 1409 would offer a 25 percent tax credit to a film production with a budget greater than $1 million and require an on-screen statement that the film was produced in Maine, which is an industry standard.

The bill would work like this: Pending approval from the Maine Film Office, a company that produces a film in Maine within a stated time frame may submit a final cost report detailing all qualified purchases and payroll to crew. After those expenses have been audited independently and Maine Revenue Services verifies the accuracy of the report, the film company receives 25 percent back for those specific expenses -- not all of the expenses, or all of the money it has brought to the state; just qualified expenditures and wages for workers.

Qualified expenditures are items used to produce the film that are bought in Maine. If the production company buys lumber for its sets from a Maine lumber dealer, it is considered a qualified expenditure. If it purchases lumber in New Hampshire, it is not a qualified expenditure.

On the wage side of the equation, wages paid to set builders, the lighting crew, the camera crew, hair and makeup experts, caterers, production assistants and any other workers considered "below the line" are included in the incentive. Salaries to starring actors, producers, directors and writers are not included.

According to a University of Maine economic study released this spring, Maine film and photography sectors supported 1,698 jobs that provided $19.6 million in labor income in 2010. Maine's existing incentive program generated 354 full- and part-time jobs in 2011 and 2012, according to the study, leading to a statewide economic contribution of $11.6 million over two years.

Carberry Warhola, who has been the director of the Maine Film Office since last July, said it's important to consider more than tax credits when comparing incentive packages. Many cities and states, for instance, require permitting for filming.

With few exceptions -- the city of Portland is one -- Maine does not. Maine has lower production costs and, generally, "Maine does not cost as much to shoot in," said Carberry Warhola, who grew up in Maine and spent almost two decades working in the TV and movie business in Los Angeles.

She cautioned lawmakers not to compare movie-making incentive programs "apples to apples, because they have so many components and vary widely from state to state. The best way to customize an incentive plan is to determine first what types of media projects you would like to attract. By taking a close look at the state's locations, climate, infrastructure, and available crew members and support services, you can identify what type of projects the state is able to accommodate.

"Large studio features, smaller independent features, television commercials, catalog shoots and music videos all have different budgets and productions needs -- and they all look at state incentive plans differently. Determining which type of project the state wants to attract is the first step in tailoring an incentive program that is a good fit for the state and the media productions."

We have a better movie set

With its current incentives, Maine attracts low-budget independent filmmakers, as well producers of serial TV shows, Carberry Warhola said. Three TV series are filming now in Maine, including "North Woods Law," which airs on Animal Planet. "Eel of Fortune," also on Animal Planet, is in production; and a pilot is under way for a new reality TV show based on life in Jackman, called "You Don't Know Jackman."

Jessica Winchell Morsa, executive producer of "North Woods Law" for Engel Entertainment, said her company has filmed in Maine for almost two years and finds the state welcoming and friendly. "The tax benefits are modest, but they have been good for us," she said.

She appreciated that Maine is "uncharted television territory." The state is underexposed, which appeals to viewers. It looks fresh on TV.

"Alaska has been celebrated with a lot of TV shows. Louisiana has been celebrated. But Maine is not a place people know a lot about," she said.

Engel Entertainment has enjoyed its experience in Maine so much, the company is developing another series to be shot outside Bangor for another network. She declined to provide details other than to say, "It's a very positive story with a wonderful family."

Garrett Fennelly, producer for the independent feature film "Bluebird," premiered his film this spring at the Tribeca Film Festival in Manhattan. Shot in and around Millinocket in the winter of 2011-12, the movie is about a depressed rural Maine logging town and the fallout after a young boy inadvertently is left on a school bus in a hypothermic state.

Fennelly said he was surprised and impressed that Carberry Warhola attended the premiere, adding that shooting in Maine "was a super-positive experience. The local support we had was unbelievable."

For creative reasons, the movie team opted to shoot in Maine despite what Fennelly called the state's insufficient incentive package.

"Twenty-five percent is what you need," he said. "That's what Maine needs, ultimately. The hits that Maine has taken from movies that didn't get shot there and elsewhere, like Louisiana, is huge, just huge."

Strunk, the producer of "Anatomy of the Tide," hopes the incentive package will be improved.

"We could offer less than competing states, because we have a better movie set. We have such an incredible place to shoot, movie producers want to work here," he said. "If we get it to 20 percent, that might be enough. Twenty-five percent is excellent, but 20 percent gets us in the ring."

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