SOUTH PORTLAND – The crumbling and decaying South Portland Armory is once again without a tenant, following early termination of a five-year lease between the city and Fore River Sound Stage.

Founded and partly owned by veteran movie industry set man Eric Matheson of Cape Elizabeth, who has more than 80 feature films to his credit, Fore River was expected to lure studios to Maine for production work in the armory’s cavernous, 10,000-square-foot interior, complementing the natural beauty of the state for exterior shots. However, Matheson was never able to lure the $2 to $5 million in investment (estimates varied) needed to rehabilitate the building that is plagued with a host of code issues, including roof leaks that defied city attempts at a fix.

In something of a Catch-22, the city realized last summer that it never granted an occupancy permit following City Council approval of Matheson’s lease in June 2011.

“It was simply an oversight,” said City Manager Jim Gailey in an interview last November, when he noted that code enforcement had elected not to issue a permit until Matheson completed repairs and upgrades. That put Matheson in the untenable position of paying the city to use a building the city wouldn’t let him use. Despite that, Matheson was complimentary to Gailey on Friday, laying the blame for his company’s demise elsewhere.

“Jim [Gailey] has been very helpful, just backing us up all the way,” said Matheson. “You can lay this right on the state Legislature.”

“I wouldn’t disagree with that,” said Scott Hamann, Democratic representative whose district stretches from the armory to Thornton Heights and into Cape Elizabeth.

Last year, Hamann introduced a bill that would have provided a 25 percent tax credit to any movie made with a budget of more than $1 million. A sliding scale would have given a movie like the “R.I.P.D.” a $130 million movie staring Jeff Bridges that Matheson worked on in Massachusetts a 35 percent break.

Hamann’s bill passed overwhelmingly in the state House of Representatives on a voice vote after a move to adopt a minority “ought not to pass” report of the Legislature’s taxation committee failed 31-111. However, the bill died between houses in June when the state Senate voted to adopt the minority committee report, 19-16. A second vote, to instead concur with the House action, failed 16-18.

“That pretty much drove away investment,” said Matheson.

“My sense from talking to senators is that they were concerned about the fact that the state could be on the hook for millions of dollars in tax incentives if some high-budget Hollywood film came in,” said Hamann, although he noted that under his bill the Maine Film Office would have had the right to reject any application for more than whatever was set aside to fund the tax credits.

“Had a film incentive program passed the Legislature and been in place, I have no doubt there would have been increased demand for Eric [Matheson’s] studio,” said Hamann on Friday. “He has the background, he has the expertise, and had a great location. I’m sure his company, if it could have got a break, would have grown exponentially.”

Hamann’s bill was only the latest in a string of attempts to pass a tax credit on film productions in Maine, but the latest failure hit Matheson hard, especially after Hamann’s second attempt in January was denied by the bi-partisan Legislative Council, which reviews bill requests during the Legislature’s second session.

“I’ve tried to tell them again and again what’s needed to compete with other states for this business,” said Matheson, “but after 26 years, there’s just no point in continuing to bang my head on the wall.”

Just two weeks ago, on Jan. 21, the Maine Film Office issued a press release boasting that the number of productions it certified in 2013 doubled to 16 from the previous year, while the money spent in Maine by movie studios more than tripled, to an estimated $4.7 million.

Even so, the last major movie filmed in Maine was “Empire Falls” shot around Skowhegan and Waterville in 2003. That movie generated roughly $17 million in local spending, according to the Maine Film Office. At that time, Maine was drawing four to five medium-sized projects per year – ones with budgets between $5 and $10 million – and its only real competition was the Canadian exchange rate.

Option to buy

It was in June 2011, after several years negotiating with the city, that Matheson signed a lease with an option to buy on the former Maine Army National Guard building, located on Broadway at the Casco Bay Bridge “gateway” to the South Portland. The deal was to have run through May 31, 2016, and included options for two, five-year renewals. In addition to base rent of $550 per month, Matheson was to have paid a percentage of gross receipts taken in from productions staged in the building.

That money was meant to go into a fund to pay for building repairs and, in 2012, the city did spend about $6,000 to fix the flashings on the roof over the workshop wing. However, the fix did not take, according to Gailey.

“It’s just a bunch of tar up there and with the heat and the cold and the heat and the cold, it just did not work around the drain spout areas,” he said, at the time.

Still, the city did begin to build a reserve fund for future fac?ade work, using 40 percent of the 60-percent share it got in revenue from site rentals. But it never amounted to much.

“We’re not talking hundreds of thousands of dollars,” said Gailey. “We’re not in any position yet to put a new roof on.”

Instead, Matheson and his partners – Mark Rockwood and Matt Berry – launched a $10,000 crowdfunding drive on the website to raise money to fix leaks over the workshop, and in the building’s tower, where massive water damage occurred after a flagpole dislodged during a storm, creating a hole that went unrepaired for several years.

The pledge drive was successful, but with production ground to a halt by the one-two punch of the no tax credits on top of no occupancy permit, Matheson says that money was used instead on other priorities, like the rent, and installing bathrooms in the unheated building, said Matheson.

Finally, Matheson reached a point where he realized he was just never going to bring in enough work to pay for the interior improvements he had agreed to in his lease with the city, let alone exterior fixes.

“The agreement was that we would do as much as we could to bring the building up to code, but they wanted a lot done, including a sprinkler system,” he said.

Still, Matheson is not complaining.

“I’m taking the high road on this,” he said. “I don’t want any problems with anybody. I just want to get my gear together and get it all into storage.”

“It really was a great idea,” said South Portland Mayor Jerry Jalbert of the soundstage. “It just didn’t work. There just wasn’t enough business to pull in. It’s all about competition and there were just too many other places that do offer these tax credits and it gets to the point where, if the economics are not working, you have to pull the plug.”

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