No-interest plan directly invests in visiting films

The lure of New Mexico to filmmakers goes way back — to long before Hollywood’s hand-wringing over runaway production. With nearly year-round sunshine, pristine skies and an array of scenic locations, New Mexico became a moviemaking magnet, mostly for Westerns.

The natural attractions remain. But instead of oaters, it’s blockbusters and contemporary TV series that have recently become mainstays. (Post-apocalyptic pics are especially popular, with “Terminator Salvation,” “Legion” and “The Book of Eli” making the most of the state’s desert locales.)

What has turned New Mexico into a major film center is its bountiful package of tax incentives. There is a 25% rebate available for all taxable expenditures in the state. New Mexico also subsidizes 50% of wages paid to local crew trainees. Finally — and most unusually — the state offers productions interest-free loans for up to $15 million.

Other states hand out bigger tax breaks (the highest in the nation is Michigan’s 42% tax credit). But New Mexico’s no-interest loan provision is unique among the 40 states that now offer some sort of financial filming incentive.

“It used to be the part of our incentive that was viewed with the most skepticism,” explains Eric Witt, deputy chief of staff to Gov. Bill Richardson, who calls the state’s aggressive attempts to attract the film industry “the biggest bonanza we’ve had.” In fact, discussions are under way to raise the ceiling to $30 million.

Beyond getting repaid, there’s also an entrepreneurial upside for the state: A prenegotiated percentage of any backend profits goes back into the fund, effectively making the state an investor in those productions approved for the loan.

But strict standards have to be met to qualify:

  • The loan must be fully guaranteed by the borrower.

  • At least 85% of a project must be shot in New Mexico.

  • There must be a binding agreement in place with a reputable distributor.

  • Credible revenue and cost projections must be submitted.

  • At least 60% of below-the-line payroll and body count has to go to New Mexico residents.

“These are the minimum fundamentals of smart film financing — we run this like a business,” Witt explains. “That’s why New Mexico is in a position to continue our incentives program for the long term as opposed to other states that are willing to take pretty significant losses from state coffers in order to attract business in the short run.”

Since the program effectively gives the New Mexico government a financial stake in these projects, each submission is vetted and processed by Los Angeles entertainment lawyer Peter Dekom, who was instrumental in designing the state’s incentives.

“The loan program is an extra feature and not the centerpiece of New Mexico’s overall program,” Dekom says. “But it makes the economics in New Mexico better than most states with incentives.”

Countering critics, Dekom adds, “The important thing is we haven’t lost a penny, and it’s created a lot of jobs.” According to Witt, the state now has 2,800 jobs directly related to filmmaking, compared with 60 when the program went into effect seven years ago.

Though they go for the 25% tax rebate, major studios tend not to utilize the loan program, either because the $15 million sum isn’t significant enough to get their attention or because they are loathe to give away a portion of profits on what could be a blockbuster.

“Those kind of films tend to have a higher potential for backend return for the state,” Witt says. “The last ‘Transformers’ made $700 million. It would’ve been nice to have a little piece of that.”

So far, the state’s top customers for the loan have been companies such as Alcon and Lionsgate.

“I’m a small-business man, and I’m looking to reduce my costs any way possible,” says Alcon co-prexy Andrew Kosove, who borrowed $15 million for “The Book of Eli,” the largest independently financed film ever to shoot in New Mexico. “The incentives were key. They helped us get to the strike price on the movie.”

Lionsgate has tapped the till for six loans to finance one film, “Employee of the Month,” and two television series, “Wildfire” (which ran four seasons on the ABC Family channel) and “Crash” (now shooting its second season for Starz), borrowing a total of $80 million on a revolving basis. A state accounting in February said film studios owed $127 million to the state fund and had repaid $87 million.

“Crash” line producer Lester Berman, who also produced “Wildfire,” likes how the program is administered.

“They keep good records here, they are honest with the state and honest with you,” he says. “I’ve been in the business for 30 years and shot all over the world. Though I can’t compare every program, this one works very, very well.”

Another change being considered is raising the minimum for an entry-level loan to between $3 million and $5 million. In terms of time and expense, it costs the state agency as much to process a $5 million loan as it does one for $500,000. (Though there is no minimum, the loan’s presales and guarantee requirements often rule out microbudget movies, which also tend to be commercially less viable.)

Some local indie filmmakers complain the incentive seems designed primarily to lure commercial, out-of-state production, but Witt is realistic about the program’s goals: “We started with the promise that we’ve got to make money from this deal. This is not going to be a loss-leader for the state. It has to be sustainable.”

To address the situation, a bill was introduced last year that would have created an entirely separate fund for local producers and would have relaxed the upfront sales requirement. Though the bill failed, Witt’s office is weighing other options.

“We’re not in the business of giving money away, but there’s the strategic side of investing in your local film community,” Witt says.

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