U.S. incentives under fire, but still a valuable budget item

Incentives remain a crucial part of the soft money needed to finance a project — though making the most of those funds has become a lot more challenging in the last few years.

When U.S. states started offering incentives programs, producers and financiers often found themselves with many workable options, depending on what they needed for their project. It was common to run several scenarios to get a sense of what the budget would look like, depending on where they filmed. And, with most of the states in the black, there wasn’t much talk of whether or not the incentives programs would be funded or come under scrutiny by legislators.

That’s all changed. The economic meltdown has increased the need for research, caution and overall analysis when choosing a shooting location.

“It’s wise to invest time getting the information you need about a state’s incentives program before you go forward,” says Clint Kisker, director of Screen Capital Intl. “Sometimes what’s promised up front isn’t what you’re likely get at the end and you really need to know that before you commit to a location.”

Warren Nimchuck of W2 Entertainment Finance also agrees that it’s essential to gather information for incentives offered. And Nimchuck and Kisker often look to the kind of reconnaissance that can only be gathered by boots on the ground.

“People talk in this industry,” says Nimchuck, who will often speak with location scouts and managers as well as banks about what really goes on with a state’s incentives program. “If things happen and it becomes overly difficult to go through the auditing process or a film office is disorganized in dealing with tax credits, that gets around and people react to it.”

Producers and financiers also have to keep track of what’s happening politically in states on the shooting short list for any film, television series or commercial.

If a state gets in a budget bind, which has become increasingly common, filming incentives program often come under fire by budget-conscious legislators, regardless of how much money proponents claim it brings to the state’s coffers.

“Everyone is looking at their budget more carefully right now,” says Ben Browning, co-founder and CEO of Wayfare Entertainment. “So when a state sees that there’s a problem with their budget they’re going to ask questions about their incentives program and their legislators want to be sure that it’s actually producing enough jobs and income to justify its existence.”

Kisker also thinks that not every state may stay in the incentives game after the dust from the financial crisis settles. Because some states offer incentives far north of 20% tax breaks, other states must match that in order to remain competitive. But not every state may be able to recoup that much money in other kinds of tax revenue to offset what they offer to the entertainment industry. Those programs, predicts Kisker, may not last.

“Everyone is trying to find an equilibrium right now,” says Kisker, who says that states that have developed and matured their film industries and incentives programs before the meltdown are in good shape and good bets, while for latecomers “looking for a short-term solution to their other problems, incentives might not be the way to go.”

Despite all the uncertainty surrounding incentives, the programs are now ingrained as part of the industry’s DNA.

“Incentives are still crucial to putting together the financial picture for a film,” says Nimchuck. “I really don’t see how most independent films could be made without a strong incentives program” that helps a producer put together a budget.

The world’s financial and political problems also haven’t completely put off new players from competing for film industry business with incentives, either.

Albert Martinez of the Dominican Republic- and Los Angeles-based shingle Indomina Group recently worked with the National Congress of the Dominican Republic to help pass into law a new bill that will provide a tax credit of up to 25% for feature films and TV series shot in the country.

“We know there’s lots of competition out there but we think the Dominican Republic has a lot of beauty to offer, and we hope incentives will bring more filming to us,” says Martinez. “We think the film industry will actually help our No. 1 business, which is tourism.”

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