LYON, France

Spain’s debt-crunched government committed Tuesday to honor subsidies for local films, hitting back at mounting industry fears that the public film funding system is on the verge of collapse.

Jose Maria Lassalle, Spain’s secretary of state for culture, announced that the government would fulfill its obligations to pay incentives on films released during 2011.

Funding rests on two pillars: coin from Spanish broadcasters who must meet quotas for local and European films, and the Film Protection Fund, run by the Icaa Spanish Film Institute, which largely pays via “amortization” subsidies, triggered by a film’s B.O. take, fest runs and producers’ investment.

Crucially, they now look set to remain intact.

In April, the Icaa Spanish Film Institute was forced to slash its Protection Fund’s endowment by 36% to €49 million ($63.5 million).

Spanish producers feared any further cut to the fund would leave it without enough money to pay subsidies in full.

Any uncertainty about future governmental payments would have scared off the few banks still prepared to put up bridging loans to producers against future payments by the Icaa, which are made 18-24 months after a film’s release.

The Spanish film industry can now breathe a collective sigh of relief.

Following a meeting Tuesday with reps of Spanish producers’ orgs. Fapae, Proa and Aec, Lassalle also committed to overhauling Spain’s subsidy system in the medium term.

Icaa director general Susana de la Sierra suggested at September’s San Sebastian Festival that a new system would pay producers more subsidies before a film goes into production.