NYC Arts and Entertainment Business News

CBS’s new show, The 2-2, blocks off street parking in Washington Heights for a recent location shoot. Generous incentives from both the state and city are bringing more productions to the city than ever.

For a week last May, Marcelo Duek, owner of Boca Grande, an interior design and furnishings store, stared out of his two-story-high storefront windows at the double-decker, 1,150-square-foot trailer parked outside. There was nothing else to see; the trailer blocked the entire view out of the store – and any passing member of the public’s view in. Duek’s SoHo neighborhood was the set of Men in Black III, and the trailer housed star Will Smith’s personal gym. “A $500,000 tractor trailer so Will Smith can pump muscles before a shoot,” Duek scoffs.

Duek estimates that between the trailer blocking his storefront and the mass of people and film equipment, he lost 80 percent of his business the week Men in Black III took over an eight-block radius of the neighborhood. He says he never received any compensation from the production or the city.

But Duek also sees the benefit of local shoots. “I do like the filming – it employs a lot of people I know,” Duek says. It also helps Duek’s business occasionally, as Boca Grande makes props for some productions.

And there are plenty of local productions these days to make those props for, as New York isn’t ready to end its film incentive programs any time soon. Public funds are used to lure film and television productions here to create a permanent large-scale industry the city’s film office credits with adding $5 billion a year to the city’s economy and 100,000 jobs – though other estimates say the true value is much lower. Incentives range from free ads in city bus stops to a 30 percent credit of a production’s in-state budget. For a blockbuster such as Men in Black III, that can be worth tens of millions of dollars.

New York has to offer such generous benefits because it’s in competition for these productions with other states and countries. “Film producers are like gypsies roaming the world for good sites – and the best deals,” says Robert Tannenwald, author of “State Film Subsidies: Not Much Bang For Too Many Bucks” for the Center on Budget and Policy Priorities, a nonprofit think tank that focuses on state and federal budget and tax policies. The so-called “runaway production” model took off in the 1990s, when many movies and TV shows moved to Canada to take advantage of the country’s weaker dollar and its federal and provincial filming incentive programs, designed to build up Canada’s media industry.

States began to offer similar incentive programs in the hopes of creating their own glamorous and potentially lucrative in-state film industries that would create jobs and infuse local economies with cash. Louisiana had a small incentive program in place since 1992, but in 2002, the state introduced legislation with more generous tax rebates and credits for local productions. New Mexico offered a 15 percent credit that same year. Both states seemed to reap the rewards, as the number of productions ballooned: five “major productions” shot in New Mexico in 2003. By 2008, there were 30, according to the state’s film office.

Several states followed suit: In 2002, only five states offered incentives totaling $1 million. Just two years later, nine states offered $68 million. By 2010, 40 states offered $1.4 billion in filming incentives, according to a January 2010 report “Movie Production Incentives & Film Tax Credits: Blockbuster Support for Lackluster Policy” from the Tax Foundation, a think tank that evaluates public policies. States were forced to offer ever-more generous incentives to stay competitive with their neighbors, as productions could easily shop around and film in whatever state offered the best incentives.

Of the states that have production incentives, 28 offer tax credits, in which a production’s tax liability is credited up to a set percentage of the production’s budget spent in-state. All but two of those 28 states offer refundable or transferable credits, meaning if the credit exceeds the production’s tax liability, the remainder can then either be applied to the film’s budget or transferred to another production – or to another corporation or even an individual looking to reduce his tax bill. Brokers who facilitate these transfers – for a percentage of the credit’s value – have sprung up in recent years to take advantage of these programs.

The incentives have been effective. “We have not done a production void of incentives since 2004,” says Eleanor Nett, a vice president at Endgame Entertainment, the production company behind movies such as the upcoming Seeking Justice, starring Nicolas Cage, and Looper, starring Bruce Willis. Both movies were filmed in Louisiana.

“It is essential to get the most money on the screen possible,” Nett says; “There is rarely cause for choosing a non-incentive location over an incentive location.” Nett says her company looks at the most stable and generous state programs when choosing where to film, and has been hesitant to recommend New York, saying it takes longer to recoup refundable credits than other states. She also notes that New York’s crew rates “are higher than elsewhere in the nation.” But, she adds, if New York is the “best creative fit” for a production and some of those other factors could be overcome, “we would likely shoot there.”

Recently, some states have found that the economic benefits and permanent film industries these credits are supposed to create either haven’t materialized or haven’t added enough to the economy to justify their cost, and so they have ended or reduced their incentive programs. Helped by its early adoption of generous incentives, New Mexico’s film industry boomed, and productions such as the first Transformers, Terminator Salvation, Cowboys and Aliens, and all four seasons of Breaking Bad shot there. A new studio with more than 230,000 square feet of soundstage and office space was built in Albuquerque in 2007 to accommodate the new work. But just three years later, the owners of Albuquerque Studios filed for Chapter 11 bankruptcy protection, claiming debts of over $100 million. The incentive program came under fire from newly elected Gov. Susana Martinez earlier this year, as she proposed to cut the 25 percent credit back to its original 15 percent to cover budget shortfalls. Ultimately, the 25 percent credit stayed, but a $50 million annual cap was put in place.

New York has continuously increased its funding of film incentives, even while making cuts to other programs ranging from Medicaid to the New York State Council for the Arts. New York’s incentive program began in 2004 with a 10 percent refundable tax credit on “qualified production costs,” not to exceed $25 million annually. By 2010, the tax credit was 30 percent and the annual cap was $420 million. (For a more detailed look at the changing budget allotments over time, see the chart below.)

In 2009, productions flooded into the city to take advantage of its increased credit percentage, and the $350 million of credits intended to be distributed over a period of several years were exhausted in just nine months. The $192.5 million lifetime cap of New York City’s additional 5 percent credit, which had been in place since 2005, was hit in June. The tax credit money was gone. While lawmakers scrambled to find more money for the program, productions fled the state. The TV series Fringe, which filmed its first season in New York City, moved to Vancouver, and no pilots for new series shot in the city that year. The permanent industry the state was hoping to create with the incentives had not, it seemed, to taken root.

This is common, according to Tannenwald: “States dream that film subsidies will launch a process in which the attraction of a few productions will eventually create a self-sufficient media cluster. This is a pipe dream, for two reasons. First, film production is inherently risky. Second, film production is geographically very mobile. So, no matter how much public treasure a state invests in filming, the minute a state tries to cut back its subsidies, producers will desert it for a more generous state.”

The New York City tax credit has yet to receive additional funding, but the 2010 state budget allocated $420 million annually through 2014 in film tax credits. The productions returned: 200 films shot in the city in 2010 and a record number of primetime series – 23 – are filming here this season.

A spotlight shines onto the SoHo street at a recent location shoot for TV series Person of Interest.

Tax credits are not the only way New York spends public money on the industry. The Mayor’s Office of Film, Theatre, & Broadcasting offers several bonuses to productions at the taxpayers’ expense. Certain city-owned locations may be used for filming free of charge. If a shoot requires police assistance, it is given one free shift. If productions donate to a city not-for-profit cultural institution, they get free advertising on bus shelters equivalent to 1 percent of the production’s budget. The “Made in NY” production assistant training program, begun in 2006, is partially funded by the public. And upfront sales tax exemptions are given to all production-related expenses.

Local studios have also been given incentives to build and expand their operations, often through assistance from public funds. Steiner Studios, opened in 2004, has a 70-year, $100 million lease on the publicly owned Brooklyn Navy Yards. The city contributed $28 million to the studio’s initial construction as well as an additional $200 million in infrastructure improvements, according to a report from the New York City Regional Center. Its current $90 million expansion has been made possible in part by $15 million in funding from local and federal agencies.

Similarly, in 2008, Kaufman Astoria Studios began a $22 million expansion project, of which $5 million came from a city grant and $2 million in “grant and loan assistance” came from the Empire State Development Corporation, according to the Mayor’s Office of Film, Theatre & Broadcasting.

Marybeth Ihle, press manager for the Mayor’s Office of Media and Entertainment, says that for all the money the state and city spends to attract productions, the industry more than pays for itself with “$5 billion to the city’s economy each year and includes 100,000 New Yorkers who make a living working behind the scenes.”

Yet those numbers seem to come from the only New York City-specific industry study on the Mayor’s Office site, which was released in 2000 and paid for by the state and city’s film offices. A more recent 2009 study from Ernst & Young, paid for by the state’s film office and the Motion Picture Association of America, puts the direct economic impact at $1.8 billion and jobs created at 7,031.

Other data shows that increasing the credit percentage and annual cap has only served to maintain the number of production jobs – not add to them. According to the Bureau of Labor Statistics’ occupational employment statistics for New York state, the number of jobs for a production-specific occupation such as a camera operator has been on the decline since it peaked following 2004’s first round of incentives:

The Ernst & Young report may be correct in its assumption that most or all productions would leave the state were the incentives to end. When New York’s tax credits were exhausted in 2009, productions did leave, and the more generous $420 million allotted the next year was an attempt to prevent that from happening again. A 2010 report from the state Department of Taxation and Finance and the Governor’s Office for Motion Picture & TV Development examined credit programs in surrounding states. The study found that if New York were to get rid of its incentives, “almost all if not all of these productions and jobs will likely go to states that do offer credits.”

Tannenwald says New York may be caught in the same cycle in which most other states with incentive programs have found themselves: “In playing the film subsidy game, states are caught in perpetual competitive purgatory. No one wants to shell out these costly subsidies, but all fear that if they cut them out their economy will suffer serious harm. So states throw good money after bad, and everyone is worse off.”

But Dr. Sunder Narayanan, associate professor at New York University’s Stern School of Business, has a more positive view of incentives, saying that by bringing productions here and contributing to studios, the state may succeed at creating a sustainable, large-scale film industry where other states have failed. “New York is one city that can pull it off because you already have a lot of creative talent,” Narayanan says; “A lot of the production and post-production talent is probably already existing in New York. Moreso than most other places.”

New Yorkers seem to be as conflicted about the benefits of filming as the experts are. On a recent fall day, film equipment lined the sidewalk and SoHo street around the rooftop location shoot for the TV series Person of Interest. A spotlight blasted thousands of watts into oncoming street and foot traffic. A passerby, caught in its path, exclaimed: “Oh my god, I’m blind!” But a few seconds later, her vision returned, her annoyance quickly turned into excitement. She grabbed the arm of nearby production assistant: “Hey, what are you guys filming here?”