Lights! Camera! Audit!
New Mexico is subsidizing the film industry to the tune of $100 million a year, an amount that is set to more than double in five years. But exactly how that is impacting the economy remains ambiguous at best and has now led to a new legislative effort to shine more light on Hollywood in New Mexico.
Senate Finance Committee Chairman George Muñoz is calling for an in-depth outside audit of the industry's tax credits to determine if the state is overpaying and what economic benefit is being created.
One of our experts agrees but has a different approach that they say could stop questionable tax rebates before they occur. First Muñoz:
(The film industry) will have to be investigated by a recognized auditing firm from outside the state. I'm not saying the film industry doesn't create jobs, but at some point if the state economic development departments and film offices can't calculate the money they're being reimbursed for, then we don't know that.
A Legislative Finance Committee study critical of the film spending and released in September put more pressure on lawmakers to take a deeper dive into the tax rebates. Key points from the study:
The film production tax credit (FPTC) is the state’s largest economic
development incentive. Evidence suggests film incentives are less effective
at attracting private investment, cost more per job, and have a lower return
on investment than other incentive programs. In the next five years, tax expenditures through the FPTC could grow by 171
percent, increasing from $100.2 million in FY23 to $272.1 million by FY28, although costs are
largely dependent on the size of productions and the addition of no new film
partners. In FY22, film industry incentives were 37 percent of total economic
development spending and cost more than twice as much per job as the other
largest economic development incentives.
REFORMING THE REBATES
Our expert on the NM film industry, who has decades of experience, comes with suggestions to keep the industry blossoming while not gouging the state:
Joe, we need to make sure that this rebate money is staying in the state and turning over at least three times. It’s not.
Take the frontage road by the new Cinelease Studios (formally I-25 Studios) in ABQ and look at the out-of-state plates which is pretty much all of them. They invite out-of-town vendors here who then pay gross receipts tax and create a 25 to 30 percent rebate for the company's total cost. There are requirements and
protections under the law but no-one is doing any more than a cursory
audit, although Tax and Revenue is tougher when the rebate is actually filed. But it's too late
then as that money is already spent.
The irony here, Joe, is that it’s
an easy fix yet few understand the business and what’s happening
so it continues and grows. I’m speculating but as long as the NM Film Office is judged on the number of movies shot here and the money spent then there is little incentive to crack down on the abuse.
The audit we need right now is on the ground as the money is spent--not after the checks are written and the rebates paid. The program only works if productions are spending the money locally and on actual locals. If the producers know that it has to be spent on actual New Mexicans or they risk not getting that rebate, which has become such a large part of their business model, they will.
A full audit? Sure. But Senator Muñoz is proposing to audit the wrong thing. A couple of local production people on contract with EDD or Taxation and Revenue to watchdog the rebates could save the state millions. Also, an educational program on buying or renting from New Mexicans should be a main priority of the Film Office.
Good stuff and needed as the state is on course to spend well over $1 billion every five years on film incentives. Encouraging the industry is vital but doing it in a way those incentives achieve maximum impact is also essential.
CITY VS. RURAL
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| Rep. Herrera |
It appears the longstanding rural/city divide over the effectiveness of the film rebates is heating up again. Dem state Reps Derrick Lente of Sandia Pueblo and
Susan Herrera of Rio Arriba County are backing Muñoz. Here's Herrera:
“Film and tax credits are out of bounds,” Herrera said. “We need to look at this as a legislature and maybe slow that growth. I know that's a very political statement… but that's what we need to do.” Herrera said New Mexico struggles with poverty and other issues. She said, “I think supporting the stalwarts of the film industry is not the direction I would go in.”
To some extent the massive oil and gas surpluses have been protecting the film industry tax breaks but the surpluses are about to enter a slower growth phase. That makes the industry ripe for more scrutiny and even film buffs have to realize that is long overdue.
We'll see how this plays out at the '24 legislative session starting next month.
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