Fight Over Film Tax Credits Renewed in Colorado

This week the ongoing fight over film tax credits (or movie production incentives) was renewed in Colorado.

State Reps. Nancy Todd (D-Aurora) and Tom Massey (R-Poncha Springs) sponsored House Joint Resolution 12-1010. HJR 12-1010 essentially lays out the argument that Colorado’s film, television, and video gaming industry deserves preferential treatment over every other industry in the state, and concludes by proclaiming:

(1) That we, the members of the Sixty-eighth General Assembly, hereby recognize the film, television, and video gaming industry in Colorado as an integral part of Colorado’s economic future; and

(2) That, in appreciation of the efforts of the Colorado Innovators of New Entertainment, Media, and Arts (CINEMA), we hereby declare February 8, 2012, to be Colorado CINEMA Day.

The resolution itself won’t have an impact beyond creating Colorado CINEMA Day, however some of the resolution language is also used in a separate piece of legislation.

The anticipated complementary film tax credit legislation was introduced in the form of House Bill 12-1286. Rep. Tom Massey (R-Poncha Springs) and Rep. Mark Ferrandino (D-Denver) co-sponsored the bill, which was assigned to the House Economic and Business Development Committee. So, is HB 12-1286 that different than similar legislation that Rep. Massey has proposed over the last eight years? Actually, yes — this bill would represent a dramatic increase in the role of government in Colorado’s film, television, and video gaming industry. Here are highlights of what the bill would do in its current form:

  • Create a loan guarantee program for production activities;
  • Create the Colorado Office of Film, Television and Media operational account cash fund;
  • Make a $3 million appropriation from the general fund to the Colorado Office of Film, Television and Media operational account cash fund;
  • Increase the amount of the incentive from 10% up to 20% of the total amount of the production company’s qualified local expenditures;
  • Raise the required percentage of staff for in-state production activities be Colorado residents from 25% up to 50%;
  • Increase the amount of qualified local expenditures for a production company that does not originate the film production activities in Colorado to $1 million (except television commercials);
  • Reduce the payments allowed for each employee or contract from $3 million to $1 million;
  • Move the Colorado Office of Film, Television and Media to the Office of Economic Development and require the Colorado Economic Development Commission to approve all conditional approvals of the incentives; and
  • Require a production company that has received conditional approval for an incentive to retain a certified public accountant licensed to practice in Colorado to conduct an audit of financial documents that detail the expenses incurred in the course of film production activities in Colorado, and require said accountant certify to the office that the requirements were met.

The aforementioned adjustments to the existing film tax credit program speak for themselves, however the creation a government-run loan guarantee program for film, television and media would represent a major policy change in Colorado.

Melanie Asmar of Westword magazine recently summed up the loan guarantee program in an interview with Donald Zuckerman, director of the state’s Office of Film, Television and Media:

No other state offers a similar loan deal, Zuckerman says: “They don’t realize it would be a benefit.” But as a producer himself, he says he understands the business and what it takes to catch a moviemaker’s eye.

The details of the loan-guarantee proposal are complicated, but Zuckerman says he’s figured out a way to “virtually assure that the money will be paid back to the bank.” To start, Zuckerman’s office would review a script to make sure it’s “commercial” enough to make money. The office would also require that the movie feature at least one celebrity and that a good company be hired to sell the film. Once profits roll in, the filmmakers would have to pay back the percentage that the state guarantees first.

“Let’s say Alec Baldwin does a movie and the movie is a thriller,” he posits. “Even if the movie turns out not to be good, it will get licensed for television all over the world,” thus earning enough money to at least pay back the state’s part of the loan.

There are in fact comparable programs in New Mexico and Manitoba (Canada) for example, and there was another program in Texas that’s no longer listed among incentives so it likely expired via sunset clause.

Overall, HB 12-1286 appears to be far more aggressive than anticipated making it difficult to predict how legislators will respond. However if the Joint Budget Committee’s response to the requested $3 million appropriation is any indicator, this bill is expected to receive a cool reception. As I wrote in a blog post this past December:

When (the Joint Budget Committee) reached the economic development portion of [Governor] Hickenlooper’s budget, it’s fair say they gave his proposal to increase subsidies for filmmakers a lukewarm review. Ed Sealover of the Denver Business Journal reports, “both Republican Sen. Kent Lambert and Democratic Rep. Claire Levy — who are about as far apart on the ideological spectrum as any two legislators — questioned where there are better uses for the money.” Lambert, citing a Federal Reserve Bank of Boston study [available online here] asked, “Is that the best use for that big chunk of money, or is it better to spend it out into other areas?”

For more on film tax credits, see my Denver Business Journal op-ed here, and previous posts here, here, and here.