Rhode Island’s Film Tax Credit Now Strangling Local Filmmaking
Wednesday, April 03, 2013
Rhode Island enjoyed several years of plentiful filmmaking within its borders. But fortunes have reversed of late.
In fact, current legislation referred to the House Finance Committee would amend the current language by removing the authority of approval of motion picture projects from the Department of Administration’s Office of Film and Television and giving that authority to the General Assembly. This measure may appease the public outrage over the motion picture tax credit incentive applying to a project such as 38 Studios (which fell under the umbrella of coverage by the tax credit law), but could bog down expedition of projects in the slow process of the GA passing anything without hearings and disagreement; namely, the legislative process.
How did we get here?
It seemed that just a few years ago the film and television industry was on the rise here in the Ocean State. Underdog, 27 Dresses, and Showtime’s Brotherhood series were some of the more notable productions based here in Rhode Island. The Farelly Brothers and Michael Corrente were letting the rest of the country know that Rhode Island was a state and not that big island off the coast of New York.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTHow times have changed. After various amendments the General Assembly passed during its 2012 leglislative session, the once-brawny and aggressive RI Film & TV Office was transferred into the Department of Administration on July 1, 2012, according to Allison Rogers, Rhode Island Department of Administration Policy Director.
"The RI Film & TV Office, the Department of Administration, and the RI Department of Revenue (Division of Taxation) are working together in partnership to revise the Rules and Regulations in light of the various amendments the General Assembly passed during the 2012 legislative session," Rogers said.
Golden days
Wes Anderson's Moonrise Kingdom was filmed throughout the state but critics ask, where are the blockbusters or the long-running series?
Anne Mulhall of LDI Casting, Rhode Island’s premier casting office for film and television, said that once the film credit was initially instituted, business was booming. “LDI Casting had to hire staff and we moved to an office on Federal Hill,” she said. “Two and three and four projects at a time! Big Budget Films, TV Series, indie films and TV specials.”
The plot thickens
However, in 2009 when the tax credits were capped at $15 million, studios were more than willing to take their business elsewhere; to neighboring states that offered lower minimum spending requirements and no tax credit caps. Prior to the cap, there were multiple major productions occurring at any given time. After the cap the number of film and TV projects dwindled to one or two per year, if that.
Furthermore, a $300,000 trigger and “big box” style discount offers from nearby states drew major studios elsewhere and the business departed for places like Massachusetts and New York.
Mark Fogarty, President of the non-profit Rhode Island Film Collaborative (RIFC), said that an independently commissioned, non-biased study showed that the benefits of an uncapped system far outweighed the risks.
“…The results overwhelmingly showed that film results in money being spent and taxes being collected. The biggest problem is people do not understand the way it works and assume the government is losing out on 25 percent of taxes. The reality is all it means is the person who purchases the tax credit will pay about five percent less taxes. That is five percent in exchange for millions of dollars being spent in the state. It is really a no lose situation.”
Fogarty, a native Rhode Islander and founder of EXILE Movies, can add his personal experience to the evidence. He wrote and directed the upcoming independent feature film Smalltown. With a budget of under $100,000, he shot the majority of the film in nearby Massachusetts due to the fact that the state requires a minimum budget of only $50,000 to qualify for the credit instead of $100,000 that Rhode Island now requires. At the time Fogarty was filming, the minimum budget for tax credit qualification in Rhode Island was $300,000. That meant that all the purchases and rentals of materials as well as 80% of on location filming was done in Massachusetts, despite his preference to have shot in his home state.
The reality of tax credits
The form the subsidies take is semantically misleading. Most people think tax credit means that there’s a reduction in taxation on expenditures in service of the given project. However transferable tax credits are most often sold by companies that are not based in Rhode Island to sizeable business entities to lessen that entity’s own tax burden. In Rhode Island’s defense, Allison Rogers said, “One key difference between the motion picture tax credits in Rhode Island and elsewhere is that a production company must use a Rhode Island vendor in order to claim credit on the expenses incurred and paid.”
Rogers went on to say, “Another positive impact that should be noted is that film and media programs in Rhode Island colleges and universities have increased dramatically since 2005, which was the inception of the motion picture incentive program. We are excited by the fact that students throughout Rhode Island have the opportunity to interview for film and media positions, including for films such as Wes Anderson's Moonrise Kingdom.”
Budgets matter
This was fine with lower budget projects such as Wes Anderson’s Moonrise Kingdom. However, more attractive packages offered by other locales have drawn more stable and longer-term studio investments like the television series Body of Proof, that pulled out shortly after setting up shop allegedly due to more generous incentives offered elsewhere. Most often out-of-state businesses have come in and brought out-of-state money to be paid to out of state employees who stayed for the duration of the projects and then moved on.
However, evidence from 42 other states submits that the biggest difference in terms of revenue producing motion picture and television productions is often direct incentives, meaning a non-transferrable tax credit refunded after the completed budget has been submitted. If implemented in RI, this could cut much of the middleman fee from the transfer and keep in-state money in Rhode Island, where citizens feel it belongs.
Rogers pointed to the ripple effect created by local productions that are harder to quantify--and predict. “It should also be noted that previous productions have contributed to positive enhancements throughout Rhode Island, above and beyond their impact with the actual films," she said. "For example, previous productions have: contributed new lockers to Hope High School; contributed to the restoration of the Woonsocket train station; have provided large (and behind-the-scenes) donations to many local charities; provided support to our colleges and universities; provided an influx of money to distressed businesses such as those affected by the 2010 floods; and have left behind various contributions of art as well, which expands our cultural experience and creative capital.”
The ripple effect
Much like the tourist industry, the film industry brings an economic boom to a particular series of locations when it descends. And, like tourism, when the season or project is complete, the business is gone along with the influx of money that trickles and flows throughout the state’s other businesses. Unlike the seasonal tourism industry, the motion picture industry does not ebb and flow with tidal regularity. Rather, the instability of the economic incentive program gives less and less regularity to the business of film and television and, thereby, prevents it from being able to be considered an industry. Rather it is an “event” or an “unexpected windfall.” It brings with it more jobs than it creates and does not allow for in state businesses that specialize in the various collaborative elements of film and television to remain profitable or plant roots.
Regarding local projects in the pipeline, Rogers of the D.O.A. said, “The RI Film & TV Office reviews Initial Applications on a rolling basis. There are currently several modestly budgeted productions in the queue, including a few small feature films, a few documentaries, a theater show, and of course, the potential for others. Several of these productions will be announced in the near future.”
Mulhall of LDI Casting said, “Personally, I feel that if there are concerns about how the credit negatively affects Rhode Island economy…first, look at how it has BENEFITTED Rhode Island’s economy and small businesses before making any decision and second, change the criteria by which the is credit is offered, not the credit itself. I consider filmmaking a manufacturing industry. If this is true, we are General Motors. I hope we get to work in our home state again.”
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