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It’s the Reel Thing: Film Incentives Drive Job Growth, Spending

Jun 26, 2015 11:41AM ● By Cate Reynolds
By Mark R. Smith, Contributing Writer

Have you ever seen the cinematic interpretation of Tom Clancy’s Patriot Games? Or such movies as Failure to Launch or, much more recently, Better Living Through Chemistry?

If so, you saw a movie that was shot, at least in part, in our state capital Annapolis.

While the spectacle of a film or television production shooting locally attracts attention from the public, movie buffs, and fans, what’s not as easily apparent is that they are also great economic development generators.

The intensity of that generation has been the subject of debate around the State House for years, most recently due to a study by Department of Legislative Services (DLS) that asserts Maryland’s film and television tax incentive program only receives 10 cents back on each dollar invested.

While the DLS contends that the software program employed for the study correctly crunched the numbers and provided accurate information, many members of the Maryland Film Industry Coalition (MFIC), as well as outside observers, say otherwise. It claims the real return is approximately $1.10 (or $3, including multipliers) return per dollar invested, and stresses that the tax incentives have kept thousands of workers employed in the state and its cash registers ringing, most recently in support of the Netflix series, “House of Cards,” and HBO’s “VEEP.”

For this year’s legislative session, with the current law set to expire at the end of fiscal 2016, the MFIC has filed House Bill 753. It requests a $25 million tax incentive credit limit that may be filed by production companies that shoot in Maryland for fiscal years 2017 through 2019.

The MFIC and its various stakeholders feel that such an updated law will not only keep the shows that are already in progress rolling, but will attract more productions to Maryland.

The Story

Today, the state’s tax incentive program is capped at $7.5 million annually, but was supplemented last session by legislation to reach $25 million—or enough to support the existing productions of “House of Cards” (which shoots in Harford County) and “VEEP” (lensed in Columbia), and to keep them from moving out of state—for fiscal 2015.

The current program is set to expire at the end of fiscal 2016. For this fiscal year, a similar supplement would be needed to offer ample funds to keep both productions rolling for their upcoming seasons; the DLS, however, contends that the tax incentive package is an expensive program and that, in the absence of continued subsidies, the benefit evaporates.

DLS Director of the Office of Policy Warren Deschenaux declined to be interviewed for this article. However, in an article that appeared in the January issue of The Business Monthly, he said that, “Compared to [Maryland’s] other economic development investments [the film and TV tax incentives] compare poorly. My main observation in this case is that we’re not buying economic development, we’re renting it. Unless we continue to subsidize the industry, it’s not going to be here.”

He went on to add that the state is “paying a high percentage of the salaries of the people who work on those jobs. That’s why I say we’re renting them. Due to the interstate competitions, the price keeps going up and up,” then inquiring, “Why is this industry favored over all of the others?”

Variety of Reasons

Some observers have ready answers for that question, such as Baltimore-based economist Anirban Basu, chairman and CEO of Sage Policy Group and a member of Gov. Larry Hogan’s transition team.

“The film program was intended to attract major productions to Maryland. Film and TV prods are highly sought after by other states across the nation, and attracting them requires incentives,” Basu said. “Maryland’s incentives have worked and the state has managed to attract major productions, including ‘House of Cards’ and ‘VEEP.’

“These productions support members of a growing creative class that specializes in set design, costume design, camera work, and casting,” he said. “If Maryland wants to retain that talent, it will need to continue to compete aggressively for these and other prestigious productions.”

Daraius Irani, associate vice president, division of innovation and applied research, and executive director of the Regional Economic Studies Institute at Towson University, is also direct when discussing the benefits the state receives from the tax incentive program.

More important than the tax revenue “is that the [tax incentives] create jobs and services for many small businesses in Maryland that you wouldn’t think would benefit from them. For instance, on ‘House of Cards’ alone, there are more than 1,000 vendors, many of which are local, who benefit tremendously from the production,” said Irani.

Furthermore, “If you look at the DLS study, you will see that each production was required to submit a detailed expense sheet pertaining to how much they spent, and where they spent it, in order to get the tax credit,” he said. “The DLS did not use that data in their analysis.”

Irani also said that DLS results came from the dynamic input/output modeling tool software called REMI PI+, and that the DLS and RESI “used the same model, with slight differences. We used that data for the retail spend, which shows where the money went and to which vendor. DLS just entered the money spent and put it into one category.

“So, what we did differently,” he said, “was break down what category [the money] was spent in, so we could capture what was spent in state and what wasn’t—and we found that about 80 percent of the production’s spend took place in Maryland,” he said, “but the DLS number came to about a 9 percent spend in Maryland.”

Irani also thinks that figure was harder for DLS to pinpoint, since the state doesn’t have a formal film industry.

“For instance, Budeke’s Paints and the National Lumber Co. (both of Baltimore) would not be considered film industry businesses,” he said, “but National Lumber sold approximately $120,000 in goods last year to ‘House of Cards’ alone.”

Overall Spend

Nor is Annapolis-based Blanchard Communications, which rents two-way radios, considered a film industry business. However, Vice President Lisa Tenshaw said the company has worked on various productions in Maryland “for close to 15 years.”

Its recent dealings have included renting approximately 300 radios between “House of Cards” and “VEEP” for “up to seven months at a time last year,” said Tenshaw, noting, “They have had huge impact on our revenues.”

Like the many other vendors that benefit from the film industry, Tenshaw had her fingers crossed about what transpired this past spring. “We were really hoping that Gov. Hogan saw what a positive impact the film business has on the bottom line of small businesses across Maryland. If we lost the credits, productions would leave the state and that would result in a significant hit to our business and that of many others.”

Similar observations were voiced by Timm Curran, a corporate sales manager with Laurel-based Nextcar, a rental company that operates all 16 of its locations in Maryland. The company has also had a long relationship with the film and TV industry and has also worked on “House of Cards” and “VEEP.”

The film and TV industry has been “a Godsend to expand our business,” said Curran. “Not only has it helped Nextcar, but also many of our vendors, since the cars need servicing during the several months of shooting.”

But that’s not all. “We’ve had to purchase vehicles to help keep up with the productions’ demands,” he said, as well as add new locations at the BWI Marshall Airport Rental Car Facility and on Liberty Road.

As for observers who think the industry only provides an occasional bottom-line boost as opposed to a long-term results, Curran said its important “to understand that Netflix has set up a considerable infrastructure” in Maryland, so “when ‘House of Cards’ ends, not only will another production come into the state behind it—if the incentive money is available—Netflix will already be set up to proceed with a new show.”

Usual Discussions

That said, Kevin Clark, executive director of the Association of Film Commissioners International, isn’t surprised that the various stakeholders in Maryland are, again, explaining why the film industry is vital to the state’s bottom line, especially given the new administration.
“Due to the profile of the entertainment industry, it’s an easy target,” he said, noting that he’s seeing similar issues in other states. “What politicians often fail to acknowledge is that these programs support jobs far beyond the talent you see on the screen. All the people listed in the credits [hold] jobs,” said Clark. “The other benefits, or indirect spend, are incredibly valuable as well; they’re just harder to quantify.”

For instance, a business “like a lumber yard is not considered part of the film industry, but [such enterprises] obviously benefit, he said.

Clark also often hears about discussions concerning whether the jobs created are actually full-time. “The film industry is similar to other industries, like construction, in that the work happens in cycles. Certain crew might work 9 out of 12 months, but their annual income is still likely above median wage jobs in the area,” said Clark. “They’re definitely putting in the hours.”

As for the MFIC, the group is hard at work after submitting House Bill 753, which it hopes will not only keep “House of Cards” and “VEEP” shooting in Maryland, but attract more productions to the state.

“We feel hopeful that the Hogan administration will want to maintain this vibrant industry and the jobs it brings to Maryland,” said Scott Johnson, a copyright attorney with Ober|Kaler in Baltimore and chairman of the MFIC.

While the tax incentives were not cut from Hogan’s fiscal 2016 budget, the film program did received a 9 percent cut from the $7.5 million that has been allocated for the coming fiscal year. But, given its success and the fact the new administration is about creating private sector employment, Johnson is optimistic about another positive result by the end of the session.

Until then, “We’re looking forward to working with this new administration and the legislature,” he said, “to find ways to maintain and create more of these good paying jobs.”