Thursday, December 9, 2010

Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS



I disagree Mr. Stoffer. The SIC is one program that can actually provide investment into sustaining a local media industry.  The current way the program works is set forth by policy not legislated. The fact that the past administration failed to create policy to invest in the local media industry - making you and I very unhappy people - does not mean the program should be scrapped. 

The legislated portion is very basic:

The State Investment Officer may make investments in New Mexico film projects of up to 6% of the market value of the Severance Tax Permanent Fund. These investments, capped at $15 million per project, currently take the form of a guaranteed, no-interest loan up to 100% of the production budget. Investments require a negotiated participation in the film project's post-break even revenues.   

This currently is a $215 million + fund that if not spent on investing in film will be spent investing in other areas like the stock market, real estate and/or likely handled by a contracted money manager in some form of a diversified portfolio. Not one penny would be spent on Teachers, Police or any other services. Only funds generated by the "investments" can be transfered into the general fund. This is not a Economic Development program all though that may result from the investments - it is an investment fund. Any investment should have a reasonable expectation of a return to the state. Tax payer will not get a reduction in their taxes and no these funds will not be used to off set current budget problems. 

A audit firm has been hired to review film investments and determine what the actual rate of return is. Given the sad state of the past rate of return of other investments the film investments should fair well. 


On Dec 9, 2010, at 3:23 PM, Larry N Stouffer wrote:

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One thing would help, I believe, is to whack off the 0% loan component. All that loot's going to Hollywood folks who don't need it, anyway. 

Larry N Stouffer
=============================
On Dec 9, 2010, at 3:10 PM, Fritz wrote:

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Jon, Like the rest of the people on this list, I hope the new administration concludes that the rebate is a good deal for taxpayers, but if the best economic argument we have is the "multiplier," we're likely in for some disappointment because, as Porgy said to Bess, "it ain't necessarily so."

 

While it's as close a thing to sexy as an economic idea might be, it's hardly settled science. It seems intuitive enough: the money keeps moving through the economy (velocity), getting taxed each step of the way, until voila, more tax has been collected from a program than was spent on it. If this were the case, government spending would create surplus government revenues.  When did this last happen? If the E&Y report claimed $1.50 return on every dollar spent, why didn't the state put the whole general fund into that investment? E&Y also calculated a high multiplier as if it stays fixed. But it doesn't. It depends on economic outlook.

 

Some economists argue that the multiplier can actually be less than one (a negative result), because it depends so much on what people do with their money, and those choices are usually made based on how they see their future. If taxes are high, people can't save (or invest) or consume as much, so they spend less. If there's continued uncertainty, the money is trapped and reserved, reducing the multiplier (The banks have done this lately, to the chagrin of many). How much does the necessarily higher tax that funds the rebate subsidy actually slow down state economic activity (including activity unrelated to film)? In aggregate that amount could offset the apparent benefit of production funds injected into the economy. That's where the multiplier could effectively drop below one.

 

Then there's the question about how much of the spending really stays in New Mexico, creating additional future tax receipts. Corey mentioned that he's grateful the rebate has helped him own a house. But most mortgage payments in New Mexico aren't made to a New Mexico address. Spending on food goes mostly out of state (we don't grow much wheat in NM). If people elect to spend only on necessities because of the economic outlook, the amount injected by the initial production spend (eligible for the rebate) could result in very little in-state spending on the next layer of transactions.

 

So maybe we should be concentrating on making this industry a sustainable one, with an eye towards the distinct possibility that the incentives will be reduced or disappear at some time in the near future. As pointed out by lots of people on this list, we've come a long way so far.  Do we have a suitable infrastructure for films to continue coming here without a rebate? Do we specialize in some area of the industry that can be characterized as a competitive advantage and makes us particularly attractive to out-of-state filmmakers whether there's a rebate or not? If not, why not, and what do we still need to do to make it so while the rebate is still in place?

 

BTW, I had the pleasure of visiting the Tiger Eyes set, and was blown away at the skill and efficiency of the crew, which was almost all local. It seemed we have much more to offer than just incentives. Bravo.
Fritz

 

-----Original Message-----
From: NM Media Discussion List [mailto:MISP-L@unm.edu] On Behalf Of Jon Hendry
Sent: Wednesday, December 08, 2010 5:02 PM
To: MISP-L@LIST.UNM.EDU
Subject: Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS

 

Apparently we need math lessons AND a picture. You dont rebate 25% of the taxes. So in your example "The 25% tax rebate pays you back
25% of $113 or $28.25 " it should read " your 25% rebate on your expenditure of $113 gives you a net cost of $88 on your expenditure"

 

Easier to understand : You spend at least $107 to get $75 back. A subtle but important difference. Now its impossible to pay only GRT
In fact conservative analyst claim the marginal tax rate for NM Business is 14% about the middle for all States. Even the lowest 5
states tax businesses at least 7%. So now lets look at that dollar. A business be it a picture co. or a vendor is carrying a  tax burden of 
14% in local county or state taxes. So a new  dollar in is worth $1.14 the FIRST time around. That means it costs $1.14 to generate a
25c rebate. But wait theres more. That 75c moves through the system. The most conservative multiplier IMPLAN was used by BOTH
Arrowhead and E&Y so there would be no argument over which was used . (if E&Y had used multipliers used by other states the return
could easily have doubled, lets see how  that would have been discredited Ed) The Implan multiplier for manufacturing is x3.2. So therefore
that 75c becomes $2.40. Multiply that by 14c and Voila you have 34c return on a 25c expenditure and thats why E&Y say Movies make
Money for New Mexico ! Next week we can discuss  the impact on tourism of films shot 50, 20, 5 or even 1 year agoon visitation for the next 

50 years.          


Date: Wed, 8 Dec 2010 16:20:57 -0700
From: jandabq@COMCAST.NET
Subject: Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS
To: MISP-L@LIST.UNM.EDU

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Mike -- Yes.  I'm a writer/producer of hundreds of hours of training and communications programs and have long thought that we needed to do something like this. I'd be happy to work with a committed team. 

 

Judy Anderson
----- Original Message -----
Sent: Wednesday, December 08, 2010 3:55 PM
Subject: Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS

 

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Thanks Dirk, 

Apparently a picture is what some of us need.  You managed to capture exactly what I was trying to say with my baker example.   
I think that may be an important thing for all of us to realize.  Some people learn visually, others by hearing and still others by doing.  
Maybe someone can take Dirk's example and make some visuals to present to the legislature.  480 does a great "doing" presentation every year. 
I will be happy to participate in some above the line doing on film day with some practical demonstrations on prepping a show.   
Someone else with better verbal skills could pick up the writing part, so the speakers have a good intelligent argument they can present on our behalf.
Any takers?

Mike

On 12/8/10 10:12 AM, Dirk Norris wrote:
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I think a picture is exactly what some people will need to understand this. A cartoon series with a little producer guy flying into New Mexico with 4 bulging bags of money, that money going to grips and gaffers and actors and hotels. Then the money goes on to gas stations and grocery stores car dealerships from the film workers. At the end, the governor is handing the producer one bag of money that he flies back to Hollywood with.
Dirk

From: NM Media Discussion List [mailto:MISP-L@unm.edu] On Behalf Of Sam Levy, NET MAN
Sent: Tuesday, December 07, 2010 6:53 PM
To: MISP-L@LIST.UNM.EDU
Subject: Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS
Again, not true.

The "other 18%" must come from state coffers, which are generally those in the general fund obtained through other taxes.

The "further example" of hotel, gas, corporate - if qualifying expenditures are made on those items, the expenditure itself is still rebating at 25%, not the tax on the expenditure.

As an example, you make a film, you rent a hotel room.

The hotel room base rate is $100

The gross receipts tax may be $7
The lodgers tax may be $6

Total amount you pay for the room is $113

The 25% tax rebate pays you back 25% of $113, or $28.25

While the state and the lodgers tax (which I don't think goes to the state it goes to the county, but I'm giving you a generous example here - so for the purposes of the example, just assume that the lodgers tax were to go to the state too) total only $13, the state writes you a check for $28.25

The "other $15.25" has to be paid from other sources.

Many other film expenditures don't have added taxation, so you're only looking at the approximate $7 revenue in to the state goverment, of which it is still writing a check out for $26.75.

As previously mentioned, there ARE valid arguments that the mere spending of the underlying $100 circulates back through the economy and eventually may bring in enough money to pay for the additional amount, the original amount being paid out directly on the expenditure amounts to around 3.5 times the amount of money the state government actually received in taxes.

If the film were never made, and you never rented the hotel room and never paid your $113, then the "other 18%" of rebate funds WOULD still indeed be in the state government tax coffers.

Do I need to draw a picture?

s

On 12/7/2010 18:38, Kenneth Knoll wrote:
***This is a MISP Listserv message. Responses are sent to the list by default.*** ***For more info about MISP and the listserv, scroll to the bottom of the page*** * It is a rebate not only on taxes paid directly into the state coffers, GRT and State Income Tax. Additional Hotel and Gas taxes and Corporate taxes are rebated along with other taxes the state receives on production money spent within the state. The Arrow Head Study pointed out that GRT, State Income Tax and Corporate Taxes represent 78.63% of the taxes received. The balance coming from other taxes. My point still is that the assumption that those funds will be there for other services is not factual. 
On Dec 7, 2010, at 6:01 PM, Fritz wrote:
 
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Assuming a production wouldn't have been produced here without the rebate, it would seem the only amounts directly "paid in" to state coffers as a result of the production are either GRT or State Income tax, and the latter only if the employees have enough income in the year to be ineligible for a refund. That means some amount less than 25% (I'd guess around 18%) would be paid back to the producer/production from the "general fund." If the production would have been done even if there were no rebate (that being the case with the current production I'm working on), then the taxpayer is in effect subsidizing the full 25%. 

Whether the subsidy provides secondary benefits that exceed the amount of the subsidy is a different matter, which is certainly what the various studies have tried to ascertain, and which I think will be the heart of the upcoming political debate that decides how much of the subsidy to keep in place.
Fritz
-----Original Message-----
From: NM Media Discussion List [mailto:MISP-L@unm.edu] On Behalf Of Kenneth Knoll
Sent: Tuesday, December 07, 2010 4:04 PM
To: MISP-L@LIST.UNM.EDU
Subject: Re: [MISP] Fwd: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS
 "However, these subsidies are so lavish that governments must cut vital public services to pay for them."
The basic assumption that the money will actually remain in the general fund if you cut subsidies is wrong when applying it here in New Mexico. It is a "rebate", a return of money paid in. If the money is not paid in due to loss in production that money will not be available to pay for other services to begin with. To argue the added value is something that is hard to measure but we all see the benefits everyday. You can't rob Peter to pay Paul when Peter never had the funds in the first place. 
On Dec 7, 2010, at 2:43 PM, Stacy Sacco wrote:
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I thought you might all want to see the response from the folks at CBPP to my email from last week.  I certainly appreciate there having responded to my email and I would imagine would enjoy being part of this continued dialog.    Happy holidays to all.  Stacy

-----Original Message-----
From: Shannon Spillane <spillane@cbpp.org>
To: SASacco@aol.com
Sent: Tue, Dec 7, 2010 2:04 pm
Subject: RE: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS

Sue,
Apologies for the delay in responding to your emails from last week.  Thank you for sharing the list serv dialogue with us.   My colleague, Dr. Bob Tannenwald, has written up a short note in response.  We invite you to share these comments with the list serv if you like.  Please find them below.
Kind regards,
Shannon
Shannon Spillane
Deputy Communications Director for Strategic Initiatives
Center on Budget and Policy Priorities
Phone: 202-408-1080
Response from Dr. Robert Tannenwald
Thank you for the discussion of my new report and for sharing with me your robust debate about this issue.  I appreciate the opportunity to respond briefly to a few of the points made in the list serv exchange.
First, I do not dispute that, by offering film tax subsidies, states induce producers to shoot movies within their borders. However, these subsidies are so lavish that governments must cut vital public services to pay for them. While residents get some work on movie productions, others lose their jobs as governments cancel contracts with vendors and lay off workers. For example, construction workers lay idle as maintenance, repair, and modernization of infrastructure are postponed. Teachers, police officers, and firefighters get let go. This has a ripple effect through the state economy.  The laid off workers struggle to pay their rent, to support their families, and to make car payments. As their household budgets shrink, they spend less at the grocery store and other local businesses. The resulting economic drag wipes out the economic gains that movie making appears to generate. In short, film tax credits make governments rob Peter to pay Paul.
To make matters worse, a large chunk of the benefits from film production goes into the pockets of nonresidents— out-of-state media pros. This is true even in New Mexico, where the state pays colleges and universities to train residents for media jobs and eligibility for its film tax credit is partially limited to residents. (A close reading of the New Mexico Film Office's study offers evidence on this point).
Some other points:
Arizona does have a film tax credit, with an appropriation of $70 million, the same order of magnitude as film tax credits paid out by New Mexico.  Arizona is discontinuing its film tax credit, effective December 31.
True, other industries get government subsidies. Most of these subsidies are just as wasteful and ineffective as the film tax credit and deserve scrutiny as well.  This report, however, focused on film tax credits in particular.
Movie producers moved back from Canada in large part because the Canadian dollar appreciated rapidly against the American dollar (by 50 percent) in the early part of the decade.
Thank you for your consideration of these points.
From: SASacco@aol.com [mailto:SASacco@aol.com] 
Sent: Wednesday, December 01, 2010 6:41 PM
To: Shannon Spillane
Cc: Bob Tannenwald
Subject: Fwd: [MISP] STATE FILM SUBSIDIES: NOT MUCH BANG FOR TOO MANY BUCKS
Just curious.  Does the CBPP have a process for reviewing and responding to comments regarding your reports, as noted in the following email?  Thank you.
Stacy

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