Last year Little Rock native Jeff Nichols made “Mud” in the Arkansas Delta. The film received an 18-minute standing ovation at the prestigious Cannes Film Festival, it brought Reese Witherspoon and Matthew McConaughey to town, and at least one international critic has suggested it’s an Oscar contender. Budget figures haven’t been publicized, but Nichols has said that his budget was larger than the $5 million of his previous film, “Take Shelter.”
Hosting Hollywood (or even its resemblance) is glitzy, but film is an industry. Like any other big business, states vie to own it. In 2009, the legislature passed the Arkansas Digital Product and Motion Picture Industry Development Act in an effort to attract film and media projects to the state. The legislation allows the state to award film companies a 15 percent rebate on their qualified in-state expenditures and an additional 10 percent rebate on payroll for film crew who are full-time Arkansas residents.
The state did not appropriate funding for the incentives in 2011, but Arkansas taxpayers gave “Mud” $1.4 million anyway, out of the governor’s discretionary fund. (Even if funds had been appropriated, the total amounted to more than the production would have been able to claim under rebate guidelines.) In a recent talk at the Little Rock Film Festival, Nichols said that, to keep the production in Arkansas versus Louisiana — particularly because the film is set on an island in the Mississippi River, and these are both river states — he and the Arkansas film commissioner, Christopher Crane, worked directly with Gov. Mike Beebe. Ultimately Arkansas matched the amount Louisiana was offering as an incentive. Louisiana’s incentive is the most generous in the country.
New technology has allowed big productions to become increasingly mobile, and states are now involved in what Crane terms an “incentive arms race.” But as crucial public services, such as education and subsidized healthcare, are chiseled out of state budgets, economists have begun to wonder if media is a wise public investment. At various points, 49 states have had incentive programs, but recently eight states — Michigan, New Mexico, New Jersey, Iowa, Idaho, Oklahoma, Georgia and Maryland — have suspended or scaled back the offerings. Right now, neighboring Missouri, which has a 35 percent tax credit, is considering doing the same.
Since 2009, the Arkansas incentive has paid out $1.6 million to seven different production companies. Each production that receives funds must first commission an outside audit, to prevent false claims. “I tell filmmakers we have this incentive, it’s not funded, but I’ll fight for their project,” Crane said. “Our goal is to find a permanent funding source, so we’ll be trying to tweak the legislation in that direction during the next legislative cycle.”
Two prominent nonpartisan think tanks, the Tax Foundation and the Center on Budget and Policy Priorities, have published reports making a case against film incentives. In March 2012, the Tax Foundation traced the growth of incentive programs, from four states giving away $2 million in 1999 to 40 states giving away $1.4 billion in 2010. Both reports predict that these 2010 figures will represent the incentive peak, because the job creation is largely temporary and the true beneficiaries are out-of-state production companies. The Tax Foundation references seven studies in six states that found that film incentive programs return between 7 and 28 cents on the dollar, while the Center on Budget and Policy Priorities outlines method weakness in several state-commissioned impact analyses that skew in favor of the incentives.
These incentives, particularly those including transferable (or sellable) tax credits, are highly vulnerable to abuse. Iowa suspended its program last year, after a public TV producer was accused (and has now been convicted) of stealing $9 million from the state in false claims. Louisiana’s former film commissioner was sentenced to two years in prison for similar abuse. A few weeks ago, Arizona representatives killed a $2 billion proposal that would keep the state’s incentive alive for the next 30 years. But not all states have given up on the film industry. Alabama, Colorado and Kansas are among the states that actually increased incentives in the past year.
In 2009, Arkansas and Delaware were the only states without any incentives program. But 26 years prior, Arkansas introduced the Nickel Rebate, one of the first motion picture incentives in the U.S. It was a straightforward program — for every production dollar spent in-state, the state refunded the company a nickel. Later, the incentive changed to a 6 percent tax rebate on in-state purchases. But when the latter expired in 2007, it was far from a competitive offer. For several years, the state had had nothing but a hyper-local film industry.
When Rep. Rick Saunders was elected to the House in 2005, he took up the cause. “My hometown of Hot Springs is so beautiful, I just envisioned movies being made here,” he said. “I thought it would be good for economic development and good to showcase Arkansas. It’s cheap enough to work in Arkansas that we’ll still get films, even with an incentive that’s smaller than some other states.” Saunders sponsored the bill in 2005 and 2007 but wasn’t successful until 2009. It took testimonies from Arkansas-born celebrities such as Billy Bob Thornton and Joey Lauren Adams, as well as Beebe green-lighting an appropriation from his discretionary fund, to get the bill through the House.
Saunders asked Sen. Shane Broadway to sponsor the bill in the Senate. At an earlier legislative conference, Broadway had attended a presentation on Louisiana’s incentives. He remembered the buzz around his hometown of Benton in 1995, when “Sling Blade” was filmed there. He agreed to be the Senate sponsor. The bill passed unanimously in the Senate, without much on-floor debate.
“Arkansas is a diverse state. It has mountains and lowlands. And from the movies that have been made here, we knew there was a lot to offer, so we really needed to make an effort to encourage people to come. They bring their staff, they have to eat and stay somewhere. It’s just a good economic tool,” said Sen. Mary Anne Salmon of North Little Rock, a co-sponsor of the bill. In the House, only three representatives (all Republicans) opposed the bill: Duncan Baird, Daniel Greenberg and Debra Hobbs.
Beebe thinks Arkansas’s incentive legislation was better researched than those of some other states. In an interview with the Times, the governor said, “We’re treating this as economic activity created through the film industry. We did a cost-benefit analysis, first … as long as we’ve got the checks and balances in there, it’s an economic engine.”
The primary objective of any incentive is to subsidize an industry only until infrastructure is in place. In the case of film and TV production, there is a secondary objective — to help a state manage its image. Films can be public relation projects, and if a state selectively subsidizes, it has a hand in how it’s portrayed to the world at large. No state is willing to subsidize pornography, but some states have also refused to subsidize horror and politically charged films. Arkansas’s legislation has a “no obscenities clause,” but Crane said he’s not in the business of censoring. “We want to go after those productions that portray Arkansas in a great light, but periodically they won’t,” he added.
Arkansas doesn’t subsidize unequivocally, though. Productions have to spend at least $50,000 in-state, over six months, which means that local commercials, student films and shorts rarely receive funds. Thus far, no qualified project has failed to seek the subsidy, and according to Crane neither “Mud” nor the $9 million Hank Williams bio-pic “The Last Ride,” slated to release nationally this month, would have shot in Arkansas without the incentive.
But more than feature films, the bedrock of Arkansas production is national and regional commercials. After “Mud,” the biggest recipient of incentive funds to date has been the now disbanded Dempsey Film Group Inc. A strictly commercial firm, Dempsey received $126,000 for a variety of projects. “We wrote the legislation in part to recruit more commercials to the state, because that’s our bailiwick, and we want to keep our people employed,” Crane said. In 2006 (the latest available figures) Arkansas had 1,000 people employed in film production. UALR, UCA, ASU, SAU Tech, Pulaski Tech and Lyon College all offer some form of production training.
As incentives go, Arkansas’s is “modest but competitive,” said Crane. Arkansas’s incentives fall almost exactly mid-scale. “When I look at the other incentive programs, the ones that are scaling back are landing where we are,” he added. Crane helped draft the 2009 legislation after the state commissioned the Los Angeles-based Economics Research Associates to do an Arkansas film industry analysis. ERA estimated that for every $1 million film dollars spent in the state, $224,000 would come in direct spending — in supplies, payroll, etc. — which would generate $380,000 in indirect spending. It said each million would produce 14.1 full-time jobs and $24,000 in state sales tax.
There may also be long-term tourism benefits. “Who ever heard of Dyersville, Iowa, before ‘Field of Dreams?’ Now 100,000 people a year still tour that facility,” Crane said. Closer to home, Mississippi’s “The Help” self-guided tour in Jackson has been downloaded 6,772 times since the film wrapped last spring, and those figures are only from one of several sites that make the guide available.
It’s impossible to accurately estimate how much a state gains financially from a production, because the numbers are based on models and approximations. Crane acknowledges that not every film has inherent tourism value, and that incentives are about more than pure economics. “I don’t want to be Hollywood,” he said. “I’d love it if we could make 10 to 15 wonderful, independent films. There’s a large group of creative people in any state, and you have to give them a chance to live in the place they love and do what they do. It creates a quality of life, gives us an ‘it’ factor. Anyone who comes here for any industry, they want to know that there’s music, theater, art and all of those things in the community.”
An independent economic analysis of Arkansas’s incentive is planned for 2013, once the numbers are in for “The Last Ride.” If other states are any indication, those numbers aren’t likely to be as positive as ERA had predicted.
“So many times, we’re given bills and told this is going to provide a benefit that’s not quantifiable, but it has a cost that is quantifiable,” said Rep. Baird, an opponent of the incentive bill in 2009. “In state government, we’re rarely able to follow up and find out if the benefit justified the cost. Movies are high profile. If a movie is made in Arkansas, it feels really good, but there’s never been any evidence that the long-term benefits from these credits actually outweigh the cost to the taxpayers.”
But bill sponsor Saunders, who’s now retired from the legislature, said that even if 2013 numbers are disappointing, the program should be revised rather than dropped. “We’re new in the game with this model. I hope we’re patient. I’d like to see us commit at least 10 years to gauging if this works,” he said. “I think our model is strong.”
Crane emphasizes that he never wants Arkansas “to be Michigan.” Until December 2011, Michigan offered a 42 percent transferable tax credit, the largest of any state. Now the credit has been reduced to 32 percent. “They’re just giving away money. They couldn’t make good on all of their credits, they had problems with crews. You can’t offer that much if you can’t bring the workforce to go with it,” Crane said. “They were trying to replace the auto industry, but they did it poorly. … We need to find that golden mean that can attract production and still expand the revenue base for the state and keep people working.”
The requested appropriation for Arkansas’s incentive is $5 million a year, a sum Crane arrived at by looking at North Carolina, Oklahoma, Georgia and Mississippi, because of similar topographies, economies and production industries. In Arkansas, the program is only funded if there’s a budget surplus. In 2011 the program wasn’t funded; nor is it funded thus far in 2012. But there have been exceptions. In the case of “Mud,” Beebe decided to finance the rebate out of discretionary funds because he believed the film would offer Arkansas national and international exposure. “We look at it on an individual basis,” said Beebe. “What is the investment of the film company? How much money are they going to spend in the state? How much money do we have?” And, he said, Dumas and Stuttgart, the actual filming locations, could use the break. “There’s not much economic development opportunities for Southeast Arkansas,” he added.
Some people will always be detractors. Both Greenberg and Baird are against industry-specific subsidies, except in dire situations. “Speaking generally, if there’s anything less praiseworthy than welfare for people who can work, it’s corporate welfare,” said Greenberg, who has a background in law and public policy. “The best kind of economic stimulus is free market economics, letting people invest through financial instruments, through putting money in banks so that banks can make loans, in letting the money go where it goes naturally.”
But without collateral, many banks won’t lend funds to production companies. Often films never recoup their budget, and even if they do, Arkansas has a constitutional clause that prevents the state from collecting profit share from any industry, regardless of subsidies.