Hao on Film Industry

Did you guys see this year's requisite Sean Hao film tax incentive article in the Honolulu Advertiser yesterday? Pretty fairly balanced between tax incentive supporters and naysayers, I would say. Funny though, it seems that Paul Brewbaker and Lowell Kalapa are the local go-to guys for tax incentive naysaying. Why, just last Friday, they were also quoted by the AP's Alexandre Da Silva, in an article about Act 221, our investment tax credit!

In any case, let's pick apart Hao's article and Brewbaker's and Kalapa's comments, shall we?

• "Comparing incentives offered by various states and foreign countries is difficult because they are structured differently." Yes, there are different programs out there, but the industry seems to be lining up behind 2 main kinds of tax incentives: the straight rebate on local production expenditures, and the transferable investor tax credit that acts essentially like a rebate. Comparing these between states and countries is easy (after making cost of living and exchange rate adjustments): just look at the percentage offered! (e.g., 25% in New Mexico, 25% in Louisiana, 15% in NYC, 15% in Florida, and an unprecedented 30% proposed in South Carolina).
• "Paul Brewbaker, chief economist for Bank of Hawaii, questions whether the state needs to stimulate a specific industry in an economy that's already booming and has the lowest unemployment rate in the nation. 'It's a different story when you have 6 percent unemployment from the situation (today) when there's 2.5 percent unemployment,' Brewbaker said. By giving out tax credits, 'you can change the type of economic activity, but that's all you can do if everybody is working.'" Oof! Does that mean, Paul, that we should give up trying to create different highly desirable, highly skilled, highly paid jobs, simply because we are at such a low rate of unemployment? The idea behind film tax incentives is indeed to "change the type of economic activity"! Didn't everyone hear about the Hawaii Tourism Authority's recent study that concluded that Hawaii residents are sick of the menial service jobs created by the tourism industry? Incentives to stimulate the film industry (and high tech industry, for that matter) are part of a progressive hope to change Hawaii's economic landscape.
• "...Senate Bill 2570, which would combine the various film incentives into a larger production tax credit." This makes it sound like there are a whole bunch of incentives being combined into one. Actually, what SB2570 would do is raise the current 4% rebate to 15% on Oahu and 20% on the neighbor islands (and do away with the additional 7.25% hotel room rebate).
• "...the film industry's use of tax credits for investors would decline...Even though the proposed changes aren't supposed to cost the state money, [state film commissioner Donne] Dawson said they would result in more movie business for the state. That's because it will be easier for shows to qualify for production tax credits than for investment tax credits." This warrants further explanation. The goal of the proposed 15-20% rebate is to divert larger productions away from Act 221, the investment tax credit that is, let's face it, a pain in the okole to claim. Productions need certainty when they do their budgets (something they do way before they hit the ground to shoot!), and Act 221, which requires a search for local investors who can actually claim the credits, does not provide a sufficient level of certainty. That is why productions would much prefer the 15-20% rebate (and they can't double dip with Act 221), and that is why Hawaii would get more bang for its buck with this rebate. Furthermore, the pool of local investment would be freed up for little indie productions and tech startups that need cash infusions instead of mere discounts.
• "'You're never going to have permanent jobs if you're depending on the whim of viewers for the success or failure of a TV show,'" Kalapa said." Hello! Can't you say that about many different industries? I mean, how many tech companies start up and fall down per day? Given all of the corporate downsizing, technological advances, and foreign outsourcing that is happening across industries in America, is there even such a thing as a "permanent job" anymore in 2006? It's been about, hmmm...150 years since the last Industrial Revolution! Also, you should all know that production jobs are largely temporary in nature--people hop from one TV show and film to the next (that holds true of everyone from grips and PAs to A-list stars and directors). The idea here is to close the gap between jobs so that workers aren't collecting unemployment (i.e. public monies) while waiting for the next production to arrive. Also, once we have a lot of production activity in the islands, we will have a creative environment in which local filmmakers will be inspired to start their own production companies and make their own films. And maybe all the production activity will also stimulate the building of post-production and animation companies, soundstages, and equipment houses, thereby creating more "permanent" types of jobs.
• "In other situations, the credits benefit existing rather than new productions, Kalapa said. 'Are we handing out credits to productions that are already here?' asked Kalapa. 'Are we handing out candy to good kids?'" If new productions get to benefit from the tax incentive, why shouldn't existing ones get to benefit? After all, the existing ones are the ones that have provided much needed jobs to production workers when everyone else was too cheap to come shoot here. NBC's long-running "Law and Order" is currently facing criticism similar to Kalapa's: people are wondering why, after over a decade and a half of shooting in NYC, should the show now get an incentive for what they are going to continue doing anyway? To this, Jeff Zucker, chief executive of the NBC Universal Television Group told the NY Times, "First of all, the 'Law and Order' franchise single-handedly supported production in New York City when there was virtually no one else here. To penalize them because they were holding up their end of the bargain long before anyone else seems patently unfair. In addition, there is another state next door that is begging for the 'Law and Order' productions."

OK, that's it for now. All in all, Hao's article was a good overview of the major issues. I just wanted to throw in my $.02 (as usual). See you all tomorrow at the reconvened conference hearing on SB2570, SD2, HD2!

>> Lights, camera competition [Hnl Advertiser, 4/23/06]

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