A grant fund concept was introduced today as an alternative to the refundable tax-credit model the state currently uses to woo film productions.
Sen. Bill Rabon, who tailored the concept to similar programs currently in place in 13 other states, called it a viable way to move forward with the incentive while keeping the state’s film industry competitive.
“If we’re going to be in this game,” Rabon said, “it’s the right way, it’s the cleanest way and it’s the most palatable way, business-wise, for the state at this time to be in the game.”
The Republican from Southport said the concept would encourage production companies to work with the state and would prevent the incentive from being used as “an open checkbook.”
He said the current incentive—a 25 percent refundable tax credit on expenses totaling at least $250,000, with a maximum award of $20 million—can and has been abused by productions that he said have taken advantage of the credit. The grant concept, which would still offer a credit of 25 percent for productions spending specified amounts, would involve an application process that Rabon said would prevent the incentive from being abused.
As written, productions that could qualify for the incentive under the grant concept are feature-length films that spend $10 million, TV series that spend at least $1 million per episode, and commercials that spend $500,000. Grants would be limited to one per production and could not total more than $5 million for films, $5 million for TV series and $250,000 for commercials.
Where qualifying expenses are currently determined after-the-fact by the state auditor office, the grant program would require those expenses be defined upfront, by the state commerce department.
As stated in a bill sponsored by Sen. Harry Brown (R-Jones, Onslow) entitled “Economic Development Partnership Modifications,” the secretary of commerce would “work with the North Carolina Film Office to adopt rules to provide a process to verify the actual qualifying expenses of a certified production.”
The secretary, it adds, “may not release grant funds until the substantiation process required by this subsection is complete and the final verified amount of qualified expenses is determined.”
Rabon noted that most productions work well with the state under the current incentive. It’s those that have abused it that prompted his proposal, which he said is similar to programs in place in South Carolina, Colorado and other states.
Asked for an example of an instance in which the incentive was abused, Rabon offered a hypothetical of a smaller-budget production spending just enough money to qualify for the credit, submitting the total to the state and insisting on a refund.
“The old system could be gamed—it’s just that simple,” Rabon said. “And it turned a lot of people off who understood that. And it turned a lot of states off, and that’s why the states are going to the grant system, because it’s not an open checkbook. There’s a finite amount of money that would be available.”
That amount would start off with $20 million that the bill, as proposed, would appropriate from the state’s repairs and renovations reserve and its savings reserve. The result would be the creation of a “Film and Entertainment Grant Fund” that Rabon said would work like other state grant programs.
“It’s tailored like a state business should be,” Rabon said. “It’s much better for the taxpayer.”
The proposal, which passed a third reading before the full Senate today, includes a sunset date of July 1, 2020, which Rabon said would give the industry assurance that the program would be in place for five years. The current incentive has a sunset clause that calls for it to expire at the end of this year.
A House bill filed by Reps. Susi Hamilton (D-New Hanover), Rick Catlin (R-Brunswick) and Ted Davis (D-New Hanover), among others, seeks to eliminate that sunset date entirely and extend the current incentive, while increasing the minimum spending requirement to $300,000.
A previous Senate proposal, included in a budget appropriations bill also sponsored by Brown, would change the current incentive structure to an assortment of credits on specified expenses, such as 5.3 percent of wages for employees, 4 percent of payments to companies based outside North Carolina, and 5 percent of withholding expenses for businesses in the state.
That proposal, described as an effort to encourage more long-term investment by the industry in the state, would also cap the maximum awardable credit at $6 million and increase the minimum spending requirement to $1 million.
Hamilton, who has called that proposal “excessive” and “problematic,” could not be reached to comment on this latest proposal. Johnny Griffin, director of the Wilmington Regional Film Commission, declined to comment late Thursday, noting he was still analyzing the proposal.
Related story: Rep. Hamilton: Film incentive debate ‘just heating up’
Sen. Thom Goolsby (R-New Hanover), who serves with Rabon on the appropriations/base budget committee, said the grant fund proposal “is a start.”
“Much more work will be done as the bill makes its way through the Senate, House and conference,” Goolsby said. “At this early point, I am glad that we have commitments to support film and the recognition of its value in our state.”
Rabon said his proposal is intended to support the film industry and prevent workers from having to find jobs in other states.
“When you lose a major industry, there’s a loud sucking sound when the workers leave,” he said. “And we don’t want that. And we don’t want that with the film industry.
“They’re a viable industry, they’re a good industry, they’re a clean industry, they’re our friend,” Rabon said. “And they’ve kept their word with North Carolina, and I think North Carolina should do all we can to support them the proper way.”
Related stories:
- Local governments highlight film industry as supporters lobby in Raleigh
- Film incentive hangs in balance as legislative session gets underway
- Film supporters rally to continue tax incentive
Jonathan Spiers is a reporter for Port City Daily. He can be reached at (910) 772-6313 or [email protected]. On Twitter: @jrspiers
