Arizona bill would create tax credits for film and TV productions

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Proponents of a proposal to use Arizona taxpayer dollars to subsidize film and TV production companies describe the deal as something like the end of “Vegas Vacation,” which sees the whole family cashing in.

Skeptics – looking at the state’s costly and failed attempt in the 2000s to lure Hollywood in with tax credits – predict something more like the end of “Game of Thrones”: a hot mess hated by almost everyone.

It may take a few years to determine who is right if this becomes law.

Some Republican lawmakers and government watchdog groups are wary of the risks of Senate Bill 1708, despite being sponsored by a Republican — Senator David Gowan of Sierra Vista.

If the House approves the bill, which the Senate passed in February, and Governor Doug Ducey signs it, the public could soon see visible signs of a new movie industry in Arizona.

The program would provide up to $150 million each year in refundable tax credits to production companies, up to a maximum of $25 million for each individual production. Depending on the amount of their expenses, production companies would take up to 20% of its total costs, including employee compensation, wardrobe, catering, props, set construction, photography, editing , rental of studio facilities and more.

Based on the promise of those future grants, two groups pushing the bill say they would open two 50-acre movie studios shortly after it passes, according to Gowan and lobbyists Kevin DeMenna and Nick Simonetta.

The facilities would be world-class, they say, with 15 or 16 sound stages on a campus that would see demand for public tours.

One, a company DeMenna represents that includes an executive from the Warner Bros. subsidiary. Castle Rock Entertainment, would rise near the Talking Stick Resort and Casino, off the 101 Loop on the Salt River Pima-Maricopa Indian Community. The other, by a group representing Simonetta that is unrelated to an existing movie company, would be located in Buckeye near Interstate 10 and State Route 85.

Once built, production companies that want to take advantage of the grants would rent the studios and conduct their work in Arizona.

“It’s classic ‘Field of Dreams,'” DeMenna said. “Without a credit in place to compete with, it cannot be built. For the studio industry and the bankers looking at this to jump in and move forward with building a resort, this law needs to be on the books. “

According to the pink projections, thousands of workers would find jobs in or for the studios – and pay taxes in Arizona. Students studying film and television production in Arizona would not have to leave the state to work in the industry. And on-site scenes that depict Arizona landscapes would entice businesses or people to locate here.

New hotels will be built to accommodate production crews, which will fill restaurants and airports, Gowan told The Arizona Republic.

The main selling point is that all this economic activity means the grant program would bring money to Arizona. To qualify for the grants, the program would require production companies to use an existing studio in Arizona or film the production primarily in the state. Either way, the production workers should be in Arizona. Regular audits would make it possible to ensure that the criteria are respected.

“You can’t lose,” Gowan said. “That’s why we did it the way we did.”

“A huge opportunity for Arizona”

Production companies already do limited filming in Arizona, and the state has a rich history of starring in movies.

The 320-acre Old Tucson studio, which closed in 2020, was known as “the Hollywood of the desert” during the heyday of westerns. But a lack of tax breaks means producers generally avoid Arizona. For example, a 2016 film about the deaths of 19 Arizona firefighters near Yarnell was filmed in New Mexico, which offers rich incentives for production companies of up to 35% tax breaks.

Thirty states currently offer some kind of film production grants.

The grants are “built into the business model” of production companies, said Matt George, co-chairman of Castle Rock Entertainment which has produced films such as “LBJ” and “Shock and Awe.” Failure to pass Senate Bill 1708 would mean Arizona would miss out on an industry that has seen tremendous growth in recent years, he said.

The combined production budgets of major film studies in 2015 were around $7 billion, he said. After Netflix began creating original programming, a move other streaming services quickly followed, that figure soared to around $200 billion, George said.

“You can’t build studios fast enough, and there aren’t enough discounts right now,” he said. “There aren’t enough crews there, so it’s a huge opportunity for Arizona to not only build studios, but to build an industry here and nurture a whole new generation of filmmakers. “

With a tax credit program, he said, Arizona would have advantages for production companies that other movie-subsidized states — like Georgia, New Mexico and Utah — do not have. For filmmakers and actors, being close to Los Angeles would be “nice,” he said.

“You can go home on the weekends,” George said. “If you’re in Georgia or Louisiana, you’re just not allowed to do that.”

Close to Scottsdale, “you’ll be five minutes from some of the best hotels and restaurants you could want. There’s an amazing lifestyle here…and that’s factored into where actors want to go and spend five months shooting a movie.”

Acacia Entertainment, owned by George and the Tunica-Biloxi Tribe of Louisiana, is believed to be one of the investors in the Scottsdale-area studio, he said. The Salt River Pima-Maricopa Tribe has signed a letter of intent for the land, George said, adding that the studio could start up just months after the bill takes effect.

Study: 43 million dollars per year possible, eventually

Using refundable tax credits, the program would reimburse companies 15% of their production costs if they spend $10 million, 17.5% if they spend up to $35 million and 20% if they spend more than $35 million. They could recoup an additional 7% of their costs by hiring Arizona residents, filming on location in Arizona, and tying the production to a long-term movie studio tenant.

Films and shows made with the grants should say they were made in Arizona. Pornographic productions could not receive subsidies.

Backers envision multiple companies filming TV shows and movies at once, so the state would pay the full $150 million each year. Businesses should spend first and get paid back later.

The construction of the two movie studios, which would cost more than $300 million combined, would produce an initial tax advantage in the first three years, according to an economic analysis by Jim Rounds of Rounds Consulting Group of Tempe.

Then the program, which the Arizona Commerce Authority would run, would likely lose money for a few years with more appropriations than the state would receive in economic benefits.

In the group’s conservative model, this trend reverses in the 10th year and the program would generate several million more in taxes and other economic benefits than it costs. By then, the combined annual expenditures of the new industry in Arizona would be $1.75 billion and employ, directly and indirectly, nearly 3,000 people, according to the study.

Thirteen years after the program began, the state would gain $43 million in economic benefits each year that companies receive the maximum $150 million in grants, according to the study.

Analysts from the state’s Joint Legislative Budget Committee are skeptical, however.

In a tax memo on Senate Bill 1708, they reviewed a Pennsylvania study of movie subsidy programs in 10 states, noting that all lost money over the past 10 years. For this reason, the Rounds’ conclusion that the Arizona program would make money is “not supported by Pennsylvania’s analysis.”

Rounds, who said he “already helped kill two of these proposals,” said the JLBC was wrong because the bill’s provisions are far stricter than those in other states.

“We took a completely different approach,” he said, noting the bill’s detailed reporting and auditing requirements. “The state cannot lose money after the industry is created. It is a net benefit for the state.”

Critics point to past failures

Rounds is officially “neutral” on the addition. Eighty-six individuals and entities, including numerous Arizona cities, chambers of commerce, production studios and smaller Arizona tourist groups, support him. The Arizona Free Enterprise Club, the Goldwater Institute, the Arizona Tax Research Association and more than 300 people have shown their opposition.

So far, the bill has received unanimous support from Democrats, but in the Senate vote in February, seven of 16 Republicans voted against it. After it was sent to the House, only three of eight Republicans on the House Appropriations Committee voted in favour. A full House vote on the bill is not yet expected.

As opponents have argued, Arizona’s most recent experience with a movie subsidy program shows caution is in order. A 2008 study by the Arizona Commerce Authority found that the previous program had cost the state $8.6 million in subsidies, but brought in only $2.3 million to the state, for a loss of $6.3 million.

Yet critics aren’t just averse to the possibility that taxpayers will lose out. It’s also a philosophical question: Should Arizona subsidize private enterprise, and if so, is there any entity more deserving of state money than Hollywood?

Sen. JD Mesnard, R-Chandler, who opposes refundable tax credits for any grant program, said he respects Rounds and “won’t necessarily dispute” his findings that the program would be profitable over time. weather.

“It is entirely possible that if a lot of money is poured in, an economic benefit is possible,” he said. “What else could we invest money in that would have an economic benefit?”

Contact the reporter at rstern@arizonarepublic.com or 480-276-3237. Follow him on Twitter @raystern.

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