Friday, January 16, 2009, 2:53pm MST

Ernest & Young: NM film incentives = good ROI

New Mexico Business Weekly - by Megan Kamerick NMBW Staff

The film industry and its supporters in New Mexico are most likely breathing a sigh of relief.

The long-awaited study by Ernst & Young on the economic return by the state’s film and media incentives found that for every $1 extended in state tax credits, state and local governments received $1.50.

Gov. Bill Richardson made the announcement Friday and said the state’s incentives to attract film and television productions have created high-quality jobs, health coverage and benefits for New Mexico workers.

Ernst & Young found that film production activities created 2,220 direct film and media jobs in 2007. This included about 1,670 below-the-line employees (typically crew jobs) that paid $49,500 annually and 550 actors, directors and producers working in New Mexico.

These 2,220 direct jobs created 1,609 additional jobs in other industries, resulting in a total employment impact of 3,829 jobs.

Film-related capital expenditures and projected film tourism spending attributable to 2007 productions here generated an estimated 3,769 direct jobs.

Combining the 2,220 direct jobs from film productions with the 3,769 jobs from capital expenditures and film tourism results in 5,989 total direct jobs attributable to the state’s film production tax credit.

These direct jobs create a total of 3,221 indirect jobs, resulting in a total employment impact of nearly 9,210 jobs, according to Ernst & Young.

About 300 new film-specific businesses have been established in New Mexico since 2003, which is directly attributable to the production tax credit, according to the report, and more than 600 additional New Mexico businesses are benefiting from film activities.

Tax collections are up as a result of the economic activity created by the tax credit. State tax collections from film production activities in 2007 totaled $22.6 million. Additional state tax impacts from capital expenditures in 2007 and film tourism during 2008-2011 are estimated to total $21.5 million, with a total state tax impact of $44.1 million.

The study was conducted by the Quantitative Economics and Statistics division of Ernst & Young. It is available online at the Web site for the New Mexico Film Office.

An earlier study by the Arrowhead Center at New Mexico State University, commissioned by the Legislative Finance Committee, found that New Mexico gets about 14.4 cents in tax revenue for every dollar it spends on a tax rebate for film productions. Critics, including Richardson’s staff, said the report was not comprehensive enough in reviewing the total economic impact of the industry. His office paid $50,000 for the Ernst & Young study.

Film industry proponents have been on edge as the start of the new legislative session on Jan. 20 draws closer because of the Arrowhead study and the fact that the state is facing a deficit of nearly $500 million. There have been some concerns that the tax rebates, which have grown to $98 million, would come under increased scrutiny in the tight economic environment.

“This is a successful initiative worthy of our continued support, especially in these difficult economic times,” Richardson said of the new report.

A publication of the Legislative Finance Committee

The television commentators have been unbridled in their descriptions of the turmoil in the American financial system: "crisis," "nightmare," and, inspired by another recent disaster, "financial hurricane" are among the terms being used.

Even though all the big news is happening on Wall Street, New Mexico is not immune. Already, the state has lost billions from its investment funds and spent tens of millions converting undesirable bonds. The impact on the bottom line of our general budget has been tempered somewhat by the healthy energy industry, but now we are starting to see that line slip as well. The state general fund revenue estimate assumed oil would be selling at $122 per barrel; the price is now below $100. The natural gas price in the forecast was $9.60 per thousand cubic feet; the current price is in the $7 range nationally and probably lower in New Mexico.

Just this summer, policymakers were talking about a revenue surplus. Now, having moved into the new fiscal year under a financial cloud, we are talking about a shortfall. But we have many options, including tapping the reserve funds created just for this kind of situation. The executive could also take steps to slow spending, such as a freeze on nonessential travel, new hires and contract expansions. More drastic steps include small, across-the-board cuts for state agencies or the suspension of nonessential services.

The situation for New Mexico is salvageable but the Legislature and the executive must work together to limit the impact on New Mexicans.

The Medicaid program is asking for $3.6 billion in total funding for FY10, with $853 million of that in state money for the Human Services Department.

Enrollment over the last five years has increased 8.9 percent, from 430,205 to a projected 459,772, while state spending on the Medicaid program has increased 66 percent.

Enrollment in the State Coverage Initiative, a program that subsidizes insurance for adults, has increased five-fold in the last two years, substantially faster than projections. As a result, the department plans to take steps to control enrollment, essentially capping the number of clients at 25,000.

The department is also asking for an appropriation for the new Coordinated Long-Term Services program that indicates a $9 million increase from the general fund for care for the elderly and disabled, a segment that represent a fifth of the total Medicaid financial pie.

New Mexico gets 14.4 cents in tax revenue for every dollar it spends on a tax rebate for film productions, a study by New Mexico State University shows.

The state spent about $38 million on the tax rebate through the first three quarters of last budget year, but the analysis indicates eligible film production in New Mexico generated just $5.5 million in taxes.

The study considered all economic activity spurred by film production – direct, indirect and induced – and took into account gross receipts, personal income and corporate income tax revenue.

New Mexico has one of the best film incentive programs in the nation, with the production tax rebate, interest-free and guaranteed loans, and wage subsidies for on-the-job training programs. The state also funds college programs in industry-related fields.

Currently, 14 film projects owe the state $156 million for outstanding loans, the study says. All the outstanding loans are interest-free, with the state scheduled to receive a share of the profits instead.

So far, none of the films with outstanding loans nor the nine that have paid off their loans have shown a profit, although the state has received $500,000 as an advance on future profits from the film Employee of the Month.

"If the provision of these subsidies transforms the New Mexico economy by building a new industry... long-term benefits may outweigh the cost. The question is whether or not the industry will collapse if the subsidies are discontinued."

The slowdown in the economy has hit gross receipts tax revenue, signaling tough economic times for local governments, which depend on the revenue, LFC analysis indicates.

A survey of the totals of gross receipts, lodgers’ and gasoline tax revenues for the second and third quarters of FY08, compared with the same period a year earlier, indicates a third of the municipalities are seeing drops in total revenue, primarily because of declines in gasoline tax collections.

State agencies asked for nearly $300 million for FY10, an 11.4 percent increase over FY08 appropriations. That does not include the budget requests for public school support and colleges, due later in the fall. Among the more significant increases, the Human Services Department asked for $101 million more; Children, Youth and Families, $28 million; Health, $20 million; Corrections, $19 million; Taxation and Revenue, $10 million; and Cultural Affairs, $9 million. In addition, the Tourism Department asked for a $6 million increase, a nearly 50 percent hike, and the Spaceport Authority is seeking almost $5 million more, a nearly six-fold increase.

The tobacco companies, ordered in 1997 to make ongoing payments to 46 states for costs related to treating smoking-related illnesses, have argued they owe less because states have failed to meet conditions intended to prevent an unfair market advantage for tobacco companies not participating in the settlement. New Mexico officials believe they have met those conditions and hoped to keep the issue in state courts, but the state Court of Appeals ruled in early September the issue must be addressed by the national panel charged with arbitrating settlement disputes.

New Mexico’s colleges and universities have asked for more than $291 million for capital outlay, including $6 million to finish the New Mexico State University arts complex, $11 million for infrastructure at Eastern New Mexico University and $20 million for a geology building at New Mexico Tech.

The LFC has hired Annamae Salas as receptionist and Samantha Montoya as the committee services coordinator. Salas is a former administrative assistant with a law firm and Montoya previously served as an executive assistant with the Division of Vocational Rehabilitation.

The LFC has also hired Jordan Maril as a performance evaluation. She is a Tufts University graduate and served as an intern at the Public Defender Department.Third and Fourth Quarters of FY08Compared with Same Period in FY07-25%-20%-15%-10%-5%0%5%10%15%GRTLodgersGasolineTotal

Groups decry state spending on 'pork'

By Steve Terrell | The New Mexican

12/10/2008

Half a million dollars to help the lumber industry in San Miguel County, $200,000 for golf programs at The University of New Mexico, $22.3 million for an equestrian center in Bernalillo County.

Those are taxpayer expenditures that a conservative New Mexico think tank and a national watchdog group say are among the more egregious examples of government waste in this state.

The projects are listed in The 2008 New Mexico Piglet Book, compiled by the Rio Grande Foundation and the Washington, D.C.-based Citizens Against Government Waste, subtitled "The Book Santa Fe Doesn't Want You to Read."

Paul Gessing, president of the Rio Grande Foundation, was joined at a Capitol news conference Wednesday by David Williams, a vice president of Citizens Against Government Waste, state Sen. Kent Cravens, R-Albuquerque, and a man dressed in a comical, pink pig costume.

Gessing told reporters that in addition to the above individual projects and programs, the most expensive projects his group finds wasteful are some of Gov. Bill Richardson's pet projects: film-industry tax incentives, the proposed spaceport in Southern New Mexico and the Rail Runner commuter train.

Richardson spokesman Gilbert Gallegos responded in an e-mail: "New Mexicans overwhelmingly elected and re-elected Gov. Richardson based on his vision and his accomplishments, which include the Rail Runner, the successful attempts to grow the film industry and rodeo initiatives."

The Piglet Book says of a 25 percent rebate on all film production expenditures that are subject to taxation by the state: "If a film crew goes to lunch at a local restaurant and spends $100, taxpayers pick up $25 of the tab. But (taxpayers) don't get to eat any of those 'power lunches.' "

Gessing pointed to a study, published in August by The Arrowhead Center at New Mexico State University, that shows the state's film rebate program returns less than 15 cents on every dollar spent.

But the Arrowhead report says, "If the provision of these subsidies transforms the New Mexico economy by building a new industry that can survive once the subsidies are discontinued, long term benefits may outweigh the cost. The question is whether or not the industry will collapse (when) the subsidies are discontinued sometime in the future."

Among the other spending The Piglet Book cites as "wasteful":

u A $1.5 million recital facility at The Santa Fe Opera. "The state is thus in the business of indirectly subsidizing 'low art' via its giveaways to the film industry," the report says. "It is only fitting that the state also subsidizes 'high art' as well."

u $440,000 to purchase, plan, design and develop land for an Española farmer's market and cultural center on the campus of Northern New Mexico Community College in Española. Says The Piglet Book, "a farmer's market can be as simple as pickup trucks full of produce in a parking lot."

u The $11 million state "supercomputer." Says the report, "Instead of one giant supercomputer, the state could have purchased 20 desktop computers for each one of the state's 851 public and private K-12 schools or it could have simply given taxpayers their money back."

u $1.2 million on a Rodeo Initiative, which, according to a news release from the Governor's Office, "provides clinics, educational outreach and a wide range of rodeo activities, including the exploration of district, regional and national rodeos that can be relocated to New Mexico."

Gallegos said Richardson "agrees that there is plenty of waste in the capital outlay process, which is why he has led the effort to reform the way we prioritize how we invest that money. Most important, the governor has been able to devote more of that money to statewide priorities, such as water infrastructure, economic development and education.

Friday, December 5, 2008

New group will defend film incentives at Roundhouse

New Mexico Business Weekly - by Megan Kamerick NMBW Staff

Film and television productions such as “In Plain Sight” are a common sight now in downtown Albuquerque. A new association aims to give the industry a stronger voice in the state legislative arena on issues such as incentives.

During the 2008 legislative session, the state’s film incentives got a brief close-up.

The Legislative Finance Committee raised concerns about how quickly the use of the tax rebates had grown. State Sen. John Arthur Smith, D-Deming, proposed capping the rebates at $30 million annually.

The legislation was never fully introduced, Smith said, because the initial support evaporated.

“At the LFC hearings, I was trying to put a cap on [the incentives],” he said. “The next thing I knew, they had me crucifying Christ.”

But even the mention of revisiting the incentives caught the attention of many people working in film and media here.

“That was something the majority of us in this industry had no clue was happening,” said Lynette O’Connor, owner of The O’agency, which represents actors and models.

While it’s not clear if any similar legislation will come up in the 2009 session, there have been rumblings, including a study critical of the state’s rebates versus the actual financial benefit film productions have brought here.

So O’Connor and others formed the Film Industry Promotion Association, or FIPA, and hired The Rutherford Group LLC to lobby state officials.

“We just felt we need a voice, we need someone walking the hallways [of the Roundhouse] to tell us what’s going on, to organize us so we could speak with one voice,” O’Connor said.

The group has about 50 members so far, and many more volunteers. It’s trying to raise $56,000 to pay for its lobbying efforts, she said. FIPA recently held a meeting at the new prop house in Albuquerque, Film Maker Production Services, that drew about 65 attendees, among them actors, various union representatives, real estate managers, small business owners and tourism and hospitality industry people.

Rutherford Group principal Tom Rutherford has begun doing outreach to industries that benefit from the film business, such as hotels, to get broad-based support for the new coalition. He is also floating the idea of hosting legislators at Film Maker Production Services because it showcases how incentives are helping to build a permanent industry here, he said.

“This is an example of a company that used to exist only in California, so it’s making it easier for the industry to come here,” Rutherford said. “I think the bottom-line big challenge is to be able to demonstrate how deep the industry goes in the state, how many times the money turns over.”

The state is facing a $278 million revenue shortfall, according to the LFC’s October estimates, although December estimates could be greater given the decline in oil prices. The amount of the film tax rebates has grown to about $98 million since the incentives were introduced. However, there are no plans to make recommendations regarding film incentive legislation, said David Abbey, LFC director.

That said, the LFC did contract with New Mexico State University’s Arrowhead Center to produce an economic impact study and the results were not encouraging. It found that New Mexico gets about 14.4 cents in tax revenue for every dollar it spends on a tax rebate for film productions. Smith said the rebates have grown much more quickly than state officials anticipated.

“What I’m understanding now is they’re getting tax credits on whiskey and toilet paper,” he said.

Productions can get a 25 percent tax rebate on qualified local expenditures, but the money has to be spent for New Mexico goods and services. There are also wage subsidies available for productions for certain kinds of crew training.

“Our program design is very specific about what qualifies for a rebate,” said Eric Witt, Gov. Bill Richardson’s deputy chief of staff. “It’s specifically tailored to funnel all money back into the state.”

Critics of the Arrowhead study, including Witt, say the methodology was not comprehensive in capturing all the film industry’s economic activity. Its direct spending since 2003 totals $733 million.

“That’s a 7 to 1 return on investment,” he said.

The state uses a multiplier of three to calculate a statewide economic impact of $2.2 billion since 2003.

Richardson’s office hired Ernst & Young for about $50,000 to do what Witt said will be an independent, comprehensive review of the industry’s economic impact on New Mexico. It’s due to be finished just before the legislative session, which starts Jan. 20.

Ernst & Young surveyed people who make at least 51 percent of their salary in film and media, said Lisa Strout, director of the New Mexico Film Office. It also looked at businesses that are doing a great deal of work for the industry, such as lumber yards, concierge services, hotels and rental car companies.

Smith said he does not have plans to reintroduce legislation to cap the incentives, but added he would not be surprised if legislators revive the effort since the state needs revenue.