Hollywood South For Dummies

Louisiana State CapitolDeep within the marble hallways of the Louisiana legislature, there currently wages a battle for Caesar’s approval on whether or not Hollywood South continues to flourish, or dies a horrible death. Caesar, in this case, is the collective body of state senators and representatives voted-in by the good people of Louisiana. However, there are Bruti (plural for Brutuses?) lurking about these hallowed halls, who are planning to assassinate the tax and production incentives which gave birth to Hollywood South. Melodramatic? Maybe. But, if these incentives are terminated, or cut so far, Hollywood South could be just another chapter in Louisiana’s infamous history books.

Hollywood South was born in 2002, reworked, and then reinforced into what is today a thriving industry. According to ChiefExecutive.net in 2012, Louisiana is the “Cinderella of business improvement” and has rocketed from the bottom half of “The Worst States To Do Business In” (46th in 2006) to essentially the Top 25th Percentile of “The Best States To Do Business In” (13th in 2012) and Hollywood South has a lot to do with that leap. Louisiana is the No. 3 production revenue-generating state behind only California No. 1 and New York No. 2.

Simply By The Numbers

To cut-to-the-chase, as they say in Hollywood and Hollywood South, here are the simple numbers as recently reported to the Louisiana Office of Entertainment Industry Development (OEID), Department of Economic Development (LDED) by Loren C. Scott & Associates, Inc. for April 2013.

Simply put, $575 million dollars in total tax credits certified by Louisiana in Calendar Years 2010 through 2012 (CY2010-CY2012) is the total amount of your hard-earned tax dollars given to the evil Hollywood bastards. Well, actually which ever production entities, as well as Louisiana tax payers, who could claim the incentives.

Louisiana Tax Credits Certified Per Program EX-1
Courtesy OEID, LDED and Loren C. Scott &Associates, Inc.

Ah, ha! The smoking gun! Now we all know how much money the state is doling-out to these greedy filmmakers who come here, steal our tax dollars and steal our jobs. That is exactly what the Bruti of the Louisiana legislature want you to believe.

Here is the problem with this 8th grade thinking. The total economic impact to the State of Louisiana is conveniently hidden from you by these Bruti. All they talk about is how much Louisiana is spending and lie to you about how much of an impact these investments, these economic drivers, these economic incentives really produce for us.

Certified spending in Hollywood South for CY2010-2012 totals $1,974,608,198 billion dollars. That’s Carl-Sagan-dollars. That is about $2B dollars spent in the last three years here in Louisiana. That, my friends, is an ocean of crawfish.

Certified Spending in Louisiana EX-2
Courtesy OEID, LDED and Loren C. Scott & Associates, Inc.

But If You Act Now, We’ll Throw-In Five-Times Your Money

Let us just look at CY2012 and see what our hard-earned tax dollars have given us in Louisiana and Hollywood South. Think of these numbers as those you carry around in your mental pocket to whip out and show those Bruti when they start to argue Louisiana is giving away free money.

In Calendar Year 2012, Louisiana as a whole, including Hollywood South saw the following economic developments:

  • $1.1 billion Carl-Sagan-dollars in sales at firms in Louisiana
  • $770.6 million dollars in household earnings for Louisianans
  • 15,184 total jobs created (direct and indirect)
  • $53.9 million dollars in taxes sent to the state treasury
  • $34.7 million dollars in taxes sent to local governments
  • $4.80 dollars realized (a multiplier) for every $1 dollar spent by entertainment entities in Louisiana
Total Impacts Certified Spending on the Louisiana Economy EX-3
Courtesy OEID, LDED and Loren C. Scott & Associates, Inc.

“If the Governor was to announce tomorrow that the state had landed a company that would generate $1,130.4 million in business sales in Louisiana, along with $770.6 million in household earnings, 15,184 jobs, $34.7 million for local governments and $53.9 million for the state treasury, that would no doubt appear on the front page of the paper, above the fold the next day.”
– The Economic Impact of Louisiana’s Entertainment Tax Credit Programs (Loren C. Scott & Associates; April, 2013)

What This State Needs Is J-O-B-S

Still looking at Calendar Year 2012, the entertainment industry created 15,184 total jobs in Louisiana and Hollywood South. With a total of 6,363 direct jobs created, there was a multiplier effect of 2.4 for those jobs.

Look at it this way. For every job created directly in Hollywood South, say a camera assistant, a grip (What is a grip anyway?), a best boy gaffer (Why are girls called best boys?), etc., etc., etc., there were approximatley 1.4 jobs created, or supported somewhere else in Louisiana. Think hotel, service industry, swamp tour captains, pedicabs, etc. You get the idea.

Louisiana Direct Indirect and Total Jobs Generated by Entertainment Sector EX-4
Courtesy OEID, LDED and Loren C. Scott & Associates, Inc.

Current Hollywood South Law

Here is a summary of the current state of the Louisiana tax incentive law:

Eligibility:

  • Open to all motion picture production companies for the purpose of producing nationally or internationally distributed motion pictures.
  • Production company must be headquartered and domiciled in the State of Louisiana.
  • $300,000 minimum-spend required
  • Only work physically performed by residents and non-residents in the State of Louisiana and only tangible goods acquired from a source within the state qualify for the program.

Incentives:

  • 30% tax credit on qualified direct production Louisiana expenditures
  • Additional 5% tax credit for payroll expenditures to Louisiana residents
  • No annual cap
  • Tax credits may be used to offset income tax liability in Louisiana (corporate or personal), sold back to the State for 85% face value, or brokered on the open market.

A Hollywood South Proposal

One of the great benefits to Hollywood South, to the Louisiana Legislature and to the taxpayers of this Sportsman’s Paradise is this entertainment industry sector has had consistent, verifiable and elaborate studies conducted at the state’s request. Over the years since 2002, a huge amount of data has been made available to evaluate the effectiveness of the tax and production incentives offered in Louisiana.

“The programs clearly have an economic impact to the state of Louisiana in the form of increased business sales and jobs for Louisiana residents.”
– The Economic Impact of Louisiana’s Entertainment Tax Credit Programs (Loren C. Scott & Associates; April, 2013)

This author agrees in part with the Scott & Associates study that some qualified expenditures have a minimal direct impact on Louisiana’s economy, provide an avenue for potential misuse and should be stricken from the law. By way of example, airfare for crew talent and actors is currently a qualified expenditure under the tax incentive law. Do we really need to be paying for that part of doing business?

With that, my friends, Bruti and Caesar, this author offers the following proposal to rework the current law:

Drop the Additional 5% In-State-Hire Credit

Allow ALL wages which require the production entity to pay Louisiana payroll taxes to qualify for credit. Drop the 5% additional credit. This is a change from the current law ‘in-state hire only’ requirement for an additional 5% credit. Now don’t get all flustered here. Stay with me.

This approach still benefits the in-state person hired, as they get hired more often in Hollywood South due to prospective increased production, and in the event of out-of-state Below the Line (BTL) crew talent hires, provides much needed mentorship/training to in-state crew talent hires who need the training. It also eliminates the disincentive for prospective productions to take a production elsewhere. It further increases the probability out-of-state hires might permanently relocate to Louisiana, thereby increasing the crew talent base. And, what is frequently overlooked, provides an incentive for BTL crew talent to stay in Louisiana.

It costs approximately 20-30% more in a budget to fly-in out-of-state crew talent, house them and provide per diem. The tax incentive for production entities, as it currently stands, is to hire in-state to receive the additional 5% credit. If they cannot find enough qualified crew talent, they are forced to either bring in out-of-state crew talent, or not bring their production to Louisiana at all. The latter option does not benefit Louisiana, Hollywood South, or the taxpayer if we lose business and jobs.

The larger studio productions will typically ship-in crew talent, usually heads of department, because the budgets allow. The smaller productions will have a decision to make based upon a myriad of factors. If this production incentive is reworked as proposed above, smaller productions would now have an increased production, as well as tax, incentive to shoot in Hollywood South.

What some Hollywood South crew talent incorrectly and stubbornly argue, is productions come to the state and ‘steal jobs’ from the locals. There are no ‘jobs’ to steal. Without productions coming to Hollywood South, there is no demand for jobs. What a vast majority of Hollywood South crew talent want is a steady flow of work, hence demand for crew talent.

Eliminating the 5% additional tax incentive and providing an incentive for ALL wages which pay Louisiana payroll taxes is a viable and constructive way to strengthen Hollywood South.

No Expenditure Caps

No qualified production expenditures should be capped. Keeps in place the current law.

Above the Line Salary Caps

Above the Line (ATL; no, not the Atlanta Falcons) is a fancy term used by people in the entertainment industry to describe budgetary spends on people such as producers, directors, writers, actors, etc. In a budget for a film or television project, there is a visible dividing line between those people and the Below the Line (BTL; no, not a BLT sammich) people. Typically these are your crew talent such as camera assistants, make-up artists, production assistants, best boys, etc.

Here is a change offered in the current law. Statutory limitations should be put in place on these specific qualified expenditures, which do not have a significant direct economic impact on Louisiana’s economy. For example, currently qualified expenditures for out-of-state (non-resident) producers, directors, writers, actors, etc. should be capped at 15% of the total qualified expenditures submitted to the state, not to exceed $10 million dollars per production.

What the Bruti typically argue is that Tom Cruise comes to Hollywood South, gets paid $50 million dollars to do a $100 million dollar film, and the taxpayers are on the hook for half of the production budget for the film. If you put aside the whole ‘class warfare’ arguments, it makes fiscal sense to cap these particular expenditures, as it avoids avenues for possible abuse.

Filing Rules for Multiple Applications

Keeps the current filing rules for filing multiple tax incentive claims on an application.

This approach provides an avenue for production entities to file for production tax incentives immediately after principal photography has completed in order to pay down any tax credit loans which may have been procured. Interest, or cost of money, for these unique tax credit loans has been accruing from the beginning of preparation for the production and the quicker the debt can be retired, the better position the production is in for obtaining avenues of distribution.

After principal photography, typically post-production begins, though in today’s mechanism of film and television production, post-production frequently starts soon after production begins. As a general rule, even though post-production begins very close to the beginning of production, the next tax incentive filing cannot be filed with the state until post-production has completed, which is usually a much longer process than principal photography. Though the production entity can file before post-production is completed, they will in theory lose any potentially qualified expenditures until they are claimed in another filing.

Not disturbing this part of the law is extremely important to the functioning of the Hollywood South tax incentive program.

Stomp Dem Cock-a-roaches

As with most laws, there are usually some minor things no one could ever conceive of when laws are drafted, debated, commissioned, voted on and finally signed into law.

The little details in a budget which are considered ‘soft costs’ (a fancy MBA term), should be eliminated from the current law. For example, airfare/transportation expenditures should be eliminated which has any leg outside the great State of Louisiana. Wouldn’t it be nice to have non-stops between Shreveport and New Orleans?

Eliminate expenditures such as completion bond fees, finance fees, interest, accounting fees (even the certified ones required) and tax credit broker costs. There surely are a few more which escape this author’s mind. Which isn’t that difficult.

As a general rule, the test should be whether or not the expenditure has a direct impact on the production.

End Scene

The key to the current battles in Baton Rouge and Hollywood South with regards to the tax and production incentives is to solidify the law as we did back in 2009/2010 and not destroy an industry.

Submitted for your consideration.

Stanley B. Gill
Founder & Editor-In-Chief