Ready for my tax breaks, Mr. Nevada

Last year, in an article about tax credits for filmmakers, Tax Foundation vice president Joseph Henchman wrote that “not much film production” goes on in Nevada.

Someone didn’t do his homework before setting pen to paper.

North Dakota hasn’t got much film production. It appears to have gotten its first feature film, a Barbara Stanwyck movie titled The Purchase Price, in 1932. The total number has not yet reached 20.

Nevada? Filmmaking began in 1897, and in 2000, Renoite Gary duVal wrote a book, The Nevada Filmography, that listed 600 movies made in the Silver State. Its location next to California has been a blessing when it came to attracting interest from Hollywood.

For a long time, Hollywood found its own way to Nevada. Then in 1983, the Nevada Legislature enacted new economic development legislation at the recommendation of Gov. Richard Bryan, and one component of it was a film office that would become active in bringing Nevada to Hollywood. After that, the pace of Nevada movies accelerated, without tax incentives.

In the 1990s, Hollywood started sniffing around state capitols looking for corporate welfare. Louisiana was the first state to offer incentives, in 1992. Once it took that fateful step, the industry could use it in bargaining with other states. Another three states bought in, but the growth of incentives was slow. By 2000, only four states offered them.

1999 was a particularly active year as some parts of the industry put on a heavy push for incentives that began to pay off in the decade ahead. Screen Actors Guild (SAG) president Richard Masur said, “Look, we saw this happen with semi-conductors. We saw this happen with the production of television sets and radio equipment, and we watch this country develop this stuff and then lose it all.”

At a hearing in the California Legislature, SAG and the Directors Guild provided studies it had commissioned. Two bills—both sponsored by Democrats—were introduced, with one costume designer providing tearful testimony. A couple of months later, another industry-funded study claimed the United States lost 23,500 full time movie jobs in 1998.

“We could very easily lose this industry,” Masur said.

Oddly, Motion Picture Association of America lobbyist Jack Valenti said such industry hyperbole was foolish.

“No,” he said.“Can’t be. … We’ve always produced abroad … but it’s never been a big deal.”

The more states came on board, the easier it was for the industry to play them against each other—and against Canada, where the industry had won an 11 percent subsidy from the federal government and some provinces added another 11 percent. Movie producer Tom Brodak said that, in Canada, “For every three television movies [corporations] produce, they’re able to produce the fourth one for free.”

Nevada had been jerked around like this long before. In 1935, Disney announced that because of a dispute with California, it was moving to Nevada. After Disney got what it wanted from the Golden State, the Silver State was left holding the bag.

The approach works like this: In Connecticut in 2006, state lawmakers were told they needed a 25 percent investor tax credit and a 30 percent production company credit to become competitive with Rhode Island and Massachusetts—and with good old Louisiana. As state after state joined this trend, Nevada stayed clear.

By 2010, 43 states were offering incentives. Then a backlash set in. States were being so heavily pressured by the industry that some began wondering whether it was worth it. Massachusetts did a study that found the overwhelming number of jobs generated by location shoots went to out-of-state workers.

College of Charleston economic analyst Frank Hefner found that of each tax credit dollar offered by South Carolina, just 19 cents came back to the state.

The Louisiana Legislature’s chief economist, Greg Albrecht, reported that incentives were likely costing the state millions more than it was generating. “Does [the state] receive more tax receipts back, either directly or indirectly, than what we’re paying out?” he wrote. “The answer is definitely no.”

Meanwhile, critics of incentives were increasing. Economist Bob Tannenwald of the Center on Budget and Policy Priorities said “the revenue forgone via film tax credits has to be made up elsewhere, either in tax increases or spending cuts. Both depress the economy and cut off the incentive’s stimulus effect.”

In California, there was evidence that the number of film jobs created after tax incentives were enacted declined. TV and film production jobs went from almost 123,000 in 2004 to 107,400 in 2012. The state’s legislative fiscal analyst reported twice—in 2010 and 2014—that incentives were of dubious value to the state. (It didn’t help that they may have fostered corruption. Sen. Ron Calderon, a Democrat from California’s 30th senate district, is under indictment for allegedly accepting money to try to expand the state’s movie incentive program to independent producers.)

Soon legislatures were backing away from incentives. “Hollywood isn’t the catch it once was,” said Capitol Ideas, a magazine of the Council of State Governments. Noting that Alaska was phasing out its incentives, it went on, “Alaska isn’t alone. New Jersey shut down its $10 million program in 2010. Likewise for Washington, which opted to close its program this spring. Arizona, Arkansas, Idaho, Iowa, Kansas and Maine have all closed or suspended tax incentive programs for motion pictures since 2009. A number of other states are contemplating similar action.”

It was then that Nevada decided to join in. After becoming one of the most successful location states without film incentives, state lawmakers decided to embrace them.

In 2011, two measures—Assembly Bills 418 and 506—had been introduced. Both of them failed, and Las Vegas location vendors were upset. “Disappointment is too mild a word,” Las Vegas costume designer Diana Eden told the Las Vegas Review-Journal. “We have to do something,” said lighting and grip rental company president James Reid.

So the fight wasn’t over. The industry and vendors who serviced film shoots got ready for bear. A lobbyist was hired. A website was created (www.NevadaFilmIncentive.com) that observed—under the heading “Justification”—that “It has now reached a point where neighboring states are literally stealing jobs from each other through the film business.” Its solution: Reward that kind of activity by joining in.

When the legislation came back in 2013, in the form of Senate Bill 165, its advocates were intent on victory.

I’t not the business-friendly Republican Party that can be credited with the measure. Democratic fingerprints were all over it. The sponsor was a Democratic senator. The Nevada Democratic Party sent out a mailing appealing for support for the movie corporations. The mailing featured a send-this-child-to-camp-style visual, a shot of actor Nicolas Cage with his hand on one cheek, his head tilted, surrounded by a blue frame with the headline “HELP US HELP NIC CAGE/SIGN THE PETITION.” (Someone in the legislative press room blew it up and posted it on the hallway window to alert passersby to the plight of the Hollywood studios.)

Though less organized, opponents got ready, too. The Nevada Public Research Institute got hold of the Louisiana report dissing the value of tax credits for filmmakers and distributed it to Nevada’s lawmakers.

Further discomfiting the supposedly worker-friendly, business-skeptical Democrats, Nevada Taxpayers Association lobbyist Carole Vilardo pointed out that the credits offered in the measure to the movie industry would pay for a 1 percent pay hike for state workers.

In 1960, ABC deejay Dick Clark was hailed before the House Committee on Legislative Oversight to explain his payola activities. The committee had the goods on him, but his star power kicked in, and most of the members of the committee turned into fans on the spot.

“Obviously you’re a fine young man,” U.S. Rep. Oren Harris (D-Arkansas) told Clark. “I don’t think you’re the inventor of the system. I think you’re the product.” It’s not an argument anyone ever made for John Dillinger (and the committee’s staff did lay out Clark’s activities in devastating and seamy detail in the final committee report).

That’s essentially what happened in Nevada in 2013. State lawmakers were bewitched when Cage came calling.

“I have four scripts that could easily be shot in Nevada,” the actor told a legislative committee, adding, “Give me six months, and I’ll give you a list of names of folks who would love to come to Nevada to make a movie.”

After the hearing, Cage told reporters incentives would also help tourism in the state. “People see a movie and want to go to the place it was shot,” he said. “That happened with the Lord of the Rings. Everyone went to New Zealand after that movie.”

Cage, without really providing any evidence as substantive as the state studies, said incentives do work in Louisiana. “Just try it,” he begged Nevada’s leaders.

He didn’t need to beg. Between his star power and the pressure from the vendors, the outcome seemed predetermined. In that mysterious way some bills have of becoming unstoppable at the Nevada Legislature, this one was on a greased track. Vilardo said a “fast track” was functioning. “I got the feeling it’s like a steamroller, and it’s going to pass,” she said. She also noted something others had not, calling the language “open ended” on permissible exemptions.

“Just try it” beat out “Just say no.” The Senate approved it on May 28 by a 13 to 8 vote and the Assembly followed suit six days later, 27 to 14. Gov. Brian Sandoval joined in by signing it, giving a nice bipartisan patina to the new law.

In its final form, the program was cut from an absurd $50 million (half the size of California’s incentive program) to $20 million, and lawmakers took Vilardo’s advice and put a time limit on it, at which point it will presumably be reassessed. It will be run by the state Office of Economic Development and operate until 2018, though unused credits will linger on until 2023.

Criticism of the new law was scorching. It came from left, right and center. And much of it was better informed than the legislators who voted for it.

Nevada Policy Research Institute: “[The incentives] offer film producers a larger credit than they would actually owe in taxes. Producers could receive as much as 28 percent of their total filming costs through these credits—far in excess of their state tax liability. In other words, it would be a direct cash payment from taxpayers to wealthy film producers.”

Western Nevada College President Carol Lucey, who had been doing a slow burn over the legislature’s treatment of higher education, resigned in protest. “You know what the last straw was?” Lucey told reporter Geoff Dornan. “Them saying there’s no money left and then Nic Cage getting what he got.”

Former state legislator Sheila Leslie wrote in these pages about a Reno mental health program, Mobile Outreach Safety Team (MOST), that was nearly wiped out by budget cuts. “The Legislature has choices to make,” Leslie wrote. “It can allocate $35 million a year in tax credits, for example, to Nicolas Cage’s filmmakers, a subsidy that hasn’t worked elsewhere, or it could invest that money to create MOST and other innovative mental health programs. … I think the choice is pretty clear.”

Joseph Henchman at the Tax Foundation quoted Cage’s New Zealand tourism comments, then observed, “That sounds nice of him, although he’s leaving out a key phrase: folks who would love to come to Nevada to make a movie if you make taxpayers to pay most of their costs. … I’m also guessing there’s lots of Nevadans who would be eager to create jobs and produce more if the state lowered their taxes to do so. Unlike the film industry, they might even stay in Nevada when other states offered a better deal.”

Columnist Andrew Barbano: “Senate Bill 165 was introduced by a bi-partisan pack of lawmakers who view it as a good idea even if it takes money from schools, roads, parks, police and fire protection. … [T]rading a teacher or a cop for a short-term script girl or best-boy should present far better than a break-even proposition. Proponents admit that a lot of talent will have to be imported.”

Columnist Jon Ralston: “This is how they do tax policy—a hodgepodge of giveaways and takeaways with no underlying rationale or overarching approach. … We may get Cage ghost-riding on the Strip, with his production company soaring and a Vegas backdrop for movies. But what does it say if that fake scene is juxtaposed a few miles off-camera in either direction with real tableaus of packed emergency rooms, overcrowded classrooms and jammed thoroughfares?”

The Columbia Journalism Review, which scrutinizes press practices and ethics, reported—in the course of faulting the poor press coverage of the Nevada legislation—that “readers could have gleaned no real idea as to whether the tax credits being proposed did or did not have a reasonable prospect of luring production facilities and long-term film industry jobs to Nevada. Also, the most thorough and in-depth coverage of the film tax break came after the relevant bill was signed into law.”

The journal was right. Andrew Doughman of the Las Vegas Sun reported a feature of the new law that hadn’t gotten a lot of attention when it mattered: “For the first time in Nevada, movie companies that get tax discounts can sell those discounts to other companies. So a casino that has a big state tax bill can buy the credits from a film producer and get a tax break.” He quoted law professor Francine Lipman saying, “We’re giving them these credits effectively to use as coin of the realm.” Unfortunately, Doughman’s story ran on June 27—16 days after Sandoval signed the bill into law.

There was news coverage of the industry studies given to legislators, but no coverage of criticism of those studies, such as the Tax Foundation’s view that they were “fanciful estimates of economic activity and tax revenue.”

An Ernst and Young study supposedly showed that the benefits of state tax incentives for movie companies include higher employment. But the study was paid for by the Motion Picture Association of America and few journalists reported that other states had found that movie companies tend to bring their skilled workers with them.

During hearings on the bill, producers said that a movie about Las Vegas was then being filmed in North Carolina and that the Dennis Quaid television series Vegas was filmed in New Mexico. No journalist pointed out that the reason the series was filmed in New Mexico—for its first episode, then later in its short life in Los Angeles—was not because of tax incentives but because it was set in the 1960s and the real Las Vegas didn’t look the part anymore. Nor did any reporter point out that Nevada, in turn, has played the role of places like Alaska, Arizona, various California locales, Camp David, Canada, Colombia, Colorado, ancient Earth, future Earth, Galilee, Germany, Kentucky, Loch Ness, Maine, Mars, Mexico, Mongolia, New York, Seattle, Texas, Utah and Viridian 3—without incentives to make it happen.

There was, in other words, an awful lot the public and legislators didn’t know at the time.

It will be recalled that Cage said that in six months he would provide a list of people who want to film in Nevada. That list has not yet been provided, according to the Nevada Film Office.

“I have not spoken to him specifically,” said its director, Eric Preiss. “I’ve heard things, but nothing that’s come to our office.” Nor has anything yet been heard of the four scripts Cage said he had in hand.

But the program is still moving forward.

“There’s actually been four productions that have been approved for incentives,” Preiss said.

One is Mall Cop 2, a Sony production. A television pilot and two independent films have also been approved.

In 2012, a New York Times survey reported that about $1.5 billion is being passed out to film companies in one form or another in the United States. A more recent report from the California legislative analyst put that at $1.4 billion just from 10 states. The number of states with incentive programs has slipped to 39 plus Puerto Rico, but some of those are no longer funded or have seen their funding reduced.

In Maryland last month, the production company Media Rights Capital threatened to pull production of the Netflix series House of Cards out of the state unless the state ponied up $15 million. The legislature was willing to face them down, but the governor cut a deal for $4 million in incentives plus $7.5 million in grants.

These days, California is experiencing the tax incentive dance, a pirouette that illustrates one of the risks of tax incentives, that beneficiaries often come back for more. The Golden State’s already existing $100 million annual fund for incentives is expected to be empty by June next year, so Hollywood came back asking for more. The measure passed the Assembly on May 23, and the Hollywood Reporter predicts “the current $100 million [will] at least quadruple to the level of New York State, which is around $435 million a year.” Gov. Jerry Brown has not said whether he will approve it.

The bill was sponsored by two Democratic legislators, and one of them—Raul Bocanegra—revived Masur’s sales pitch from 15 years ago, telling the New York Times, “There was a time when we actually made things. … Now, we make films here. If we’re not careful, we will lose it.”

As other states reevaluate, Nevada moves ahead, effectively pouring its scarce cash into distant pockets.