Business Matters

Cap on film tax credits should remain

By Bruce Krasnow The New Mexican
Posted 1/31/18

There are some very smart economists, bill writers and analysts working for the Legislature and, every once in a while, lawmakers should listen to them.

The most recent case of bad policy seems to …

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Business Matters

Cap on film tax credits should remain

Posted

There are some very smart economists, bill writers and analysts working for the Legislature and, every once in a while, lawmakers should listen to them.

The most recent case of bad policy seems to be embodied in an effort to lift the $50 million a year cap on the film-and-media production tax credit.

In supporting House Bill 113, Rep. Moe Maestas, D-Albuquerque, and House Democrats argue the cap creates uncertainty for the industry doing business in New Mexico because, as production grows, it might mean that producers have to wait longer to receive rebates if the $50 million a year has already been allocated.

That's not an unrealistic scenario, since the cap had been reached each of the past four years, with many productions having to wait longer than a year for all or a portion of their money. The cap might very well be a disincentive to doing business in New Mexico.

Though the initial incentives were enacted when Gary Johnson was governor, the issue of how much taxpayers should subsidize film and media productions became a political hot potato when Gov. Susana Martinez came into office. She discovered that in the last year that Bill Richardson served, the state paid out $96 million in general fund money to film producers at a time when he had ordered a hiring freeze and the state was facing a recession.

Lawmakers remember this.

They also recall several other tax credits that drove holes in the state general fund at a time when education was being cut. That's why the Legislative Finance Committee has certain guidelines for lawmakers to consider when they enact or change tax credits and expenditures.

Experts at the Pew Center on the States published a report in 2012, "Avoiding Blank Checks Creating Fiscally Sound Tax Incentives." At the time, New Mexico was singled out for what happened with its High-Wage Tax Credit, a rebate given to corporations that grew from $9.3 million in 2011 to $48 million a year later to over $60 million in 2015.

Other examples were included -- a credit in Hawaii for renewable energy that started at $34 million and ballooned to $260 million in just two years.

A similar tale can be told of the film tax credit here, and that is why the cap was put in place.

"Tax incentives are unlike most state spending," states the Pew analysis. "For priorities such as education and transportation, policy makers determine the specific level of funding they want to commit and review those allotments every one or two years. For tax incentives there is often no limit on how much they can cost."

Having a cap that has broad support with both political parties has actually brought more certainty to the industry. Other ways to build consensus include imposing an evaluation process to make sure an incentive does what is intended, and including an expiration date so policies can be reconsidered as times change.

Lawmakers know this, budget writers know this and industries know this. Once a tax credit or refund becomes law, it becomes harder to roll back -- there can be appeals and litigation by businesses that say they made investments based on the law. Litigation can last years, raising uncertainty about budgets in future years.

The state is already seeing that with several appeals involving a tax credit that was intended to attract health care practitioners to the state, but was claimed by a hospital, as well as with revisions to other tax credits.

There is little doubt that the film industry has been a job creator and is one path toward diversifying the state economy.

The credits are now going to productions throughout the state -- Roswell, Silver City, Las Cruces -- and can be used for television, internet and music videos. So there is more demand than ever for rural and unique-looking locations. The year the state paid out $96 million, it went to just 56 productions. Last year, 74 projects qualified for a share of the $50 million.

"This is an absolute bright spot," House Speaker Brian Egolf, D-Santa Fe, said at a Monday committee hearing. "This is important for tens of thousands of people, and it is one of the things that puts New Mexico on the map nationally."

But can the state afford to pay out another $100 million to the film industry a year? Can it afford $200 million or more?

If not, then setting a cap and sticking with it is good policy -- and in fact will bring more stability to film production than another round of political fisticuffs.

If in fact the entertainment industry is turning to other states because of the $50 million cap, then it should be increased gradually or indexed, much like the minimum wage laws are structured in some parts of New Mexico. If lawmakers have one-time funds, as is the case this year, then using it to pay off a backlog in earned credits would reset the table for future productions.

But writing a blank check at a time when public education and every state agency has to live within its budget is just bad policy -- and some very smart people working at the Roundhouse will say the same thing.

Contact Bruce Krasnow at brucek@sfnewmexican.­com.

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