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N.C. shows the money, and film industry comes

State increased tax credit for production companies to 25%.

By Mark Washburn
mwashburn@charlotteobserver.com

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  • Among major projects filmed in N.C. in 2011: "Homeland" for Showtime (Charlotte); "Hunger Games" for Lionsgate Productions (Western N.C., Charlotte); "Hornet's Nest," TNT (Wilmington); "One Tree Hill," CW (Wilmington); "Brown Mountain Abduction," independent feature (Western N.C.); "Journey 2: The Mysterious Island," New Line Cinema (Wilmington).

    For 2012: "Iron Man 3," Marvel Studios (Wilmington); "The Conjuring," New Line Cinema (Wilmington); "Homeland," Showtime (Charlotte).

    Film incentives

    A year ago, North Carolina increased its incentives to the film industry by offering a 25 percent refundable tax credit based on production companies' in-state spending on paychecks (up to $1 million per person) and purchases. Productions must spend a minimum of $250,000 in North Carolina to qualify. Not covered: Live sporting events, political advertising, news programs, pornography. The amount of rebates given for 2011 will be available, after auditing, in about 14 months.



Thanks to new but controversial tax breaks, 2011 was a marquee year for North Carolina's film industry, which landed big-name projects "Iron Man 3," "Homeland" and "Hunger Games."

Bringing red-carpet stars Robert Downey Jr., Claire Danes and Jennifer Lawrence, studios chasing tax incentives increased their spending in North Carolina nearly threefold - from $75 million in 2010 to $220 million in 2011.

It was a record year, and 2012 should be even better - the N.C. Film Office is projecting the industry will spend at least $275 million.

A year ago, state law changed so moviemakers could get a refund on 25 percent of salaries and money they spent on taxable items in North Carolina, worth up to $20 million per project. It made the state among the most competitive in the nation in tax breaks for the industry.

But even with the investment windfall, Hollywood tax breaks remain a contentious issue. Some states - like South Carolina and Michigan - have cut back on incentives, questioning their value. Even in North Carolina, some ask why the entertainment industry should get special treatment.

"We're really conservative with how we spend the taxpayer's money," says Tom Clark, who directs South Carolina's Film Office and has watched as state after state increased incentives in the last decade.

"It's staggering how much money is given away. In 2002, something like $200,000 was given away to Hollywood production companies. Now it's in the millions."

South Carolina offers a 20 percent rebate on wages paid to people working on a film and a 30 percent rebate on goods bought from in-state businesses. It caps rebates at $15 million annually statewide. South Carolina has paid about $5 million in incentives in each of the last two years.

Incentive value questioned

Studies have shown that tax breaks to Hollywood aren't always good business, says Mark Robyn, an economist for the Washington-based Tax Foundation.

"Generally, states are locked into what economists would call a race to the bottom, a never-ending arms race of film incentives," he says. "Nobody asks where could we get a better return on our investment."

A study released by the foundation in 2010 found that 44 states offered movie production incentives, up from five in 2002.

"Competition among states transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers," the report concluded. "It is unlikely that movie production incentives generate wealth in the long run. Most fail even in the short run."

Fighting for business

State tax incentives for the entertainment business began in Louisiana in 1992, and soon the state was awash in movie money. Other states, eager for investment in well-paying and nonpolluting industries, copied the Louisiana model. North Carolina, watching its film business decline, started offering incentives in 2007.

Now, Louisiana, Georgia and North Carolina, all of which offer highly competitive deals, tend to attract most of the projects shot outside of the longtime industry leaders, California and New York.

A fierce legislative debate has been held in Raleigh in recent years over increasing film incentives. "We're subsidizing superstars," Rep. Paul Luebke, D-Durham, complained when the latest increase in incentives was being considered in 2010.

A legislative study estimated the new film credit would give moviemakers $166 million over five years. Championed by Gov. Bev Perdue, the bill passed.

Protecting the industry

"If we want to be in the motion picture industry, we have to offer competitive incentives," says Aaron Syrett, director of the N.C. Film Office.

"North Carolina historically has had a strong film industry," he says. "In the late '90s, like a lot of other states, we were on the verge of losing it because of Canada, Louisiana and other states."

North Carolina's modern film industry dates to 1983 when producer Dino De Laurentiis came to Chimney Rock to shoot an adaptation of a Stephen King novel. "Firestarter" flickered out at the box office, but Di Laurentiis still liked what he found in North Carolina.

Recognizing that Wilmington offered temperate weather, friendly people, landscapes and city streets that could double for many parts of the world, he built a complex of studios, now called EUE/Screen Gems Studios.

In the early days, moviemakers were drawn to the state because of the availability of low-cost, nonunion labor.

Those days are long past, says Johnny Griffin, director of the Wilmington Regional Film Commission. He estimates about 900 people in the region make a good living off the business.

Movie jobs tend to pay well, and the Wilmington workforce is respected in the industry, he says. Most skilled jobs are union positions because the studios have union contracts, and the unions pay workers' health and retirement benefits.

Beyond the tax incentives though, Griffin says everything - from lunch to lumber - is cheaper in North Carolina than California. Local spending by productions shot in Wilmington more than doubled to about $100 million last year from 2010.

This year, producers have already committed to projects that should match last year's level. "And we have the rest of the year to recruit new projects," he says.

Film work is different than traditional industries, because jobs are usually temporary, Griffin says.

"I tell folks it's no different than being in the building trades - you may know where you'll be painting in the next few weeks, but can you tell me where you'll be painting in May?

"There are plenty of people in this town who have made a good living in this for 25 or 30 years," Griffin says. "Nobody expects to work every single day. It's hard for those on the outside to grasp that sometimes, but that's the way the business is."

Washburn: 704-358-5007
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