May 26, 2014

NC developer, filmmaker uses dual roles in seeking film incentives on rehab of old mill

The restoration of a historic hosiery mill in Hickory cost millions, and the developer said his construction costs also count as spending on a reality TV show he was filming for the purpose of securing state film incentives. The film subsidy claim is being reviewed by state revenue officials.

Of the dozens of film projects in North Carolina that have sought millions in taxpayer film subsidies since 2005, one stands out for the unusual way the producer says he spent the money: on construction workers, bricks and mortar to transform an old hosiery mill in Hickory from a vacant eyesore into a valuable piece of commercial real estate.

The more than $4 million in construction activity at the mill was part of filming for episodes of a reality TV show that promised to take viewers into the ups and downs of remaking historic buildings. The docudrama TV project, known as “The Preservationist,” was filmed two years ago.

It has not aired and, as of this month, is not lined up for distribution. A website related to the show has been suspended and trailers online are marked “private.”

The film project is seeking $1.1 million in state film incentives, according to reports filed with the state Department of Revenue and an interview with the show’s producer and starring character, Nathan Kirby of Gastonia.

Kirby’s primary line of work is in real estate, including as a developer who rehabs old buildings. As a sideline, he has had an interest in producing and acting in lower-budget films.

At one point, he told state officials that his TV show project needed the subsidy and could mean “hundreds of millions of investment” and “thousands of jobs,” which had the head of the state’s film office saluting the project as a “legitimate production venture.”

Kirby ultimately reported far less in spending and jobs. The claim filed with state officials listed 14 people employed for the show.

Kirby said state officials who approve film subsidies are now auditing his reality show’s receipts and other information and have not yet approved his claim. He said he is facing scrutiny because of his dual role as a historic buildings developer and film producer.

Kirby said he followed all the rules of the film incentive program.

Under the program, the state will refund 25 percent of production costs for film, TV, commercial and other motion picture projects. Typically, this spending is on wages for actors and crew, on goods such as cameras and hard drives, and on services such as catering and dry cleaning.

In the case of Kirby, he says the costs of his show included rebuilding an old mill. One promo for the show promised that viewers would “join Nathan Kirby and his team as they do their part to protect the planet and rebuild local economies, one building at a time.”

In April 2012, Kirby told The Observer News Enterprise of Newton that the hosiery mill part of the TV show would be made into three episodes – and that the filming project made the mill redevelopment possible.

“Us coming in and doing the development on the (TV) production is very helpful in getting the project off the ground,” Kirby said then.

The work is done and the result has been new life at the historic Hollar Hosiery Mill, one of Catawba County’s oldest remaining mill structures. A farm-to-fork restaurant, catering and events business, yogurt shop and brewery are now open.

Subsidy up for debate

The state’s film incentive is set to be debated in the General Assembly session that began this month.

Some legislators want to keep the program as a way to support an industry they say is high-tech and offers good jobs. Others say the incentive money – more than $60 million in the most recent fiscal year – is too costly to support an industry whose jobs come and go.

State officials do not vote on film projects individually; the incentive is written into the tax code as what’s known as a refundable tax credit, the only one of its kind because it first wipes out any tax liability and then refunds remaining incentive money to the production company.

Without legislative action, the film incentive will go away at the end of the year. The administration of Gov. Pat McCrory, a Republican, has been supportive of the incentive program with some changes, though leading lawmakers who control the flow of legislation have expressed more reluctance.

In recent weeks, the major movie studios have begun advancing a plan that would preserve the incentive for feature films, commercials and scripted TV series, but limit eligibility for reality projects such as Kirby’s rehab show as well as other one-time productions. Those include wrestling matches or late-night comedy shows such as ones that were in Charlotte during the 2012 Democratic National Convention.

McCrory’s plan would continue to offer incentives for reality shows.

The current state film incentive program has no requirement that a show must actually air to qualify for the subsidy; its premise is based on stimulating job and spending activity.

No lawmaker has voiced concern specifically about “The Preservationist,” produced by Kirby’s Fight Sprawl Productions I LLC. Kirby formed the company in Gaston County in late 2011. Filming lasted from April 2012 to November that year, according to the state film office.

By December 2012, the N.C. Secretary of State’s office had begun action to administratively dissolve the company because of delinquent reporting. Kirby’s film company was administratively dissolved by the state in May 2013.

Unusual amount on services

Fight Sprawl Productions I has filed claims that said it spent about $4.5 million on filming in 2012, listing that it did work in Gaston, Union and Catawba counties. Nearly all of that was classified as spending on “services,” which Kirby acknowledged included construction costs.

Asked if the “services” spending submitted to the state in order to secure the film production incentive included bricks, concrete and similar costs for redeveloping the mill, he said yes.

“All of it,” Kirby said. “Everything.”

The mill rehabilitation budget, as provided to city officials for a separate grant program, described the rehab effort as a $6 million project. Of that, about $3.3 million was earmarked for the demolition, on-site improvements and construction rehab costs. Another $821,000 was for “consultant/overhead” fees.

Kirby said seeking film incentives based on bricks-and-mortar spending was no different from when the ABC reality show “Extreme Makeover: Home Edition” filmed twice in North Carolina in 2011.

“They did a similar type of project,” Kirby said. “They renovated a building. They actually turned in receipts for their bricks and mortar and for their materials. We did the exact same thing.”

That show follows builders who renovate or rebuild homes for people in need, with much of the labor and materials described as being donated. Homes that were part of the show were donated to residents.

A spokeswoman for the producers of “Extreme Makeover: Home Edition,” which aired for multiple seasons but is no longer in production, could not immediately comment. The show reported spending $304,000 on goods, $457,600 on services and $1.5 million on wages in the state in 2011. It claimed a film subsidy of about $590,000.

Denied early on

According to documents, Kirby faced skepticism from the beginning.

In early 2012, he filed an “intent to film” notice that estimated spending in North Carolina related to “The Preservationist” would be $200 million, reflecting a plan to film his historic development work on multiple rehab projects. One form filed with the state film office indicated 2,500 people would work on the episodes as “talent/extras.”

It is not clear if he filmed episodes about more buildings than the mill in Hickory. After a brief interview, in which he said he would provide further details later, including examples of the episodes, Kirby could not be reached and did not respond to multiple email and phone messages.

The state Department of Revenue apparently determined in early 2012 that his company was not a real film production company. Kirby wrote to Aaron Syrett, director of the state’s film office, seeking help. Kirby wrote that he had “relied” on Syrett’s guidance and assistance in the previous five to six months.

“We have been declared invalid as a production company,” Kirby wrote on Feb. 17, 2012. “In your opinion, would you consider our production to be legitimate? ... Is this a production that the NC Film Office would want to see kept in the state?”

Kirby said “hundreds of millions of investment” and “thousands of jobs” were at stake.

Syrett responded later that day that Kirby’s show was “certainly a project the North Carolina Film Office would like to be done in North Carolina” and that it “does seem to be a legitimate production venture.”

“Your project is not dissimilar to most reality/non-scripted projects, in that the real life person and their daily activity is the narrative,” Syrett wrote.

Kirby wrote back 10 days later to say that “I think we’ve satisfied the requirements for the (Department of Revenue) in regards to being a production company.”

Kirby said the state gave him and his lawyers a ruling that said he could count construction and rehab costs for the mill simultaneously as film production costs for the purpose of receiving the film subsidy. Kirby said the decision, issued to him in a private letter that he would not share with The News & Observer, is a big part of what gave both projects a green light.

“We got a ruling that said if I don’t own the property, any part of the property that we’re working on, that we’re renovating, (then) any of our expenses will be covered,” Kirby said. “That’s what the ruling says. And I don’t own any of the property that we put through the film. I followed the rules.”

Trevor Johnson, a spokesman for the state Department of Revenue, said the agency could not comment on a private taxpayer matter or release any correspondence because of secrecy provisions in state law.

Kirby said he has provided a “rough cut” of the show to revenue officials, who he says keep asking questions and have him wondering if he will ever get the $1.1 million film incentive he believes his film company is owed.

He said he is still working to get the show aired.

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