Georgia's blank check to Hollywood
Five years and hundreds of millions of dollars later, has the state's film tax credit been worth it?Thursday July 11, 2013 04:10 am EDT
Roughly 50 people are working in a sleek, modern office with breathtaking views of the Manhattan skyline. A 20-foot display that changes colors welcomes visitors to a sports and entertainment management agency. The reception desk mimics the sign's change from green to blue to violet. Jumbo flat-screen TVs display the firm's logo. The desks are neat, the design minimal.
In a glass office, an executive is bickering with a professional athlete. Underlings walk by in professional attire, carrying portfolios. A lackey sits by the phone handling calls. Words are exchanged between the executive and the athlete.
"Cut!" yells the director. The executive relaxes, the underlings hop back on their iPhones, and an army of camera operators, lighting technicians, and production crew members scurry to set up another shot.
In reality, the scene is unfolding in a nondescript Chosewood Park warehouse, hundreds of miles from Manhattan. The office, one of two local sets built for the USA TV series "Necessary Roughness," is a 32,000-square-foot shell, albeit one that could accommodate an actual marketing agency if it needed to. The computers work. The lighting is state-of-the-art. Books about sports line the shelves and there are outlets in the floor to plug in electrical devices.
In 2008, Georgia implemented one of the country's most aggressive film tax incentive programs. On the surface, everything also seems to be in perfect working order. By all accounts, the industry has exploded. The economic impact of the more than 330 feature films, TV movies and shows, commercials, and music videos filmed from Hiawassee to Savannah in 2012 totaled more than $3.1 billion, according to the Georgia Film, Music and Digital Entertainment Office — up almost 30 percent from 2011. The industry provides an estimated 25,000 jobs — 11,000 of which are full-time. No longer is Georgia just a place where you can find some experienced behind-the-camera talent, a variety of scenery, including a post-apocalyptic-looking capital city, and the world's busiest airport. Now there is major money to be made — and saved.
Exactly five years in, it's safe to say that Georgia has arrived as a movie-making hub much sooner than anyone expected. What's harder to determine, though, is whether the tax credit is worth the tens of millions of dollars sacrificed annually in state revenue as a result. And whether the now ubiquitous presence of Hollywood stars, top-flight crews, and deep-pocketed producers is doing anything to help foster a local film community. With about a dozen new studios opening or already open in Georgia, the next five years will be a critical period that will largely determine the industry's long-term sustainability here. How the state, and, in turn, Atlanta, positions itself as a media brand beyond being a second-rate Hollywood is critical as it vies for a place alongside New York and California as one of the top media markets in America.
When Michael Akins moved to Georgia in the late 1980s and started working in the film industry, there were 150 film technicians in Georgia. Labor union meetings were held in the back room of Manuel's Tavern. Five years ago, roughly 500 technicians paid dues to the organization.
"Now we're sitting at about 1,800," says Akins, the business agent of IATSE Local 479. That's not even counting the number of workers who don't belong to the union, considering membership isn't mandatory in Georgia, unlike in California and New York.
Film, TV, and commercial production is no longer a fringe industry in Georgia. If you're skilled, serious, and plugged into the right network, there's more than enough consistent work to book a full schedule. Want to stay in state rather than hopscotch across the country, working on sets in far-flung locales and sleeping in hotels? That's now possible in Georgia.
The biggest shot in the arm to the state's film industry was the Georgia Entertainment Industry Investment Act. Passed in 2008 by the Georgia General Assembly and signed the same year by Gov. Sonny Perdue, the law overhauled a tax credit for companies that produce films in the state. The move, which was built upon a similar <ahref="http://sonnyperdue.georgia.gov/00/press/detail/0,2668,78006749_90418653_91526803,00.html">2005 tax credit, thrust Georgia into the cutthroat world of film and TV tax credits. Louisiana was one of the first to offer an aggressive program in 2002. More than 40 other states have followed. States started offering film companies tax breaks after Canada's program sucked a sizable chunk of the business from Hollywood. In the mid-'90s and early 2000s, Canada's financial incentives combined with low exchange rates made movie making north of the border a relative bargain. Now, as the Euro's value has steadily hovered over that of the American dollar, European companies have been eyeing the United States with the same interest as we once did Canada — and to Georgia's benefit.
But often lost among the headlines about new films and studios and publicist-pushed-sightings of celebrities dining in Midtown is how the credit actually works. Under the program, companies that spend at least $500,000 on production and post-production in the state can qualify for a 20 percent tax credit. If they slap on a promotional Georgia logo at the end of the credits they receive an extra 10 percent. Georgia was expected to pay out $75 million in the tax credits for the last fiscal year, which ended July 1. Next year that number is expected to rise to $86 million.
People often think the credit helps Hollywood moguls — some of whom never set foot in the state — cut the tax bill they accrue on their production. Or that crew supervisors get rebates on goods, such as lumber, dry cleaning, or bottled water for crews and extras. But things are a bit more nuanced than that.
Say you spend $1 million shooting a movie in Georgia and you include the state's logo at the end. Your production company qualifies for a $300,000 tax credit. You, typically through a broker, can sell the credit for about 80 cents on the dollar to the well-to-do and corporations of Georgia, which use it to offset their state tax liabilities.
That's cash in hand that can be used to pay off film investors or cover some of your marketing costs. The Arthur Blanks and Coca-Colas of the world get a break on their state tax bills. Lighting technicians, caterers, and carpenters get steady work. The broker usually takes a cut of 3 to 5 percent, depending on the film's budget.
The tax credits can be "broken up," brokers say, which makes them available to people who owe less than, say, a Fortune 500 CEO or Delta.
"If you made $25,000 and owe the state of Georgia $1,500, you can buy $1,500 in tax credits," says Don Mandrik, an Atlanta film producer and credit broker. But he notes the potential savings at that level are so small that it's almost not worth the trouble. This May, rules were changed to make the credits more accessible to average Georgians. Previously, all shares had to be spoken for to complete a sale. Now brokers can sell tax credits in individual chunks.
But there are downsides. For one, we don't know who's using the tax credits. CL's request to the Georgia Department of Revenue for a list of the companies that qualified for the tax credits — and who claimed them on their taxes — was declined. The state's Open Records law prohibits disclosure. And any audits, even if they are conducted, can't be shared because of confidentiality laws. The state's entertainment office can only disclose names of films shot in Georgia, and cannot provide information about budgets or the names of qualifying productions. That makes it difficult to track and compare how much we're gaining in terms of economic activity and losing in terms of tax revenue.
An independent, objective study of the incentive has not been done. As a result, it's hard to calculate whether the state is actually seeing a return on the more than $200 million it's passed up over the last three years — cash that could potentially pay for education, transportation, and better social services — or just watching money fly away.
Economists are split on whether the tax credit is a good investment and practice, especially considering that states have made a sport of leapfrogging each other in the past by each trying to offer a better financial incentive.
Free-market champions, who shoot darts at nearly all tax incentives, view film tax credits as politically popular giveaways that ultimately don't pay off. The Tax Foundation, a Washington, D.C.-based think tank that monitors fiscal policy, often points to studies of such programs that have determined that they typically bring in less than 30 cents for every dollar spent.
"What's generally been found is that they're not as valuable as seen at first," says Eileen Norcross, a senior research fellow at the Mercatus Center, a free-market think tank at George Mason University. "They end up costing revenue with very little in return. Why not just create a neutral environment that doesn't try to pick winners?"
Earlier this year, Massachusetts Gov. Deval Patrick proposed placing a cap on the state's film tax credit over concerns the program was sometimes used to subsidize questionable expenses. North Carolina state lawmakers in early June battled over whether to extend the tax credit in that state, considered Georgia's chief rival in the filmmaking business along with Louisiana.
Christine Ries of Georgia Tech, who served on a special council created by former Gov. Perdue to reform Georgia's tax code, thinks the state's rosy estimates of economic impact neither tell the whole story nor take into account the revenue the state's giving away. She's also bothered by the idea that the state is indirectly providing a payoff for predominantly out-of-state producers.
"The broker sells the tax credit to someone in Georgia who needs it," she says. "That money goes to the film investors. Who do they pay taxes to? Sacramento. You have Georgia government intervening to reduce taxes for an industry that's coming in from out of state, where that money, the vast amount, is going to pay taxes in another state. That's what literally happens."
The idea of a world without tax incentives might look nice on paper, but it's not the way the modern economy works. Nearly every industry that's able to hire a Gold Dome lobbyist has managed to convince lawmakers to provide breaks. Delta Air Lines, which in 2012 posted a $1 billion profit, recently saw its partial fuel-tax exemption renewed by the General Assembly. It's a sweetheart deal, an overt form of corporate welfare that costs taxpayers more than $20 million each year. Sure, the airliner is a major employer in Georgia, but that sales tax benefit doesn't trickle down to its ticket counter clerks.
David Sjoquist, a Georgia State University economics professor, and others argue that the tax credit can't be viewed on a dollar-for-dollar comparison.
"One should not evaluate the return based on the tax revenue," he says. "Because there are other benefits. Providing jobs, providing income, providing some promotion by filming in the city. People look and say, 'There's Georgia, let's go and visit. Let's go to Savannah and do the tour of the Garden of Good and Evil.'"
The tax credit has plenty of support under the Gold Dome, probably because repealing it would likely convince Tinseltown producers and financiers to look elsewhere just as quickly as they decided to set up shop here, as has happened in North Carolina and California.
"In the absence of these credits, we'd still get a few films because of location. But generally, almost all the new activity is due to the credits," says Sjoquist. "The revenue activity they're getting from the film business is dependent on the credits. It'd disappear without the credits."
Atlanta real estate broker John Raulet owns the former flower delivery warehouse that was converted into Mailing Avenue Stageworks where "Necessary Roughness" now films. He watches the crew shoot scenes, cut for camera changes, and haul gear from the makeshift office. Downstairs, a catering company is setting up to feed 140 people rosemary and garlic pork tenderloin, sesame tuna, potato pancakes, and a wide assortment of hot sauces. In the adjacent dog-friendly office building, production staffers outline upcoming shoots, cut hundreds of checks, and manage racks upon racks of wardrobe.
Raulet got into the film business during the economic crash when more businesses were moving out of spaces than into them by helping small film productions lease space.
"It kept money coming in and kept my mind focused on real estate," he says.
Two weeks after he and his partners closed on the 38,000-square-foot warehouse and adjoining 18,000-square-foot office in Chosewood Park, he got a call from a producer looking to rent the facility to shoot Last Vegas, a buddy comedy starring Robert DeNiro, Michael Douglas, Morgan Freeman, and Kevin Kline. He had no clue the gamble would pay off — or that things would grow as big as they have.
"A year ago?" he says. "Hell no. Had no idea. We didn't buy it until July. By September we had four of the biggest movie stars in the world here."
In the last three years, 11 new studios have made announcements to move to or expand in Georgia. EUE/Screen Gems, which signed a 50-year lease with the city for its complex located on the former home of the Lakewood Fairgrounds, has invested tens of millions of dollars, and is expected to add additional soundstages in the coming years. Jacoby Enterprises, the firm that turned a shuttered steel mill into Atlantic Station, has announced plans to build a 100-acre soundstage facility off I-85 in Gwinnett County. To much excitement earlier this year, Pinewood Studios, the British studio best known for filming the James Bond series and which stands equipped to handle big-budget productions, signed on to bring a 288-acre facility to Fayette County.
"The reason why this is important in Georgia's growth is none of our other competing states, certainly in the Southeast, are developing infrastructure, solid brick-and-mortar infrastructure, at the pace we are," says Ric Reitz, actor, filmmaker, and former president of the Georgia Production Partnership, a media advocacy group, who helped state lawmakers author the film tax credit legislation. "They'll say they're building studios, but they didn't get Pinewood, they didn't get Screen Gems, and there are more that are coming."
The expanding infrastructure and sharp uptick in productions have created a ripple effect, boosting activity in side industries such as dry cleaners, lumber yards, restaurants, catering, crane equipment and porta-potty rental companies, tutors, off-duty security, and more. It's living proof, supporters say, that the tax credit is worth the investment. Experienced crew members who left Georgia long ago due to the lack of work are returning. People from other states are uprooting families and buying homes here. Construction workers left without a nail to hammer when the homebuilding industry dropped dead during the recession are now piecing together sets.
"You hear a lot of stories like that, guys who lost everything when the bubble burst," says David Nash, a former home remodeler who joined the film industry full-time in 2008. "And luckily this industry was picking up as that was in decline. I know several guys who it basically kept from going completely under."
Out-of-state companies that lease equipment and cater to the film industry, such as Board Brothers, which provides the covers and guards to protect floors from heavy production equipment, have opened an Atlanta location. Graphic designers create labels for products used in shows such as "Drop Dead Diva." JunkitGeorgia provides large Dumpsters so crews can recycle everything from plastic to aluminum. The Lifecycle Building Center, a southwest Atlanta nonprofit that salvages materials and equipment from buildings scheduled to be demolished, last year made more than 22 percent of its sales from flooring and other materials reclaimed from movie sets.
"The industry boom due to the tax incentive that happened here is great in that it created a lot of jobs for freelancers who might have otherwise spent a lot of time on unemployment," says Ian Cone, a motion picture technician since 2004. "At a time when the economy was suffering, the demand for technicians and skilled laborers became so great that there weren't even enough locals here to supply that demand and people migrated from all over the country to start working while other locals learned the trade and joined the union or took on jobs in the production department."
A strong filmmaking community needs filmmakers, needs actors, needs crews. So it was troubling when, a decade ago, Georgia could barely hold onto talent, let alone attract much new blood.
"Anybody who remembers 2004, 2005, and 2006 remembers it was an awful time," says Charles Judson, artistic director for the Atlanta Film Festival. "You would get those emails at least once a week, sometimes you'd get two or three in a week: 'Oh, I'm leaving.' That's incredibly damaging to a creative community."
It's a different story in 2013. In the five years since its implementation, the beefed-up tax credit has helped draw creatives in the film and TV industries to Georgia with not just more work, but more high-profile work. Many indie filmmakers aren't able to use the tax credit because their budgets don't meet the $500,000 minimum, but they still benefit, albeit indirectly, from a growing community that's choosing to stay here instead of running off to New York or Los Angeles.
"Fewer and fewer people are leaving now, but we still don't have our Richard Linklater, we still don't have our Robert Rodriguez," says Judson.
Massive success stories such as Rainforest Films (Stomp the Yard) and Tyler Perry and his eponymous production company aren't exactly the norm for Atlanta-based filmmakers. And while the increase in film and TV production hasn't directly translated into as vibrant an indie film scene as you'll find in Austin or New York City, or given rise to many household names, the value of simply having more skilled people in one place shouldn't be underestimated.
"It's easy to be impatient but we ought not to be," says Reitz.
When Reitz and his colleagues throughout various state offices began conceiving of the business plan for the tax incentive and expanding Georgia's film production industry, he says they knew the program's first five years would be dependent on stabilizing infrastructure and outside resources.
"We had no idea that we would be this successful, this quickly. No idea," says Reitz. "Pinewood could have moved anywhere in the world. Could've moved certainly anywhere in the United States. But where did they put down roots? They chose Georgia. ... Having brands such as Pinewood, Warner Bros., and Screen Gems here gives us a certain amount of legitimacy."
"The energy in Atlanta's independent scene seems to be gradually growing ... but it doesn't seem as though there has been a residual boom in the independent world yet," says Cone. "Although there are many who crossover between indie and major productions, the scene seems completely separate. It's like you're Clark Kent on the big production and then you can go try to be Superman on the indie show but you can never reveal your true identity because your employers will accuse you of trying to be a 'hero' or 'artist' and nothing could possibly be more offensive than that!"
Reitz says part of sustaining Georgia's film boom over the next five years will be grooming and providing incentives for a community of independent Georgia producers, directors, fundraisers, and financiers. Getting them here was the first step. Now they need the resources to become entrepreneurs and drive a thriving local filmmaking community.
"We need to stop thinking how does the filmmaker get their film made. We have to start thinking about how we help filmmakers start creating their own production companies and their kind of own ecosystems where they can make films, not make a film but make films," says Judson. "If you can help filmmakers actually pay their bills day to day and actually go from project to project, the more likely we're going to see more projects come out on a regular basis."
Accomplishing that will have a lot to do with people's ability to focus Atlanta's fragmented creative energies. The Atlanta Film Festival relocated its headquarters to Georgia State University two years ago and actively pursues conversations and collaborations with local educational institutions, including GSU, Georgia Tech, and Emory, as well as arts organizations such as international animation group ASIFA Atlanta. Jacoby's and Pinewood's future plans include establishing schools to train industry professionals. The Plaza Theatre's new owner Michael Furlinger is encouraging local filmmakers by offering them weeklong runs and a 50/50 box office split for their films if they can sell at least 90 percent of the seats at their first screenings. SCAD's churning out hundreds of graduates a year ready to work immediately and build résumés locally.
"There's nothing like when you put together people from the gaming community in the same room as somebody from animation and somebody from music and give people a sense that they're part of a greater community. It's not just they're just part of the filmmaking community, you're part of a creative community that encompasses five or six different industries," says Judson.
If the state can sustain its growth and continue to solidify a creative community, then "not just Atlanta, but Georgia legitimately becomes the third key media marketplace in America, after Los Angeles and New York," says Reitz.
Pinewood broke ground on its initial 305,000-square-foot studio complex in Fayette County this spring. Jacoby Enterprises is fast-tracking the construction of its Gwinnett County soundstages to early 2014. Inevitably, additional warehouses will be converted into studios or just market themselves as such. More and more films are slated to apply for permits, some possibly through Atlanta's new film office created to streamline applications and give neighborhood residents weary of invasive productions a City Hall contact where they can gripe.
The industry's growth shows no signs of slowing, but there is concern that it all might be happening too fast, too soon, and that a film production bubble is starting to inflate.
"We always dreamed of being a billion dollar business, and we're practically a billion dollar a year business. That was our prediction, but it happened in half the time that we predicted," says Reitz. "One can grow too quickly to the extent that there become too many studios too soon and that could hinder our ability to fill them with product and keep them profitable."
In January, Mayor Kasim Reed told the Atlanta Press Club he believed that by 2015, Atlanta would be mentioned with Los Angeles and New York City as one of the top-three American filmmaking cities. There's no way of knowing at this point if the tax incentive's indirect benefits add up to enough to offset the more than $70 million a year paid out in credits. But between the tens of thousands of workers employed in local film and TV production, and all the cottage industries springing up, it's hard to argue that the credit isn't working in Georgia's favor.
"What's happening now is Atlanta is going from being a glorified location to being a city with the kind of massive infrastructure for this business," says Kris Bagwell, executive vice president of EUE/Screen Gems Atlanta.
"Georgia, because of the location, scenery, Atlanta airport, we'll thrive in this industry as long as we play on a level playing field and we don't get behind some other incentive," Akins says.
The industry's rapid growth hasn't allowed much time for Georgia to pause and consider its identity as a filmmaking hub. Reitz and other industry insiders say that the de facto branding of the state and its capital city as the "Hollywood of the South" and "ATLwood" oversimplifies what's actually taking place here.
"It's like, why are we trying to be Hollywood? We don't need to be Hollywood," says Reitz. "We want to be Georgia. Whatever that's going to be, I believe, begins to truly materialize in the next phase. ... Because it's not just Hollywood movies, it's television, it's digital games, it's music. It's all those things that make this a unique destination. Since the Olympics we have not created another identity and we need to. But it'll come. It'll come."