Texas Production Incentives: Will They Be a 2011 Legislative Target?

Recent budget shortfalls in several states have caused legislators there to try to repeal the tax breaks that entice movie, television and game productions to temporarily set up shop inside their borders. Indeed, the supposedly nonpartisan Tax Foundation has issued a report arguing for the "immediate discontinuance" of all such tax-funded programs nationwide.

Watch for an incentives-related battle in the Texas Legislature when it returns to session in January, 2011.

Thanks -- or no thanks -- to several factors, including Gov. Rick Perry's signature on a no-new-taxes pledge, legislators will have to deal with a shortfall of $11 billion to more than $15 billion in the state's 2012-2013 budget.

According to the Austin American-Statesman, "[b]udget cuts are already in the offing..." and "[s]tate leaders are expected to pull the trigger soon on about $1 billion in spending trims...." The cuts may mean layoffs of prison guards and smaller payments to Medicaid providers, including doctors and hospitals.

Meanwhile, some observers of the state budget's woes are predicting the Texas legislators will not be able to "cut their way out of the hole" starting next January, the American-Statesman reports.

Paranormal Inactivity on Taxes?

More revenues will have to be raised, which will be tough to do since Gov. Perry, a strong sympathizer with the Tea Party movement, has signed the Americans for Tax Reform pledge that supposedly requires him to oppose "any and all tax increases."

Legislators will be left with few options except to increase some fees and look for any tax credits, tax exemptions and tax exclusions that can be reduced or eliminated. Also, they will face decisions on whether or not to allow more gambling choices in Texas.

In the face of the massive shortfall, Texas' production incentives could look like just one tiny plum ripe for picking out of the budget -- unless movie, television and game producers can convince the lawmakers that a lot more state revenue is generated than is spent on the program. Many legislators will be on the lookout for anything they can eliminate or shrink without raising taxes or fees.

The Incentives Hurt Locker?

The state production incentives progam -- if it survives the budget cutters next session -- will need to be given stronger funding. And many low-budget moviemakers say that it needs to be revised. At a time when non-studio movie budgets are trending lower and lower, often down to $100,000 or even less, Texas still wants moviemakers to spend at least $250,000 in the state before tax breaks will be granted. Many indie movie makers feel frozen out of the state's incentives program. The budget levels need to be made lower, and additional provisions need to be created to encourage the development of low-budget, "indigenous" Texas movie, television and game productions.

The state program also needs to be revised to get rid of its ridiculous "negative fashion" clause highlighted in the news last year. The Republican-ramrodded clause, enacted into law in 2007, forbids Texas state incentives to any kind of film, TV or game project that contains "inappropriate content or content that portrays Texas or Texans in a negative fashion, as determined by the [Texas Film Commission] office, in a moving image project." This clause puts the Film Commission in a censorship position and leaves the doors wide open for neighboring states such as Louisiana and New Mexico to keep getting "Texas" projects that can't get past the "negative fashion" restriction.

Gearing Up for the Fight

On the Texas Motion Picture Alliance (TXMPA) website, the organization's president, Don Stokes, recently posted both praise for the state's current incentive program and strong cautions that the program will need to be expanded and justified during the 2011 state legislative session.

Stated Stokes: "I am happy to report that our Moving Image Incentive Program is proving its effectiveness at bringing jobs and dollars to Texas. Since the enhanced incentives were signed into law in April 2009, applications which account for over $225 million in new in-state spending. These projects have created over 12,300 industry jobs equating to over 1,800 full time jobs. All of this has been achieved with a commitment of just over $24.8 million in grant funds. I am unaware of any other program which has delivered these levels of results with an equivalent cost. These projects come from across the State and cover all segments of the industry. This is tremendous news and will be a vital part of our message going into the 2011 Legislative Session."

He continued:

"We cannot afford to let this positive news make us complacent. Now is the time to remobilize and renew our efforts. We will have to battle for continued funding of the program in the upcoming Legislative Session. News reports from the Capitol inform us that all State agencies have been asked to reduce their budgets and cut current and future spending. We have been lucky since our friends in the Governor's office have trimmed in other areas in order to keep our current funding intact. They believe in the value our industry brings to Texas but we will have to make our case anew in 2011. To complicate matters further, we will not simply be asking to retain our current level of appropriation, we will be seeking an increase. At current application levels we will exhaust our funds for this fiscal year well before the next appropriation year begins in September 2010. Those funds will most likely also be exhausted before our next appropriation is in place. The positive side is that we have shown that if the incentive program is funded we can bring in the work. What we will have to prove is that the jobs we create benefit the State enough to justify the funding."

Fade Out?

A prediction from Dateline: Oblivion. Looking at the negative numbers surging into the $11 billion to $15 billion-plus range, Texas legislators will be primed to cut first and ask few questions later. State representatives and senators who don't understand the production business (and that will be just about all of them) will again demand to know why Texans should pay Hollywood anything to bring (or "brang") their "terrible" projects here. With angry constituents and Teabag Rick haranging them about taxes, they won't be receptive to listening to promises and predictions, nor reason.

The pro-incentive lobbyists need to be out in force already, reaching everyone they can possibly reach. The fiscally small but positive news from the Texas incentives program must be clearly heard and understood well before the budget-cuts drumbeat starts pounding everything -- and everyone -- into submission.

--Si Dunn

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