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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Hanging out with Robert Rodriguez and Gov. Rick Perry

Well, actually, I was just one of several hundred people standing in a big room at Troublemakers Studios in Austin, April 23. We were watching filmmaker Robert Rodriguez and Texas Governor Rick Perry enjoy a well-earned Big Moment in the media spotlight as the Governor signed legislation that will boost moving image production in the Lone Star State.

Gov. Perry came to Troublemakers Studios in a Texas-sized white limousine that had a movie camera as its hood ornament. He's also one of the few U.S. governors who belongs to the Screen Actors Guild (SAG)--which is a bit funny, since Texas is a right-to-work state and Gov. Perry, a social conservative, is no big fan of unions and guilds.

He got ringing applause, however, from the gathered crowd of Central Texans who work in the movie, TV, game and related entertainment businesses, because the newly enacted incentives promise to bring more projects -- and jobs -- to Texas.

The legislation was spearheaded by State Rep. Dawnna Dukes (D-Austin). She said the new law, which went into effect immediately, will give the Texas Film Commission more flexibility when deciding on the size of grants that it can award to movie, TV or game production companies. Approximately $20 million is now in place, and another $40 million in funding is now being debated as separate legislation in the Texas House and Senate. "We don't believe in outsourcing (entertainment industry jobs), especially to Louisiana and New Mexico," she said.

"Oh, we're gonna be busy!" Gov. Perry commented before he sat down to sign the legislation. " He noted that Louisiana Gov. Bobby Jindal recently came to Austin for a visit, and Perry told Jindal: "All those movies you've been having in Louisiana? They're gonna be coming to Texas!"

Gov. Perry added that "the moving image industry has brought in more than $1.2 billion to Texas over the past 10 years. I promise you, this legislation is gonna blow that figure away."

One bystander, San Antonio lawyer David Yanez, remarked before the event that he is changing his focus from state politics to becoming an entertainment attorney. "People want to film in Texas," he said. But he cautioned that states cannot keep trying to outdo each other with production incentives. Before long, the incentives playing field will be more or less level. When that happens, state film commissions may have to create "alliances of states" in their area. In other words, rather than compete with each other, Texas, Louisiana, New Mexico and possibly other states may have to team up to compete with California and other areas of the U.S. for movie, TV and game projects.

After the event, I tried to meet Robert Rodriguez, but his line of admirers was too long, and he appeared anxious to move on and get back to work. The Governor also was busy shaking many hands. Anyway, I'm not one of Gov. Perry's political fans; I think he has been wrongheaded on many issues, including trying to refuse federal money to help the unemployed in Texas.

But this event was good news for Texas' beleaguered entertainment industry. I give full points to all who helped push the legislation through--and to the governor who encouraged it and signed it.

Maybe he'll get a few plum movie parts after Kay Bailey Hutchison defeats him in the governor's race in 2010.

-- Si Dunn