Over the past two decades, the competition among the states to offer increasingly lucrative film incentives to lure productions to film within their borders has often been characterized as a race to the bottom. This characterization may not be too far off given that California itself has since implemented incentives to stem the exodus productions out of that state. Recently, however, the race has begun to thin out as many states have decided to abandon or defund their programs. Assuming the number of major studio films made each year continues to remain relatively finite, several states are now poised to emerge as frontrunner destinations for more consistent and concentrated film production.
This update will provide a brief background on film incentives and will discuss current incentives in the southeastern states. Because a fifty-state survey is beyond the scope of a single blog, going forward I plan to review current incentives over the course of several entries, each of which will review the policies in a particular geographic region, as well as provide the latest legislative updates.
Generally speaking, film incentives are legislatively created policies that seek to lure film production within a state’s borders by offering subsidies in the form of cash grants, transferrable or refundable tax credits, and/or other tax incentives to offset specified production costs. The effectiveness of these policies in luring films was first realized in the late nineties when the Canadian government enacted a lucrative incentive program. State governments soon followed suit, with fifteen states offering film incentive packages by 2005. At the peak of the incentive race in 2010, forty-three states had programs and had spent a combined $1.4 billion on incentives in that year alone.
Now, however, the competition is getting thinner, as each session legislators weigh the costs and benefits of the programs themselves while looking next door to see if their programs would compete anyway. The result is that many states have eliminated, defunded, or pared back their programs, or are considering doing so. Presently, only about thirty-one states, plus the District of Columbia and Puerto Rico, have viable incentive packages. At the same time, very few states are considering expanding their policies.
This overall trend holds true for most states in the southeast region. For example, Tennessee and North Carolina have drastically pared back the funding of their programs over the last few years, and Florida ran through its six-year budget in four years, leaving the program inactive. The exceptions in the region are Georgia and Louisiana, who have continued to offer their lucrative packages to production companies, and whose incentives are widely considered the most favorable in the nation. The following chart summarizes the southeastern states’ incentive programs:
|State||Basic Subsidy||Caps||Type, Funds Available& Status 2015|
|Alabama||25%||$20M / yr.||Refundable tax credit; funded; active|
|Arkansas||20%||$5 / yr.||Refundable tax credit; funded (funds renewable / fiscal yr. ending 6/30); active|
|Florida||Up to 30%||$8M / prod.$296M total through 2016||Current program is out of funds; inactive; legislation pending (passed committee 3/10/15) to reform and re-fund incentive program; reforms will likely limit program.|
|Georgia||Up to 30%||None||Transferable tax credit; funded; active|
|Kentucky||20%||None (but $100k cap per above-the-line hire, e.g. actors)||Refundable tax credit; funded; active|
|Louisiana||30%||None||Transferable tax credit (credits may also be redeemed with state at 85 cents on dollar); funded; active|
|Mississippi||25%||$8M / prod.$20M / yr.||Cash rebate; funded ($7M remaining as of Jan. 2015); active|
|N. Carolina||25%||$5M / prod.$10M / yr.||Grant; funded ($10M renewable annually); active|
|S. Carolina||20 – 30%||$1M/prod. for wages rebate only||Cash rebate; funded (min. $15M renewable / fiscal yr. ending 6/30); $8M remaining as of Jan. 2015; active|
|Virginia||Up to 20%||None||Refundable tax credit / grant; funded $5M total through 6/30/16;|
|Tennessee||Up to 25%||None||Grant; funded $4M total through fiscal yr. ending 6/30/15; active|
|W. Virginia||Up to 31%||None||Transferable tax credit; funded $10M / fiscal year ($5M left as of Jan. 2015); active|
Despite the trend away from incentives and the uncompetitive offerings from most of the states listed in the chart, the prospect of the southeast continuing to compete as a first-rate regional production destination remains foreseeable for several reasons. First, the presence of the two leading incentive states in the country—Louisiana and Georgia—in close proximity within the region makes the establishment of a formidable local industry workforce and infrastructure a more likely and sustainable prospect as skilled labor and talent continue to put down roots and investment in local post-production facilities increases. Second, there are natural economic incentives in place on top of any legislative or “artificial” economic incentives; that is, the lower overall cost of living and lower wages—at least for non-union labor—are enticing to production company budgets. Finally, the generally favorable business climate in the region and the ongoing growth trend of corporate relocation and investment there can provide a sustainable marketplace for the exchange of transferable tax credits across various industry sectors.
The jury is still out as to whether state film incentives are sound policy in the long-term; the states abandoning or questioning their policies can cite convincing data to support their vote. What is becoming clear, however, is that the so-called race to the bottom appears to be drawing to an end, and the leaders stand to gain what they initially sought within their borders: a permanent, viable industry that wasn’t there a decade ago.
 In fact, 2013 saw Louisiana eclipse California in the number of major-studio films produced. For further reading, see Adrian McDonald, Down the Rabbit Hole: The Madness of State Film Incentives As A “Solution” to Runaway Production, 14 U. Pa. J. Bus. L. 85, 114 (2011)(available at https://www.law.upenn.edu/live/files/156-mcdonald14upajbusl852011pdf); for that author’s more recent findings, see the links on his LinkedIn page https://www.linkedin.com/in/depauldem.