A film tax credit fiasco
The movie “42" arrived in theaters this spring swaddled snugly in the American flag.
Studio marketers declared the film to be “the true story of an American legend.” With good reason: It’s hard to find a more uplifting sports story than Jackie Robinson’s battle against racism on his way to becoming one of the greatest ballplayers in history.
“42" evoked its bygone era by filming extensively in Georgia, Alabama and Tennessee. The filmmakers collected millions in subsidies from those states’ taxpayers, who proudly followed the production via local newspaper stories detailing its step-by-step progress from location to location.
And then the producers of this all-American story co-financed by American taxpayers recorded its soundtrack in London.
“It’s a classic story of corporate greed,” says Paul Frank, a spokesman for the American Federation of Musicians, which represents unionized musicians in the film industry. “Taxpayers are subsidizing the outsourcing of jobs.”
The problem of “runaway production” — California’s loss of shooting days to other states, largely due to the generous tax credits and other incentives offered elsewhere — is a staple of industry panel discussions.
But there’s much less discussion about the impact of filmmakers’ incentive-hunting on the business of postproduction, including music recording and digital effects. Many of Hollywood’s franchise pictures are scored abroad, including the “Hunger Games,” “Iron Man” and “Avengers” features.
Although AFM’s contracts with major studios such as Disney, Fox, Universal and Warner Bros. require that the scores of those studios’ productions be recorded in the U.S. at union scale, the contracts generally don’t apply to studio subsidiaries or specialty film units such as Fox Searchlight, Universal’s Focus Features and Disney’s Marvel Entertainment.
Lionsgate, which produces the “Hunger Games” and “Twilight” movies, isn’t an AFM signatory, and union officials say their attempts to reach an agreement have been rebuffed. They got the same cold shoulder from Legendary Pictures, the Wall Street-backed studio that brought out “42,” when they objected to its plans to record music overseas after pocketing millions in taxpayer handouts. Lionsgate, Marvel and Legendary Pictures all refused to comment.
Hollywood’s fretting about runaway production prompted the state Legislature to create a $100-million annual program to pay tax credits of up to 25% of California spending for some smaller-scale feature films and certain TV movies and series; last year the program, which originated in 2009, was extended through 2015.
But the postproduction parts of the business don’t get any special help from the state program. Although in-state spending on music and digital effects by eligible productions is subject to the tax incentives, nothing in the rule book requires that these crucial functions be performed in California, or at least in the U.S. That’s a change that the American Federation of Musicians thinks should be on the table.
“We’ve had lots of conversations about how to make postproduction a part of the incentive,” said John Acosta, vice president of AFM Local 47, which serves most of Southern California.
The fact that the conversation is still taking place shows how half-baked the California program has been. Producers applying for the credit don’t have to show that they would film outside the state without it. Productions are accepted into the program by lottery — first come, first granted.
And obviously no effort has been made to figure out which segments of the film industry are most at risk, and aim the money in their direction.
But those are typical flaws in the deeply flawed concept of film incentives. These tax-financed handouts are a mug’s game in which Hollywood has played state legislators nationwide for suckers. More than 30 states pony up more than $1 billion a year in subsidies to lure star-laden productions, based on the fantasy that they’re creating permanent job growth.
They’re wrong. An objective study of Louisiana’s pioneering incentive program found that in 2010 the state paid out $7.29 in incentives for every dollar in revenue brought in. “People are getting rich on this deal, and it’s not Louisiana taxpayers,” concluded the study’s sponsor, the Louisiana Budget Project.
California’s program, which was enacted as a defensive bulwark against poaching by the other states, doesn’t pay its own way either, according to the state Legislative Analyst’s Office. That nonpartisan body concluded last year that state and local tax revenue almost certainly came to “well under $1 for every tax credit dollar in many years.”
That said, there’s no question that film musicians need help. About 2,000 California musicians rely on film score work as their main source of income, according to Marc Sazer, head of the recording musicians caucus of Local 47. For a feature film they’ll earn roughly $550 to $640 for a typical recording day comprising two sessions of three hours each. Producers pay an additional 10.9% into the musicians’ pension fund and $48.54 per day for health insurance.
Although Los Angeles is still the world center of recorded film scores, it’s lost ground to European locations, especially London. From 2000 to 2010, the number of the 100 top-grossing features with L.A.-recorded scores each year fell from 68 to 55, while London’s share rose from 19 to 27.
Big money is hidden within those statistics: The “Twilight,” “Hunger Games” and “Avengers” franchises alone account for tens of millions of dollars in wages, Sazer estimates, as well as foregone contributions to retirement and health benefits.
The trend toward recording offshore may not be due strictly to wage scales, which the AFM says are roughly comparable in L.A. and London. One difference is in residual payments for such secondary markets as home video and broadcast and cable TV showings. Under the U.S. contract the musicians divvy up 1% of the producers’ gross license fees; in London, their share is nothing.
It’s been suggested that the AFM could bring more recording home by giving up its residuals. “L.A. has to become competitive or in 10 to 15 years there will be no industry here,” argues Richard Kraft, an agent for film composers (who aren’t covered by the union).
Responds Dennis Dreith, a composer who oversees the AFM fund that collects residuals for the musicians: “Giving that up would be devastating in many ways.” Musicians on a successful picture could receive income into their retirement years; Dreith says some are still collecting for “E.T. the Extra-Terrestrial,” which was released in 1982.
As long as states compete with one another to hand over millions to movie moguls while cutting essential services for their own citizens, film incentives will continue to foster a race to the bottom.
California could be different, if it only aimed its fire where it’s needed. As Dreith told me, “We shouldn’t be allowing people to use our tax incentives to employ foreign workers.”
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