New film tax incentives make Maryland more competitive with other states

By Megan Poinski
Megan@MarylandReporter.com

A new $7.5 million tax credit for film productions in Maryland takes effect Friday, and with the industry professionals already here, the state is back in the game and ready for its close up.

“What it does first and foremost is creates jobs, provides revenue to Maryland businesses, and creates economic activity with a trickle-down effect,” said Maryland Film Office Director Jack Gerbes. The Maryland Film Office is a part of the state’s Department of Business and Economic Development.

The new tax credit, which will go into effect July 1, increases the annual state incentives for film productions from $1 million annually – or 650% each year. These funds are used to lure different production companies to Maryland locations to film movies, television programs or commercials, or to work on digital or animated projects. And the money Maryland is investing in the program, Gerbes and other supporters of the incentive said, will create larger revenues through salaries, local trade, tourism, and international exposure.

Crews film "The Wire" in Baltimore. Photo by John Vanderslice.

“This is a very good investment for Maryland,” said Debbie Donaldson Dorsey, chairman of government relations for the Maryland Film Industry Coalition.

Maryland still does not have the most generous tax incentives of any state, but supporters say that the state is still extremely competitive. Senate Budget & Taxation Committee Chairman Ed Kasemeyer, D-Howard, who sponsored the credit, said that Maryland already has two very important things that are attractive to those scouting locations for films: A variety of different kinds of locales, and thousands of talented personnel available to work on productions.

“This amount is a good starter to get us back in the game,” Kasemeyer said.

New incentives
Kasemeyer has been working to increase the incentives for film productions for years. He said that it is amazing how much the state benefits from film productions.

According to the new law, any production that is pre-qualified by DBED and spends at least $500,000 in direct production costs in the state can be eligible for a 25% to 27% tax credit. The incentive program is capped at $7.5 million each year, and the program will continue in this format through fiscal year 2014.

Kasemeyer said that he had tried in the past to pass legislation that did not limit the tax credits, but it never made it out of committee. The figure in the bill that passed – initially $15 million, but slashed to $7.5 million in last-minute amendments – came from people who work in the film industry.

According to a 2010 Sage Policy Group study, the film industry in Maryland supported 5,897 jobs in 2008. However, when looking at other jobs supported by the industry – those of suppliers, food service providers, stores, and local businesses – the study found that the industry actually supported 11,309 jobs. The income from all these jobs was worth $268 million, the study states. The study states that 58% of all incentives paid out came directly back to state and local governments.

Dorsey and Gerbes said that local businesses really do reap the benefits when film crews are in town. The upcoming HBO movie “Game Change,” which chronicles U.S. Sen. John McCain and former Alaska Gov. Sarah Palin’s 2008 run for the White House, is being filmed in Baltimore and generating a huge amount of buzz. When the film’s stars – including Ed Harris and Julianne Moore – go out to restaurants, Gerbes said he gets excited calls from the proprietors, who have full dining rooms.

When “Wedding Crashers” filmed at the Inn at Perry Cabin in 2005, the restaurants near St. Michaels in Talbot County were packed, Dorsey said. “The people with the film worked hard and played hard.”

But it isn’t just restaurants. Dorsey said that businesses as diverse as box companies and antique dealers have reaped tens of thousands of dollars in benefits from having a film crew in town.

How Maryland measures up
A decade ago, film tax incentives were rare in the United States. Now, 45 states have incentives programs, which vary wildly in how they are funded, calculated and applied.

The $7.5 million annually made available through Maryland’s new incentive program represents the largest amount the state has ever put up. But it pales in comparison with incentives offered by states like New Mexico, Michigan and Pennsylvania.

Michigan will spend $25 million next year on film incentives, while Pennsylvania will spend $60 million and New Mexico, $45 million. And these figures are after budget cuts; in previous years, Michigan spent more than $100 million on its incentive program.

Todd Haggerty, a policy analyst for the National Conference of State Legislatures who tracks state-by-state film incentives said that the recession has led many states to look at their programs.

“States have been looking at their tax exemptions and expenditures as a whole. Are they working?” Haggerty said.

Film tax incentives have come under the microscope in all cases. Some states have wondered if the money invested in the programs produced enough economic impact to justify keeping the program alive and funded. Other states have looked at their incentive programs as a sort of job stimulus, and have wondered if boosting the program could help combat unemployment.

But unlike many other issues that states wrestle with, Haggerty said that film tax incentives are not a partisan issue. It really comes down to each state’s economic situation, he said.

“Party lines don’t seem to play into it,” he said.

In Maryland, the credit passed both houses unanimously with no opposition from either party.

What does the industry want?
While incentives are one thing that the film industry is looking for, they are not everything, said Martin Cuff, the acting CEO of the Association of Film Commissioners International.

In an e-mail, Cuff said that most conversations between state film offices and producers start with the topic of incentives. But they are not the only things that are considered. Producers do a cost-versus-risk analysis when choosing locations.

“You can attract filmmakers by offering the lowest prices, but if you don’t have the crew, the equipment or the experience, then you actually increase the risk, and the productions still won’t come. So it’s a balancing act,” he wrote.

Dorsey said that Maryland has the experienced technical personnel, making it especially advantageous for film productions. Several film schools are in Maryland, and Dorsey said having productions here means that graduates have opportunities and do not have to relocate. There are about 50 different institutions that offer film programs, according to the Sage Policy Group report. According to a report from a stakeholder workgroup that looked at the incentive program in 2010, there are about 2,500 students enrolled in Maryland film programs.

Cuff wrote that the availability of different kinds of locations – neighborhoods, mountains, beaches, cities, or winter scenes – is also important. But so is government cooperation. If state and local governments make it easy to get permits, services, and tax credits, they are seen as more desirable.

While Cuff is not a filmmaker, he said he thinks Maryland’s new program could be increasing the state’s prominence.

“As long as the program is well managed, the rebates are paid out with mechanical precision, and it is particularly aimed at encouraging provision of local goods and services, it may well prove to be a conservative but important step in the right direction,” he wrote.

Since the incentive was signed into law, Gerbes said that he’s been hearing several whispers of potential new projects coming to the state.

“I have heard that people are waiting until July 1 to submit applications for new projects,” Gerbes said.