During her January 1, 2019 inaugural address, Democrat Governor Michelle Lujan Grisham called for abolishing the annual $50 million cap on film rebate spending cap for the New Mexico film incentives. On the campaign trail, Michelle Lujan Grisham said she favored raising or eliminating the annual $50 million cap, but it was not until her inaugural address that she said to eliminate it. Her Republican opponent was not in favor of abolishing the cap but said “perhaps” he favored raising it.
Lujan Grisham said in her inaugural address that New Mexico’s film industry can be the most lucrative state media business in the entire country. Lujan Grisham specifically referred to Netflix’s recent agreement to purchase Albuquerque Studios for more than $30 million when she said:
“With Netflix in Albuquerque and moviemakers in California recognizing our world-class crew base and brilliantly talented homegrown writers, performers and filmmakers, we will take off the shackles and let it rip – and in the process we will put New Mexicans to work.”
In addition to eliminating the annual limit, Governor Lujan Grisham said she favors paying off the estimated backlog of $250 million of submitted claims that have yet to be paid out because of the cap. During her inaugural address Governor Lujan-Grisham said:
“We will send a clear signal that we are open for business and will double film and television production in coming years.”
Secretary-designate Olivia Jackson-Padilla of the Department of Finance and Administration (DFA) Department said lifting the cap could lead to between $100 million and $150 million in film credits requested annually. $100 to $150 million in film credits would translate into at least $400 million, or more, of annual in-state spending by film or TV productions. Currently, New Mexico offers a 25% tax rebate to film companies for direct in state expenditures. Long-running television programs are eligible for an additional 5% up to a 30% total in all.
In 2002, the New Mexico state film tax incentives were put in place and the spending on film incentives was unlimited. New Mexico was among the first states to enact a film incentive program.
In 2011, Republican Governor Susana Martinez, after her first legislative session after being elected, signed legislation that established the $50 million annual cap. Governor Susana Martinez placed the annual cap on the incentives when many at the time advocated a much higher cap or no cap at all. Martinez at the time argued that there was a need for a cap to ensure budget stability.
The state has hit the cap every year since it was put in place by Martinez in 2011 but she refused to increase the cap for 6 years.At the time of creation of the $50 million cap, film and production industry executives said the annual cap was insufficient to the point it prompted productions to go elsewhere. Under the current $50 million cap system, qualifying expenditures in excess of the annual limit are placed on hold to be distributed in future years after further review.
Attempts by the New Mexico legislature to eliminate the cap repeatedly failed with former Governor Martinez defending the cap as necessary. In 2017, Martinez vetoed a bill that would have extended tax credits to smaller film productions in the state. Notwithstanding the $50 million cap, New Mexico has become a top destination for film and television productions.
CALL TO ABOLISH CAP HAS LEGISLATURE SUPPORT
With the election of Democratic Governor Michelle Lujan Grisham, some Democrat House and Senate leadership are saying they support doing away with the $50 million annual limit on film rebate spending.
According to New Mexico Speaker of the House Brian Egolf, taking action on the film incentive cap will be a priority in the 60-day legislative session, which starts on January 15, 2019. Representative Egolf said other options being studied includes the possibility of leaving the annual spending cap in place for movies but eliminating it for television productions.
Critics of the film incentive program described it as “corporate welfare” for the film industry arguing the money would be better spent on other programs. House Minority Leader James Townsend, R-Artesia, who opposes eliminating the cap, said the film subsidy impact should be closely scrutinized before doing away with the spending cap, despite the projected $1.5 billion in additional revenues from oil and gas production.
ECONOMIC IMPACT OF FILM INDUSTRY
A 2014 state funded study concluded that movie and TV show film production generates an estimated 43 cents in tax revenue for every incentive dollar spent by the state. The same study also found that 15,848 full-time jobs were created by the film industry during a four-year period. In 2017, 74 different film production projects claimed every cent of the $50 million in incentives.
According to a 2017 report from the New Mexico Film Office, the state spent the entire $50 million allotted for film tax credits annually in 2014. Between 2010 and 2014 the film industry spent an estimated $513.9 million purchasing goods and services from local businesses
Between 2014 and 2017, the amount of direct, in-state production spending increased from $162 million to $506 million.
New Mexico has received more than $234 million in direct spending into the economy from film projects in the 2017-2018 fiscal year.
In the fiscal year 2017, there was nearly $506 million in direct spending into the New Mexico economy.
NETFLEX PURCHASE OF ABQ STUDIOS MAKES NEW MEXICO MAJOR CONTENDER
The New Mexico film industry has been growing steadily for more than 17 years. Albuquerque has regularly been ranked in the top 10 of the trade magazine Moviemaker’s best places to be a filmmaker.
In 2006, Albuquerque studios was a $74 million, 50-acre project featuring eight sound stages, production officers and support space. On July 24, 2006, the groundbreaking of Albuquerque Studios occurred and once completed, it was and still is a state-of-the-art movie-making facility. Albuquerque Studios is an enormous complex that includes 9 sound stages, a backlot and management offices. Notwithstanding the sophistication of the facility, Albuquerque Studios for the last 17 years has been a rental house to production companies. Albuquerque Studios has also been for sale for a number of years. The fact that Netflex is purchasing the Albuquerque Studios ensures the Albuquerque and New Mexico will be a real contender in the film industry nationally and globally.
The purchase deal also calls for $1 billion worth of production spent over 10 years which will have a dramatic effect on the City and State economies. The State contributed $10 million of Local Economic Development Act funds for the Netflex purchase. Albuquerque contributed another $4.5 million of Local Economic Development Funds for the Netflex purchase.
Albuquerque beat out other places such as Denver, Salt Lake City, Austin, New York, Georgia and Los Angeles to secure the Netflex hub. It is impressive that Albuquerque beat out other places such as New York and Los Angeles given the film industries dominant presence in both of those states. The Albuquerque site will be Netflix’s very first hub purchased in the United States.
New Mexico’s other 4 production studios are I-25 Studios, Garson Studios, Santa Fe Studios and Las Cruces Studios as other productions seek studio space for their projects. The Netflix purchase will no doubt benefits all the other major studios in the State that will likely be asked to provide additional overflow work. The jobs that will be created by Netflex run the gamut of film and TV production work, most of which is project-based contract labor. It is estimated that at least 1,000 well-paying jobs per year will be created. Many of the jobs are expected to pay $70,000 or more a year.
COMMENTARY AND ANALYSIS
Governor Michelle Lujan’s called to abolish the annual $50 million cap on film rebate spending cap for the New Mexico film incentives should be heard loud and clear by the New Mexico legislature and they should make it a reality. The one industry that represents the future of New Mexico and a major hope for expanding New Mexico’s economy is the film industry. Simply put, the film industry creates jobs for New Mexicans.
The New Mexico film industry expands each year in large part because of the tax credits. Increasing the cap or eliminating the tax subsidies cap for film and television production will most assuredly help the industry expand even further. With the incentive subsidies, the State economy will continue to benefit from continued millions in direct spending that will improve the economy. Jobs will also be created in ancillary or supportive industries such as food catering, cleaning and maintenance and security. Experience has already shown that placing the cap on subsidies stymied the growth of the industry with projects going elsewhere.
With the Nextflex purchase, the State now has a major production and distribution company hub that will produce projects on a consistent time line for at least 10 years and probably more. Last year alone, the film and TV production industry brought in over $180 million of direct spending to the city and state. Far more important, the $70,000 a year jobs that will be provided are a far cry from the hourly wage jobs provided by the “call centers” that the state and city have become accustomed to being announced.
The City and the State need to continue with efforts that will insure that our education institutions such as the New Mexico Community College continue to offer a trained work force for the film industry. Both the City and the State need to create more incentives to build and guarantee that the industry continues to prosper in New Mexico.
The film industry with the purchase of Albuquerque Studios by Netflix is clearly in the future of Albuquerque and New Mexico and the best hope at this point in diversifying our economy and wean the state off of federal government reliance. Albuquerque and New Mexico need to pursue with a vengeance the real growth industries like healthcare, transportation and manufacturing, and the film industry to diversify our economy.
Public-private partnerships in the growth industries where ever possible should be encouraged and developed. Special emphasis and support should be given to the film industry which is developing, expanding and proving to be very successful in providing well-paying jobs.