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Real world market proves tough on LA filmmakers

Let’s pull out the handkerchiefs and tune up the violins for the film and television industry in Louisiana as it learns that life in the real world sux.

A fat and happy industry through 2014 had separated a net over $1 billion from taxpayers’ earnings since the Motion Picture Investor Tax Credit had come into law in 2002, with a net negative return on investment for the state of anywhere from 435 to 769 percent in that time period. Oddly, policy-makers did not consider this a problem (and some, like current Commissioner of Administration Jay Dardenne saw it as beneficial) until dire (and subsequently correct) warnings of severe budgetary strains prompted them to place, among other things, a moratorium on buybacks for this fiscal year and cap redemptions at $180 million annually for the fiscal years 2016-18. The state otherwise buys back the credits for 85 percent of value (they also trade among interested parties) and previously had no limits on the amount the state would pay out on a yearly basis.

With an estimate of several hundred million bucks worth of credits out there, analysts thought the moratorium would prevent a rush on buybacks that act as a subset of redemptions, squeezing out any new projects. During the year, some of the surplus could deflate, leaving some room to resume buybacks starting in FY 2017.

But the change in statute also had an excellent effect of taking the air out of new projects, combined with the new $30 million project limit. Starting a project this fiscal year meant likely its window for disposition of accumulated credits (these often not that desired because they only offset Louisiana income taxes that out-of-state interests would not trigger much of) would bump into next year, jockeying for the restricted pie with both other redeemers and those looking for a buyback. Because of such a backlog, projects that depend upon these credits to make money may hesitate to locate in Louisiana, wary that they may have to wait extra time to realize the taxpayer largesse.

Therein lies the key to understanding why metrics suggest a sharp falloff in productions in the state: producers filmed in state first and foremost because of the generosity of the handouts. If without those these makers cannot reasonably expect an effort will make money, as evidenced by the magnitude of the reduction, this reveals the uneconomic nature of the enterprise to Louisiana in the first place.

Policy-makers intended, or should have if wise stewards of the peoples’ resources, that the program would buy time to build up the infrastructure in film and television production – not just in a physical sense such as with provision of studios and diverse and inexpensive locations, but in a human capital sense, where a well-trained workforce at presumably lower costs than in Hollywood would provide additional value; and as well as in a bureaucratic sense, where governments could expedite permitting and more enthusiastically provide indirect support. That filmmakers don’t flock to the state as a result of curtailment of the program indicates marketplace and government decisions in the past dozen or so years have not created valuable-enough assets to entice much of the industry at presumably lower levels of subsidization.

Had the industry better utilized its advantage, the relative paucity of activity now witnessed would not have occurred: producers still would come to Louisiana because it made economic sense for certain kinds of movies and television offerings regardless of any bonus thrown their way. It’s the way of the market, unprotected by government; some Louisiana-based television shows supported by the credits like Duck Dynasty and NCIS: New Orleans seem able to make it in this changed world, while others with the ceiling now in place such as Swamp People (cancelled) and American Horror Story (moved to another location) didn’t.

With the hit on taxpayers in net approaching $200 million in recent years, the industry should count itself lucky that any semblance of the credits still exists. And, the cap disappears for FY 2019, to which policy-makers should follow up with, if keeping the program at all, a phasing down so that only indigenous, smaller-scale efforts receive any taxpayer backing (whose chances of funding increased with the changed law) – if not commencing a phase-out even sooner. The days of a locust-like industry from outside the state swooping down on because Louisiana has the fattest grain pickings should cease.

The industry has had since 2002 to develop, and the next two years should put it on notice that it must act to move away from its dependency on others in Louisiana, which its reliance on the unlimited bounty of credits discouraged it from doing in the past. Unless prepared to compete, the free market without a safety net, the environment in which most economic activity in the real world occurs, can be a harsh taskmaster.

Let other jurisdictions transfer their taxpayers’ wealth to a small number of individuals to make movies and episodes, sucking those resources away from uses that would generate greater and more valuable economic development. There’s no economically-justifiable reason that Louisiana must emulate them.

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