N.M. film industry hopeful new governor will address rebate cap

There is a sense within the industry that the changeover promised by the November election is an opportunity not only to keep things rolling in Tamalewood but also to buoy and ultimately boost the business of film and television work in New Mexico.

And the gubernatorial hopefuls seeking to succeed term-limited Gov. Susana Martinez say some potentially consequential tweaks to the state’s film and television tax incentive program — including removing or raising the payout cap some view as an impediment to future growth — could round out this increasingly prominent piece of the state economy and fully re-establish New Mexico’s status in the broader moviemaking industry.

“Georgia stole our business,” said U.S. Rep. Michelle Lujan Grisham, D-N.M. “Fairly and squarely. They invested in schools; they invested in studios; they invested in an entire infrastructure. We should be doing the same.”

The next governor will inherit a film economy that has drawn more in-state direct spending from film and television productions each year since 2014, topping out at $505 million last fiscal year.

In the current fiscal year, however, spending is trending the other way: There was only $97 million spent in the state in the first two quarters, according to the New Mexico Film Office, which would put the state on track for a nearly 60 percent decrease.

New Mexico had seen only 17 productions with at least a $1 million budget through those two quarters. There were 52 such productions the previous fiscal year.

A slowdown, if it is one, might be seen as a consequence of the chilling effect of the annual cap on the state’s tax-incentive payouts, a $50 million ceiling installed by legislators at Martinez’s urging in 2011.

It also could be ascribed simply to the whims of a fickle industry that didn’t have as many Westerns in the pipeline this year.

But the dynamic suggests the next administration will have the choice, and perhaps the imperative, to stabilize and accelerate what has been a bright spot in the state’s hot-and-cold economy — or otherwise see it sink.

U.S. Rep. Steve Pearce, the only Republican in the race and thus his party’s presumptive nominee, emphasized a “fiscally responsible and sustainable” approach to the film business, which he said must be made more “geographically diverse, more economically sustainable and more permanent.”

Overall, it is “a uniquely important asset for our state’s future,” Pearce said in a statement, in which he floated “new collaborative education and worker training and a focus on keeping post-production jobs in New Mexico.”

His general approach — the finer points of which are still being hammered out, an aide said — contrasts sharply with that of then-candidate Susana Martinez, a fellow Republican with whom Pearce has not always aligned.

Martinez, who came into office talking tough about reining in the incentive program, saw production activity fall off as her term began, with previously skyrocketing spending numbers tumbling to a low of $162 million in 2014.

But Martinez changed her tune, signing into law the 2013 “Breaking Bad bill” that enhanced incentives for television productions and celebrating industry spending at annual news conferences.

Still, amid the ballooning growth, the cap has remained in place, and industry advocates in the state have long railed against it as an arbitrary roadblock to further expansion that creates a bottleneck of past-due rebates owed to production companies.

End of the cap?

Jeff Apodaca, a former media executive and Democratic candidate, will address those rebates with haste, he said through a spokesman.

“New productions have slowed because of Gov. Martinez holding back payments,” said Peter DeBenedittis, communication director for Apodaca. “Paying this off immediately will be a priority.”

Lujan Grisham, in a phone interview, said the same thing.

“In the transition, we can sweep money and make those payments, ahead of 2019,” she said. “No one’s been talking about it. I want to hear from legislators and look at what the budget is, but we have to make these back payments.”

State Sen. Joe Cervantes, D-Las Cruces, the third candidate in the Democratic primary, likewise said it is essential the state “meet obligations in a timely way” and beef up its internal film-focused infrastructure.

“The film office has achieved remarkable success with very little increase in its budget or staffing,” Cervantes added. “And I’m convinced that with greater support, we would see a corresponding benefit to the state.”

Messages seeking clarity on the extent of past years’ rebates that have rolled over were not returned by a spokesman for the state Economic Development Department, within which the state film office operates. As of the end of February, the state Taxation and Revenue Department website showed 34 film production refunds totaling $27.8 million for the current fiscal year.

The cap’s continued existence, despite Martinez’s friendlier posture to the industry, remains cause for consternation for producers who want more certainty on when they’d get their rebates from the state, said Eric Witt, who leads the joint city-county Santa Fe Film Office.

“But as important is re-establishing an affirmative and aggressive support for the business,” Witt said. “We could actually return to the trajectory we were originally on.”

In Georgia, he pointed out, the film industry draws billions of dollars in direct spending — $2.7 billion in the most recently concluded fiscal year, according to state figures.

“At a certain point you want to take off the shackles and turn the thing loose and see its full potential,” said State Sen. Jeff Steinborn, D-Las Cruces, who is board president of the nonprofit Film Las Cruces.

Apodaca would eliminate the cap, “allowing film production to grow to three times the current volume,” said DeBenedittis, himself an erstwhile candidate for governor.

Lujan Grisham said she would not only remove the cap but “redesign how we do the rebates so those applicants feel like we’re open for business, not that we mistrust how they’re using these rebates — because that’s what this governor’s done.

“If the Legislature wants to have some formula for an economic crunch, I’m not going to say I would be totally opposed to that,” she added. “But it’s contrary to how these things work. If you want the industry to be here, you have to lift [the cap] in its entirety and say, ‘We’re open for business,’ and that is the strategy I want.”

Pearce, though in the same ballpark, was more circumspect, saying in his statement: “While we must raise the cap on film tax credits, that action must only be part of a plan, not the end point of a plan.”

Cervantes said he’d support raising the cap but cautioned the state might lose some predictability in its budgeting process without one. Still, “It ends up being a limitation on our willingness to grow a particular segment of the economy,” he said. “That shouldn’t make any sense to us. When we have a thriving segment of the economy, we shouldn’t be putting restrictions on it.”

Winds of change

There are outside circumstances that also could factor into the near-term future of the state’s film economy.

The new Republican tax law includes a provision that observers expect will incentivize the return of intellectual property rights that had been stashed abroad. And the United Kingdom’s scheduled March 2019 departure from the European Union could have implications here as well.

Both developments might unsettle film and media businesses based in Canada and the U.K. to the point that they look back to the United States, said Witt, who helped put together the then-nascent state film business under former Gov. Bill Richardson.

New Mexico, with the right policies in place, could stand out as a potential landing spot.

“All things being equal, New Mexico is a much more attractive place to produce” than other states with enviable film programs, Witt said. “We’re closer [to Los Angeles]; the weather’s better; and we have the infrastructure, the crew, the soundstages. You want people saying, ‘Why the hell are we going to Louisiana when we can get the same deal in New Mexico?’

“I won’t say there are expectations, but there is hope that we kind of get our act together and get back to where we were in terms of being a leader in this industry” after the election, Witt added.

“The growth curve we were on would have put us at about $2.5 [billion] to $3 billion in production today,” he said. “People are like, ‘You’re crazy.’ No, look at what Georgia did last year. They stepped into our position when we dipped down in 2011. We can return to that if we play our cards right.”

Possible initiatives

A few of the candidates said a key step on the path forward will be drawing more film activity to areas outside the Albuquerque-Santa Fe corridor.

Last year, Martinez vetoed a measure, sponsored by Steinborn, that would have extended additional tax rebates to some productions for shooting at smaller facilities. The bill passed both chambers overwhelmingly; Martinez, in her veto message, wrote she had “not seen data indicating the need for expanding the credit.”

But the idea might find traction with Pearce, of Hobbs, who in his statement suggested he’d pursue a more “geographically diverse” industry. “My number one priority as governor will be bringing economic opportunity to every New Mexican,” he said. “We must increase the film industry’s reach.”

Cervantes also said there is the potential for growth in exploring the more rural parts of the state. “New Mexico has always enjoyed the reputation of being a creative state, where artists thrive,” he said. “It’s part of our heritage.”

Lujan Grisham said film would be a day-one priority. The day after the election, to be precise.

“Day after, I want members of the film industry here and from around the country invited to a meeting,” she said, adding she’d pursue an additional incentive for areas outside the Interstate 25 corridor. She also said she’d “mandate a coordinated effort” between her film office, economic development department and tourism department to “create that business-friendly environment.”

“These are the kinds of industries New Mexico is going to be known for,” she said. “And it won’t be one we just draw in, where they come here, work here and then leave and maybe come back in a few years. This becomes the next place where people stay. I want homegrown talent, and I know we have it. We invented the creative economy. Let’s hold onto it; let’s show it to the rest of the world.”

Contact Tripp Stelnicki at 505-428-7626 or tstelnicki@sfnewmexican.com.

New Mexico’s film tax incentive cap

New Mexico offers up to 25 percent in rebates on some expenses for film productions and up to 30 percent for television series. In the simplest terms, a production that spends $10 million in the state that qualified at the 25 percent rate would receive $2.5 million back.

In 2011, the state established a limit of $50 million that it can pay out to productions every year. The state cannot exceed that ceiling but can shift expected rebates over to the next fiscal year.

Advocates within the state industry have said the cap threatens to throttle growth, as production companies might get skittish about when they would receive their rebates and look elsewhere. Others, including some legislators, have said it helps ensure stability in the budgeting process.