Tax Incentives for Filmmaking in New Mexico
Michael Sparks
Abstract
In the past decade, states across the country have tremendously increased the tax incentives they provide to private companies and corporations in an effort to bring new jobs and opportunities to their state. A primary recipient of these increased tax breaks is the film industry. As films and TV shows get bigger and more expensive each year, more and more states want to fund the next big Hollywood blockbuster and benefit from their massive production budgets. One of these states is New Mexico. Over the past several years, it has been the home of several Emmy award winning shows and Oscar nominated movies like Breaking Bad and Hell or Highwater. These productions have brought in hundreds of millions of dollars of revenue into New Mexico, as well as providing thousands of stable jobs across the state. The film industry has become an essential cornerstone of New Mexico’s economy, as well as the tax incentives that go along with it. The tax incentives New Mexico provides for film and media production not only impact those making movies in the state by making it easier and cheaper to film, but they also provide several permanent jobs for New Mexican citizens as well as a tremendous boost to New Mexico’s economy. This paper will examine how these tax incentives bring new business into New Mexico, how they impact the state as a whole, and how they impact New Mexican citizens on an individual level.
Bringing In New Business
One of the most frequently cited benefits of New Mexico’s tax incentive for film production is the large influx of jobs that has come with it. Every production requires staff members; this includes anyone from those working on set all the way back to those splicing the film together once the process is finished. Every production is its own small factory of jobs, especially regarding bigger projects that can have budgets in the hundreds of millions. Naturally, these productions bring in a lot of money and require even more workers, and thus, create more jobs. According to numbers taken by the Santa Fe New Mexican, in the past year alone, over 60 film and television projects were produced in New Mexico, which provided almost half a million work days for New Mexican citizens. (Nott, 2017) This included productions like Better Call Saul, The Night Shift, and other popular TV shows.
Aside from the benefits these shows bring to New Mexico during production, their impacts also last long after the cameras have stopped rolling. In the case of shows like Breaking Bad, a critically acclaimed show that gave rise to Better Call Saul- which was also filmed in Albuquerque, New Mexico- tourism into New Mexico has increased as people from outside the state come in droves to visit popular locations from their favorite shows. People from across the world have come to the state to visit characters’ homes, restaurants, and even a car wash that was featured in the show Breaking Bad. (Contreras, 2013) This flood of tourism has also benefited local businesses, who have converted to selling small treats and items themed after the primary substance of the show, meth. Since Breaking Bad is based around its central character’s journey to become a meth kingpin after he is diagnosed with lung cancer, there was some concern that the dark nature of the content might rub off onto the city of Albuquerque, but the citizens seem to embrace it. The vice president for the Albuquerque Convention and Visitors Bureau even said,“It’s raised the visibility of the city, [the tourists] are intrigued by the scenic images that they see.”. (Contreras, 2013) The fact that the show is set in Albuquerque itself is also a large source of pride for its citizens. Breaking Bad is a key example of how the film industry has helped New Mexico, even outside of production.
On the other end of the spectrum, the impact that shows and films have during production has been steadily increasing in the past several years. In fact, this year the film industry directly spent over $505 million dollars into the New Mexican economy, breaking the record it set just last year. (Gomez, 2017) There was also an increase in large scale productions, with the number of productions with budgets over $1 million dollars increasing from 32 in 2016 to 52 in 2017. This explosion of business can be contrasted against that of California, which has seen a steadily declining economic revenue from the film industry since 1997, totaling over $4.2 billion as more productions have moved outside of the state. (ABQ, 2010) One of the major locations these productions have been relocating to is New Mexico. Because of this trend, New Mexican legislators have been doing everything in their power to keep bringing in more of the film industry into their state. In 2010, New Mexico spent around $65 million in rebates for film productions in the state, this money coming from the 25 percent tax rebate on expenses for films and productions working in the state. “Eric Witt, Richardson’s film and media adviser, said the Milken report validates a state-paid for study on the economic impact of the New Mexico film incentives…that asserted the state receives $1.50 in economic activity per dollar spent on rebates.”. (ABQ, 2010) This tremendous boom in the New Mexican film industry has made lawmakers want to further expand and streamline the way that films and productions are able to operate, so that new productions feel comfortable moving their operation to New Mexico. One such update is the New Mexico Film Residency Certification Card. This upgrade in the law smooths out the process of hiring New Mexican citizens for productions, making it easier for these productions to operate and find workers for their project. (Gomez, 2017)
State Impact
Aside from affecting the businesses coming into the state, New Mexico’s tax incentives for the film industry also have a profound impact on New Mexico itself. According to a long term study taken a few years by the New Mexico state government, for every dollar spent on incentives in New Mexico, the state recoups around 43 cents over that dollar. (Boyd, 2014) This is definitive proof that the film incentive program in New Mexico is having a positive impact on the state’s government. Governor Martinez is in full support of the incentive program, saying,“We continue to have a strong incentive program, with increased predictability and stability in our state budget, and we are fighting to build a more competitive, diverse economy in every corner of the state,”. (Boyd, 2014) Along with support from the governor, the film incentive program in New Mexico has been garnering support on both sides of the ballot, with state legislators encouraging further expansion of the program to bring new business into the state as well as keeping current productions in New Mexico. In 2016 alone $397 million was spent directly into the state, spurred on by blockbuster films like the new X-Men movie Logan and the Oscar-nominated Hell or Highwater. (Gomez, 2017)
Along with the money being spent by the productions themselves, film induced tourism has provided another sizable source of tax revenue for New Mexico. One study found that, “this additional tourism spending generated $37.2 million in state tax revenue and $17.7 million in local tax revenues per year in the median case.” (Smith, 2016) Combined, the two come out to be over $50 million dollars, which is the current amount the state spends annually in incentives for the film industry. This means that even before the tax revenues for productions are added in, the tax money generated by film tourism alone is enough to cover New Mexico’s expenses. Because of the ever increasing money being spent on these large productions as well as the money they are directly contributing to New Mexico itself, state legislators introduced House Bill 192. This bill could potentially increase the limits of annual tax credits that could be given out by the state government, going up from the current cap of $50 million to $53.8 million by 2018. (Gomez, 2017) This would mean more money could be funneled into the film incentive program that could then cause more productions to spread to New Mexico.
However, even though the rise of the film industry in New Mexico as a result of the state’s numerous tax incentives have proven to be a boon to the state’s economy, several detractors point out how New Mexico continues to spend more and more money luring in bigger and better film productions while the rest of their budget is being cut and minimized. While several productions are benefiting from the $50 million New Mexico sets aside every year to fund and facilitate the growth of business and to draw in new corporations and productions from outside the state, in-state facilities are suffering. In the past few years alone, the New Mexico state government has made numerous cuts to public school funding, as well as cuts to Medicaid. (Krasnow, 2017) State senator Carlos Cisneros asked the question, “With the state struggling to pay for Medicaid and public education, is assisting business growth a priority?”. (Krasnow, 2017) This question aligns closely with the sentiments of the tax incentives detractors, who believe that the state should be focusing more money on its citizens, rather than corporate businesses. Initially, current New Mexico governor Susana Martinez campaigned against state tax incentives for the film industry, stating that they diverted money away from other state programs that could benefit children and public school. In fact, she wanted to go so far as to reduce the tax rebates to 15 percent, significantly lower than the 25 percent rebate at the time. She commented that, “I always knew how important the film industry has been. But at the time we had to balance the budget and ensure our children received a good education. It is not that I did not support the film industry, but we had to live within the confines of our state budget.” (Nott, 2017) However, even though she has changed her tone significantly since her campaigning days- she now actively pursues avenues to dramatically increase state tax incentives for the film business- several of her fellow legislators still maintain that the incentives for film should be reined back in favor of legislation that directly benefits New Mexico’s citizens.
Along with these sentiments, New Mexico has also been ranked in the bottom 23 states for evaluating state tax incentives for businesses by the Pew Charitable Trust. (Marks, 2017) The report stated that,“Incentives are … major budget commitments, collectively costing states billions of dollars a year. Given this importance, policymakers across the country increasingly are demanding high-quality information on the results of tax incentives.” The study showed how New Mexico was lacking a proper system to check state tax incentives for actual economic benefit, which other states have accomplished by establishing a statute to ensure that these programs are kept in check. However, instead of creating a statute, New Mexico passed its regulation through executive order through governor Martinez, who also vetoed a bill that would have made tax incentive review a statute, thus making it possible for her successor to dissemble her executive order. Even though New Mexico’s tax incentives for the film business have been lauded by people across the state as one of the most important parts of the state’s economy, the lack of a solid checking system to ensure that the incentives provide a consistently improving benefit to the state leaves a dark mark on its standing.
Individual Impact
Even after accounting for the impact that New Mexico’s tax incentives for film have on the film industry and the state itself, perhaps the most profoundly impacted party to these incentives are New Mexico’s citizens. New Mexico is their home and where they work and play, a multi hundred million dollar industry sprouting up amongst all of that has dramatically shifted the state’s cultural atmosphere. One of the most significant ways that it has affected their lives comes from the thousands of jobs the industry has created. While the most obvious jobs that would be created are those directly involved with production and helping on set, the vast majority of jobs have sprouted out of everything that surrounds and comes after production on a film or television show has wrapped. These jobs include things like service and vendor jobs, which have created over 17,000 jobs for New Mexicans. (Gomez, 2016) These jobs are well paying and stable ventures, ensuring that the citizens that are able to get them benefit greatly. On the other hand, even citizens with absolutely no connection to the film industry at all have also been reaping the benefits that this massive industry has brought to New Mexico. One study by found that there was, “an average of over $100 million per year being spent on goods and services with New Mexico small businesses, and identified spending levels and even measurable job creation impacts in 14 different sectors of the New Mexico economy from hospitality to construction to automotive repair.” (Smith, 2016) In the 2016 fiscal year alone, tourism spurred on by the film industry created almost 8,000 jobs with over $200 million in combined wages. This means that the citizens not only benefit from business during the production, they can also reap benefits long after productions have left. One prime example comes from the show Breaking Bad, which was mentioned earlier. Even though the show ended back in 2013, people from around the globe still come to Albuquerque to get a peek at famous locations from the film and buy trinkets and goodies sold by the locals. This tourism benefits small businesses by providing more customers from a wide variety of backgrounds and it benefits the locals, by creating jobs and other opportunities. In fact, New Mexican lawmakers have recently introduced methods to make it easier for production companies to hire New Mexico residents for their projects. This method- which was mentioned earlier- is the New Mexico Film Residency Certification Card. The current head of the New Mexico Film Office, Nick Maniatis, said, “This helps smooth things out for workers in the industry. We’re constantly looking at ways to make it better.” (Gomez, 2017)
However, even though the film industry has created numerous jobs for citizens through tourism and production, it has also brought its fair share of derision amongst legislators and citizens alike. New Mexico has been plagued by high unemployment rates for several years, and several citizens struggle to gain access to programs like Medicaid and other welfare programs. (Krasnow, 2017) Along with the lack of funding for welfare programs, public schooling and education in the state have also suffered from the state’s current financial woes. However, while these programs struggle every year with funding and support, the tax incentive plan for New Mexico’s film industry continues to be expanded and increased. The tax incentive plan for the film industry in New Mexico currently has an annual cap of $50 million, which comes directly out of the state budget. LEDA, New Mexico’s state fund that is maintained to support business and filmmaking in the state has garnered bipartisan support in the New Mexico state government. Some legislators, like Senator Carlos Cisneros, is less fond of the fund, stating, “When you take those kind of incentives and weigh them against those who are ill and in dire need of medical assistance, it does put us in a predicament,”. (Krasnow, 2017) Still others argue that the state shouldn’t be involved in the business sector at all, and that it should be up to the businesses themselves whether they succeed or fail.
Conclusion
Even through all of the debate surrounding New Mexico’s tax incentives for the film industry, lawmakers from both sides of the political spectrum have come out to support the legislation. It has brought more than just films and television shows, it has brought jobs, tourism, and money to New Mexico. Money that New Mexico has been desperately needing for years. Through the tax incentives, big film productions are inclined to come to New Mexico to film their projects, which leads to the hiring of locals and spending of money on the goods and services New Mexico provides in-state. These productions then spiral out and bring bigger and better projects, which brings more and more money into New Mexico’s economy. Because these businesses are such a boon to the state, legislators have continued to expand on the budget cap for tax rebates and incentives. Gradually inching the cap above its current boundary of $50 million. Due to the large amounts of money and business that the film industry has continued to bring to New Mexico, it is highly likely that this cap will continue to rise. However, all of these numbers and figures for the money that film brings into New Mexico isn’t even factoring in the impact that it has on the tourism sector of New Mexico’s economy. The very fact that so many shows and films are produced in New Mexico- especially cultural icons like Breaking Bad- brings swarms of tourists into the state, providing a high demand for goods and services. This boom of tourism and production also helps the state’s citizens, the most important part of the puzzle. Through new legislation being passed, with more likely on the way, the state has made it easy for film productions to hire New Mexican citizens for a variety of jobs, on set and off. This means that more and more New Mexicans will be getting steady work, possibly lowering the state’s high unemployment levels. The film industry has brought entertainment, money, and jobs to the state of New Mexico. It seems the more money they put into funding it, the more money they get out. In fact, if other states begin to look at New Mexico as a model, it is highly likely that other states will follow suit with their own tax incentives for the film industry. Unless this trend begins to slow down or the returns begin to dry out, New Mexico will most likely continue down its current path and keep raising the bar for tax incentives on film. New Mexico will continue to evolve into a hub of film and television, hopefully using the industry as a catalyst to break out of its economic slump and come into prosperity.