Legislature(2007 - 2008)

02/05/2008 01:32 PM L&C


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         SB 230-FILM OFFICE/ FILM PRODUCTION TAX CREDIT                                                                     
                                                                                                                                
2:10:45 PM                                                                                                                    
CHAIR ELLIS announced SB 230 to  be up for consideration. He said                                                               
he  was very  excited  about this  legislation,  because it's  an                                                               
important step towards  diversifying Alaska's economy. Forty-five                                                               
states  have active  film offices  and it  is a  very competitive                                                               
business  for  big bucks,  lots  of  jobs  and lots  of  business                                                               
impact. Almost  all of those  states have some kind  of incentive                                                               
program;  12  states  offer transferable  tax  credits  and  many                                                               
others do direct grants.                                                                                                        
                                                                                                                                
He  said   this  bill  proposes  transferable   tax  credits.  He                                                               
reminisced when  oil dropped from  $29 to $8/barrel and  the very                                                               
successful film  office in  Alaska got  dropped. He  thought that                                                               
was  a shortsighted  decision,  but  now they  have  a chance  to                                                               
rectify  that shortcoming.  Films that  Alaska lost  include "The                                                               
Guardian"  with a  production budget  of $80  million was  set in                                                               
Kodiak,  but  filmed  in Louisiana,  and  "Insomnia,"  production                                                               
budget  of  $46 million,  set  in  Nightmute  but was  filmed  in                                                               
British Columbia. He noted that  an upcoming production is set in                                                               
Sitka, but is being filmed in Massachusetts.                                                                                    
                                                                                                                                
2:13:35 PM                                                                                                                    
MAX  HENSLEY,  staff  to  Senator   Ellis,  sponsor  of  SB  230,                                                               
explained that  section 1 on  page 1 established the  ability for                                                               
the Department of  Revenue (DOR) and the  Department of Commerce,                                                               
Community & Economic  Development (DCCED) to give  tax credits to                                                               
film  producers  for  a certain  percentage  of  their  qualified                                                               
spending on  projects that qualify.  This credit  is transferable                                                               
and fully divisible  and functions much like the  tax credits for                                                               
capital projects and oil exploration.                                                                                           
                                                                                                                                
Page  2, line  5,  section 2,  outlines the  duties  of the  film                                                               
office and requirements  for the film incentive  program. He said                                                               
the  current  film office  is  staffed  by   a  one-quarter  time                                                               
position in the  DCCED and this expands the roll  of the position                                                               
to be more  of what it was  previously - to promote  the State of                                                               
Alaska as a filming location and  to assist producers who wish to                                                               
take advantage of the Alaska scenery.                                                                                           
                                                                                                                                
Page  3,  lines 1-19,  determine  a  production's eligibility.  A                                                               
producer must  spend at least  $50,000 in the state  on qualified                                                               
expenditures to  be eligible; they  must employ interns  from the                                                               
Film Internship Training Program (which  will be certified at the                                                               
University of Alaska through this  bill), and the production must                                                               
be  approved by  the Film  Office. It  won't allow  news, sports,                                                               
weather,  political  ads,  programs   that  are  distributed  for                                                               
internal corporate use,  nor any sort of  pornographic or obscene                                                               
production.                                                                                                                     
                                                                                                                                
2:17:07 PM                                                                                                                    
Language on  line 20 sets  up the application  process; producers                                                               
must submit  a script or  synopsis of what  they plan to  film to                                                               
the Film  Office, some of  the key personnel  involved, estimated                                                               
dates  and  distribution plan  for  the  final project.  The  tax                                                               
credit process  starts on page  4, line  3. After the  filming is                                                               
complete  the production  will submit  an audited  report to  the                                                               
Film Office  which will set out  the amount and type  of spending                                                               
that was done in the state.  The tax credit will be awarded equal                                                               
to  25 percent  of that  spending with  an additional  10 percent                                                               
bonus on  qualified expenditures  that are  wages paid  to Alaska                                                               
residents.  An additional  1 percent  goes  for any  expenditures                                                               
made in a  rural area or any expenditures made  between October 1                                                               
and  March  30 during  the  traditional  slower season  for  this                                                               
industry.                                                                                                                       
                                                                                                                                
Finally,  on  page  4,  lines  26 -  page  5,  line  29,  defines                                                               
qualified expenditures, which are  things directly related to the                                                               
film's production. It does not  include indirect costs, marketing                                                               
and advertising - anything that is reimbursed at a later date.                                                                  
                                                                                                                                
SENATOR BUNDE  asked what the profit  margin is on a  $30, $60 or                                                               
$80 million film and what  the potential tax liability would have                                                               
been if one  of those films been produced in  Alaska. He was also                                                               
concerned with how  "obscene" is defined since  he would consider                                                               
many recent films to be obscene.                                                                                                
                                                                                                                                
CHAIR  ELLIS said  the state  would probably  go by  the existing                                                               
film rating system that is well established.                                                                                    
                                                                                                                                
MR. HENSLEY said  that producers have told him they  would want a                                                               
better   definition  and   suggested  adopting   the  U.S.   Code                                                               
definition, which  very clearly  states what is  pornographic and                                                               
obscene.                                                                                                                        
                                                                                                                                
2:20:37 PM                                                                                                                    
SENATOR  STEVENS  wanted  to  know   about  the  Film  Production                                                               
Internship Training Program and to  make sure the University is a                                                               
willing participant in establishing it.                                                                                         
                                                                                                                                
SENATOR BUNDE  asked for an  explanation of the fiscal  note that                                                               
starts out  at $290,000, drops  to $33,000  and then jumps  up to                                                               
$323,000.                                                                                                                       
                                                                                                                                
2:21:27 PM                                                                                                                    
CAROLYN MUEGGE-VAUGHAN,  President, Alaska Film Group  (AFG), and                                                               
BOB  CROCKETT,  Board  Member,   Alaska  Film  Group,  introduced                                                               
themselves.                                                                                                                     
                                                                                                                                
2:23:59 PM                                                                                                                    
MS.  VAUGHAN said  AFG is  a non-profit  trade association  whose                                                               
goal is the same as Alaska's  - progress from activity in putting                                                               
Alaskans to  work. She called  SB 230  "our next gold  rush." She                                                               
said  it  creates diversification  of  our  economy, new  private                                                               
sector jobs,  new training programs,  jobs for interns,  crew and                                                               
Native Alaskans,  infusion of  construction dollars,  millions of                                                               
dollars  worth  of PR,  opportunities  in  rural Alaska  and  tax                                                               
credits for corporations.                                                                                                       
                                                                                                                                
SB  230 uses  similar  components of  other successful  incentive                                                               
programs from  states like Louisiana  and New Mexico. She  said a                                                               
plethora of  people will be used  and hired; money will  be spent                                                               
in Alaskan communities.                                                                                                         
                                                                                                                                
MR. CROCKETT  added that Alaska  isn't competitive and it  is one                                                               
of a few  states without an incentive program. The  first thing a                                                               
production company asks  is if you have an  incentive program; if                                                               
you  don't  they  walk  away. With  no  incentive  program  these                                                               
communities  are  losing  out  on   opportunities.  As  an  added                                                               
benefit,  many companies  will  leave  infrastructure behind  for                                                               
future and local  productions to use. He  recognized the economic                                                               
impacts  of "Northern  Exposure" that  allotted $839,000  to each                                                               
episode in  its beginning,  but ended up  costing $92  million to                                                               
produce  in its  four years.  An estimated  "ground-spend" of  75                                                               
percent  put over  $69 million  into  Washington's economy.  Each                                                               
year a  moose fest  is still held  in Rosalyn,  Washington, where                                                               
the series  was shot and it  continues to attract loyal  fans and                                                               
their money.                                                                                                                    
                                                                                                                                
"Men in Trees," another recent  show, is being shot in Vancouver,                                                               
Canada,  but  it  is  about   Alaska,  he  said.  They  spend  $1                                                               
million/day,   but  the   only   Alaskan  put   to   work  is   a                                                               
cinematographer who spends a few  days shooting the backdrops and                                                               
Alaskan product placements.                                                                                                     
                                                                                                                                
2:25:37 PM                                                                                                                    
A reality-based  TV show called  "Deadliest Catch" is now  in its                                                               
third season with a ground- spend  of $3.7 million. It has a crew                                                               
of about  30 people  and only  2 are  Alaskans. He  said features                                                               
bring in the most; a recent  feature, "30 Days of Night," was all                                                               
about  Barrow  but was  shot  in  New  Zealand for  an  estimated                                                               
ground-spend of $37.5  million. He said, "These  are the projects                                                               
SB 230 will target."                                                                                                            
                                                                                                                                
MR.  CROCKETT said  the  average  cost to  produce  and market  a                                                               
feature film is $100.3 million.  In 2006 there were 607 features,                                                               
an increase of 72 films, which translates into $722 million.                                                                    
                                                                                                                                
MS. VAUGHAN said  their competition is global. She  took the crew                                                               
around  who  thought  the  perfect  setting  for  "Insomnia"  was                                                               
Seward,  but it  was  shot  in British  Columbia  because of  the                                                               
money. The  estimated ground-spend for that  production was $37.7                                                               
million.                                                                                                                        
                                                                                                                                
She  said  Canada  has created  infrastructure  around  its  film                                                               
industry. They are  so booked now they don't have  enough crew to                                                               
meet their  demands. The U.S.  is also Alaska's  competition. She                                                               
said "The  Guardian" was  set in  Alaska, but  only one  week was                                                               
shot  in  Kodiak;  the  rest  was shot  in  Louisiana  and  South                                                               
Carolina.  After Louisiana  created  its  incentive program,  the                                                               
film production went from $7 million  to $343 million in just two                                                               
years.  In 2003  the film  spending supported  5,437 jobs  and in                                                               
2005 it  went to 13,445  jobs and  after five years  the industry                                                               
there had  ground spend of  $500 million. In 2007,  Louisiana had                                                               
three TV series  and 343 features. They did it  through their tax                                                               
credit program.                                                                                                                 
                                                                                                                                
MS. VAUGHAN related that Louisiana  has a 25 percent investor tax                                                               
credit,  a  10 percent  credit  on  Louisiana  payroll and  a  40                                                               
percent  credit on  infrastructure and  development. Since  2001,                                                               
Louisiana  and  New Mexico  have  experienced  a compound  annual                                                               
employment growth of 23 percent.                                                                                                
                                                                                                                                
2:27:51 PM                                                                                                                    
MR.  CROCKETT  said  an upcoming  Disney  film,  "The  Proposal,"                                                               
starring  Sandra Bullock  is set  in  Sitka, but  it is  actually                                                               
being shot  in Massachusetts.  The producers  have told  AFG they                                                               
would love  to shoot in  Alaska. He said  Alaska has long  been a                                                               
popular setting for films and TV;  just look at the ones that got                                                               
away.                                                                                                                           
                                                                                                                                
2:28:32 PM                                                                                                                    
MS.  VAUGHAN  and Mr.  CROCKETT  showed  a  display done  by  the                                                               
Association  of Film  Commissioners  International  on the  daily                                                               
economic  ground  spends  of different  kinds  of  film  projects                                                               
saying that high-end budget films,  full crew, union scale spends                                                               
about $100,000/day.  "Deadliest Catch"  which is very  popular is                                                               
at the bottom of the chart at about $15,000/day.                                                                                
                                                                                                                                
2:28:56 PM                                                                                                                    
MR.  CROCKETT said  that wages  compare  to the  North Slope  and                                                               
feature  films  use  union  scale  rates;  commercials  are  even                                                               
higher.  He emphasized  that  Alaska has  a lot  to  offer -  our                                                               
beautiful  scenery, the  mystique, professional  crews -  but one                                                               
item missing is the incentive  program. It would bring growth and                                                               
development.                                                                                                                    
                                                                                                                                
MS. VAUGHAN  recapped that SB  230 creates jobs,  diversifies the                                                               
community, stimulates tourism,  builds infrastructure and support                                                               
services  and   provides  opportunities  for  rural   Alaska.  It                                                               
develops  educational and  internship  programs  and it  provides                                                               
transferable tax credits for Alaskan corporations.                                                                              
                                                                                                                                
2:30:54 PM                                                                                                                    
DAMA CHASLE,  Partner, The Incentives  Office, Los  Angeles, said                                                               
she is  a former  Fox and  Warner executive  and that  many shows                                                               
they discussed  today would  have been filmed  in Alaska  but for                                                               
the cost.  She said  the U.S.  dollar is at  an all-time  low and                                                               
it's time  to compete and have  a film incentive that  can really                                                               
stimulate a diversified economy and  allow Alaskans to be part of                                                               
craft services. In  addition to the benefits  mentioned, she said                                                               
there is the pride in working in an industry that is state-of-                                                                  
the  art. Film  is  moving from  35 mm  standard  film into  high                                                               
definition. Even the low cost  project, "Deadliest Catch," a non-                                                               
scripted,  non-starring  reality  show,   but  even  that  is  an                                                               
expensive endeavor.  It starts with  someone making the  food and                                                               
catering clear  up to the  stars. She  was part of  the Louisiana                                                               
endeavor. She  watched jobs in  Louisiana increase from  a ground                                                               
spend  of $20  million/year  in November  2002  when they  passed                                                               
their first bill to over  $350 million two years later. Currently                                                               
it is over $500 million/year.                                                                                                   
                                                                                                                                
She has  been part of the  U.S. Incentive Planning Team  with the                                                               
Motion Picture  Association of America,  and she  encouraged them                                                               
to  think  very positively  about  this  industry saying,  "We're                                                               
lean;  we're   mean;  we're   green;  and...we   typically  don't                                                               
pollute."  Many  producers  will  select  Alaska  with  financial                                                               
incentives,  and it  will grow  Alaska business  and enhance  the                                                               
cultural economy.                                                                                                               
                                                                                                                                
2:36:07 PM                                                                                                                    
PROFESSOR MIYA  SALGANEK, University  of Alaska  Fairbanks (UAF),                                                               
said  she  teaches  theatre and  film  directing  and  production                                                               
classes. She related that she  went to the Sundance Film Festival                                                               
as  a co-producer  of  a  Fairbanks film  that  was selected  for                                                               
Sundance  in its  spectrum  category.  It was  written  by a  UAF                                                               
graduate student  and was produced  by people in Los  Angeles who                                                               
called her. She had a group  of students participate, all of whom                                                               
became  production  assistants  and  transferred  away  from  UAF                                                               
because its  film program  is inadequate.  She said  students all                                                               
the way  from high school up  have a desperate interest  and need                                                               
to be  involved in dramatic  arts. For those students  that isn't                                                               
the world of  the stage; it is the world  of theatre, of YouTube,                                                               
of cinema,  of production. SB  230 provides a  unique opportunity                                                               
to help encourage that growth and development to the next level.                                                                
                                                                                                                                
PROFESSOR SALGANAK said  she is working with  two productions now                                                               
- one as director at Sundance  and with another group the AFG has                                                               
been involved  with. Both productions  are looking to  shoot this                                                               
summer and  they are both  waiting to  find out what  will happen                                                               
with SB 230.  She added that the film community  is excited about                                                               
not having to represent Alaska  from an outsider's point of view.                                                               
The incentive program  would help hone the skills  of Alaskans so                                                               
they would meet the needs of  the workforce. Alaska has more than                                                               
enough  people to  fill these  jobs, and  she didn't  see why  we                                                               
should have to import people from L.A. to do them.                                                                              
                                                                                                                                
SENATOR  STEVENS  asked  if the  University  would  establish  an                                                               
internship program if this bill passed.                                                                                         
                                                                                                                                
PROFESSOR SALGANEK replied "Most  definitely." She explained that                                                               
her  students  started  out  as interns  and  they  were  quickly                                                               
promoted to production  assistants for one film. She  is taking a                                                               
class to Barrow  this summer and some students  are being trained                                                               
to do scientific documentary work.  The University is working now                                                               
to create  an interdisciplinary  film program using  students and                                                               
faculty  from journalism,  art, history  and English  as well  as                                                               
theatre and film studies.                                                                                                       
                                                                                                                                
2:40:26 PM                                                                                                                    
GORDON  CARLSON, Vice  President,  CLI Construction,  said he  is                                                               
located in  Cantwell AK and supported  SB 230. He said  he worked                                                               
on  "Into  the  Wild"  and   it  brought  $3-$4  million  to  the                                                               
community.  It   affected  local  restaurants,   motels,  hotels,                                                               
carpenters, and  laborers; it  was a  huge shot  in the  arm when                                                               
they stated filming in April. Now  he is getting phone calls from                                                               
different people who want to visit his area as tourists.                                                                        
                                                                                                                                
2:42:20 PM                                                                                                                    
JERRY  LAVINE said  he  has a  production  and equipment  support                                                               
company in Anchorage that caters  to the film and video industry.                                                               
A majority  of business comes  from outside Alaska, and  he would                                                               
like to  see the industry  grow; SB 230 would  help it go  in the                                                               
right direction. He  explained that his business  and other local                                                               
companies  could invest  in more  equipment that  would meet  the                                                               
needs of  producers coming to Alaska  who would then not  have to                                                               
ship  equipment up  here.  Also,  if this  bill  passes and  more                                                               
movies  get produced  here, companies  like his  don't even  have                                                               
enough equipment and this would make  it possible for them to get                                                               
more  faster.  He  advised  that tax  credits  work  better  than                                                               
rebates, because  it provides  an incentive  to earn  the credits                                                               
rather than just receiving the money.                                                                                           
                                                                                                                                
He also advised that they should  also consider the duties of the                                                               
office being created. It would  provide assistance in permitting,                                                               
location scouting,  and serve  as a  liaison between  other local                                                               
groups  and  organizations. They  should  ask  themselves if  the                                                               
state  should  be  involved with  location  scouting;  maybe  the                                                               
production should pay  for it up front and get  it as a qualified                                                               
expenditure.  The same  for  permitting on  state  land. He  also                                                               
thought the title  of the office could be named  so that it would                                                               
favorably affect marketing. Some states  offer no caps or minimum                                                               
expenditure  on the  qualified expenditures,  but  that could  be                                                               
figured out.                                                                                                                    
                                                                                                                                
He urged them to consider that  the 25 percent base credit didn't                                                               
go to enough  Alaskans first. Instead, he suggested  offering a 5                                                               
percent  base amount  to the  production coming  up here,  and 25                                                               
percent  more if  they hire  Alaskans,  and maybe  add another  5                                                               
percent for  going to a  rural area -  and another 5  percent for                                                               
working between October 1 and April  30. He exhorted them to make                                                               
the production  earn the qualified  expenditures. He  thought the                                                               
Internship  program  at  the  University was  a  great  idea  and                                                               
suggested  including   certification  of  any   private  training                                                               
programs that may be created through the industry as it grows.                                                                  
                                                                                                                                
2:50:12 PM                                                                                                                    
ANGELA MIELE,  Vice President, State  Tax Policy,  Motion Picture                                                               
Association  (MPA),   said  the   MPA  is  a   trade  association                                                               
representing the  nation's leading producers and  distributors of                                                               
motion  pictures  and  television   programs.  In  her  roll  she                                                               
oversees  the  tax  issues   affecting  member  company  business                                                               
practices around  the country. She  has seen a dramatic  surge of                                                               
states  adding film  production  incentives  or increasing  their                                                               
existing   ones.   This   is   due  to   a   lot   of   increased                                                               
competitiveness, and a  lot of states are  realizing the economic                                                               
impact  of  these productions.  They  want  to attract  permanent                                                               
infrastructure and capital investment; it has really paid off.                                                                  
                                                                                                                                
2:51:59 PM                                                                                                                    
MS. MIELE  cautioned them  against using  the MPA  rating system,                                                               
which  has been  found to  be unconstitutional;  so she  would go                                                               
with the  federal provisions. The  elements of the bill  are very                                                               
competitive;  it seems  unencumbered  with  caps and  limitations                                                               
which is key  to a successful program. It is  easy to access with                                                               
clear eligibility. She  said countless studies have  been done on                                                               
how  much economic  activity comes  from film  productions, which                                                               
they have heard about.                                                                                                          
                                                                                                                                
2:53:43 PM                                                                                                                    
BARBARA  HUFF-TUCKNESS,  Director, Governmental  and  Legislative                                                               
Affairs, Teamsters Local 959, supported  SB 230. They are excited                                                               
about the job opportunities it will create in the state.                                                                        
                                                                                                                                
2:54:46 PM                                                                                                                    
KATE TESAR,  pro-bono lobbyist,  Alaska Film  Group, said  SB 230                                                               
has  been  developed in  close  association  with people  in  the                                                               
industry and incorporates  what has worked best  in other states.                                                               
She said  it has benefits  for Alaskans through  the transferable                                                               
tax credits for corporate Alaskans.                                                                                             
                                                                                                                                
SENATOR  STEVENS said  it's a  fascinating topic,  but they  need                                                               
more information  about the history  of Alaska's Film  Office. He                                                               
asked  Commissioner Notti,  Department of  Commerce, Community  &                                                               
Economic Development,  to give  them a report  on what  the state                                                               
did wrong at that time.                                                                                                         
                                                                                                                                
SENATOR BUNDE said he wanted to  see a potential net gain for the                                                               
$300,000 it will cost each year to run the office.                                                                              
                                                                                                                                
2:57:38 PM                                                                                                                    
CHAIR  ELLIS said  all  the  work on  this  legislation needs  to                                                               
happen in  this committee,  because it only  goes to  the Finance                                                               
Committee afterwards.                                                                                                           
                                                                                                                                
SB 230 was held in committee.                                                                                                   

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