Legislature(2007 - 2008)
02/05/2008 01:32 PM L&C
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* first hearing in first committee of referral
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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.