Louisiana scales back film tax credits, roiling the industry

July 8, 2015 3 AM PT

Louisiana has long been one of Hollywood’s star filming locations, attracting dozens of TV shows and movies such as “American Horror Story,” “Jurassic World” and “Dawn of the Planet of the Apes.”

Producers were lured by lucrative tax breaks that reimbursed filmmakers 30% of their costs, including the salaries of big stars, without caps or ceilings. Fueled by one of the most generous film incentive programs in the country, Louisiana attracted a flood of production and became known as “Hollywood South.”

But a law recently approved by Gov. Bobby Jindal changes the picture: The new program imposes a $180-million cap on the amount of film tax credits the state redeems annually through mid-2018. It also suspends the state’s film tax credit buyback program for one year.

The revisions have roiled Louisiana’s burgeoning film industry, which spent more than $1 billion in the state and supported at least 10,000 jobs in 2013, according to a report for the Motion Picture Assn. of America.

Proponents said the cuts were necessary to help Louisiana balance its budget and avert steep cuts to education and other needed services. The state faces a projected budget shortfall of at least $1 billion in the current fiscal year.

Many fear the new law, however, will encourage major studios to take big budget movies to Georgia and other states competing for Hollywood’s business. The Louisiana Film and Entertainment Assn. has even announced its intention to sue the Louisiana government over the law. The issue has also figured in the current gubernatorial race.

“It creates unnecessary instability and uncertainty in the industry,” said Republican Jay Dardenne, the lieutenant governor and architect of the original tax credit legislation. “As soon as I am sworn in as governor in January, I will work to rectify this mistake and keep us rolling.”

Dardenne’s opponent, Republican U.S. Sen. David Vitter, also has vowed to revisit the law but has accused his rival of exaggerating the new law’s deleterious effects on the industry. He has called for a “sustainable (versus completely unlimited) program.”

Other states such as Michigan, North Carolina and Alaska also have reined in or even eliminated their programs in recent years in response to budget challenges and questions about their return on investment.

But Louisiana’s move is notable because it has long been one of the most important states for filming movies outside of California. Among studio movies released In 2013, for example, 18 were filmed in Louisiana, ahead of California and Canada, which had 15 films each, according to FilmL.A. Inc.

Studio executives said the new law would make Louisiana less attractive as a film destination. They say demand would outstrip supply — the state awarded $251 million in tax credits in 2013. The new law also limits the amount of incentives available to big budget features, imposing a $30-million cap per project.

“Louisiana has done a great job creating an industry,” said Fred Baron, executive vice president of feature production at 20th Century Fox, which filmed the upcoming “Fantastic Four” and “Dawn of the Planet of the Apes” in Louisiana. “You would hate to lose that.”

Among the concerns is a provision that limits how much tax credits can be used to offset salaries of stars and other so-called above-the-line talent.

“It will certainly affect how studios with large above-the-lines and payrolls will look at Louisiana,” Baron added. “Combine it with the weakened Canadian dollar and people will start looking at Vancouver, Toronto and Montreal.”

In Louisiana, tax credits are typically sold to third-party companies that use them to offset their own tax liabilities. Film companies also have had the option of cashing in their credits by selling them to the state for 85 cents on the dollar.

But the new law suspends the buyback program for a year. Another concern is some tax credit buyers will have to wait to redeem their credits because of the $180-million cap and a backlog of credits that have been approved by the state but not yet redeemed by taxpayers.

“We are not going to encourage our productions to film in Louisiana right now because that’s going to compound the problem,” said one studio executive who asked not to be identified because he was not authorized to discuss the matter.

“Essentially, we are saying to our shows, we can’t be assured that we can sell our credits, so we can’t take any more of them on,” the executive added. “They didn’t intend to cut off production, but I think, de facto, they kind of have.”

Patrick Mulhearn, executive director of Celtic Studios in Baton Rouge, recently flew to Los Angeles after the bill was passed to explain its provisions to Hollywood executives in a bid to keep production flowing to the state.

“Louisiana has had one of the most stable programs out there,” said Mulhearn, whose studio housed the movies “Fantastic Four” and “Oblivion.” “It has been such a bankable, sure-fire system.… This has called it into question.”

After his visit, Mulhearn said a Disney/ABC executive told him the company would not be sending any new projects to Louisiana until questions about the law could be resolved. Dardenne publicly lamented that Disney had “placed a moratorium on sending new shows to Louisiana.”

A spokesperson for Disney disputed the moratorium claim in a statement but said that the incentives have “played an important role in our decision to produce content there” and that the company would “assess the effect of the recent legislative changes on a case-by-case basis.”

Others in the industry note that the law actually improves the program in some ways by, for example, giving producers an extra 5% credit for hiring Louisiana crews.

“It’s a poorly written law and there are a lot of ambiguities, but there are a lot of good things in it,” said Susan Brennan, chief executive of Second Line Stages in New Orleans.

Joe Chianese, a film tax credit specialist at Entertainment Partners in Burbank, said some changes in Louisiana were inevitable. “They’re giving themselves time to get through a deficit and get caught up because there is a backlog of credits,” Chianese said.

Louisiana pioneered the use of film tax credits back in 2002 and quickly became a major hub for film production.

As film activity has grown in the state, so have questions about the program’s cost. A report for the state’s office of economic development said its film incentives ended up costing taxpayers there nearly $170 million in 2012 — even after the economic benefits were counted.

Industry advocates have argued that the film industry has emerged as a vital and clean employer in a state that sorely needs jobs.

Louisiana has been under pressure to reform its film program after a series of scandals in recent years.

In 2009, Louisiana’s former film commissioner was convicted of accepting bribes. A year later, a film tax credit broker pleaded guilty to selling fake tax credits to New Orleans Saints football players, including quarterback Drew Brees.

In April, a federal grand jury found L.A. producer Peter Hoffman, the former president of Carolco Pictures, and his partner Michael Arata guilty of wire fraud and other charges for falsifying expenses to secure $1.1 million in tax credits. The men denied wrongdoing and said their transactions were legal.

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