If passed into law, a proposed wage tax credit designed to help retain filming in the U.S. will apply to certain commercials, according to Rep. Jerry Weller (R-Ill.), a member of the House Ways and Means Committee. Weller confirmed the inclusion of spots in an interview with SHOOT right after the adjournment of a special public meeting, during which the National Entertainment Coalition—a newly formed group consisting of organizations representing different segments of the filmmaking community—voiced its concerns about runaway production to several legislators. Held last week (1/19) at the Burbank Hilton, the meeting was requested by the congressmen so they could get input from industry coalition members.
Up until now, it was widely believed that the wage tax credit measure—which was floated briefly in the last session of Congress (SHOOT, 11/19/99, p. 1)—would only cover those longform projects (i.e., TV/ cable programs, motion pictures for theatrical or home video/ DVD release) with production costs between $500,000 and $10 million. But Weller, one of the prime architects of the bill, said that a commercial with a production budget in that range would qualify for the credit.
As currently structured, the proposal would provide up to a $4,000 tax credit per worker (a 20 percent credit on no more than the first $20,000 in wages) on a project that is "substantially produced" in the U.S. The wage credit would be structured as a general business credit in the tax code, and would be a dollar-for-dollar offset against any federal tax liability. There’s also the possibility that the credit would be refundable, but that provision had to be worked out at press time. Each worker’s wage tax credit could collectively represent a significant financial incentive to production companies—and in the case of a commercial, to the agency and client—to help combat cost savings being offered in other countries.
Weller said that the wage tax credit’s best chance for passage would be to make it part of a bigger piece of legislation, such as the minimum wage bill, that could be put before Congress as early as March. He didn’t envision the wage tax credit as being a stand-alone bill.
Some regard the proposal as a longshot to gain passage in the U.S. House of Representatives and the Senate. Reportedly, Rep. Bill Archer (R-Texas), who is chairman of the House Ways and Means Committee, is generally opposed to tax credits. But Weller believes the proposal is gaining momentum as more legislators come to realize that "runaway production is not a Hollywood issue. It’s a Chicago issue, a Texas issue, a New York issue. It’s a national issue that’s hurting the livelihoods of many American workers."
When informed of Weller’s spot-inclusive remarks, Steve Caplan, senior VP, external affairs, of the Association of Independent Commercial Producers (AICP), said that they represent "recognition on the congress-man’s part of the importance of commercial production and the advertising business. As the political and legislative process continues, we hope that we can benefit from the proposal." As the AICP’s representative at the Burbank meeting, Caplan briefly addressed the legislators, explaining that producers have an obligation to ad agencies and clients to work as efficiently and effectively as possible, even if it means going outside the U.S. However, given the choice, producers would much rather stay stateside and support local communities and the national economy.
In addition to Weller, the other legislators on hand for the meeting were: Reps. Mark Foley (R-Fla.), chairman of the Republican Caucus’ Entertainment Industry Task Force; Buck McKeon (R-Calif.); James Rogan (R-Calif.); Howard Berman (D-Calif.) and Gary Condit (D-Calif.).
Among the organizations that have come together to form the Entertainment Industry Coalition are the AICP; the Association of Imaging Technology and Sound (ITS), representing the post/effects and audio facilities community; Film US, a group of 196 U.S. state and local film commissioners; the Academy of Television Arts & Sciences (ATAS); the American Film Marketing Association; the Producers Guild of America; the Directors Guild of America (DGA); the Screen Actors Guild (SAG); the Production Equipment Rental Association (PERA); and the Recording Musicians Association. Representatives from each organization attended the Burbank meeting.
The purpose of the coalition is to work with members of the U.S. House of Representatives and Senate to formulate legislative solutions to runaway production which, according to an independent study commissioned by the DGA and SAG, translated into the U.S. losing $2.8 billion in direct production expenditures (for features and TV programs) during calendar year ’98 (SHOOT, 7/9/99, p. 1). Using an economic multiplier and factoring in lost jobs and tax revenue, the total economic impact on the U.S. was $10.3 billion.
Cody Cluff, first vice chairman of Film US and president of the Entertainment Industry Development Corporation, the public/ private sector entity that oversees the L.A. City/County Film Office, described the National Entertainment Coalition as "an unprecedented partnership." He asked the legislators in attendance—who have already demonstrated their commitment to fight runaway production—to recruit their colleagues, including members of the Senate, to the cause.
AICP’s Caplan characterized the meeting as a positive development and "another step in the process to educate legislators and others about the importance of addressing the issue. There’s a lot of merit in the solutions that are being discussed. The legislative and political process is a difficult one—and, in an election year, can be even tougher to navigate. But I’m encouraged by the bipartisan representation [four Republican and two Democrat legislators] at the meeting."
However, as earlier reported, the AICP is not putting all its anti-runaway eggs in the legislative basket. In an open letter to the industry last summer (SHOOT, 7/23/99, p. 1), the AICP called on its members and different segments of the industry to see what they could proactively do in order to encourage filming in the U.S. The letter suggested exploring labor costs, developing ways to promote film-friendly attitudes in local communities, and affording producers more flexibility in certain rules and regulations. The open letter, which was signed by AICP president Matt Miller, also suggested a restructuring of "costly residual use fee systems," contending that usage fees for onscreen talent "serve as strong financial deterrents" to advertisers shooting domestically. While it’s clear in the SAG contract that a signatory cannot leave the country to avoid terms of the agreement, a production house and ad agency can opt for a foreign shoot to save money in production. And once that’s done, some clients are realizing even larger savings via talent buyouts, according to the AICP.
Miller said he hopes that the National Entertainment Coalition will broaden its focus beyond legislative relief to explore other ways for the industry to address runaway production. "Federal legislation is worth pursuing," he said. "But take a look at how many years we’ve been waiting on national parks [filming] legislation, which would also help in the fight against runaway production. The legislative push has a lot of firepower behind it and we fully support it, particularly with the inclusion of commercials. But with the coalition representing a united industry front, it would be great if it could go after other solutions outside of federal legislation, including looking into what can be done on state and local levels in terms of meaningful reforms."
R&D TAX CREDIT
The Burbank meeting also touched upon the need for the U.S. to retain a state-of-the-art infrastructure to facilitate domestic production and postproduction. The ITS proposed a federal income research and development (R&D) tax credit to aid U.S. post companies in making the transition to DTV (including HDTV) as mandated by the Federal Communications Commission (FCC). The significant cost of re-tooling facilities becomes even more daunting in a runaway production climate, related ITS national and Southern California chapter board member Bob Solomon, senior VP/finance of the Burbank-headquartered Four Media Company. Solomon also chairs the ITS/ Southern California chapter’s government affairs committee.
In his remarks to the Burbank gathering, Solomon noted that the ITS is supportive of the Weller co-authored wage tax credit to help stem the runaway tide. But, added Solomon, some financial assistance is needed if post facilities are to develop the technical infrastructure required in DTV, hi-def and other emerging digital media—business sectors that figure to be an important part of the global economy.
As earlier reported, the ITS has been lobbying vigorously for different forms of financial relief, including an investment tax credit (SHOOT, 10/29/99, p. 1). The proposed R&D credit would be computed at 20 percent of a domestic post company’s current capital expenses incurred for digital post machinery and equipment less a dollar amount equal to the facility’s average annual gross receipts from DTV post services during the prior four years. The intent is to encourage the domestic construction of an advanced digital post infrastructure when the current demand for such services may not justify the required expense. The proposal would be structured to effectively increase the threshold for tax credit qualification as revenue generated by digital television post services grows. Digital postproduction equipment would be defined in the context of the Advanced Television Systems Committee standards, which have been adopted by the FCC for digital TV. Among those qualifying for the proposed R&D credit would be digital video and audio post facilities, animation houses and post equipment rental companies.
Rep. Condit asked Solomon if a revision of the depreciation code would help stimulate post facility investments in DTV gear. Solomon said that he would welcome a restructured depreciation code that would better reflect the realities of the business related to the useful life of equipment. But such reform, contended Solomon, would not be enough to prompt capital expenditures for a technical infrastructure when there’s no revenue stream yet to support that investment.
Rep. Weller said that the R&D investment tax credit proposal represents a legislative "opportunity," in that there’s "tremendous interest in helping technology on both sides of the aisle [in Congress]."
SBA
Also under consideration is a proposal that would increase the current limits on federal government Small Business Administration (SBA) 7(a) loans from $750,000 to $1 million. Other recommended changes in the administration of those loans would increase the impact and availability of this financing to smaller domestic entertainment and commercial production companies. The intent is to enable these companies to leverage their existing capital structure and increase their capacity for domestic production and the employment of workers.
In addition to lost jobs, the ripple effect of runaway production—particularly to Canada—was expounded upon by representatives from other business sectors during the public meeting. For example, Ed Clare, president and executive director of PERA, noted that many of his organization’s production equipment and stage rental company members throughout the U.S. have had their bottom lines negatively impacted by runaway production. And Jeff Botsford, director of locations with Valencia, Calif.-based real estate developer Legacy Partners, related that the company had bought a former Lockheed facility in the Santa Clarita Valley with the intent to convert it to stage space. Within two months of closing escrow, the studio landed a Paramount TV series. Nine months later, the series left for Canada. Upon talking with a Paramount executive, Botsford said that it became clear that he couldn’t compete with the huge cost savings embodied in a package of Canadian incentives. As a result, Legacy has turned its investment eye away from the entertainment industry.
