FLORIDA'S FILM INDUSTRY

A TALE OF PUBLIC MONEY GONE AWRY

By

Al Crespo

Since 2002, the State of Florida has given away, or committed to giving away in FY 2006-07, tax exemptions and tax incentives of at least $137.25 million.

Yes, that's right, the State of Florida has already given Florida's film, television and recording industry at least $137.25 million dollars - $109.2 million in sales tax exemptions, (1) and  $28.05 million in tax incentives (2) - and now they want another $255 million in tax incentives over the next 3 years, plus an additional $74 million or so in projected sales tax exemptions over the same time period.

That comes out to at least $466.2 million in state tax dollars over the 8-year period of 2002 - 2010!  That's more money than other states have committed for an automobile or truck manufacturing plant to locate in their state, and more money than the $310 million the State of Florida committed to the Scripps Research Project.

The Scripps Research Project incentive is tied to significant economic deliverables that includes “milestones for yearly employment targets,” “an estimate that there will be an additional 44,000 jobs as a result of the industry clustering expected to take place surrounding the Scripps Florida research center,” and most importantly, the construction of a major research facility that has the possibility of contributing to major medical cures.

Against this backdrop of possibilities and expectations, consider just a few stellar examples of how Florida taxpayers have benefited as a result of the $137.25 million they've spent so far on the film industry.

A TAX INCENTIVE PROGRAM THAT HAS CREATED EXPENSIVE, PART-TIME, LOW PAYING JOBS

For an economic development program to claim success, it must have as one of its core accomplishments, the creation of long-term, high wage jobs.

One of the goals of the Florida Entertainment Industry Financial Incentive program which has given away, or committed to giving away this year a total of  $28.05 million from Florida's General Fund since 2004, has been the both the creation and sustaining of high-skilled, high wage jobs

Although there is no single yardstick to measure what constitutes the dollar value of a high wage job, the US Census Bureau estimates that $62,269.00, was the median income in Florida for a family of 4 in 2006. (3)

Since the creation of the Florida Entertainment Industry Financial Incentive Program is the centerpiece of Florida's commitment to help create a work force striving for at least these kinds of wages, let's see what the $5.6 million in tax incentive reimbursements given to 14 film companies in FY 2005-06 accomplished.

Here are the relevant numbers from the final report prepared by the State Film Commissioner and submitted to the Governor, Speaker of the House and Senate President on October 1, 2006, detailing the jobs and wage benefits to Florida workers as a result of last year's tax incentive. (4)

                           TOTAL FLORIDA WORKERS

          4027       

                          QUALIFIED EXPENDITURES

                              SPENT ON FLA WAGES

                                   $18,654.525.00

It is a simple process to establish the average cost of creating each of these jobs: you divide 4027, which is the number of jobs, into the $5.6 million of the tax incentive money that was spent by Florida, and you get $1390.60, as the cost per job.

To establish the average wage for these jobs, you again divide the number of workers 4027, by the amount of wages paid, $18,654,525.00, and you get $4632.36, as the average wage earned as a result of these jobs.

That's right; Florida taxpayers spent $1390.60 to generate a $4,632.36 part-time, low wage job in the film industry last year.

If you think that's bad, it gets worse!

Approximately 2430 of those jobs weren't really real jobs in economic development terms, but rather “jobs” as in movie extras, who were paid anywhere from $50 to $200 per day, and who in most cases only worked one or two days.

For those 2430 individuals, it cost the State of Florida $1390.60, to create a job where these folks earned at best a couple hundreds dollars, and maybe got an autograph or their photograph with a movie star.

It gets even worse.  At least those 2430 folks got paid something for their efforts.  

As part of the current round of tax incentives for FY2006-07, the Governor's Office of Film & Entertainment qualified, and supposedly awarded $156,209.00, to the company that produced the annual Disney Christmas Parade TV Special, and they – according to the casting notice the company sent out to recruit extras, and from complaints from actors in Orlando – they recruited a whole bunch of folks to be extras in the show and didn't pay any of them. (5)

Instead, after requiring them to act like happy parade goers for half a day, the unpaid extras were, as the casting notices announced, allowed “ to enjoy the rest of the day in the Magic Kingdom® without paying park admission.” Some of these folks became unhappy when they learned that their tax money had been given to a company that turned around and lured them for a “freebie.”

While the recruitment of “freebie” extras had been a long-standing practice by Disney, the injection of tax dollars into the equation raises a valid question about payment for work, especially since the tax incentive is predicated in part on generating paying jobs.

Before turning to other concerns, and in order to deflect any arguments that it's not fair to highlight the statistical anomaly associated with movie extras – although the State Film Commissioner and others who support these incentives continue to use these employment numbers as a principle justification for larger incentives, and the Commissioner continues to use this 4000 number even though he's been made aware of this problem – as well as to provide a fuller picture of the wages earned by crew people, let us recalculate the job cost and average wage figures by excluding the 2430 movie extras, to see what we get.

The number of jobs then would be 1597, the average cost per job would rise to $3506.57. The average wage would become $11,680.97.  While an average wage of $11,680.97 is better than $4,632.36, the fact still remains that these are PART-TIME JOBS for which the State of Florida is paying as much, if not more, than what it pays for a high-wage, fulltime job under the Qualified Target Industry Business Program.

In addition, unlike the deliverables expected of the Scripps Research Project, there is no expectation that any of the film or TV projects will result in creating a significant increase of long-term, high wage ancillary jobs being created as a result of any of this activity.

In the end, to meet the US Census criteria of a median wage of $62,269.00, the costs to create a comparably paying job through this tax incentive program would be approximately $18,077.80.

So much for the creation of high-skilled, high wage jobs.

USING INAPPROPRIATE RETURNS ON INVESTMENT AND MULTIPLIER CALCULATIONS TO MISLEAD

On January 4, 2006, the Governor's Office of Film & Entertainment sent out a press release presenting the Florida Film & Entertainment Advisory Council's recommendation for changing the 2007-08 Entertainment Industry Financial Incentive.

They recommended at that time the fund be enlarged to $540 million over 6 years, and as with all the various permutations surrounding the efforts of these folks – most especially the State Film Commissioner – when it came to justify these amounts, the press release made the following claims about the benefits of Florida giving the film industry $540 million: (6)

“What's the return over six years?  $3.24 BILLION DOLLARS paid to Florida cast, crew and businesses. (Their emphasis)

What's the return on investment? 6-to-1 (ROI).  That's six dollars

spent in Florida before one dollar is paid out as a transferable tax

credit.  Florida companies can additionally benefit if an out-of-state production transfers (sells) its tax credit to them at a discount, leaving part of the incentive right here in Florida.

What's the economic impact on Florida?  $9.72 BILLION DOLLARS over six years (using a conservative 3X multiplier) with a six-year investment of only $540 million. (Their emphasis)

You've got to love the, “only $540 million,” reference, especially given that the projections are that Florida might be as much as $600 million in the hole as a result of decreasing sales tax revenue this year.

Over the last several years the State Film Commissioner has made a big deal about Return On Investment (ROI) in justifying these tax incentives.  Every time one turns around, he's seemed to have a new ROI; one time claiming that its 7 to 1, another time 6 to 1, and another time 6.85 to 1.  The fact of the matter is, no matter his various claims, they've all been little more than a smoke screen of willful misrepresentation.

The first and foremost problem with these ROI claims is that they are absolutely bogus!

The investment that Florida is making is an incentive financed with tax dollars – and in the case of the current proposed legislation – a tax credit, and therefore any analysis on the expenditure and returns generated by this money cannot be considered as a Return On Investment, but rather a Return on Tax Dollars (RTD).

To measure the impact of tax dollars as an incentive, the only real and honest way to measure ROI, is to measure the amount of tax revenue that comes back to the state as a result of these expenditure of these tax dollars.

In fact, when it comes to the calculations used by the State Film Commissioner and the Florida Film & Entertainment Advisory Council, supporting this latest legislative effort to obtain $255 million, these alleged calculations are based on projected costs and returns yet to be made by  specific companies, and is on the level of hocus pocus one would expect from to a TV Psychic making predictions on the future of the stock market three years from now.  

In addition, even if this method was acceptable, none of the efforts to establish an ROI have been proven to include such actual costs as the traffic and community disruption associated with filming, the manpower costs of various public officials at both county and city level who on occasion are required to devote considerable time and effort to facilitate filming in their communities, as well as the wear and tear that occurs to public facilities, to list but a few of the most obvious, unaccounted costs, associated with film production in Florida.  

At its core however the only honest way to measure an ROI involving tax dollars is, if tax dollars go out, then the ROI has to be based on how many more, or less, tax dollars came in!

As for the above claims that a 3X multiplier is a conservative measure of financial benefit, this is also a misuse of methodology and illustrates that this claim is not based on serious economic analysis, but on the slight-of–hand efforts of economic amateurs.

Economists traditionally calculate a multiplier affect through job creation and impact. To establish such a multiplier effect, job creation and impact are divided into three main categories: direct, indirect and induced.  

The practice of using dollars alone as a way to establish a multiplier effect creates an illusion that the dollars being counted have some magical or mystical power that other dollars do not have.  ALL dollars have the same intrinsic spending value:  the dollars spent by folks who work on a motion picture industry are no more special than the dollars spent by legislative staff members, or those spent by teachers, or anyone else's dollars when it comes to purchasing power. They might be spent at different grocery stores, or gas stations, or dry cleaners, but their purchasing power is the same.

When it comes to the current tax incentive monies spent by the film industry, the one glaring problem, beyond all the other glaring problems, is that none of this money can be shown to have contributed in any significant way to residual value having been created as a result of these expenditures.  Besides having created short-term jobs, the overall economic benefits have also been short term.    

The process is much like a circus coming to town.  The circus comes, they make a lot of noise, they hire a bunch of local people to help put up the tent, and do other stuff, and when they finish their run, they leave town taking their profits with them, and often leaving a big pile of elephant dung in the middle of a vacant lot for someone else to clean up.

Because of this, any claims of a “conservative 3X multiplier” making an impact on Florida's economy are illusionary and delusional.  

HOW FLORIDA TURNED A TAX INCENTIVE PROGRAM INTO A TAX GIFT PROGRAM

Besides the development of jobs, another common reason for supporting a tax incentive program, is that the incentive is supposed to stimulate economic development that would not normally occur without the incentive.

Florida's Entertainment Industry Financial Incentive Program was supposedly based on such a premise.

At a December 6, 2004 meeting of the Florida Film & Entertainment Advisory Council, Ms. Susan Albershardt, then the Director of the Governor's Office of Film & Entertainment under Governor Jeb Bush, told members of that group that both Governor Bush and the Governor's Office of Tourism, Trade and Economic Development wanted to make sure that the tax incentive money “isn't being given to a production that would shoot here anyway.”(7)

Somehow, this requirement was ignored, and what should have been a tax incentive program to lure projects to Florida has been turned in part to a tax gift program, where films and television series and TV Specials that couldn't or wouldn't film anywhere else but Florida have become the recipients of millions of dollars in tax incentives.

The latest and most egregious example, which has even upset some of those who have been leading the charge for increased incentives was the award of the above mentioned $156,209.00, to the production company that produced last December's Disney Christmas Parade TV Special.

How could an annual TV Special taped on the grounds of Disney World in Orlando for well over a decade, all of a sudden qualify for a tax incentive intended to lure film and television productions to Florida?

Did someone threaten to take Cinderella and Mickey Mouse to Georgia and do the Christmas Parade from Atlanta unless they received this incentive?

Another Florida project that received tax incentive money for filming in Florida was the movie HOOT, based on a book by Miami Herald columnist, Carl Hiaasen.  

The producers of HOOT received $1,016,279.00, as well as the benefit of having Governor Bush tout the book as part of his Read, Florida program just before filming began. (8)

Here's what Carl Hiassen had to say about having his book filmed in Florida: “They understood Florida, how weird and peculiar it can be,” Hiaasen states. “But, also, how wonderful and photogenic and just spectacularly beautiful the place is. Why it's worth fighting for. This is a movie about fighting for a place that you really, really care about. It couldn't have been filmed anywhere else.”(9)

If, as Carl Hiassen claims, the movie couldn't have been filmed anywhere else – a claim supported by Jimmy Buffet, one of the producers, and Will Shriner, the director – then why were Florida taxpayers required to cough up  $1,016,279.00 in tax incentive money?

The list of egregious misuses of these tax incentives, while not endless, also includes the reality show featuring pro wrestler Hulk Hogan and his family: Hogan Knows Best.  

The production company that produces the show has already received, or has qualified this year for tax incentives totaling $632,941.00, to help cover the costs of following Hulk Hogan and his family  around Miami Beach as they settled into their new $12.5 million house and set forth to make their mark on the South Beach social scene. (10)

Lastly, The Latin Billboards TV Special, which has been produced by Telemundo in Miami for years, received a total, $586,622.00, for FY2004-05 & 2005-06. (Ibid)

THE PITFALLS OF SPENDING PUBLIC MONEY TO INCENTIVIZE  CREATIVE PROJECTS WITHOUT ESTABLISHING DELIVERABLES

On January 19, 2005, Governor Jeb Bush issued a press release announcing that a group of Central Florida filmmakers who had been associated with The Blair Witch Project had become the 2nd project to qualify for the new Entertainment Industry Financial Incentive.

“We are delighted that this talented Florida filmmaking team has decided to produce their project here in the Sunshine State,” said Governor Bush. “The new entertainment industry financial incentive is an excellent addition to our economic development tool chest and has already had a positive impact on the creation of more high-wage jobs for Floridians.”(11)

On December 13, 2005, the producers of Altered, posed for pictures with the State Film Commissioner giving them a tax incentive check for $305,922.84, at a ceremony held at Universal Studios in Orlando.

A few days later, these same producers, along with the director and others went to New York to screen the film for their distributor.  They went with some trepidation since their distributor the previous April had informed them that the film had serious problems.

Here, from the Web Blog of the Director, Edwardo Sanchez, is what happened in New York.

“We headed to New York City (man, my palms are already starting to sweat) a few days before December 20, a birthday shared by Rob, Jamie and me. We rented a screening room at TECHNICOLOR and showed the film in the early morning, before the FOCUS people arrived. Everyone was happy. Proud. The projectionist told Andy Jenkins that it was one of the best films he'd seen at this place. A good omen, we thought.

FOCUS arrived. I made my speech, thanked them for believing in us and helping us make the film better with their solid notes. We headed out, went to a nearby restaurant and waited. We were supposed to meet for lunch after the screening and discuss the film. We were nervous and joked about who would be at lunch. If it was just a few people, they didn't like the film. If it was the whole gang, we could expect some good news.

The call came. There wasn't going to be a lunch. Big problems. They were going to hold an emergency meeting at their offices in an hour or so. Jesus Christ. And we were joking about a few people meeting us as a worse case scenario. This was a f**king disaster!

The meeting was short and sweet. The film didn't work. They called it a “tweener.” Not enough horror, not enough drama, not enough action to categorize into any of those genres. They felt it would not play to the basic horror crowd. They didn't know what the hell they were going to do with it.”(12)

On a personal level one can certainly sympathize with Edwardo Sanchez.  He was, I believe,  ill served by his producers, who had the ultimate responsibility to make sure that the script was viable, and the movie salable.  

Movies, to those who make them, can be like children, and the distributors, as described above, had just told Edwardo that his child was uglier than Cinderella's stepsisters, and worse, was destined not to make him rich or famous.

In the world of movie making, not every film becomes a contender for an Academy Award, and many have a hard time making back the money that they cost to produce. That's part of the crapshoot of making a movie, and central to the decisions that producers make about which movies they choose to produce.  The process is elective, and there is more than ample evidence to support the claim that we are annually bombarded with garbage attempting to pass itself off as art.

While there will never be any accounting for taste, when it comes to financing films and TV shows with public money, there does need to be some accountability in the form of reasonable deliverables to insure that the citizens of Florida don't end up funding the equivalent of very expensive, very bad, home movies.

From the beginning, the expectations for Altered, were that this would be a movie with a theatrical release.  It wasn't. That's the kind of unmet deliverable that, had it been a concrete deliverable, would have disqualified a project like this from receiving public money.  

The fact that Florida taxpayers ponied up $305,922.84, for what essentially turned out to be not much more than an expensive, bad movie, unlikely to recoup the money it cost to make, underscores a serious problem that while the citizens of Florida should have no expectation that their money be used to underwrite only award winning projects, they should have an expectation that the projects that they subsidize at least have some financial viability.

The same goes for TV pilots like Aquaman, which received a $734,435.00 tax incentive (13), and sunk faster than a gangster thrown overboard with concrete boots, or the TV series South Beach, which was so bad that it finished in 152 place out of 156 in the Nielsen TV ratings, got cancelled after 8 episodes, and still waltzed out of Florida with $1,204,280.00.(Ibid)

A deliverable requiring theatrical distribution is the minimum requirement that Florida's taxpayers should expect for the giveaway of these millions of dollars for feature films, and a pickup by a network should be the minimum deliverable for a TV pilot. As for a TV series that gets cancelled in mid-season, they should not receive the full percentage amount of the incentive.  Florida citizens should not be expected to see their money used to finance crap.

That doesn't mean that we should discourage producers from coming here with those kinds of projects; it just means we shouldn't reward them for having such bad judgment.  

THE CREATION OF A GHOST WORK FORCE/ LOSS OF FILM RELATED BUSINESSES

A third expectation for any sort of economic development program is the creation of new businesses.

In March of 2006, the Florida House Tourism Committee issued a 204 page, exhaustively researched report on Florida's film industry that claimed that there were 5,599 film related businesses in the state. (14)

On March 6th of this year, your holdover State Film Commissioner appeared before the Florida Senate Commerce Committee and provided documentation about his office to the committee in which he claimed that there were 3500 film related businesses in Florida.  Here is that portion of the documentation provided to the committee:

“The motion picture industry sector is a vital part of the Florida economy. The industry comprises over 3500 establishments and over 39,000 full time employees. By including freelance workers for every full-time employee, the industry is comprised of nearly 80,000 high skilled, high wage workers earning an average of over $50,000 per year.  In 2000, the industry generated over $3 billion in economic impact in the state, from motion picture, music videos, and television movie productions, to commercials, still photography, and digital media.” (15)

Somehow, according to the State Film Commissioner, in the course of a year, Florida's film industry managed to lose 2099 businesses.  How could that have happened?

Worse, while we lost a significant number of businesses. he also claimed that Florida's film industry work force was now comprised of approximately 80,000 “high-skilled, high wage workers earning an average of over $50,000 per year.”  

Since the House Tourism report last year claimed that there were 33,897 workers, how did we manage to increase our work force by almost 46,000 workers while at the same time decrease our business base by approximately 35%?  

And, most importantly, we are expected to believe that all of this was in part accomplished with a tax incentive program that generated 4027 jobs with an average wage of $4,632.36.

I have alleged in other writings that this effort to cook the numbers on the size of the film industry's work force was a calculated and blatant attempt by the State Film Commissioner to inflate the size of the work force to make it seem that any new and increased tax incentive was going to provide benefit to a sizable number of individuals, instead of the approximately 1500 film technicians and approximately 1000 real actors  that actually work on these projects.

It's a lot easier to consider giving $255 million to benefit 80,000 folks, than to 2500 folks.

IN CONCLUSION

Even a really bad incentive program can claim some successes, and there is no doubt that Florida has benefited to some degree from the $137.25 million in tax dollars that has been spent to date.

The big question is, has it benefited enough to justify another $255 million in tax credits and approximately $74 million in tax exemptions?  

I believe that any serious investigation will reveal that no matter what the short-term impact on Florida's economy is as a result of the production of a feature film or TV series, there is abundant evidence that there is no long-term residual impact on either the film industry nor the state's economy, and in fact there is a decided disadvantage in supporting bigger and more expensive incentives, because there are those – like the Motion Picture Association Of America (MPAA) - who will turn around and use these incentives numbers as a weapon against Florida by going to other states and demanding that they match or increase our incentives, just like the supporters of this current attempt are using the incentives in Louisiana, North Carolina, South Carolina and new York in an effort to get the Florida legislature to support this incentive effort.

Everybody loves free money, and nobody loves free money more than market driven capitalists.  The big question for Floridians is do we need to be the ones required to pay for ALL that love?

I believe there are simpler and cheaper solutions to supporting the film industry without continuing to spend hundreds of millions of dollars.

First, Florida could do what New Mexico has done as part of their incentive program, and that is create an equity fund which would LOAN money to producers, with the full expectation that this money would be paid pack so that it could be loaned to other producers.  I provided a proposal – supported by many in our industry – to both the Florida Film & Entertainment Advisory Council, and to State Representative Julio Robaina last year. Representative Robaina, a long-time friend of the industry thought that the proposal had some merit.

Secondly, Florida could create a $25 million dollar fund that would focus specifically on providing an incentive for writers to write scripts about Florida.  Everyone knows that the critical first step in all film and television production is the script.

I would propose a fund that would give screenwriters whose feature film scripts are produced in Florida, $100,000.00 on the last day of principal photography for feature films SPENDING $10,000,000.00 or less in Florida, and $250,000.00 for any film SPENDING over $10,000.000.00 in Florida.

I would give any screenwriter who write the pilot for a an hour-long TV series that gets produced in Florida AND gets picked up as a series AND commits to filming in Florida $250,000.00, on the last day of the first season of filming, and I would give that writer another $100,000.00, per year, on the last day of filming, for every year the TV series continues to film in Florida.

If you really want to create an incentive, then create an incentive that locks in film and television productions to actually spend real time in Florida, while at the same time doesn't drain the state treasury of these hundreds of millions of dollars that we so desperately need for other problems.  There are plenty of Screenwriter/Producers who I believe would be very happy to write scripts with Florida as the principal location, and to try and get those scripts produced.  

The future belong to those who prepare for it, and I for one would rather spend money in ways that attempts to face the future, than to look backwards at a past that is destined in less time than we might imagine to become, less and less viable as an economic model.