After bankrolling more than 20 films, New Mexico received its first earnings from a movie, but officials say aggressive film incentives are paying off for the economy

Employee of the Month, starring comedian Dane Cook and blond starlet Jessica Simpson, was panned by critics when it hit movie theaters last year. At the box office, however, it sold enough tickets to turn a profit for a major financial backer — the state of New Mexico.

Lions Gate Entertainment recently sent the state a $500,000 check representing New Mexico’s cut of profits so far from the film, which was made with the help of an interest-free loan of roughly $13 million.

Like other states and countries, New Mexico has been trying to lure the film industry with tax breaks and other incentives aimed at stimulating economic activity. The incentive package has helped draw about 80 movie and television productions to New Mexico since its inception in 2002.

But the state is just starting to see profits from directly bankrolling more than 20 of those productions. In fact, the $500,000 check from Lions Gate represents New Mexico’s first share of profits from a film granted an interest-free loan.

A state law allows the State Investment Council to invest up to 6 percent of the Severance Tax Permanent Fund — or roughly $282 million — in New Mexico film projects. The council can provide interest-free loans of up to $15 million for movies shot in New Mexico in exchange for receiving a cut of the profits.

The state’s take from Employee of the Month will go back into the permanent fund, said Charles Wollmann, spokesman for the State Investment Council. The state also gets a cut of revenues from video sales and rentals, distribution in foreign countries and pay-per-view, cable and network television, Wollmann said.

Twenty-one film projects had taken out loans from New Mexico as of July 31, according to the State Investment Council. Those productions borrowed roughly $198 million, spent $168.7 million in the state and provided 3,261 jobs for New Mexico crew members with a payroll of $54.5 million, according to the council.

In the case of Employee of the Month, the state’s roughly $13 million loan financed all of the film’s budget. The movie took in about $28 million at the box office in the United States and more than $9 million in foreign theaters. Under terms of the loan, New Mexico receives 10.15 percent of any profits Employee of the Month makes after payment of production costs.

The film was shot in Albuquerque and Santa Fe, including parts of the South Capitol neighborhood.

Other financially successful films have been shot in New Mexico, such as Wild Hogs and The Longest Yard, but the state didn’t share in their profits because producers did not take out loans from the state. Wollmann said many producers pass on the loans because they don’t want to give up a piece of their profits.

‘A film destination’

While New Mexico hasn’t hit a home run with its film loans, state officials say the real benefit is the hundreds of jobs the movie industry generates and the millions of dollars movie projects spend here every year.

Films have helped pump roughly $1.2 billion into the state’s economy since 2003, according to the New Mexico Film Office. The office estimates every dollar a film project directly spends in New Mexico generates another $2 in additional spending in the state, said Lisa Strout, director of the film office.

“This is a business that drops a ton of cash in a short amount of time into an economy,” Strout said.

The film industry’s impact on New Mexico’s economy has skyrocketed from an estimated $8.8 million in the 2002 fiscal year to $475.5 million in the last budget year, according to the film office.

“With the incentive program in place, it’s basically become a film destination,” said Jonathan Wacks, chairman of the College of Santa Fe’s Moving Image Arts Department.

New Mexico recently had 16 film and television productions shooting here at the same time, Strout said. “These are movies that we would not have most of the time,” Strout said.

The film office’s Web site promises producers “smokin’ film incentives,” more than 300 days of sunshine a year, “awe-inspiring” shooting locations and a film office “willing to jump through rings of fire.”

New Mexico’s burgeoning film industry has helped spur the creation of several film-crew training programs across the state, including one at Santa Fe Community College.

The focus now is shifting toward training people for “above-the-line” positions, such as producers and directors. The College of Santa Fe this year used a $1 million grant from the state to help launch the New Mexico Filmmakers Intensive, a one-year program that focuses on producing, directing and screenwriting. “If we are to sustain this industry, we need to grow producers and not just crew,” Wacks said.

In terms of bricks and mortar, the $74 million Albuquerque Studios opened earlier this year with eight sound stages. Meanwhile, the Santa Fe County Commission this month passed an ordinance creating a media district in the community college area that would allow for portions of some buildings to be as tall as 80 feet to accommodate sound stages and other structures.

In addition to the no-interest loans, New Mexico’s film incentive package offers 25 percent tax rebates on production expenses incurred in the state, a 50 percent wage reimbursement for on-the-job training of New Mexicans in advanced crew positions and no state gross receipts taxes for production costs. The gross receipts tax exemption cannot be used if a production also receives the 25 percent tax rebate.

Benefits and pitfalls

While those involved in New Mexico’s flourishing film industry rave about the incentive package, Los Angeles-area entertainment attorney John Cones questioned whether such programs make the best use of state money because they benefit a single industry. “If you look at it from the standpoint of the general taxpayer, it’s hard to make the argument that it’s a good deal,” Cones said.

The investment council assumes a target rate of return of 8 percent on its investments, which means the state is passing up better returns in other investments by making the interest-free film loans. For instance, the state lost an estimated $3.8 million in interest in the short term under a new law that increased the maximum allocation from the Severance Tax Permanent Fund to film loans to 6 percent from 5 percent, according to a fiscal impact report on the legislation.

As more states create film incentive programs, it makes it more difficult to land a blockbuster that will bring in profits for states, which are competing for the same films, Cones said. “The law of supply and demand is really out of whack.”

Cones, who wrote the book 43 Ways to Finance Your Feature Film, also said such programs are susceptible to fraud. He said he knew of a Los Angeles cinematographer who listed his address as being in New Mexico in order to qualify for the state’s 25 percent tax rebate. “These programs tend to get abused,” Cones said.

But Strout said she had not heard of any reports of fraud with the tax rebate program. Every film employee claiming to be a New Mexico resident must submit a declaration of residency form, and the state Taxation and Revenue Department verifies that such workers are paying state taxes, Strout said.

New Mexico’s film incentive program has had its share of hiccups. The State Investment Council last year scrapped a program that provided loans that served as advances to production companies for anticipated tax rebates. That decision came after problems with the only two projects that received loans.

The producers of Bordertown, starring Jennifer Lopez as a reporter investigating the murders of women in Ciudad Juárez, Mexico, last year initially defaulted on a $2.35 million loan. The producers this year repaid the loan and paid $304,717 in interest, according to the investment council.

Producers of The Flock repaid their $2.3 million loan early, but they also received a controversial $25,000 tax rebate for a charter flight for star Richard Gere on the actor’s own jet. The investment council jettisoned the tax rebate program after deciding it was too much trouble, Wollmann said. “This left a bad taste in our mouth.”

Wollmann said Bordertown is the only film that has ever been in default on a loan, and he noted that borrowers must back up their loans with a letter of credit from a bank or a guarantee from a corporation. “It’s really a very low-risk investment in what is typically considered to be a high-risk industry,” Wollmann said.

Film office director Strout said New Mexico isn’t trying to become the next Hollywood, but it is striving to build up an industry that will benefit the state.

Contact David Miles at 986-3036 or dmiles@sfnewmexican.com.

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N.M. CREDITS

Film and television projects that have been shot or will be shot in New Mexico since Gov. Bill Richardson took office in 2003.

• 21 Grams
• 3:10 to Yuma
• A Thief of Time
• A West TexasChildren’s Story
• Afterwards
• Angelmaker
• Appaloosa
• Around the Bend
• Astronaut Farmer
• Beerfest
• Believe In Me
• Blind Horizon
• Bordertown
• Breaking Bad
• Buried Alive
• Carriers
• Comanche Moon
• Conspiracy
• Coyote Waits
• Cruel World
• Doubting Thomas
• Dreamland
• Elvis Has Left the Building
• Employee of the Month
• Fanboys
• Far Side of Jericho
• Felon
• First Snow
• Five Dollars a Day
• Formosa
• Game
• Glory Road
• Hamlet II
• Husband for Hire
• In From the Night
• In Plain Sight
• In the Valley of Elah
• Indiana Jones and the Kingdom of the Crystal Skull
• Intervention
• Into the West
• Kid Nation
• Linewatch
• Living Hell
• Love Lies Bleeding
• Love N’ Dancing
• Mall Cop
• Mojave
• No Country for Old Men
• North Country
• Nothing But Life
• Once Upon a Time in the Hood
• Prime Directive
• Rent
• Rx
• Sarah Connors Chronicles
• Save Me
• Seraphim Falls
• Shoot First and Pray You Live
• Sunshine Cleaning
• Swing Vote
• Tennessee
• The Burning Plain
• The Burrowers
• The Eye
• The Flock
• The Hitcher
• The Longest Yard
• The Lost Room
• The Missing
• The Spirit
• The Warboys
• Three Wise Guys
• Three Wishes
• Trade
• Wanted: Undead or Alive
• Wild Hogs
• Wildfire

Source: New Mexico Film Office

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Estimated impact of film industry on New Mexico’s economy¹

• 2002 fiscal year: $8.8 million
• 2003 fiscal year: $79.2 million
• 2004 fiscal year: $42 million
• 2005 fiscal year: $213.3 million
• 2006 fiscal year: $452.4 million
• 2007 fiscal year: $475.5 million

¹ Estimates assume that every dollar a film project directly spends in New Mexico generates another $2 in other spending in the state.

Source: New Mexico Film Office

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