Pub. 15 2018 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S 12 W hen looking at various economic rankings and factors of the 50 states, it’s no secret that New Mexico often ends up in the bottom tier of many of them. Given this reality, it is crucial that the state be creative in seek - ing new economic opportunities and continually cater to the industries that are already economically viable. The industry that has meshed as well as any with the state of New Mexico is film production. The state has many factors that make it appealing for film crews, including its close proximity to Los Angeles, its vari - ance in topography, and the relatively mild weather. A film crew can shoot a mountainous location one day and simulate a desert location several days later. It gives New Mexico an inherent advantage in attracting productions. Also, given that the film industry has had a strong presence in the state for a long period of time, there are many workers in the state with the experience needed to work on a film set. In 2011, Governor Susana Martinez gave the local film industry pause when the state imposed a $50 million cap on the 25 percent refundable tax credit for films made locally and she threatened to cut incentives significantly. Martinez reportedly considered the film industry a strain on the state’s economy. But what really put a scare into the power brokers in Hollywood were her threats to cut incentives that encour - aged film productions in the state by up to 40 percent (from a 25 percent tax credit to a 15 percent tax credit). Following the establishment of the $50 million cap, but, more importantly, the threat of incentive cuts, there was a sig - nificant downturn in film production in the state. Many grips, editors, camera operators, line producers, and other people essential to film production left New Mexico to pursue jobs in other states including Louisiana, Georgia, and North Carolina. In fiscal years 2013 and 2014, there was a dip in direct spend - ing in the state by the film industry. In 2013, direct spending only reached $213.7 million followed by $162.1 million in 2014. However, in 2014, with local film production noticeably down, a state-ordered study found that the industry was a positive economic force in New Mexico. One wonders why the study wasn’t conducted in 2011, but, following the study, the Governor changed her stance. Martinez’s change in attitude and her signing of legislation in 2015 that kept the 25 percent refundable tax credit have caused an upswing in film production in the state. Eligible productions can qualify for up to a 30% tax credit, including (1) direct production expenditures for qualifying television series (six or more episodes); or (2) payments to off-cam - era residents for services during production in New Mexi - co if a production utilizes a qualifying production facility for a minimum of 10 or 15 days of principal photography.  Despite the $50 million cap still being in place, the Governor signing the legislation signaled that she was no longer interested in pursuing a 40 percent cut to incentives. The $50 million cap can be viewed as a happy medium between those who want to see a lower cap and cuts to incentives and those who want to raise or remove the cap. It’s also important to note that it’s a rolling cap, meaning that if a production has a credit approved after the program exceeds the $50 million cap, it will receive its payment at the beginning of the next fiscal year. This past legislative session, Representative Moe Maestas sponsored House Bill 113, which would have removed the film tax credit annual cap. The bill was tabled on January 29th in the House Taxation and Revenue Committee. The argument of proponents of the removal of the cap claim that it would ex - pand the film industry in the state even further, allowing more people to pursue careers in the industry and further elevate the stature of New Mexico nationally. Those who are opposed to the removal of the cap have budgetary concerns. If the cap is removed, there is speculation that the state could not allocate By Mark Anderson, Legal and Legislative Assistant, New Mexico Bankers Association