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Maryland gambles on film incentives with ‘House of Cards’

Netflix show among productions polarizing lawmakers

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The use of tax credits to lure production of the Netflix series "House of Cards" to Maryland has renewed a nationwide debate among lawmakers over the benefits of offering high-dollar incentives to encourage Hollywood to come to them.

The popular series, which has been filming its second season around Baltimore and Annapolis in recent weeks, is taking advantage of a tax credit for film productions that more than tripled from $7.5 million to $25 million in the fiscal year that began July 1.

But Delegate Mark N. Fisher, Calvert Republican, recently questioned why the state is subsidizing Hollywood productions, setting aside $25 million this fiscal year and $7.5 million in the next two fiscal years, when residents in recent years have seen increases to the sales and gas taxes.

"It seemed really odd and troubling that we would be providing $40 million over three years to Hollywood studios not even domiciled in Maryland. Why should they receive tax credits instead of small businesses and hardworking people of Maryland?" he said. "The central issue here is why Maryland is providing these massive tax benefits to film production studios when businesses and families are struggling."

Gov. Martin O'Malley, a Democrat, personally sought the increase in the credit and said the first season of the series, set in the District about an unscrupulous member of Congress, resulted in an economic impact of $140 million for the state and the hiring of 2,200 Maryland residents.

"When a film comes in here, they hire and they generate lots of revenue for Maryland businesses," said Jack Gerbes, head of the Maryland Film Office. "A lot of these are small Maryland businesses. Sure, there are national hotel chains or car rentals, but we got a lot of support letters from small mom-and-pop business who basically said that without the incentives, they would no longer be in business."

The tax breaks are not confined to Maryland. Financial incentives for film and television productions are offered in 46 states, according to numbers compiled last month from Entertainment Partners, a national production management company. The trend began in the early 1990s after Hollywood production companies began crossing the border to Canada, which offered enticing deals to film their projects.

Louisiana and Georgia spearheaded the programs. Today neither state has a cap on the amount of tax credit it can hand out to production companies. According to the Motion Picture Association of America, the movie and television industry employs more than 8,600 residents of Louisiana and pays nearly $378 million in wages, while in Georgia more than $1 billion in wages are paid out to roughly 22,000 industry employees.

The programs are administered differently from state to state. In Maryland, the credits are distributed to large-scale television and film productions that meet certain guidelines, which include spending a specified amount of money in the state. The tax credits are essentially a reimbursement to the production company for up to 25 percent of such "qualified" spending.

"That's the economics of today's Hollywood," Mr. Gerbes said. Speaking about the "House of Cards" production, he said that without the tax package, "They'd probably be in Georgia, perhaps Toronto. That's just, unfortunately, the way it is. Productions follow incentives."

Eileen Norcross, a senior research fellow with the Mercatus Center at George Mason University, has studied the incentives and says the tax credits aren't all they're cracked up to be — and can even be damaging to state coffers.

"They really don't bring in as much in-state jobs and income as anticipated," Ms. Norcross said. "It's not the economic generator that they advertise it to be. It doesn't seem to be the kind of make-or-break incentive that a lot of states think that is."

Ms. Norcross said a better approach is to keep taxes fair without giving a break to one industry over another. She pointed to several states that have reconsidered the tax breaks.

In Massachusetts, the state's Department of Revenue this year analyzed the tax incentive program from 2011. The report showed that, of the $174.6 million in spending generated by film productions, only $60.7 million, or 35 percent, was spent in Massachusetts. While the state paid $44.1 million in film tax credits in 2011, it only collected $6.9 million in tax revenue from the industry that year.

"This tax credit is a slippery slope," said state Rep. Angelo M. Scaccia, a Democrat who represents a portion of Boston and attempted to eliminate the state's current unlimited film credit program. "When I say it's a slippery slope, that means you have to make it even more attractive to these folks to do a film in that state.

"It worked when there were only two or three states, but after awhile another state would get involved, then another and then another. Each state when they got involved gave out a better tax credit to producers."

The Wisconsin Legislature last month stripped film production credits from the state budget, citing a low return on the investment and lackluster in-state spending from film crews. In Iowa, the state's film office was mired in scandal two years ago when its director was criminally charged after issuing credits to production companies that falsely inflated film budgets.

Connecticut, where productions account for $691 million in spending, announced it would be suspending its credit program for films beginning Monday. The state is continuing to work with television crews, which are seen as more lucrative.

Scott Johnson, chairman of the Maryland Film Industry Coalition, which has lobbied in favor of incentives, said productions of television shows such as "House of Cards" have residual effects on the community in which they are made as opposed to film crews that come for a short time and then leave.

"Instead of a job over 16 weeks, it's over many seasons. And there's thousands of vendors," he said. That's why when advocates in Maryland proposed the film-production activity tax credit, they offered an extra 2 percent option for a television series.

The incentives also cross political lines.

In Virginia, Republican Gov. Bob McDonnell in 2009 campaigned on a proposal to boost from $200,000 to $2 million a fund from which he can offer rebates to film projects, defending the spending by focusing on jobs and geography.

The effort paid off, notably with the decision to film the Steven Spielberg-directed and Academy Award-winning "Lincoln" in Richmond.

Production for "Lincoln" injected $32.4 million in direct spending to Virginia, according to a 2011 year-end report from the film office. The state raked in $394.4 million in total economic impact and nearly $60 million in state and local tax revenue.

"If you want to compete for this industry you have to have some kind of tax credit or grant program," said Andy Edmunds, director of the Virginia Film Office. "So many different studies are out there, but they generally show a great return-on-investment for a state or a city."

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