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The price of 'made in Arkansas' 

A look at Arkansas's film incentive package.

click to enlarge Jeff Nichols "Mud" image
  • JEFF NICHOLS: "Mud" director got $1.4 million in state aid.

Last year Little Rock native Jeff Nichols made "Mud" in the Arkansas Delta. The film received an 18-minute standing ovation at the prestigious Cannes Film Festival, it brought Reese Witherspoon and Matthew McConaughey to town, and at least one international critic has suggested it's an Oscar contender. Budget figures haven't been publicized, but Nichols has said that his budget was larger than the $5 million of his previous film, "Take Shelter."

Hosting Hollywood (or even its resemblance) is glitzy, but film is an industry. Like any other big business, states vie to own it. In 2009, the legislature passed the Arkansas Digital Product and Motion Picture Industry Development Act in an effort to attract film and media projects to the state. The legislation allows the state to award film companies a 15 percent rebate on their qualified in-state expenditures and an additional 10 percent rebate on payroll for film crew who are full-time Arkansas residents.

The state did not appropriate funding for the incentives in 2011, but Arkansas taxpayers gave "Mud" $1.4 million anyway, out of the governor's discretionary fund. (Even if funds had been appropriated, the total amounted to more than the production would have been able to claim under rebate guidelines.) In a recent talk at the Little Rock Film Festival, Nichols said that, to keep the production in Arkansas versus Louisiana — particularly because the film is set on an island in the Mississippi River, and these are both river states — he and the Arkansas film commissioner, Christopher Crane, worked directly with Gov. Mike Beebe. Ultimately Arkansas matched the amount Louisiana was offering as an incentive. Louisiana's incentive is the most generous in the country.

New technology has allowed big productions to become increasingly mobile, and states are now involved in what Crane terms an "incentive arms race." But as crucial public services, such as education and subsidized healthcare, are chiseled out of state budgets, economists have begun to wonder if media is a wise public investment. At various points, 49 states have had incentive programs, but recently eight states — Michigan, New Mexico, New Jersey, Iowa, Idaho, Oklahoma, Georgia and Maryland — have suspended or scaled back the offerings. Right now, neighboring Missouri, which has a 35 percent tax credit, is considering doing the same.

Since 2009, the Arkansas incentive has paid out $1.6 million to seven different production companies. Each production that receives funds must first commission an outside audit, to prevent false claims. "I tell filmmakers we have this incentive, it's not funded, but I'll fight for their project," Crane said. "Our goal is to find a permanent funding source, so we'll be trying to tweak the legislation in that direction during the next legislative cycle."

Two prominent nonpartisan think tanks, the Tax Foundation and the Center on Budget and Policy Priorities, have published reports making a case against film incentives. In March 2012, the Tax Foundation traced the growth of incentive programs, from four states giving away $2 million in 1999 to 40 states giving away $1.4 billion in 2010. Both reports predict that these 2010 figures will represent the incentive peak, because the job creation is largely temporary and the true beneficiaries are out-of-state production companies. The Tax Foundation references seven studies in six states that found that film incentive programs return between 7 and 28 cents on the dollar, while the Center on Budget and Policy Priorities outlines method weakness in several state-commissioned impact analyses that skew in favor of the incentives.

These incentives, particularly those including transferable (or sellable) tax credits, are highly vulnerable to abuse. Iowa suspended its program last year, after a public TV producer was accused (and has now been convicted) of stealing $9 million from the state in false claims. Louisiana's former film commissioner was sentenced to two years in prison for similar abuse. A few weeks ago, Arizona representatives killed a $2 billion proposal that would keep the state's incentive alive for the next 30 years. But not all states have given up on the film industry. Alabama, Colorado and Kansas are among the states that actually increased incentives in the past year.

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