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F I S C A L I M P A C T R E P O R T
SPONSOR HTRC
ORIGINAL DATE
LAST UPDATED
2/1/08
2/11/08 HB CS/634/aHAFC
SHORT TITLE NM Filmmakers Production Fund
SB
ANALYST Earnest/Francis
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
NFI
NFI*
(Parenthesis ( ) Indicate Expenditure Decreases)
*See narrative
Relates to SB383
SOURCES OF INFORMATION
LFC Files
Responses Received From
Economic Development Department (EDD)
State Investment Council (SIC)
Department of Finance and Administration (DFA)
SUMMARY
Synopsis of HAFC Amendment
The House Appropriations and Finance Committee amended the House Taxation and Revenue
Committee substitute for House Bill 634:
•
Removed language automatically allowing a deferral of loan repayment
•
Clarified that a “pre-approved agreement" has to be developed and adopted by the State
Investment Council’s Private Equity Investment Advisory Committee
•
Require 60 percent of the above the line participants be New Mexico residents or 60 percent
of the above the line participants be underrepresented minorities so long as at least one is a
New Mexico resident
•
Includes women in the definition of minority
•
Defines above the line participant to mean a producer, writer, screenwriter, director or
leading cast member.
pg_0002
CS/House Bill 634/aHAFC – Page
2
Synopsis of HTRC substitute
The House Taxation and Revenue Committee substituted House Bill 634 adding a new section to
the severance tax bonding act [7-27-5 NMSA 1978] allowing the State Investment Council to
invest up to 0.5 percent of the market value of the severance tax permanent fund (STPF) in
independent or underrepresented minority filmmakers who are New Mexican residents. No
investment can be more than $5 million. The private equity investment advisory committee
(PEIAC), a committee of the SIC, will promulgate rules which must be adopted by SIC. SIC can
make a below market rate loan to a qualified project in return for a participation percentage in
the film and all derivative properties.
Specific investment criteria for below market loans:
•
PEIAC should develop a priority point system subject to review by the governor’s council on
film and media industries.
•
PEIAC can create a pre-approved agreement or the filmmaker can negotiate an agreement.
•
PEIAC can require a letter of credit from a bank, an entity with a BBB credit rating, or a cash
equivalent instrument that is held in an interest bearing account.
•
PEIAC should decide rules for default.
•
PEIAC can require completion bonding.
•
PEIAC can require 80 percent of the principal photography be made in New Mexico, 60
percent of the payroll be New Mexico payroll and two of the three principal “above the line"
participants be New Mexico residents or underrepresented minorities.
“Minority" is defined as African American, Hispanic American, Asian American or Native
American.
Synopsis of Original Bill
House Bill 634 creates the New Mexico filmmakers production fund, administered by the
Economic Development Department, to provide zero-interest loans for local and
underrepresented minorities filmmakers for the purpose of economic development. The loan
must be guaranteed in full by an A- or better rated banking institution, BBB credit rated or better
entity, or cash-equivalent instruments held in an interest-bearing secure account. In addition, to
be eligible a production must have a completion bond, 80 percent of the principal photography
must take place in New Mexico, 60 percent of the payroll must go to New Mexicans, and two of
the three principal above-the-line participants must be New Mexico residents or
underrepresented minorities.
FISCAL IMPLICATIONS
The fiscal impacts are indeterminate. SIC has reported that these types of films, particularly
ones that do not have distribution agreements, do not perform very well in the market place. If
the entire amount of 0.5 percent, or $23.1 million, is invested in these films, the fiscal impact
could be almost $2 million in lost earnings to the fund (assuming an 8.5 percent rate of return).
There is an annual distribution of 4.7 percent of the corpus of the fund to the general fund so the
fiscal impact may be a $94,000 reduction in general fund revenues.
pg_0003
CS/House Bill 634/aHAFC – Page
3
Since the SIC has wide latitude over these investments, this calculation is an example of how the
general fund may be affected but it is more likely that SIC will not invest the full amount. The
example also assumes that there is no upside return on the investments but a single film that
finds broad commercial success could positively impact the fund.
SIGNIFICANT ISSUES
This bill stems from concerns that local filmmakers have not been able to participate in the State
Investment Council’s film loan program. The investment criteria in this bill are modeled after
the SIC program, but with the following notable differences:
•
No requirement for producer to have distribution agreements for their film;
•
A less rigid guarantee of investment principal;
•
No requirement that the project’s commercial viability be a criteria for funding
According to SIC, these elements have been the biggest hurdles for independent NM filmmakers
who have applied for film investments from the SIC.
However, unlike the original bill, the substitute uses the word “may" rather than “shall" allowing
SIC some latitude in determining the core elements of any program. For example, Section A
states that “no more than one-half of one percent of the market value of the severance tax
permanent fund may
be invested in …." This means that SIC may invest from 0 to 0.5 percent in
such a program but need not invest anything.
SIC notes that “there is also no stipulation in HB 634 regarding how much a project can pay its
principals from the fund’s money versus what it pays crew. If this is intended to be a job
creation program rather than an educational one where interns could potentially earn educational
credit for their film work in lieu of wages, it might be improved with a cap on what an applicant
can pay his or her self."
According to SIC, the current commercial market for independent films is extremely depressed,
with thousands of movies being produced by independents every year but only a handful being
bought and sold for wide distribution. Non-studio productions, no matter how worthy or good,
have immense challenges in gaining widespread or commercial success.
TECHNICAL ISSUES
The terms “independent" and “underrepresented" are not defined in the proposal. Minority is
defined but it is unclear which of the definitions are “underrepresented" and who makes that
determination.
Section 2-D (6) (c) allows two of the three above the line participants to be New Mexico
residents or
underrepresented minorities. This conflicts with Section 2-A that requires NM
residence.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
The substitute for House Bill 634 relates to Senate Bill 383 that creates a fund for these
investments. There are also several related bills concerning film being considered in the 2008
session:
pg_0004
CS/House Bill 634/aHAFC – Page
4
Bill Title
Description
S 413 SANTA FE SUMMER YOUTH FILM
PROGRAM
Film program for native american
youth
S 325 COUNCIL ON FILM & MEDIA TERM
LENGTHS
Changes term of Governor's Council
on Film and Media members from
four years to two
S 383 NM FILMMAKERS PRODUCTION
FUND
Creates a fund for EDD to make
grants/loans to NM and
underrepresented minority filmmakers
S 519 FILM PRODUCTION TAX CREDIT
ANNUAL CAP
Caps the film production tax credit
H 211 FILM PERFORMING ARTIST TAX
EXEMPTION
Changes how performing artists
and personal services companies
representing performing artists are
treated by the film production tax credit
H 294 CULTURALLY DIVERSE NM FILM
CREWS
Appropriation for training and
mentorship programs aimed at
building a culturally diverse crew
H 470 NMSU GRANTS FILM TECHNICIAN
PROGRAM
Film equipment and training for
NMSU-Grants programs
H 507 GALLUP FILM OFFICE
Creation of Gallup film office
H 634 NM FILMMAKERS PRODUCTION
FUND
Allows SIC to invest in small
films
OTHER SUBSTANTIVE ISSUES
HB 634 would add to other state incentive programs for the film industry. Currently, the state
offers a 25 percent rebate on production expenditures, zero-interest loans from the SIC and wage
subsidies and training though the Job Training Incentive Program. The state also has invested
$22 million in capital outlay appropriations in media production education programs at New
Mexico’s colleges and universities. These incentives, coupled with New Mexico’s varied
landscape and proximity to Los Angeles, have led to significant growth in the number of films
made in the state.
Film Incentives in NM
•
25 percent film production tax credit
•
Zero percent film loans
•
Gross receipts tax deduction
•
JTIP training
•
Capital outlay for media education
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