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Ian Lind • Online daily from Kaaawa, Hawaii

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They’re Baaaack! Film company trying to resurrect huge new tax credits

April 24th, 2012 · 5 Comments · Legislature, lobbyists, Media, Politics

Remember Ryan Kavenaugh and the folks from Relativity Media, LLC? They’re the ones who lobbied hard at the legislative last year for a huge new tax break to benefit themselves. In the process, they got in trouble for passing out expensive gift sets of DVDs to legislators and staff. The bills providing for their big tax breaks eventually got hung up and died in conference last year.

But Kavenaugh and company are back in town. They’ve got a web site (HawaiiFilmIncentive.com), and a fancy new presentation touting their tax proposal, and have reportedly been making the rounds at the capitol seeking support from legislative leaders and folks in the governor’s office. It looks like they are hoping to slide in under the radar and have their tax break emerge from an obscure conference committee at the last minute.

The company had been pushing HB 1308 and SB 318 as their vehicles, but those appear dead. I’ve got my eye on HB1551, which in its House version included similar tax breaks for digital media and film production. I’m sure they have other possible legislative vehicles that could be used in a last minute move.

What the company doesn’t have is any reported lobbyist expenditures since the end of April 2011, a quick check at the State Ethics Commission shows.

Relativity’s proposed tax breaks have drawn fire from StopRunawayProduction.com, a web site that collects information on “Runaway Production and state and international film incentives.”

Fortunately, Relativity’s efforts failed last year. But now they are back. They have a new presentation, and it’s a SPECTACULAR work of fiction. Hawaii taxpayers better pray the numbers in Relativity’s presentation are fictional, because if they are accurate, the cost of the proposed film incentive would be a staggering $2.38 billion (with a B) in just six years! And I thought Arizona’s new $2.1 billion film incentive legislation bill was costly!

What follows is a detailed assessment of the claims Relativity is making here in Hawaii.

For example:

In slide after slide, Relativity’s presentation cherry picks from various economic impact reports by highlighting impressive sounding job numbers and huge increases in production spending. Conveniently missing is any mention of CO$T. For example, Relativity cites some impressive sounding statistics from The Arrowhead Center Report prepared for New Mexico’s film incentive:

– Motion picture and video production industry businesses increased by over 50% in 5 years
– Jobs and wages in the motion picture and video production industry increased nearly 10x in 5 years

These statistics are much less impressive, however, when compared to the cost. The same Arrowhead Center report found New Mexico taxpayers recouped just 14-cents for each dollar spent:

During fiscal year 2008 the NM government granted $38.195 million in rebates. The resulting increase in economic activity generated $5.518 million in revenues. The implied return is 14.44 cents on the dollar. This means that for every one dollar in rebate, the state only received 14.44 cents in return.

Similarly, Relativity cited the ERA reports prepared for Louisiana and the huge increases in spending, jobs and wages. Again missing is any mention of costs also contained in those reports. From 2002-2010, the film incentive cost Louisiana over $795 million and returned just $106 million in new taxes from the increased production activity.

There’s a whole lot more there, and it should be required reading for anyone following the issue.

And, while you’re at it, check out the news about the lawsuit filed in California accusing the Relativity Media of fraud.

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5 Comments so far ↓

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  • KidsDontVote

    That lawmakers would consider unnecessary cash giveaways to the film industry in the same session when they are committing to ending Junior Kindergarten for 6,000 of our kids is a clear sign of how messed up priorities have become at the Capitol. Shame.

  • Dave

    I think it’s great! – These types of things help market and promote Hawaii in general. The revenue these things generate for the state through increase in overall perception of Hawaii being a great place to visit are very indirect but also very long-term. It’s the gift that keeps on giving.

    As Albert Einstein said – Not everything that counts can be counted. Not everything that can be counted, counts.

  • ohiaforest3400

    HB 1551 is a high tech tax credit and probably couldn’t be used to insert this type of tax credit at this point. Instead, have a look at HB 2869; no conference scheduled, yet, but it’s in play. HB 2338 is another live wire; it would, among other things, move administration of the existing credits from DBEDT to the Hawaii Tourism Authority.

  • A. K. Wagner

    Ian, This is way off topic but I wanted you to know there is a
    Frontline 4 hour special beginning tonight at 9:00pm on PBS on the financial crisis. From reading the print and video they have on their site it looks like a nitty gritty AND big picture analysis of the policies and players who cooked up this recipe for disaster. I hope you can find the time to watch or record…. I’ve read lots on this topic and this feature looks to be riveting . Maybe you could mention it…

  • skeptical once again

    It might be better to see the benefits of a film industry as primarily more than financial.

    A former governor of Hawaii, John Burns, supported the UH football program on the grounds that even middle-class people in Hawaii have an inferiority complex (according to him), and that the cure for that was to excel in all things. Hence, all the massive investments fostered by Burns in various fields in Hawaii during the boom years of the 1950s and 1960s could be seen as a form of mass therapy.

    The problem with Burns’ strategy is that one thereby invests oneself in competing in fields that have little to do with one’s own society. Football at UH is a classic example, where the actual society is really better represented by baseball and/or volleyball. Also, one is competing in something like football against much larger schools and societies who can simply outspend your own school or society several times over regardless how much you invest. (UH only seems to win when they schedule games against grossly inferior teams — which is really a form of cheating.)

    Contrast this to the development of film industries in Australia or South Korea. Prior to the 1980s, Australian news anchors used to feign British or American accents, but with the emergence of movies like “The Road Warrior” and “Crocodile Dundee”, all that changed. There resulted a kind of Australian wave (sometimes in bogus form, e.g., with the formation in Florida of the American restaurant chain Outback Steakhouse). Also, the Australian government invested in arts education, which why since then when ever you channel surf on your TV on almost every station you’ll see some Australian actor (with a perfect American accent).

    In South Korea, Japanese popular culture had been banned I believe since WWII. I think with the signing with a free trade agreement with Japan in the 1980s, that policy was changed, but the Koreans invested heavily in the popular arts, like music and acting. The current Korean wave is a result.

    One point of this is that the financial returns of a film or music industry are secondary, which was also the intention of various investments in Hawaii during the boom years. The objective is a transformation in terms of confidence. That in turn promotes a shift away from imitation and toward creativity, which is what one sees in Korea and Australia since then.

    The other point of this is that this would be centered on educational policy, not on tax breaks for corporations. But here there might be a catch-22 or the chicken-or-egg paradox: a society that invests in education focused on creativity rather than imitation is more likely to become more confident and successful and creative; however, it is creative, successful societies that invest in education. My impression is that countries like Japan no longer or perhaps never did invest in creativity in education and, as a result, just don’t have the funds anymore to invest in it even if they wanted to.

    Here’s an article on how creativity at Sony has collapsed.

    http://www.nytimes.com/2012/04/15/technology/how-sony-fell-behind-in-the-tech-parade.html?_r=1&pagewanted=1&sq=sony&st=Search&scp=9

    The difference between Hawaii and Sony (or Japan in general) is that at least Sony knows they have a creativity problem.

    One plus for Japan is that they do have good schools and a culture that values education in itself (Confucianism). Americans value education primarily as a means to two ends: money and democracy, but primarily money. Disturbingly, I am not sure if education is even generally valued in Hawaii as a means to an end, either politically or economically.

    Also, there are leaders who believe that if people in Hawaii were educated, they would simply move elsewhere (I heard Mazie Hirono say this). Again, the point of public education is not primarily financial, it is cultural and political (democracy). Also, with the example of the Republic of Ireland, when investments in education are made, the population ends up staying or even returning, not leaving (although the collapse of the real estate bubble has poked a hole in this).

    This raises another point. When public university professors and administrators try to drum up support for their schools by pointing out how college grads earn twice as much as high school grads over the course of their life, this rhetoric backfires. That’s because people begin to assume that college exists primarily for the economic well-being of the students. College does help individuals, but public schools exist primarily for the good of society — its culture, democracy and economy. We invest in public education so we don’t end up like Japan (although Hawaii might be worse off than Japan) or under the thumb of China.

    In sum, the money that goes into tax breaks for the film industry might be better spent on a film school in Hawaii, in particular a film school that connected with the high schools.

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