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An Analysis of Texas Economic Development Incentives — 2010

Texas Moving Images Industry Incentive Program

Incentive Programs

5 – Texas Moving Images Industry Incentive Program

5.1 Program Summary

YEAR ENACTED:

• 2007 (HB-1634)
• Revised 2009 (HB-873)

Recent LEGISLATIVE APPROPRIATION:

HISTORY:

In 2005, SB-1142 added Subchapter B to Chapter 485 of the Texas Government Code creating the Film Industry Incentive Program calling it “a grant program for production companies that produce filmed entertainments in [Texas].”

In 2007, the 80th Legislature passed HB-1634 further amending Chapter 485 to include the entire Moving Image Industry (including video games) and strengthen the guidelines and application processes for the Texas Moving Image Industry Incentive Program. Grants were available for actual spending by the film, commercial, TV, and video game industry within the State of Texas or wages to Texas residents.

In 2009, HB-873 was passed – further revising the Moving Image Industry Incentive Program, with an effective date of implementation being April 23, 2009.⁵¹ HB-873 redefined “underutilized and economically distressed area,” removed the cap on maximum grant awards, and lowered the per project spending threshold.

Initially the incentives were allowed to be funded from gifts, grants, and other donations received by the Texas Film Commission (TFC). In 2007, the legislature appropriated funds specifically for the program. The 80th Legislature appropriated $22 million from the General Fund, for the biennium beginning in 2007, specifically for moving image incentives.

In 2009, the 81st Legislature appropriated another $22 million for the program out of the General Fund. The legislature also appropriated an additional $40 million through Art IX, sec 17.21 to the Trusteed Program (Film & Music Marketing), for the purpose of the Film Incentive program.⁵²

Of the $84 million in appropriated funds, $4 million was specifically allocated for administration of the film incentive program, moving image archives and film crew training, and $80 million was earmarked for the incentive program.⁵³

PROGRAM COSTS/OUTLAYS/ALLOCATIONS

For the period of April 23, 2009 to August 31, 2010, the Texas Film Commission approved 260 applicants totaling $48,367,343 in encumbered funds for the payment of the grant (see Table 15).⁵⁸

By August 31, 2010 of the appropriated $80 million available for the incentive program, $5,724,249.09 has been distributed to grantees.⁵⁹

In 2005 (prior to the Incentive program) 51 film/TV projects generated an estimated $155 million in spending. In 2009, 244 film/TV projects generated an estimated $249.7 million in spending.⁶⁰ Prior to 2009, if ranked, Texas would be behind many other states in terms of incentives offered.⁶¹

Almost every state offers some sort of incentive program to the motion picture industry. The additional $40 million made available for Film and Music Marketing through the Governor’s Office of Trusteed Programs allows Texas to have the potential to be a more economically viable option for industry related activities.⁶²

One area where Texas has been considered to be aggressive was in its early inclusion of the video game industry (as of 2007 and HB-1634). However, as of a report released in March 2010 by the entertainment software association, Texas is now one of more than 20 states that offers incentives for video game production and development.⁶³

MEASUREMENT:

TFC reviews all applications to ensure they meet the requirements set out by the legislature. The production company must submit proof of residency of employees, proof of spending within Texas, a copy of the script to ensure Texas and Texans are not portrayed in a negative fashion, and proof that no debt is owed the state.⁶⁴

Incentives are awarded upon approval of applications and completion of project in accordance with requirements.

The Texas Film Commission reports from April 23, 2009 to August 31, 2010:⁶⁵

• Applications Approved:
  • Total Applications approved = 260
  • Feature Film = 28
  • Television = 22
  • Commercials = 152
  • Video Games = 58

• Grants Awarded:
  • Total value of grants awarded = $48.4 million
  • Film = $12.8 million
  • Television = $24.5 million
  • Commercials = $2.0 million
  • Video Games = $9.0 million

• Production Jobs Reported for Approved Projects⁶⁶
  • Total estimated production jobs = 27,057
  • Film = 5,700 (estimated)
  • Television = 13,000 (estimated)
  • Commercials = 6,700 (estimated)
  • Video Games = 1,700 (estimated)

• Full Time Equivalent Jobs (FTE) for Approved Projects⁶⁷
  • Total estimated FTE = 3,790
  • Film = 692 (estimated)
  • Television = 1,299 (estimated)
  • Commercials = 105 (estimated)
  • Video Games = 1,694 (estimated)

• Texas Spending Planned by Approved Applicants
  • Total estimated spending within Texas by approved applicants = $414.9 million
  • Film = $74 million (estimated)
  • Television = $132.7 million (estimated)
  • Commercials = $37.4 million (estimated)
  • Video Games = $170.7 million (estimated)

Given the estimated benefit to recipient companies through the Texas Moving Industry Incentive Program from April 2009 through August 2010 ($48,367,343) as the basis of cost, the amount of grant awarded per-unit measurement of the program is as follows:

• Average Grant Award Approved (April 2009 to August 2010)
  • Overall average per approved application = $186,028
  • Feature Film average per approved application = $457,518
  • Television average per approved application = $1,115,112
  • Commercials average per approved application = $13,104
  • Video Games average per approved application = $155,733

• Cost per Full Time Equivalent Job (FTE) Based on Approved Grant Award.⁶⁸
  • Overall average cost per FTE = $12,762
  • Feature Film cost per FTE = $18,512
  • Television cost per FTE = $18,886
  • Commercials cost per FTE = $18,970
  • Video Games cost per FTE = $5,332

There were $117 of grant funds awarded per each $1,000 of proposed Texas spending by approved applicants.

PROGRAM STRENGTHS:

• The program was created in statute.
• It is industry specific.
• The program has an independent office overseeing program and industry.
• The program includes the video game industry, making Texas unique and more competitive.
• It offers opportunities to show off Texas in a positive light through motion pictures and/or television.
• The grants and incentives are based solely on actual spending, and only for spending within the State of Texas, with an additional incentive for expenditures in underutilized/economically distressed areas.
• There is no cap on the incentive amount.

PROGRAM WEAKNESSES:

• The Moving Image Industry Incentive Program supports jobs and jobs may be created during each production, however there is no job creation measurement mechanism or jobs threshold tied to the incentive.
• Most jobs created in the Film/TV/Commercials sectors are either temporary, part-time (walk-on) roles, or leave the state upon project completion.
• Spending is on reimbursement for working capital, which has relatively less long-term economic benefit to the state than job creation or capital investment.
• Project benefits tend to be highly concentrated in certain regions.
• Data on jobs created, FTE jobs, spending, grants, grantees, etc. from the implementation of the Moving Image Incentive is not standardized making analysis difficult.
• Cannot accurately determine jobs impact. The variables in the FTE Jobs calculation utilized by the TFC can vary. Notable variables include project budget and length of time.
• There is no cap on incentive amount per project.

PROGRAM RECOMMENDATIONS:

• Broaden Approval Process. Consider broadening the incentive approval process to include more than the executive director of the TFC.
• Standardized Reporting. The information reported by the TFC is not reported by fiscal year or calendar year. CPA recommends the TFC standardize its reporting methods and report relevant information (industry, incentive, etc) on a regular basis.
• Review of Award Proportions by Industry Sector. The State should review the proportion of incentives awarded for each sector in comparison to the spending and job creation for that sector to evaluate whether the funding is being utilized to attract spending and create permanent jobs in the most efficient way.
  • The feature film industry is portable, and responds quickly to incentives – which means Texas may have to maintain or increase the level of incentives over time to continue to attract new projects.
  • The effective sales tax rate vs. grant availability:
    For feature film production, the effective sales tax rate – the ratio of indirect business taxes to film production spending – is less than five percent. However, these companies could potentially receive up to 17.5 percent of their total Texas spending or up to 29.25 percent of their total wage payments to Texas film workers making more than $5.⁶⁸
  • For video games the effective sales tax rate is more than seven percent, while these the video game companies can receive only up to five percent of Texas spending in grants.
• While making up only 19 percent of the grant receipts, the game industry is responsible for 41 percent of the spending and 45 percent of jobs created.

5.2 Program Objectives

The Moving Image Industry Incentive Program.⁶⁹

The objective is to increase the number of productions within the State of Texas and therefore, create jobs and retain workforce and infrastructure within Texas.

The Texas Moving Image Industry Incentive Program offers qualifying grants to industry sectors including:

• Feature films (both live-action and animated projects are eligible)
• Television programs
• Commercials
• Video games
• Stand-alone post-production/finishing projects

Each project has the opportunity to potentially receive a payment of 5-15 percent of eligible Texas spending upon completion of a review of their Texas expenditures. (See Table 16.)

There are two incentive payment options:

• Option A is based on percentage of in-state spending.
• Option B is based on total wages paid to Texas residents.

Additional awards are available for productions in “underutilized and economically distressed areas.”

WHAT ARE THE METRICS USED?

Film and Television Projects:

Minimum Qualifications:

• $250,000 in Texas spending
• 60 percent of shooting days completed in Texas
• 70 percent of paid crew must be Texas residents
• 70 percent of paid cast (including extras) must be Texas residents⁷⁰

The incentives payment schedule is based on Table 16.

Commercial Projects:

Minimum Qualifications:

• $100,000 in Texas spending
• 60 percent of shooting days must be completed in Texas
• 70 percent of paid crew, cast & extras combined must be Texas residents.

The incentive payment is five percent of total Texas spending. Texas spending can include eligible pre-production, production and post-production expenditures.

There is a potential bonus of an additional 2.5 percent incentive payment if at least 25 percent of the total days of filming are completed in an underutilized or economically distressed area of the state.

Video Game Projects:

Minimum Qualifications:

• $100,000 in Texas spending
• 60 percent of production days must be completed in Texas
• 70 percent of paid employees and contract labor must be Texas residents

The incentive payment is five percent of total Texas spending, with a potential bonus of an additional 2.5 percent incentive payment if at least 25 percent of production is completed in an underutilized or economically distressed area of the state.

Meeting the Objectives

Pursuant to section 485.022 of Chapter 485 of the Texas Government Code, the Film Commission developed procedures whereby submissions for grant applications and grant awards are determined. These are codified in TAC §121.

No award is made until productions have completed their spending in Texas and prove they have met or exceeded all criteria for the program. Final determination of the award is based on documentation of spending in Texas, proof of percentage of production time in Texas, proof of residency of production employees and other required submissions.

PROGRAM STATUS:

According to the TFC, in 2009:

• 244 film/TV projects took place in Texas.
• These represented $249.47 million in spending.
• The industry supported approximately 9,149 FTE jobs and over 45,000 part-time or temporary production employment opportunities.⁷⁵

The video game production industry in Texas has proven to be successful (especially in Austin) with:

• $234 million in corporate spending in 2009
• 3,400 permanent workers employed in the industry.⁷⁶

Overall, the TFC reports that the total reported estimated spending in the moving image industry has gone from $330.3 million in 2006 to $505.8 million in 2009.⁷⁷

The estimated number of permanent jobs reported by three key activities within the moving image industry (film, video and animation) increased from 10,854 in 2006 to 13,016 in 2009.⁷⁸

5.3 Moving Image Actual Awards Paid