Wooing Hollywood with Alaska money

Kyle Hopkins
Crew members prepare for the first day of filming of the movie "Big Miracle" in West Anchorage on Sept. 16, 2010. The film stars Drew Barrymore.
BOB HALLINEN / Daily News archive 2010
Filming of the movie "Big Miracle" took place in downtown Anchorage in September 2010. The Bruce's T-Shirts store on Fifth Avenue was converted into a Greenpeace office for the shoot.
BOB HALLINEN / Daily News archive 2010
Actor Jon Voight gets his cue at Kincaid Park on one of the last days of shooting for the movie "Beyond" in December 2010. Voight plays an Anchorage police detective in the crime thriller that premiered this month. Alaska's lucrative incentive program for the film industry is set to expire in 2013.
Bob Hallinen
Anchorage resident Steve Rychetnik worked on the three movies recently shot in Anchorage -- "Beyond," "Big Miracle" and "Frozen Ground." In the latter, he was one of two cinematographers.
BOB HALLINEN / Daily News archive 2010

In the winter woods of Kincaid Park, an Anchorage police detective played by Jon Voight tells a greasy kidnapper to let the child go. Voight's breath steams in the cold.

Crack! One gunshot. Then another.

Behold the opening moments of "Beyond," a low-budget crime thriller that premiered earlier this month at the Bear Tooth theater to a friendly crowd of Alaska politicians and local film industry insiders, stagehands and police officers. The picture, a supernatural whodunit, could have been shot virtually anywhere.

The producers chose Alaska, where a 3-year-old subsidy program allows eligible movies and television shows to be reimbursed by the state of Alaska for a third of their budgets. Among the things covered: star and crew salaries, transportation, set construction and wardrobe, editing and other production costs, food and hotels. The Alaska incentives are among the most generous in the country, according to a December 2010 study.

As other states wrestling with budget deficits roll back or rethink their own film industry subsidies, Alaska's program continues, so far doling out $13 million to a string of reality-TV shows and, increasingly, feature movies. Producers for movies big and small say it's a key reason they're here.

But the program, approved by the Legislature and signed into law by then-Gov. Sarah Palin in 2008, carried a sunset provision that forces a review after five years. Under the law, the program ends in 2013 unless the Legislature extends it. So lawmakers now are being asked to pledge another $200 million to the program over 10 years.

In many ways, the film incentives appear to be a success. Producers spent tens of millions of dollars shooting movies in and around Anchorage over the past 13 months, drawing stars such as Drew Barrymore and Ted Danson, Nicolas Cage and John Cusack. Many Alaskans scored jobs as actors, camera operators and crew. Stars ate at local restaurants and stayed at local hotels, and film boosters imagine a subsequent wave of tourists.

Finally, movies about Alaska are being filmed in Alaska.

Sometimes lost in the excitement, though, is a simple, less glamorous question. Is competing for Hollywood productions, and the state spending on the effort, really worth the cost?

Tax policy watchdogs who have looked closely at programs like Alaska's nationwide say no.

"A film tax credit is a very highly inefficient way of creating jobs for the citizens of Alaska," said Robert Tannenwald, former president of the National Tax Association.

ALASKA PROGRAM MOST GENEROUS

Now a lecturer at Brandeis University in Massachusetts, Tannenwald authored a study of such film incentives for the left-leaning Center for Budget and Policy Priorities in late 2010.

He found:

• Film subsidies generally do not pay for themselves, with in-state tax revenue returns as low as 7 cents to 28 cents per dollar awarded in incentives. In states with film subsidies, jobs created for local residents tended to be part-time, relatively low-paying work such as hair-styling, security, transportation and catering. The best-paying jobs went to workers imported from industry hubs such as Los Angeles.

• Even states that are the most successful at building long-term, local production centers, such as Louisiana and New Mexico, would struggle to maintain film production without public money helping to pay the bills.

• Alaska's film subsidy was the most lucrative in the nation, followed by Michigan, which has since curtailed its program.

A study by the Tax Foundation, a right-leaning policy think tank, came to virtually the same conclusion in a 2010 report titled "Blockbuster Support for Lackluster Policy." A record 40 states offered some kind of film and television incentive in 2010, giving away $1.4 billion, the foundation said.

In 2009, that figure dropped to $1.3 billion and is on the decline, the group said, as states such as Arizona, Arkansas, Idaho, Maine, New Jersey and Washington suspended or eliminated their subsidies.

"There's been a lot of pushback from policy experts on film tax credits, saying these probably aren't worth the cost," Tax Foundation economist Mark Robyn said in a recent phone interview.

The fierce competition among states to land movie productions leads local governments to offer generous incentives, the Foundation says. A result, the analysts say, is a scenario that can benefit film producers more than local workers, who may only be employed as long as the subsidies remain.

"It is unlikely that movie production incentives generate wealth in the long run," the Tax Foundation report concludes. "Most fail even in the short run."

The Massachusetts Revenue Department reported this month that every full-time job created through that state's film incentive cost about $142,500 in public money.

The film industry and its supporters, in Alaska and elsewhere, denounce such conclusions as shortsighted and incomplete. Analysts ignore the wide economic ripple of Hollywood spending in states and cities, they say, from restaurant bills paid by film crews to tourism visits inspired by seeing neighborhood locales on film. Film crew jobs are no more temporary than construction work, supporters say, while entry-level work builds local resumes for higher-paying gigs in the future.

Even the Tax Foundation acknowledges the programs are popular with the public. Programs were extended or expanded this year in Minnesota, Utah, Wyoming and elsewhere, the group reported in June.

"A VERY YOUNG INDUSTRY"

Despite conclusions drawn by tax-policy analysts that film incentives are often a poor investment, competing studies claim just the opposite.

A 2010 study funded by the Rhode Island Film Collaborate reported that every dollar spent on film subsidies generated $8 in business in the state.

Tax-policy analysts like Tannenwald are skeptical of such industry-funded studies and warn that competition to win movie production has led to an arms race among states to offer the biggest giveaways to filmmakers.

Washington this year opted out of the film incentive competition, cutting funding for its 30 percent rebate program. In Alaska, champions of the film subsidy argue the program is doing exactly what it is supposed to: spawning job after job and seeding a small but renewable industry as oil production -- the lifeblood of the state's economy -- declines.

"This is a very young industry that is just starting to walk," said Carolyn Robinson, owner of the Anchorage film production services company SprocketHeads. "The more movies we get here, the more locals we'll get trained and move up the food chain of production."

Alaska may offer a high potential subsidy of up to 44 percent, supporters of the incentive say, but in practice, incentives are awarded for only 30 to 34 percent of their spending, according to Alaska Film Office numbers.

It's unclear exactly what expenses the state is reimbursing filmmakers for in Alaska because the state has refused to release detailed accounts of its spending on individual movies and TV shows. The Commerce Department in 2010 denied a Daily News public records request for unredacted, pre-approved production budgets. That information is proprietary and "being withheld to protect the privacy rights of the producers as guaranteed by the Alaska Constitution," the department said.

The department recently unlocked overall figures for many of the first productions to take advantage of the subsidy, however.

The new numbers show that, for now, much of the money flows to the Lower 48.

WHO'S BENEFITING THE MOST?

No more than 30 cents per dollar subsidized under the film incentives went to Alaska workers or businesses, according to applications approved by the state through Oct. 31 and provided earlier this month by the Commerce Department.

Alaskans are getting paid, the Commerce Department numbers show, but visiting workers are making far more before returning to their home states. (Unlike some incentives, Alaska's program does not place a cap on reimbursements for so-called "above-the-line" salaries for actors, directors and producers.)

For every dollar made by Alaskans, non-Alaskans made nine dollars on productions approved for reimbursement under the subsidy, according to the department.

Those numbers only tell a small part of the story, however. Missing from the figures are the biggest players in Alaska's mini-movie boom.

The statistics do not include spending on the two largest movies to film entirely in Alaska. The Alaska Film Office earlier this month was still awaiting a final subsidy application for "Big Miracle," the fictionalized retelling of a 1988 gray whale rescue near Barrow. "The Frozen Ground," starring John Cusack as Alaska serial killer Robert Hansen, has not yet finished production.

In interviews, producers on those films have estimated the budgets at the mid-$30 million range for "Big Miracle" and mid-$20 million range for "Frozen Ground." Without the incentives, they say, the movies likely wouldn't have filmed in Alaska.

The making of "Big Miracle" alone paid an estimated $11.7 million to Alaska workers and businesses, according to a February report prepared for the Anchorage Economic Development Corp.

Meanwhile, the calls keep coming from producers with their eye on Alaska, Robinson said. Representatives from as many as five major features phone each week, inquiring about filming in the state.

"We've got the other ones, like jumbo jets filled with cash, ready to land here," she said.

LEGISLATURE TO DECIDE

Sen. Johnny Ellis, D-Anchorage, sponsored the proposal that created the film subsidy in 2008. He says it should be no surprise that other recession-battered states are trimming back their incentives as they face bankruptcy and demands to cut their budgets.

With high oil prices buoying revenues, Alaska is now in a prime position to compete for films, Ellis said. "If every other state was flush with money, I would venture that they would have continued their film and television production incentives."

But not all lawmakers are so sure.

The proposal to extend the film incentives now rests in the House Finance Committee, where co-chairman Bill Stoltze, R-Chugiak, said he voted against the program three years ago and remains a "hard sell" on the subsidy.

Another skeptic, Rep. Mike Hawker, R-Anchorage, says big changes to the incentive may be in order.

"It's great for people that want to look at superstars walking down the street in the state of Alaska," Hawker said. "But what is it doing for in-state jobs?"

David Linck, a publicist who worked on both "Big Miracle" and "Frozen Ground," says he's seen the benefits firsthand.

"I know for a fact that the film incentive is working for Alaskans, not against them," Linck said. "Because of it you now have a talent base in Alaska that never existed, and with each subsequent film less people need to be hired in the Lower 48."

April Frame, 28, counts herself among the aspiring filmmakers who have been able to pursue their dream job while staying in Alaska because of the film subsidy.

Born in Fairbanks, she attended film school in Denver before returning to Alaska for the summer four years ago. At the time, a film career in the Last Frontier seemed out of the question.

"I actually looked into going back to school to become a paramedic," Frame said. "I was able to get jobs here and there, but I wasn't making enough money."

Then came "Big Miracle." Originally titled "Everybody Loves Whales," the movie was filmed over 10 weeks last year in Anchorage by director Ken Kwapis ("The Office").

Frame, who wants to be a director of photography someday, worked as a set grip. "Christmas every day," she said.

"I learned more on that 10 weeks than I had in four years of film school, easily," said Frame. On "Frozen Ground," the tale of a victim escaping Alaska's so-called "Butcher Baker" serial killer, she landed work as an assistant in the camera department.

Filming on "Frozen Ground" ended earlier this month. "Big Miracle" hits theaters Feb. 3.

Alaska workers -- crew members, extras and actors -- earned about $4 million in wages on the family friendly, whale rescue film, according to the February report for the city economic development corporation by the McDowell Group. The study is based on numbers collected from production services companies and Alaska businesses, rather than direct spending reports from the film producers.)

The filmmakers spent another $7.7 million on goods and services in Alaska, renting cars and buying groceries, renting hotel rooms and buying half a million dollars in ice from seafood processing companies to re-create a slice of sea ice in Anchorage's Ship Creek, according to the report.

Next year, lawmakers will be asked to weigh those benefits and others against cost of the film subsidies to the state treasury, which could be up to $200 million over 10 years under the current proposal.

Film incentive supporters are quick to note that calls for tax breaks or subsidies to energize business are a familiar territory in Alaska. At the same time they are being asked to reauthorize the movie incentives, lawmakers continue to debate the proposal by Gov. Sean Parnell to roll back oil-production taxes in hopes prodding new development.

Both debates invite partisan bickering as Democrats wonder why the Republicans would talk of blocking film subsidies but supporting tax breaks for the oil industry. Republicans question why Democrats would fight reducing oil taxes but support film incentives.

"It takes time to grow a business," said Linck, the movie publicist. "If this was the oil business, these Republicans would have no qualms whatsoever about this incentive going towards oil expenditures."

FEWER INCENTIVES FOR REALITY TV

Some changes to the Alaska subsidy are being discussed.

Ellis has called for reducing the amount the state pays to reimburse reality TV shows, which generally bring fewer jobs and spend less money in Alaska than scripted series and feature films.

While Alaska-based reality series have flooded cable television, the grandfather of them all, Discovery's "Deadliest Catch," premiered long before the state offered any incentives. In interviews earlier this year about the wave of Alaska reality shows, cable executives such as History Channel senior vice president David McKillop said incentives are welcome, but don't make or break a cable channel's decision to launch a series, which is different from what you hear from movie producers with Alaska projects.

"The show has to stand on its merits," he said.

Robinson, the film production services company owner who lobbied lawmakers to launch the film subsidies, said she'd like to see the incentive program changed to prevent movie-makers from receiving their tax credit payment until they pay Alaska vendors and workers.

Stoltze, co-chairman of the House Finance Committee, and Rep. Hawker say they support a change that at least some film incentive supporters fear could be fatal to the program: Switching from a long-term transferable tax credit program to appropriating a certain amount of money each year to film subsidies.

"If we're going to offer basically just free access to the treasury, we should just have the courage to stand up and write the check," Hawker said.

Some film incentive supporters say that could undermine Alaska's ability to compete with other states for productions. Rather than setting aside a large chunk of money for film subsidies over a decade, as Ellis has proposed, it would leave the film incentive program vulnerable to political haggling every year as lawmakers decided whether to spend money on movies and TV shows.

Alaska would lose its appeal to filmmakers under that scenario, said Robin Kornfield, president of Piksik, a new production services company created by NANA Regional Corp.

"Opportunities to create a whole new sector are few and far between, and I think we should see where this can go for us," she said.

A 10-year extension of the program would signal to movie producers that Alaska is a good place for long-term business, said "Frozen Ground" producer Randall Emmett, who has at least six movies planned for release in 2012.

"If the state would guarantee that the incentive will be around for a certain amount of years, I would invest in real (film) infrastructure here. Studios, the whole thing," Emmett said on set in Muldoon earlier this month. "It's just the hard thing is you've got to find a place that will back you."

"ALL THE RIGHT BELLS AND WHISTLES"

The number of states willing to take that gamble, however, is waning as governments discover their subsidies aren't generous enough, are too generous to pay for themselves or under attack politically, said Will French, president of Louisiana-based Film Production Capital. The company packages and sells tax credits and monitors incentive programs across the country.

"Up until about one year ago, there was a push among all the various states and U.S. territories to enact these tax incentive programs," French said. "They did so without much debate and without much understanding of the film industry."

Where does Alaska's subsidy fit in?

"You've got on paper a program that has all the right bells and whistles," French said. "The rates are in the right range to get the business."

To be competitive in the long-term, he said, Alaska would likely need to add some kind incentive for building movie-making infrastructure such as sound stages or film labs. States that create crew bases and prepare for a long-term movie industry are the ones that won't lose business overnight when the movie industry is weaned off of incentives, he said.

Even then, it doesn't make sense that Alaska would rival large movie-making hubs like Louisiana and Vancouver, B.C., that gained a head start in attracting regular productions, he said.

But even capturing a small portion of the movie business can have big economic benefits, French said, and Alaska has the potential to become a minor hub for northern-based movies.

"The key to it," he said, "is going to be making sure that you don't overspend to create that amount of production work going forward in the future."

Twitter updates: twitter.com/adn_kylehopkins. Call Kyle Hopkins at 257-4334 or email him at khopkins@adn.com.

The Alaska Film Office has approved state subsidies for 30 film and television projects as of Oct. 31. The spending figures for the two biggest movies, "Big Miracle" and "The Frozen Ground," are not yet available. The numbers to date, however, show that of $40.9 million in spending subsidized by the state, about 70 percent of that money has gone to pay for wages earned by non-Alaskans: • Wages earned by non-Alaskans: $28.6 million (516 direct jobs) • Wages earned by Alaskans: $3.1 million (695 direct jobs) SOURCE: Department of Commerce, Community and Economic Development How Alaska's film-incentive program works The way Alaska's film subsidy works is often misunderstood. It is not simply a tax break for Hollywood producers. Instead, the program calls upon the state government to pay 30 to 44 percent of the budget for all eligible productions filmed in Alaska. Here's how it works: • Filmmakers who want to shoot a TV show or movie in the state apply to be pre-approved for the subsidy. • After the production is finished, the producers submit an account of their Alaska spending, verified by an Alaska certified public accountant. Higher subsidies are awarded for hiring Alaskans, filming in the winter and shooting in remote locations. • The state reviews the final application and, if approved, a subsidy is awarded. But rather than cut the filmmakers a check, the state provides the money in the form of transferrable tax credits. • The filmmakers, who pay little or no taxes in Alaska, sell the credits at a discount to a company that owes corporate income tax to the state. The state does not reveal which companies buy the credits. • At some point, the company that purchased the tax credits will cash them in. The state misses out on that corporate income tax and, indirectly, ends up paying for portion of the movie or TV show. -- Kyle HopkinsCost to the state

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By KYLE HOPKINS
Anchorage Daily News
Contact Kyle Hopkins at or on