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Audit: Gaps to be filled in Alaska film tax credit program

Ben Anderson

EDITOR'S NOTE: This article was updated Oct. 18, 2012. The original version was erroneously based on a dated audit of the Alaska film tax credit program, and not the most recent audit, delivered to the Alaska Legislature in August 2012. The current version has been updated to reflect the most recent audit's findings. 

An audit conducted on Alaska's still-young film tax credit program indicates that the controversial program seems to provide an economic benefit to the state, though it admits that there are some ways to improve the system.

The Alaska film tax credit was renewed during the 11th hour of this year's legislative session, ensuring 10 years or $200 million in further tax credits for productions filming in the Last Frontier.

The program has proven controversial, with some questioning the effectiveness of such a tax credit, especially given that many productions bring up their own cast and crew, rather than rely on local talent. Supporters of the program hope that issue will work itself out over time, as film industry hopefuls gain experience working from one film set to the next.

Additionally, concerns have been raised about the lack of transparency surrounding the awarded tax credits. After a producer has received their tax credit -- the largest yet has totaled more than $9.6 million -- they can then turn around and sell that credit to a corporation operating in Alaska.

Other states have experimented with film tax production incentives, but in recent years, several have reconsidered, eliminating the credits after concluding that they didn't stimulate economic production. Some states even concluded such tax credits harmed their bottom lines.

Auditors: Tax credit creates jobs, at a cost

The most recent audit, delivered to lawmakers in late August concluded that the Alaska film tax credit program has had a positive impact in the state, equating to about $2 of economic output for every dollar of production tax credit issued. That's according to a report done by Northern Economics intended to evaluate the impact of the program on the state’s economy.

Additionally, auditors found that the equivalent of 432 full-time jobs for Alaska residents have been created by the program. From 2008-2011, the program was responsible for about $8.1 million in direct wages for Alaska residents. This pales in comparison, though, to the wages paid to out-of-state cast and crew, almost $48 million.

Of course, that number can also include larger wages paid to some of Hollywood's biggest stars, like Drew Barrymore and Ted Danson in the Alaska-filmed "Big Miracle."

The report does warn, however, that despite the rosy numbers from the injection of cash related to production in the state, the program doesn’t pay for itself in taxes.

"The consultant's analysis estimated that the total $21.2 million in tax credits issued by the State generated economic activity resulting in an estimated $1.2 million in additional taxes and fees," the audit said. "The program does not pay for itself and, through February 2012, has created a fiscal deficit totaling $20 million."

Additionally, the audit notes several problems with the language that regulates the film tax program. Included among these were a need to explicitly outline what would constitute a production as being "in the state's best interests," a vague bit of language left up to the Alaska Film Office's discretion. This recommendation was also made in another audit earlier this year, before the program was extended.

To their credit, the Alaska Film Office has denied at least tax credit based on the argument that it wouldn't have been in the state's best interest to provide an incentive for two proposed productions.

Most of the recommendations revolve around ensuring that productions are accurately reporting in-state expenditures and confirming that reported resident wages are, indeed, going to Alaska residents. Each film tax credit applied for is subject to review by an independent accountant, and the audit expressed concern about production companies not being completely transparent with those consultants when it came to wages paid to Alaskan or out-of-state residents.

The report concluded that although the raw numbers seem to indicate a positive economic impact in due to the program in Alaska, it warned that the program is complex and there may be more to learn from the way it's operated. Other states have also seen economic benefits in production incentive audits, though the true impact can be difficult to judge.

"The significant variations in the design of film production incentive programs and differences in state tax structures make comparisons between states problematic," the report said. "Other states' impact analysis reports on film production incentive programs indicate that all film production programs create positive economic impacts while in operation."

Overall, production in Alaska seems to have lulled in the months following the Legislature's renewal of the program. Since the fiscal year began on July 1, only nine productions have been approved for tax credits, none of them feature films, and most commercials or reality TV programs.

The last feature film to be completed in Alaska under the program was the Nicolas Cage-John Cusack flick “The Frozen Ground.”

Contact Ben Anderson at ben(at)alaskadispatch.com