Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=170338
Story Retrieval Date: 9/2/2014 8:57:52 AM CST
The 2002 film “Chicago” featured a star-studded cast singing and dancing its way across the Windy City, but not one of its scenes was shot within the city limits.
The movie’s producers decided, instead, to shoot in Toronto because generous Canadian tax credits allowed them to do more with their budget. Richard Moskal, the director of the Chicago Film Office, said missing out on “Chicago” was a wake-up call for Illinois legislators.
“It opened their minds that we were really losing out,” Moskal said. “Not only in money and jobs, but also in bragging rights, really.”
Many other state governments heard the alarm as well and began creating tax incentive programs to try to attract the millions of dollars and hundreds of jobs generated by film and television productions back to the United States. Illinois’ incentives lagged behind its neighboring states and Chicago movie production continued to struggle, hitting a decade-low of 14 films last year.
The state’s new and improved tax credit went into effect at the start of 2009. The new law, which provides a 30 percent tax credit on all in-state production costs, is one of the most generous in the country.
“These incentives have become an industry standard,” Moskal said. “We weren’t very competitive before and it took producers a while to see the change.”
He said many producers had already decided to shoot in other locations by the time the bill was passed, but results are starting to show in 2010. Chicago made headlines this summer while hosting “Transformers 3” and the future Matt Damon film, “Contagion” is scheduled to begin filming next week. Moskal expects the film industry will inject more than $100 million into Chicago’s economy this year compared with $70 million in 2009.
Despite the increase, several experts argue that such deals end up hurting the state’s bottom line. John Nothdurft, a budget and tax legislative specialist for the Heartland Institute in Chicago, said most states with film tax credits only recoup between 15 and 25 cents of every dollar they lose with the incentives.
Illinois has not released any cost-benefit studies at this point, but Nothdurft said he believes the results would be similar. He said that it doesn’t make sense to spend millions in an attempt to build up the film industry when Illinois is already facing a major budget deficit.
“Politicians like the film laws because it is much easier for taxpayers to see the benefits of a film production than, say, lowering the corporate tax rate by two percent,” Nothdurft said. “It gives them something almost tangible to point to and say, ‘Look, it’s working.’”
John Genz, an accountant who specializes in the film industry, said the system may actually be working. Genz said many of the cost-benefit studies are shortsighted because they don’t take into account the multiplier effect. He explains that the millions of dollars a production company spends on crews, hotels, food and other expenses ends up changing hands several times in the local economy and rack up other taxes for the state in each exchange.
For example, if a movie production costs $10 million, Illinois credits that company $3 million worth of taxes. If the money they spend stays within the state for five future transactions, it will have created more than $5 million in sales and revenue taxes. The multiplier effect isn’t always included in effectiveness studies because it’s impossible to gauge how long the money will stay within a particular state.
Like it or not, the incentives are now an industry standard and few producers will work without them. Peter Schindler, a producer for AMC cable television station, said he wouldn’t even consider working in a state that doesn’t offer some type of tax credit.
“The tax credit is always foremost when deciding on a location. The more you offer, the more people will come there to shoot.” said Schindler, who recently worked on AMC’s critically acclaimed show, “The Walking Dead.”
Sam Grogg, who became the dean of the University of Miami’s communication school after decades in the production business, said the credits are only worthwhile if a state has the crew and the accommodations to back them up.
“You need to have an infrastructure that can support a major film production. Otherwise, all the money you are saving in taxes gets spent flying in the people and supplies you need,” Grogg said.
Grogg said Chicago was high on his list of production cities because of the iconic backdrops and its existing production resources. He said there is usually enough talent in Chicago to form three to five movie crews at any one time.
Schindler, who has recently filmed a series of TV pilots in the Chicago area, said he gives Chicago a B or B-minus rating. He said a lot of the qualified crew left the area for more active spots such as Michigan. The Wolverine State has attracted a long list of productions since 2008 when it created what is currently the nation’s highest tax credit at 40 percent.
The biggest problem Schindler has with shooting in Illinois is the cumbersome auditing process that is required to qualify for the tax credit. The state demands that all refund requests be audited by certified public accountants and every dollar is accounted for. Genz’s accounting firm specializes in these types of audits and he said the painstaking process can cost clients as much as $50,000 to complete.
“You’ve got a project with a $10 million budget and we’re getting these little receipts from taxicabs and Dunkin’ Donuts and we have to make sure they are all legit,” Genz said. “In my opinion, the process is a little overly cumbersome.”
Illinois’ attention to detail makes more sense in light of recent corruption cases in nearby states. Last year Iowa legislators froze its 50 percent tax credit when they discovered producers were taking advantage of its lax accounting policies. In one case the credits were used in the purchase of two luxury cars that weren’t used for filming.
In Illinois, the state film office shoulders the responsibility of good accounting, according to Moskal. The director said the Chicago Film Office exists mostly to ensure everything goes smoothly during production. He pointed to this summer’s filming of “Tranformers 3” as a good example of what his office does.
Moskal said his office coordinated the long political and logistical checklist that allowed the Transformers crew to pull off the car chases and pyrotechnic stunts it needed. The daredevil stunts have attracted headlines in the past week because a movie extra filed suit against the movie’s production company after being seriously injured during a scene shot in nearby Hammond, Ind. The Indiana Occupation Safety and Health Administration declared the injury an accident Wednesday.
Moskal said he believes that when other producers see what Tranformers was able to do, it will firmly plant Chicago back on the map as one of the friendliest places to film in the country.
“Frankly, success breeds success,” Moskal said. “I think what ‘Blues Brothers’ did for this city in the early ‘80s, Transformers is going to do that and more.”