Where the Cameras Aren’t

Written by Craig Outhier Category: Hot Topics Issue: July 2015
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Lacking a tax incentive program for film and TV production, Arizona loses the economic equivalent of a Super Bowl every year. Will the Grand Canyon state ever be ready for its close-up?

From the beginning, the story had “Karate Kid-style feel-good flick” written all over it. And it belonged to Arizona.  

The real-life saga in question culminated in a California university swimming pool in 2004, where four students from Carl Hayden High School in Phoenix – each of them Mexican immigrants from poor neighborhoods – shocked the engineering world by winning an underwater robotics competition against genius-level competition, including a team from MIT. When Wired magazine profiled the Carl Hayden team in April 2005, triggering a wellspring of TV news segments, radio interviews and newspaper articles, it seemed a given that someone would get the notion to turn their underdog story into a movie.

It didn’t take long. Within a few months, Warner Bros. snapped up the rights to the Wired article. After a fit of stops and starts, the project fell into the possession of actor George Lopez, who cast himself as the team’s academic advisor. The film was a go. Producers started scouting Phoenix for an on-location shoot.

A coup for the Valley, right? Though by no means a big-budget production – a little over $10 million, according to reports – the movie would theoretically employ a flock of Valley-based gaffers, grips, craft services workers and other tradespeople for up to three months. Moreover, it would give Phoenix a nice prestige lift. A family-friendly story of American gumption and pluck, shot in the very city that spawned it in the first place.

Or not. The movie – eventually titled Spare Parts – hit theaters last spring. But aside from some cursory “second unit” shots, none of it was filmed in Arizona. The movie was instead shot in Albuquerque, a city “that really looks nothing like Phoenix,” as one local critic dourly noted.

So why did Lopez and the rest of his Hollywood cast fly to New Mexico to shoot a Phoenix-based movie when the genuine article was 400 miles closer? The simple answer: New Mexico has a tax-rebate program for film and TV productions, and we don’t. And that’s unfortunate.

The darling of Hollywood-friendly regional film offices, and bane of anti-subsidy activists, tax rebates stormed onto the scene in the 1990s and effectively reshaped America’s film production landscape. The concept is simple: Rebates allow producers – both out-of-state and local – to recoup a percentage of the money they spend in a given state on hotel rooms, catering, actors, electricians, you name it. The “tax” qualifier is a bit of a misnomer. In fact, the rebates – which can total 40 percent or more of a production’s total expenditures – often exceed the total tax bill.

If that sounds more like a kickback, well, maybe so. But selective tax relief is hardly an anomaly in Arizona, and economists generally agree that film production rebates pay for themselves and then some. No matter. A stiff ideological headwind continues to scuttle legislation that would institute a new tax incentive program for Arizona, and the state – once known as “Hollywood’s backlot” for its roaming herds of TV and film crews – is looking more like a Hollywood afterthought.

FROM STAGECOACH TO STAR WARS
Question: What do Bad Santa, 3:10 to Yuma and the TV show Medium all have in common?

Answer: All took place chiefly in Arizona, and all were shot elsewhere. California, New Mexico and California, respectively.

Hollywood is cruel like that sometimes, but most insiders agree that Arizona has suffered a swift and mighty fall from grace as a shooting destination, relative to the long cinematic history that preceded it. Silent film star Tom Mix shot cowboy movies in the Valley in the 1920s. Later, during the Golden Age of Hollywood, Arizona became a preferred shooting locale of such cinematic titans as Howard Hawks (Red River, Rio Bravo) and John Ford (Stagecoach). Eying a semi-permanent outpost for its Western productions, and a location in which to shoot Arizona with William Holden and Jean Arthur, Columbia Pictures built Old Tucson Studios in 1938. Dozens of movies were shot there over the decades that followed, including recent Westerns like Tombstone (1993) and The Quick and the Dead (1995).

Certainly, the state has always excelled as a backdrop for Westerns and frontier flicks. But that isn’t the only genre suited for Arizona’s biodiversity and year-round sunshine.

“We called ourselves the Cheaters,” recalls Bill Killpatrick, a longtime operative at the now-defunct Arizona Film Office, which marketed Arizona to production companies in Hollywood and elsewhere. “You know, because we could help you as the filmmaker ‘cheat’ all kinds of different looks in Arizona.”

Over the decades, Arizona performed capably as a stand-in for the Middle East (The Kingdom, Three Kings, Jarhead), the Southern California suburbs (Bill & Ted’s Excellent Adventure, Kids in America) and post-apocalyptic Anywhere, USA (The Postman, Planet of the Apes). Portions of the Tatooine scenes in Star Wars (1977) and Return of the Jedi (1983) were filmed near Yuma, and Phoenix lent an authentic air of last-stand moral desolation to such ‘70s urban cop sagas as The Gauntlet (1977) and Electra Glide in Blue (1973).

Launched in 1974 under Governor Jack Williams, the film office functioned as a statewide emissary that performed a service function for smaller, city-based film offices by coordinating location-scout visits and making first contact with out-of-state production companies.

“[The film office] had a pretty consistent marketing program in trade publications and a strong presence at trade shows attended by the film production community,” Killpatrick says, explaining the success of the state’s production outreach program. “We were second to none for many years. We had a good reputation. When a location scout contacted us with a script, and we didn’t think it was right, we’d say, ‘Thank you for sending this, but you can’t realistically shoot this here.’ And you develop those relationships over a long period of time. We also had two Suburbans, so we could pick up [locations scouts and producers] at the airport and take them right to the location.”

At its peak in the early 1990s, the Arizona film industry averaged “16 feature films, 200 national commercials, two dozen [TV movies]... and a mix of international film productions from Canada, Italy and others,” Killpatrick says.

Today, the state is lucky to score one or two feature film shoots a year, and perhaps a few dozen national TV commercials. So what happened?

According to Shelli Hall of the Tucson Film Office, the seed of Arizona’s demise as a shooting destination was planted in the 1980s, when Canada launched the first North American tax incentive program for film and TV productions. The effect was not immediate. It took until 1993, when a show about a pair of paranormal investigators debuted on Fox, before industry pros felt the sea change.

“When Canada got The X-Files, that was a big thing,” Hall says. “Around the same time, a lot of movies-of-the-week started filming in Canada, too. And that’s when Louisiana and New Mexico  started to mimic those programs after seeing how successfully they courted Hollywood. And we’ve been struggling ever since to lure business here.”

At its peak, Arizona averaged around $100 million a year in production-related revenue, Killpatrick says. By the early 2000s, it was about half that. Instead of doubling down on the Arizona Film Office, lawmakers started defunding it. By then a shell of its former self, the office was eliminated completely in 2011.

The Suburbans were reassigned to the State of Arizona motor pool.

THE BARBRA EFFECT
Hemorrhaging production revenue to Canada and the growing list of states with a tax-rebate program – a list that now includes 39 states – Arizona ratified legislation to adopt its own, five-year program in 2005. Its efficacy depends on who you talk to.

“It was a successful program,” Phoenix Film Office Director Phil Bradstock says. A former production coordinator and location manager on TV shows like Nikki and The Center of the Universe, Bradstock has overseen the City of Phoenix’s film office through some of its most challenging years. And the numbers don’t lie – buoyed both by big-budget studio features like The Kingdom and locally-produced indie features like the Brian Pulido-directed horror flick The Graves, Phoenix enjoyed a meaty spike in multimedia direct spending from 2005 to 2010, the five years in which Arizona had a tax incentive program (see chart).

“To me, if you just look at the numbers, it was very effective,” Bradstock says. “The years when we had the incentive shows a boost. There was a flaw in the program that was corrected, which basically had to do with how productions applied for the project. Early one, producers who didn’t have a tangible project were allowed into the program, which tied up money so legitimate projects couldn’t get in. But that was fixed.”

It was not an aggressive program by industry standards. According to Hall of the Tucson Film Office, the tax credit was capped at 20 percent of a production’s in-state expenditures – “taxable labor, car rental, hotel rental, that sort of thing” – much lower than New Mexico’s current 30 percent credit or the 40 percent handed back by Michigan during its most aggressive phase. The Arizona program was also “extremely selective,” excluding many small-budget productions and restricting eligible labor costs to in-state crew only.

“New Mexico has a very aggressive program,” Hall says. “The program can include some out-of-state crew, and some in-front-of-the-camera talent (read: actors).”

According to the Louisiana film office website, that state granted $196 million in tax credits to media productions during the 2010 calendar year. Arizona’s program never came within a tenth of that.

All the same, the incentive program encountered – and still encounters – furious opposition from anti-tax, small-government crusaders in Arizona.

Per the wording of the bill that created it, the program expired in 2010, and reviving it has amounted to a yearly exercise in futility for proponents of the program. They came closest in 2013, when State Senator Al Melvin – a Tucson Republican with strong Tea Party bona fides – introduced a bill that would have reinstated a 20 percent tax credit for entertainment productions that spend $250,000 or more in Arizona.

For his trouble, Melvin found himself the subject of attack ads in Tucson-area newspapers by an anti-tax group called the Arizona Free Enterprise Club, which also sent critical mailers to Republican voters in Melvin’s affluent Saddlebrooke district. In his own op-ed in the Southern Arizona News-Examiner, Melvin lamented being pictured next to “wild-eyed liberals Barbara (sic) Streisand and Michael  Moore” in the ads, which intimated that Arizona tax subsidy programs would put money directly into the pockets of freedom-hating Hollywood fat cats.

To put it politely, the ads appealed to prejudice and emotion, not reason. As an international multimedia doyenne who rarely acts and a marginalized Bush-era provocateur, respectively, Streisand and Moore are hardly representative of modern Hollywood. Nor would tax incentives enrich them personally if they were to shoot a film in Arizona – unless they’re Mel Gibson, filmmakers rarely fund their own projects.

Opponents of the tax incentive program were successful in keeping at least one familiar Hollywood face out of Arizona: producer Jerry Bruckheimer, creator of such notorious leftist tracts as Pearl Harbor, Armageddon and Top Gun.

In 2012, University of Arizona graduate Bruckheimer was gearing up to shoot The Lone Ranger with actor Johnny Depp. The action-packed Western turned out to be a monumental flop, but nobody knew or cared at the time – it had a projected $200 million budget and was the year’s big prize among Southwest film offices, Hall recalls. “The movie had a very high-profile location manager who I worked with in the old days and he told me ‘We really want to film in Southern Arizona, but we can’t justify it without the incentives.’ Keep in mind, this would be $60 or $70 million for the state. It was huge.

“So he asked me: ‘Can’t you do something legislatively or lobby the governor or talk to the Department of Commerce?’ So we had to do something. We met with the president of the U of A and asked him to call Jerry Bruckheimer. And he actually called Jerry, told him ‘We really want this movie.’ It just didn’t happen.”

Ultimately, a few exterior scenes were shot in Northern Arizona, but the lion’s share of The Lone Ranger went to New Mexico.   

Another tax incentive bill – HB 2621 – was authored in the 2015 legislative session, but it died an ignominious death, never making it out of committee. In arguing against the bill in the Arizona Republic, Scot Mussi of the Arizona Free Enterprise Club complained that the previous tax incentive program “ended up costing taxpayers millions while providing little benefit.” He went on to write that “taxpayers shelled out over $2.6 million in tax credits to moviemakers” in the final year of the program, “while only generating $600,000 in tax revenue for the state.”

Such insights strike film-industry supporters as woefully, willfully nearsighted. Tax revenue is immaterial when discussing the merits or effectiveness of a tax-incentive program, which by definition gives all the tax revenue away. The real value is in economic development. According to former Phoenix Film Office operative Killpatrick, every dollar spent by an out-of-state production company is worth five dollars in local economic impact. “That’s what my economists told me,” he says.

Other, more conservative estimates have pegged the equivalent economic impact at 3-to-1. It’s the same wide-ranging calculus used by Super Bowl Host Committees and other development agencies, factoring retail spending, long-term investment and other data-driven vectors.

In his Republic op-ed, Mussi – who didn’t respond to a PHOENIX magazine interview request – wrote that Louisiana’s no-ceiling tax incentive program “cost taxpayers $170 million in [2010],” according to the state’s own performance audit.

A quick review of the audit in question, available online, confirms this figure. But Mussi never identifies what those rebate payments bought for the Louisiana economy, according to the same audit: more than $1 billion of positive economic impact, in the form of hotel rooms for grips and gaffers, craft services for the crew, building rentals, permit fees, make-up artists, tangential real estate investment, ad infinitum.

That’s one billion, to clarify. More than twice what New Orleans raked in for Super Bowl XLIV in 2013.

STUDIO ENVY
It’s difficult to estimate just how many cinematic Super Bowls Arizona has lost since 2010. Besides The Lone Ranger, several Hollywood productions stand out as films that could have been shot in Arizona, but weren’t: John Carter of Mars, Exodus: Gods and Kings, Argo, The Hurt Locker, American Sniper.

And Spare Parts, naturally.

Hall is particularly stung by how well New Mexico has fared with its rebate program. Film and TV productions spent more than $200 million in the Enchantment State last fiscal year, buoyed in no small measure by the Avengers franchise, which set up shop in Albuquerque on the strength of its incentives and improved filmmaking infrastructure.

“I saw the line item for their hotel costs: it was $15 million!” she gasps. “[The original Avengers] crew base was 250 people... now there’s over 5,000 people who they train and employ behind the camera. Filmmaking is an itinerant business, you move to the work... and we had production designers, grips, electrical people... they had to move to New Mexico to get work. I thought about moving, to be honest.”

In 2007, Albuquerque business leaders unveiled Albuquerque Studios, a humming, 28-acre facility and soundstage complex where the NBC medical drama The Night Shift is shot and produced. For Phoenix film business advocates, it’s a stinging reminder of what might have been. Two incipient soundstage projects – one in the East Valley, another in the West Valley – were scuttled when Arizona’s tax incentive program expired.

Opponents of film subsidies take heart that the practice is under scrutiny in several of the 39 states that currently offer them, including Alaska, where the state legislature recently voted to repeal their program. But other states are “doubling down,” according to a May 18, 2015 Pew report. Last year, California tripled its program ceiling to $330 million, according to the report.

Arizona will never supplant California as a movie mecca. But we don’t need to. We just need to create a business climate level with the rest of the country, so the next time there’s a real-life, feel-good drama that takes place in Phoenix, they actually film it in Phoenix.

Creating a new Arizona Film Office would be a good start, a low-overhead way of engaging the entertainment industry and a necessary step in reviving the film and TV courtship ritual. And it’s probably the most proponents can hope for in the near future. Somebody will undoubtedly author a new film incentive bill during the next legislative session, but those who’ve been burned by the process aren’t holding their breath.

“In 2011, we got the bill through every committee, and got it passed in the House,” Hall recalls. “Then it went to the floor of the Senate on the last day of session... and it didn’t get introduced for a vote. You can only try so much. It just isn’t the right time.”