States Race to Woo TV and Film

Producers Showered With Incentives; Moving 'Ugly Betty'

By PETER SANDERS
The Wall Street Journal

An arms race has broken out among states hoping to lure big-budget movie and television productions with financial incentives.

In the past month and a half, at least four states -- Georgia, New York, Mississippi and Michigan -- have increased the scope of tax credits, cash rebates and other incentives to encourage spending money in the state and hiring local workers. They are competing with nearly 40 other states and U.S. territories that have incentive programs on the books, some with established film- and TV-production infrastructure, including New Mexico, Texas, Louisiana and Pennsylvania.

California, Hollywood's home state, offers no incentives to producers despite several efforts in the state legislature. Concerns about "runaway production" cropped up again this spring when the producers of ABC's TV hit "Ugly Betty" decided to move production to New York from Los Angeles. New York recently sweetened incentives so that producers can receive back up to 30% of their production expenses via a tax credit, or 35% of expenses in New York City.

The ABC move prompted the show's Los Angeles crew to take out a full-page advertisement in the trade paper Daily Variety calling on the state to enact incentives. The latest incentives bill, now in the California state legislature, faces long odds. In the wake of "Betty's" departure, Gov. Arnold Schwarzenegger said he would like to offer incentives similar to those offered by other states, but it's difficult when the state faces a budget deficit that could hit $20 billion next year.

In recent years, Hollywood producers have flocked to Canada, Eastern Europe and other places chasing the business. But these days, the dollar's fall against foreign currencies has made those places less appealing.

"We're exploring more in the U.S.," says Gary Barber, chief executive of Spyglass Entertainment in Los Angeles. "With the weaker dollar and incentives provided domestically, it's now very attractive to shoot in the States."

Among the U.S. states trying to attract his business is Michigan, which has been hit hard in recent years by a sagging auto industry and other economic woes. Last month, Gov. Jennifer Granholm signed a law that allows Michigan to offer some of the most generous rebates in the nation. Productions that spend more than $50,000 in-state are eligible for a 40% cash refund of their spending within the state, or 42% if they shoot in one of 103 "core communities."

Georgia last week restructured its tax-credit program and took out a full-page ad in Variety touting it. The program gives producers up to 20% of their expenses back via a tax credit, with a minimum of $500,000 spent in the state. Companies that add a five-second clip of the state film commission's animated Georgia peach logo to their program or film receive an extra 10%.

Michigan officials felt the need for a new law after earlier incarnations failed to attract attention. "Previously, we had a sliding scale of 12% to 20% rebates based on your Michigan spend, with a rebate cap of $2 million per production," says Janet Lockwood, head of the Michigan Film Office. "We were overtaken by other states within half an hour of signing it in January 2007, and it didn't work out because many states had better things to offer."

Since the new law took effect, Ms. Lockwood says she has received more than 100 prospective scripts from television- and movie-production companies. State officials say that 15 projects have since been approved with rebates so far totaling about $39 million. Time Warner Inc.'s Warner Bros. recently relocated a coming Clint Eastwood film, tentatively titled "Gran Torino," to the Detroit area from Minnesota. Portions of a Weinstein Co. film called "Youth in Revolt" will be partly filmed in Ann Arbor, Mich., the company says.

"We're building a whole new industry here in Michigan," says Gov. Granholm. "You have to invest in order to grow and we are investing in a new sector in our economy, because we know we have the greatest need to continue to diversify our economy."

In Holland, a western Michigan city of about 35,000 best known for its annual May tulip festival, native Hopwood DePree recently moved home to start a production company, after years living in Los Angeles.

He is reconfiguring a former Reddi-wip factory in Holland that closed in March as a soundstage. "The wide-open spaces that were used as coolers for the whipped cream make great soundstages," Mr. DePree says.

His company, TicTock Studios, is also taking advantage of state tax incentives to train unemployed factory workers (including as many as 50 people from the closed whipped-cream operation) in the basic skills of movie production.

The lack of skilled workers and production facilities is a problem for Michigan. One studio-production executive says it would be expensive to truck film equipment to Michigan and import much of the crew. He says New Mexico is probably less expensive overall even though its tax credits are smaller.

Others are skeptical of the long-term benefits to the state's economy. "The direct economic impact won't justify any of these benefits," says Don Grimes, an economic researcher at the University of Michigan. "I don't think building a wide infrastructure will ever work out because it's not an industry that will locally employ that many people."

Write to Peter Sanders at peter.sanders@wsj.com