Tax Credit Cap Threatens Bay State’s Burgeoning Film Industry

Former Mass. House Speaker Salvatore DiMasi, left, speaks during a meeting about legislation to provide tax incentives to the motion picture industry, with film producer G. Mac Brown; Rep. Thomas O'Brien of Kingston, Marianne Cooper and her husband, actor Chris Cooper, in July 2005 at the State House in Boston. (AP)

BOSTON — When you think about the film industry in Massachusetts, your mind may jump to glitzy Hollywood movies that were made here, like Martin Scorsese’s new release, “Shutter Island.”

But a new report out of the University of Massachusetts at Boston focuses on economic effects and says local companies are benefiting from the state’s film tax incentives, which have been in place for nearly five years. With Gov. Deval Patrick’s new budget, however, that growth may be in jeopardy.

There certainly has been an influx of big star power since Massachusetts created the film tax credit program to jump start the film industry in 2005. But homegrown companies have also gotten in the game.

Take Powderhouse Productions in Somerville. President Tug Yourgrau said his company has become the big name in pets on the cable channel, Animal Planet. “We do Dogs 101, Cats 101, we’re doing a fabulous new series called Must Love Cats, we do America’s Ugliest Pets, America’s Cutest Pets, Presidential Dogs,” Yourgrau ticked off.

Powderhouse Productions, in Somerville, attributes much of its success to the state's film tax credit. (Andrea Shea/WBUR)

And the list goes on. Powderhouse is New England’s largest producer of prime-time, non-fiction cable TV programs. They also do shows for the Discovery Channel, the History Channel and a number of other channels.

But Yourgrau said it wasn’t always that way. “Imagine that we were a garden,” he said. “The tax credit has been Miracle Grow.”

Yourgrau started Powderhouse 15 years ago in a basement. Since the tax credit program kicked in, he said the company has blossomed by 30 percent a year. Its annual revenue has doubled since 2006 to $13.5 million in 2009 — during a recession.

Yourgrau explained the tax credit this way: For every $100 he spends on a production, he gets $25 back from the state. Then he puts the refund right back into the company. That money has helped him to expand his offices, hire a slew of new producers, editors and developers, and buy a cutting-edge digital storage system from Avid, a Tewksbury company.

But now Boston-area production companies like Powderhouse are concerned about their futures, along with everyone else involved in the film industry here. That is because Gov. Patrick’s recent budget proposal includes a $50 million cap on the film tax credit for the next two years –- a cut of $75 million.

Yourgrau said that because it is a first-come, first-serve cap, it could hurt his business. “If the first people who came eat up all the credit, the credit is gone,” he explained.

But it is not just the little, local guys who worry about a cap.

Chris Brigham is the executive producer of “Shutter Island,” which was shot in Massachusetts over a 24-week period and hits theaters next week. “I think selfishly what’s most important to filmmakers and to the financiers is that the rebate itself is secure,” Brigham explained. “I know some states have tax caps and you basically form a queue. And if you can get in under the cap it’s great.”

But if you don’t, he said, and if your project falls outside the cap, most filmmakers would head to one of the 27 other states that do offer refundable tax credits.

But Michael Widmer of the Massachusetts Taxpayers Foundation called the film tax credit a “bad deal,” and said the proposed cap is a step in the right direction. “Our preference would be to do away with the tax credit altogether,” he said, pointing to a Department of Revenue report estimating the film credit’s cost at $125 million for 2011.

In comparison, a biotech-life sciences credit is $25 million. Biotech has a future here, according to Widmer, but what about filmmaking? “This sector will never be a significant sector under any scenario or imagination in Massachusetts,” Widmer said.

But the authors of the new UMass-Boston report out Thursday said revenue numbers don’t fully reflect the big picture, and they urge a long-term view of the film industry that includes all the players, large and small.

Professor Pacey Foster said it is premature to judge the fledgling film sector’s true success, and cautions that Massachusetts could lose out if it does not remain competitive with the other states that offer tax incentives. “There’s going to be production in a few other key centers,” Pacey said, “and my sense from this 18-month study is that Massachusetts has a good shot at being one of them.”

Regardless of what happens to the proposed cap, the film tax credit program isn’t going to be here forever. It has a sunset date of January 2023.