On Location: North Carolina cutting film tax credit program

Even as California looks to substantially boost funding for its film tax credit, North Carolina may be exiting the Hollywood stage.

North Carolina was among the first states to offer film tax credits. The state’s incentives, low labor costs and varied geography have made it a popular film location, drawing such major movies as “The Hunger Games” and the TV series “Under the Dome.”

But last week state legislators opted not to renew the program, despite heavy lobbying by the local film industry to preserve the incentives.

The state budget signed by Republican Gov. Pat McCrory reserved $10 million for a grant program for the first half of 2015.

That pales in comparison to $61 million in tax credits received by production companies last year. Under the program, companies get back 25 cents for every dollar they spend on qualified production expenses, with a cap of $20 million per project.

Opponents said the film industry should not be singled out for tax breaks and that taxpayer dollars could be used instead to lower taxes for small businesses.

But film industry backers warned that replacing the current program would scare off production.

“If you look at other states that have switched from a program like we had to a grant, you’ve seen production high-tail it out of state faster than you can say Georgia,” said Katy Feinberg, a spokeswoman for the North Carolina Production Alliance. “We’re devastated by the upheaval and destruction of a thriving industry here.”

The decision not only was a big blow to North Carolina’s film industry but also underscores the growing scrutiny that film subsidies are receiving nationwide.

Other states have also voted to eliminate or curtail their film programs by imposing caps and reducing funding. Michigan and New Mexico, for example, took steps to scale back their programs, and Iowa scrapped its program in 2009 after an audit identified widespread abuses.

Still, 39 states offer some form of tax credit, rebate or grant.

Will some of those states now follow North Carolina’s lead? Not likely, industry observers say.

“I believe it will have some impact, but likely will not cause other states to follow suit,” said Rob O’Neill, a partner and film tax credit specialist at the accounting firm Moss Adams. “Production will just occur in other states, and an industry will likely die in North Carolina.”

Joe Chianese, a film tax credit expert at Entertainment Partners in Burbank, agreed.

“I don’t think other states are going to follow [North Carolina’s] example,” he said. “Other states are going to take advantage of the fact that they are going through this political battle.... If one state goes away, another one will come back.”

In the 1980s and early 1990s, North Carolina was one of the busiest states for filming outside of California and New York, thanks to a string of movies including “The Color Purple,” “Forrest Gump,” “Bull Durham” and Academy Award-winner “The Last of the Mohicans,” which was filmed in the Pisgah National Forest, among other locations.

When Georgia and Louisiana began to lure business with incentives, North Carolina launched its own film tax credit in 2005. The program was steadily expanded, drawing a string of productions to the state, including the TV series “Sleepy Hollow” and the movie “The Hunger Games,” which contributed to a record $220 million in film and TV spending in 2011.

“We’ve been a major player in the industry for a better part of a decade,” Feinberg said.

She and others in the industry are still hoping McCrory might restore the program.

“I am optimistic North Carolina Gov. Pat McCrory will call the House and Senate back into session and develop a critical economic plan for North Carolina,” said Chris Cooney, chief operating officer and co-owner of EUE/Screen Gems Studios, which has a 10-stage production facility in Wilmington. “We are still committed to maintaining and developing 21st century jobs in North Carolina.”

richard.verrier@latimes.com