Additional tax break for filmmakers draws fire

By Kevin Dayton
Advertiser Capitol Bureau Chief

Legislators are considering a special tax break to attract TV and movie productions to Hawai'i, but critics say the bill would provide an open-ended subsidy of the film industry.

Senate Bill 3021 would offer film companies tax credits of up to 22 percent of their employee payrolls, a benefit that tax officials estimate would cost the state $1.2 million a year. A similar bill, House Bill 2803, is advancing in the House.

The tax credit would be in addition to existing tax credits of 4 percent for all nonpayroll expenses for qualifying film and TV productions, and an existing 7.25 percent tax credit for hotel expenses.

State Film Commissioner Donne Dawson said the new tax credit would help Hawai'i to compete with other places like Canada that offer "very substantial" incentives to attract productions.

"The message that we would send out to producers is we are trying to be competitive with these locations," Dawson said.

The Department of Budget and Finance urged lawmakers to scrap the bill, arguing that the state faces a budget shortfall of more than $300 million and cannot afford new tax breaks for businesses.

Dawson said 2000 was the state's most successful year for attracting film and TV productions, with more than $136 million spent statewide. With the loss of "Baywatch Hawai'i" and other problems, the state will be "lucky" if film industry spending turns out to be half that much last year, she said.

"In the context of the greater economy, it's really small potatoes, but the potential is there for tremendous growth if we can provide the right type of incentive package," Dawson said.

Tax Foundation of Hawai'i President Lowell Kalapa said the bill amounts to a potentially unlimited taxpayer subsidy established in such a way that makes it difficult to track cost and effectiveness.

If lawmakers want to subsidize the film industry, they should set aside a specific sum for the subsidy, then monitor the effort to see how effective the subsidy is at attracting productions, he said.

"Have we not learned our lesson? The 'Baywatch' babes are gone," Kalapa said.

Kalapa also argued the tax incentive won't suddenly create a booming film industry here. Film companies complain of labor costs and labor problems and a difficult permitting process as deterrents, and the new tax credits won't solve those problems, he said.

"Its ridiculous," Kalapa said. "Why don't we subsidize hotel workers? We think high tech is so sexy, why don't we subsidize high-tech employees?"

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.