Posted on: Saturday, March 19, 2005

Economy got $161M from TV projects

By Sean Hao
Advertiser Staff Writer

Tax subsidies for the TV shows "Lost," "North Shore" and "Hawaii" and other entertainment projects cost the state an estimated $28 million in lost tax revenue last year, according to the state.

At the same time, the film and television industry spent $161 million in the state — including at least $100 million on TV shows — and at its peak employed 700 actors, directors, camera operators and other industry workers.

The only locally produced TV show still on the air is "Lost." By year's end, production on "North Shore" and "Hawaii" had finished. "Rocky Point," a pilot episode shot locally for the WB network, never aired.

So did the state get its money's worth for the $28 million given to the industry? State and industry officials maintain that the jobs and exposure for Hawai'i generated by the industry exceeds the costs of incentives. However, how that $161 million was spent, how much industry workers earned, and whether the added media exposure played a role in near-record visitor arrivals remain unknown.

That leaves some people skeptical of the value of movie industry incentives.

"In the seventh or eighth year of an economic expansion, it surely shouldn't be the case that we need to stimulate growth," said Paul Brewbaker, chief economist for Bank of Hawaii. "I'm really skeptical simply because the cost and benefits were never evaluated in advance nor do they seem to be evaluated in general.

The tax credits are "not very efficient" and are "hard to track and difficult to measure," Brewbaker added.

Acts 221 and 215

The estimated cost of incentives provided last year include $23 million in performing arts tax credits available under Act 221 and Act 215, and $5 million in film industry production tax credits. The cost excludes an unknown amount of money lost under a separate 7.25 percent hotel room tax credit for industry lodging.

Those incentives were integral in bringing TV shows and other productions to Hawai'i last year, said Ted Liu, director for the Department of Business, Economic Development and Tourism, which oversees the state film office. "If we didn't have 221 and no production tax credit, I doubt that they would come here," he said.

In addition to money spent on productions and the added exposure, the state benefits by keeping local industry workers up to date with the latest production practices and technologies, Liu said.

"All these intangibles — how much are they worth?" Liu asked.

He did say that "I believe we did" benefit overall.

Incentive proponents contend they are needed to offset the higher cost of shooting in Hawai'i and to compete with other states and countries that are aggressively pursuing productions.

'Lost' still going

In the case of ABC's successful show "Lost," producers were courted by Mainland and Australian authorities, Liu said. Earlier this year producers warned that without added incentives to reduce costs, the show might leave Hawai'i.

"Lost" has committed to producing a second season locally. However, state lawmakers still are considering increasing the level of production tax credits this session.

Meanwhile, critics of movie industry incentives contend Hawai'i's beautiful and diverse scenery, temperate weather and relatively secure environment should be enough to attract productions.

"We put no value on the natural beauty that is Hawai'i," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "To me that's selling us short."

The estimate of the cost of state incentives for the movie industry is based on the value of film and TV tax credits approved by the state, according to Kurt Kawafuchi, director of the state Department of Taxation.

Going forward, the performing arts credits are expected to cost about $23 million a year. That figure could include future credits claimed by investors in NBC's "Hawaii" and Fox's "North Shore," even though neither show is still being produced.

That's because there's no minimum income requirement for a company to remain eligible for the performing arts tax incentive program.

Kawafuchi said he couldn't discuss any individual taxpayers. However, he said, if an out-of-work production company "wanted to maximize credits, they could rent an office and put an employee there and basically you have a production company. That's arguable."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.