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The Honolulu Advertiser
Posted on: Wednesday, April 28, 2010

Hawaii filming of 'Lost' spent $228M locally over 4 years


By Sean Hao
Advertiser Staff Writer

The veil was lifted slightly last week on the finances of ABC-TV's "Lost," which has been the beneficiary of millions of dollars in state tax credits but has declined to reveal how much it spends in the Islands.

The locally produced TV show, which airs its final episode on May 23, spent $228.2 million in Hawai'i from 2006 to 2009 and employed an average of 973 people full-time in each of those years. That's according to state figures given to The Advertiser last week in response to a Freedom of Information Act request filed Dec. 24.

The state has not released the value of the tax credits claimed by "Lost" producers, but it's likely they exceeded $32 million.

Whether the tax breaks were cost-effective for the state is debatable.

Proponents say any costs to the state were more than offset by the economic activity generated by the productions. The tax credits are also needed to compete effectively against other states that offer similar packages, said Georja Skinner, administrator of the state Department of Business, Economic Development and Tourism's Creative Industries Division.

"They love the location," she said. "But first and foremost the credit helps to drive business to Hawai'i. Because of the competitive nature of all the destinations to secure a television series, (tax breaks) ... are an important and critical component of attracting and keeping a TV series in a destination."

Critics contend that productions will be drawn to Hawai'i's temperate weather and stunning scenery without the tax credits. They add that the credits lower the tax burden on one industry at the expense of others.

"It comes at somebody's expense, no matter how you look at it," said Lowell Kalapa, head of the Tax Foundation of Hawaii. "It means you and I gotta pay exorbitant taxes so that we can subsidize that industry. It reduces the amount of resources (the state) ... has available and the result is you've got to keep taxes high and raise them on everybody else. We never seem to make that connection," Kalapa said.

ABC won't comment on how much "Lost" benefited from the credits or whether the incentives were necessary to keep the show in Hawai'i.

"Lost" producers do file annual production reports with the Hawai'i Film Office, which is what The Advertiser requested.

TAX CREDITS

During its run, the TV show benefited from two major business development programs a production tax credit worth 15 percent of costs and a separate 100 percent tax credit for film and TV investors.

Last year, production tax credits given to film and TV producers in Hawai'i resulted in an estimated $16.2 million in forgone tax revenues for the state and the creation of more than 4,000 jobs. About half of those credits likely went to the producers of "Lost."

"Lost" producers sought production tax credits annually for at least four years. During that period the maximum in production credits that could be claimed by any one production was $32 million. That amount excludes tax credits that likely will be claimed for "Lost" expenditures this year and any production tax credit claims before 2006.

In addition to production tax credits, "Lost" producer Grass Skirt Productions and its investors have benefited from the 100 percent income-tax credit for investments in technology and performing arts businesses.

"Lost" may have benefited from $50 million or more in such credits, Kalapa said. However , neither the state nor ABC will disclose how much in investment tax credits were used to help finance "Lost."

"I've heard somewhere around 50 (million) to 70 million" dollars, Kalapa said. "How much can I believe that? I can't because there's no hard data."

ECONOMIC BENEFIT

On the benefit side of the ledger, "Lost" expenditures totaled more than $400 million in the Islands through its first five seasons. Nine out of 10 employees were local hires and about 700 vendors benefited from the show, according to the Film Office.

Other benefits, such as the value of TV exposure for Hawai'i, are difficult to gauge.

To remain eligible for production credits, "Lost" also was required to provide workforce development initiatives, including internships and educational programs such as school and community seminars.

" 'Lost' has set the bar very high in terms of committing themselves to developing the workforce here in Hawai'i and to bringing a production here to Hawai'i that has helped our economy tremendously ," Skinner said. "So we are fondly saying aloha, but hope that ABC will have another show here someday soon."

ABC, which airs "Lost" on Tuesday nights, declined to comment for this story.

"We do not comment on financial matters," ABC spokesman Jeffrey Fordis said in an e-mail to The Advertiser.

Whether some of the economic activity generated by "Lost" would have occurred without the credits, or with fewer tax incentives, is unknown.

"I still question some of these tax credits that are not means-based they're just there to make people act a certain way," Kalapa said. "Are we going to have these permanent as part of the tax system? If that's the case, why don't you just appropriate the money."