Budget woes threaten Pa. film tax break

M. Night Shyamalan was pressed. His actors were poised for a pivotal scene in the sci-fi fantasy The Last Airbender. The director positioned himself on a bridge high above the floor of the Budd factory in Hunting Park, and called, "Action!"

Below milled many of the 6,000 extras and 650 crew members - plus a delegation from Harrisburg. The challenges of a $135 million movie were daunting, but they were dwarfed by what confronted state representatives.

So, on May 1, Shyamalan took 15 minutes to lobby lawmakers facing a $3.2 billion budget deficit to preserve Pennsylvania's endangered $75 million film tax credit.

As next Tuesday's budget deadline looms, the drama that unites Harrisburg and Hollywood is: Will Pennsylvania film tax credits make the cut - or be cut?

Opponents of the incentive, like Sen. Pat Vance (R., Cumberland), call the credits "a Hollywood giveaway." Supporters, like union executive Michael Barnes, call it an engine for job growth in a state no longer manufacturing steel and food like it used to.

Since 2004, when the state first offered credits, the number of movies made annually in Pennsylvania has jumped - from five in 2003 to 23 in 2007. So, too, have jobs in allied industries, from hotel housekeepers who make the beds of visiting talent to the tech wizards who make special-effects magic.

Both the governor, a Democrat, and the Senate majority leader, a Republican, think the credits work.

"The governor believes they have been wildly successful ... and that their positive economic impact has exceeded expectations," a spokesman for Gov. Rendell said last week.

"In the best of all possible worlds, we support the tax credits," Majority Leader Dominic Pileggi (R., Delaware) said. "But this isn't the best of all possible worlds. The question, in this budget climate when levels of funding for libraries and other programs are threatened, is, how much of an incentive can we afford?"

On the movie set, addressing the legislators, Shyamalan set up his shot: "Pretend we're making toothpaste, and not movies, here. Think of toothpaste manufacturing as a hugely successful industry here, on the brink of becoming a booming one."

Then came the slam-dunk. "If the tax credit were to go away," said the filmmaker, who since 1999 has made eight films here with an estimated regional economic impact of $375 million, "I'd have no option other than to make my toothpaste elsewhere."

With 40 other states (plus Puerto Rico and the District of Columbia) offering production incentives, Shyamalan asked, why would he stay? Why would Pennsylvania want to give up its competitive edge in a global industry?

Listening to him and seeing so many Pennsylvanians at work, Rep. Stephen Barrar (R., Chester) felt his stone-cold opposition to the credit begin to dissolve.

"Before that day, I thought that the credit benefited Hollywood," he said last week by phone. "But I saw how the credit directly benefits our communities and our state." (Some states subsidize actor salaries; not Pennsylvania.)

How to calculate the benefits to the state is a subject of much debate. Should the state count only tax revenues ($17.9 million in 2007-08)? Direct and indirect spending from film production ($350 million)? Labor income ($97.2 million) and jobs (3,752)?

"The $75 million credit brings $300 million in production dollars that the state otherwise would not see," said Sharon Pinkenson, executive director of the Greater Philadelphia Film Office.

Vance, who has written a bill to put a moratorium on the credits through 2010, sees it differently. (She declined to return calls.) By her math, during fiscal year 2007-08 the state extended $58.2 million in tax credits and in return received only $17.9 million in associated tax revenues.

They are both right, according to an analysis conducted by the Chicago firm Economics Research Associates (ERA), released in late May.

"While there is a net fiscal loss" comparing the $58.2 million in credits to the $17.9 million in taxes generated, ERA found, "there is a net fiscal gain to the commonwealth of $4.5 million when considering all the revenues generated by the entire industry."

"It's evidence that the tax credit more than paid for itself," said Mark Shade, spokesman for the state Department of Community and Economic Development (DCED). "No other tax credit program operated by the DCED creates more jobs than the film tax credit." As lawmakers prioritize, Barrar guessed that the credit might be reduced to $50 million.

A widespread perception is that the film tax credits mostly benefit Allegheny and Philadelphia Counties. The reality is that 65 of Pennsylvania's 68 counties have companies in the movie business.

But unless production trucks are parked in your neighborhood or you see Mark Wahlberg (star of Invincible) or Jennifer Aniston (Marley & Me) at your favorite watering hole, film production is largely invisible.

Not so at Philadelphia hotels, where the Airbender cast and crew have booked about 15,000 hotel room nights.

And not so at Shooters Inc., a hive of production activity occupying 40,000 square feet at Philadelphia's Curtis Center, where the effects of the film tax credit are most palpable. The former ballroom of Saturday Evening Post magnate Cyrus H.K. Curtis is home to scores of film editors, animators, and digital artists.

Some are enhancing effects on the apocalyptic feature The Road, starring Viggo Mortensen. Others composite ads for Dick's Sporting Goods and edit the Food Network's Dinner: Impossible. The technology - one suite has computers as big as 2001: A Space Odyssey's HAL 9000 - isn't just cutting-edge, says president Ray Carballada, but "bleeding-edge."

Many of the 70 full-timers and 114 part-timers are native Pennsylvanians who returned home from California and New York. Legislators concerned about "brain drain," with college graduates leaving the state to seek employment elsewhere, see Shooters as a magnet for "brain gain" - attracting outsiders, and retaining recent graduates of Drexel, Pennsylvania State and Temple Universities, and the University of the Arts.

"I wanted to come back, and was happy I finally could find work here," says Nick Jushchyshyn, 39, a digital effects artist (and Drexel grad) enhancing images from The Road. He moved from L.A. where he worked on The Curious Case of Benjamin Button.

Since 2006, when Shooters first availed itself of film tax credits, company sales have grown from $11 million to $20 million, and the staff from 45 to its current level. Yet, said Carballada, "we're beginning to experience a drop-off in business because of the fear that the tax credit is going away."

"When incentive programs evaporate, work goes away," says Barnes, international vice president of IATSE, the film and stage craft union.

Staci Hagenbaugh, 31, didn't have to leave Philadelphia to find work. The Drexel grad (Class of '01) lucked into an assistant job on the TV series Hack, and went from "lugging tables and chairs and picking up trash" to "scouting and prepping locations."

When the show was canceled, she thought she'd have to move to Hollywood or find a new career. Then Pennsylvania instituted tax credits and, she said, "there was an instant influx of work."

She has worked on Invincible, The Lovely Bones, and Law-Abiding Citizen and recently was hired as location manager on the "Untitled James Brooks Project" starring Owen Wilson and Reese Witherspoon, which starts shooting in July.

"Producers come because of the tax credit," Hagenbaugh said. "And when they leave town . . . they've had such a positive experience they want to come back."