Don’t raise film industry tax credit

Hawaii has competed successfully for decades to lure the film industry and should continue the effort — but it need not sweeten the pot at this stage.

With so many competing demands on the state budget, lawmakers must keep their eyes on items with more homegrown priority.

The just-announced renewal of "Hawaii Five-0" for a fourth TV season is good news, of course, but then, little else can compete with the perks of basing production in the reliable sun and fun of Hawaii.

Continuing the existing levels of tax credits is a reasonable economic perk, but Hawaii should resist the urge to sell our state short by being overly generous with expanded film production tax credits.

The Legislature has recognized the industry competition since 1997, when it enacted an income tax credit of 4 percent for costs of making a motion picture or television show and 7.25 percent for related hotel room tax.

Seven years ago, legislators upped the credit to 15 percent on Oahu and 20 percent on neighbor islands, which doesn’t expire until 2016, and they are considering an increase of the incentive by 5 percentage points, retroactive for the past two years. That’s a lot.

Gov. Neil Abercrombie has cited the success of the film "The Descendants" as a reason to maintain the tax credit, although the exact benefit has not been quantified.

More than 40 states offer tax breaks for filming on their land. Most recently, Steven Spielberg’s "Lincoln" is reported to have received $3.5 million in tax incentives from the Virginia Film Office.

"Then again," as Lowell Kalapa’s Tax Foundation of Hawaii put it, "those states can’t offer paradise, year-round good weather during which to film, spam musubi and plate lunches with two scoops rice."

So true.

In the past six years, film production brought to Hawaii more than $1.4 billion in revenue and an estimated $2 billion in related economic activity, according to the state.

It brought $245.6 million to the state last year, up from $184 million in 2011 but below the record $384 million in 2010.

The tax revenue is coming in higher than what had been projected for this fiscal year. The fluctuation occurred while the tax incentives were the same.

Abercrombie is reasonably in favor of an extension of the tax credit but not an increase. Richard C. Lim, director of the Department of Business, Economic Develop- ment and Tourism, testified to legislators this year that a 5 percentage point increase would cost the state about $5.25 million a year, which "would not be fiscally prudent at this time."

The department supports raising an $8 million cap on the tax credit to $12 million, which would be generous, and recommends a feasibility study to determine the size, scope and location of a digital media complex.

The state’s film office is asking for an upgrade of the Hawaii Film Studio at Diamond Head, which is important.

Sen. David Ige, Ways and Means chairman, had earlier raised concern that Hawaii is becoming less competitive since a decade ago when no more than a half-dozen states offered tax incentives. And certainly, the tax credit has been helpful since it was first offered and will be necessary in the years ahead at its current rate.

But on Wednesday, in light of a clearer budgetary picture, Ige rightfully said that there may not be enough money for items such as expanding film tax credits.

"My guess is if there are collective bargaining contracts that are presented at about the 3 percent (increase) level, that we would have to reduce the budget further than what the Senate has right now," he told reporters.

The Senate’s budget draft calls for spending $6 billion in fiscal 2014, and $6.2 billion in fiscal 2015. It is smaller than the governor’s proposed budget, but more than that of the House. But when lawmakers begin conference committees in April to hash out difference on the budget and myriad other funding matters, some ideas will be much easier to dismiss than others.