BY BOB LABATE
The decline of the Illinois film industry is well documented. Direct expenditures for film production in Illinois plunged 42 percent between 1999 and 2001 and, the Chicago Film Office estimates, commercial location shooting time (a good indicator of commercial production) fell by about one-third in the past five years, from 297 days in 1997 to 197 days in 2001. Ironically while Illinois production plummets, the Midwest continues to fascinate filmmakers and remains, at least in the minds of screenwriters and cinematographers, a popular backdrop for telling a story. Chicago’s popularity remains strong, but our slice of the production pie continues to shrink. For example, My Big Fat Greek Wedding, though set in Chicago, was shot in Toronto and used no Chicago-based talent and produced no revenue for the state of Illinois.
The Problem of Runaway Production
There are many reasons for the migration of the film business and Canada–with its potent mixture of tax credits, rebates, incentives and buying power–is often cast as the villain-in-chief. Yes, producing a film in Canada can reduce costs by 20 to 30 percent, but Canada is not the only country to offer incentives for film production. In today’s global economy, any country or region with a competitive advantage will gain market share. The entertainment industry, which has been in a slump for the past several years (no matter what box-office receipts may be), is no exception. In fact, Canada is proof that if you offer state-of-the-art infrastructure and skilled professional individuals at a competitive price, then production will follow, whether or not your skyline looks like Chicago.
Following the Canadian example, many states now offer cost-savings packages of their own that include waiver of sales and use taxes, rebates and incentives. New York State waives sales and use taxes for machinery, equipment and services used in the production or postproduction of feature films, TV programs, music videos and commercials. In addition, New York City provides free access to public locations and parking on public lands and parks, and there is often no charge for police services when such are required. Two dozen other states (but not Illinois) have similar forms of tax waiver or refund for spending on production equipment and services. For producers that spend at least $300,000 annually, Louisiana has both an employment tax credit for below-the-line Louisiana workers and an expanded investor tax credit for Louisiana businesses. New Mexico goes further by partnering with resident venture capital firms to make as much as $7.5 million in private equity funds available per project.
In contrast, Illinois has one of the highest sales taxes in the country, which is waived only on purchases of photo-processing equipment. The much-publicized program "Lights, Camera, Illinois" is simply a loan program that requires both collateral to secure the loan and an unrealistically short payback period of 18 months. Not surprisingly, very few entertainment companies (and no production companies) have chosen to participate in the Illinois program.
The problem is not that Canada is stealing film productions that otherwise would be shot in Illinois. The truth is that, despite an excellent technical infrastructure, a strong commercial base and a wealth of trained professionals, Illinois is not even close to being financially competitive with other states, let alone Canada. Because of its other strengths, Illinois need not be the lowest bidder or the least expensive location, but if media jobs are to be saved and created, Illinois must offer incentives that are competitive with other states.
Some First Steps
Before the problem of runaway production can be solved, the causes must be identified and solutions acceptable to media professionals and to the general public must be implemented. Towards this end, a small group of knowledgeable, Chicago-based media professionals met often over the past year to discuss various "first steps" towards making Illinois more competitive.
One first step was the preparation of a 40-page white paper titled "Creating Visual Media in Illinois: A Plan for Sustained Growth, 2003 and Beyond." Among other things, this excellent report: (i) reviews the changing nature of the media and entertainment industries; (ii) describes the economic impact and root causes of runaway production in Illinois; (iii) offers strategies for stemming the flow of productions and jobs, which includes a package of tax incentives, rebates and similar measures similar to those adopted in a number of other states and Canada; and (iv) attempts to provide a single voice and vision for what has been an important but fractious Chicago industry. It is "must reading" for anyone involved in media or the visual arts in Illinois.
A second step was the formation of a non-profit company, The Illinois Production Alliance (IPA), devoted to unifying the Illinois media community and to developing (and advocating) legislative proposals consistent with that unified vision. The goal is ambitious and, at the formation meeting held last month, the founding members of the IPA recognized that raising legislative awareness requires the patience and determination of a long-distance runner. While the IPA is still in its infancy, it appears to offer the best opportunity in many years to address the problem of runaway production. More information on the white paper and on the IPA can be obtained by calling the IPA at 312/867-5504.
A third step was the creation–by the new Rod Blagojevich administration–of a Sub-Committee (of the Economic Development Committee) on the Film Industry. The Film Sub-Committee is already at work making initial recommendations to the Illinois Economic Development Committee, and it will eventually make specific proposals to stop runaway production and to develop opportunities in the media and entertainment industries.
Real competitiveness for Illinois can only come through the creation of tax waivers, refunds and incentives that are consistent with those now offered to media production companies by many other states. And while tax incentives are a tough sell in a time of budget deficits and spending cuts, there is clear evidence that with the right package of financial incentives, skilled professionals and technical infrastructure, Illinois can slow runaway production and begin to create local jobs in the media and entertainment industries.
©2003 Robert J. Labate. This column is provided as a source of information and is not to be construed as legal advice or opinion. You may contact me via e-mail at robert.labate@hklaw.com or via mail to Bob Labate at Holland & Knight LLC, 500 West Madison Street, Suite 4000, Chicago, Illinois 60661 312/715-5700.