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A restraint on the subsidy is facing heavy pushback at the Legislature. Read more

“Mo’ Money” is a movie from 1992 and also what Hawaii has been paying to film and TV productions in tax credits over two decades.

Estimated claims for these state rebates last year jumped to $90 million from $55 million the year before.

Now, a restraint on the subsidy is facing heavy pushback at the Legislature.

Limiting total film tax credit payments to $35 million annually starting this year was agreed upon by state lawmakers in 2017 along with a 2026 expiration for the program.

The cap arose out of cost concerns. But industry supporters have long argued that higher costs reflect higher benefits that include spending on jobs, location fees, equipment rentals, hotel rooms, meals and more. Also, they added, some productions like “Hawaii Five-0” and “Magnum P.I.” showcase the beauty of the state in ways that promote tourism.

Recently, more than 200 industry supporters, from media giants to set decorators, urged lawmakers to approve a bill that would abolish the cap and extend spending rebates.

“Placing a limit on the tax credit basically kills our industry,” Ron Evans, a local film set worker, said in written testimony on Senate Bill 33. “Please see the bigger picture and keep film production jobs coming to Hawaii.”

The bill would eliminate the $35 million annual cap and extend the program sunset from 2026 to 2033.

No one submitted written testimony opposing SB 33, which so far has been passed by two Senate and two House committees. Yet the cap was put in place because of concerns that credits had grown too generous, and those concerns remain.

“It may be possible to make the case that the benefits have outweighed the costs,” the Tax Foundation of Hawaii, said in written comments on the bill.

The tax credit program began in 1997 shortly after the late Al Masini, retired producer of the “Lifestyles of the Rich and Famous” TV show, moved to Hawaii and suggested the state needed to compete with other states offering tax rebates.

Then-Gov. Ben Cayetano pushed for such a program, arguing that even though a “Hawaii Five-0” series remake was being considered at the time, no tax revenue would be lost because such projects might not happen without the tax incentive.

“We aren’t going to miss something because we don’t have it yet,” he said in a Honolulu Star-Bulletin story.

The 1997 Legislature granted film productions in Hawaii a 4 percent rebate on general excise tax payments plus a 7.25 percent rebate on transient accommodation expenses.

In 2006, the Legislature replaced the program with a 15 percent rebate on spending on Oahu and 20 percent on the neighbor islands, with a maximum $8 million payout per production. A 2016 sunset for the program also was established.

To qualify, a production had to spend at least $200,000 on equipment, services, cast and crew wages, post-production work such as editing, airfare to or from Hawaii, shipping and insurance.

Industry supporters in 2013 pushed for the state to extend and increase the subsidy, saying jobs and other spending were at risk because other states and countries had become more competitive with incentives.

The Tax Foundation at the time called the program a “drain on the state treasury” and said no rational basis existed for increasing and extending credits other than to keep pace with escalating incentives elsewhere.

“While lawmakers look like a ship of fools, movie producers are laughing all the way to the bank and the real losers in this scenario are the poor taxpayers who continue to struggle to make ends meet, a scenario akin to the bread and circus of ancient Rome,” the foundation said.

Lawmakers endorsed the value of the industry, and in 2013 hiked credits to 20 percent on Oahu and 25 percent on the neighbor islands with a $15 million cap per production and an extended 2019 sunset.

Two years ago, the cost-benefit debate of the program was rekindled again.

This time, the Tax Foundation was less critical but noted that the California Legislative Analyst’s Office concluded that one-third of productions in that state would have filmed in California without tax credits.

Industry supporters championed an extension as vital. “Hawaii stands to lose big if we do not stay competitive,” Joel Moffett, associate professor of the University of Hawaii Academy for Creative Media, said in written testimony. “Productions such as ‘Tropic Thunder,’ ‘Indiana Jones,’ ‘Pirates of The Caribbean,’ ‘Battleship,’ ‘The Descendents,’ ‘King Kong,’ ‘Jumanji,’ ‘LOST,’ and ‘Hawaii Five-0’ all came here BECAUSE OF OUR TAX INCENTIVE.”

At the end of the 2017 debate, lawmakers kept the $15 million per-production cap but added a $35 million limit for all credits along with a 2026 program sunset.

The $35 million cap, however, wouldn’t take effect until this year.

Without the cap, Hawaii’s tax credit program ranks 22nd best among 32 states where spending rebates range from 5 percent to 45 percent, according to Entertainment Partners data submitted by local production firm Island Film Group.

Past critics of the rebates have argued that Hawaii’s weather and scenery are a natural draw for film and TV projects, though industry supporters say higher costs here make tax credits key to competing with other scenic places.

Island Film and others say planned productions are already going elsewhere or reconsidering filming in Hawaii because the cap will slash rebates for all eligible productions, including TV commercials and interactive digital games.

According to CBS, “Hawaii Five-0” and “Magnum P.I.” will spend $190 million in Hawaii this year. A 20 percent rebate on that would equate to $38 million, though the per-production cap limits the rebate to a little more than $30 million because extra episodes qualify as an additional production.

The University of Hawaii said the film industry spent a record $477 million in Hawaii last year, and this amount even with caps per production is estimated to result in $90 million in rebate claims.

Last year’s record spending included the two CBS shows, commercials, small-budget films plus feature films “Godzilla vs. Kong,” “Jungle Cruise,” “Triple Frontier,” “Jurassic World Fallen Kingdom” and “Midway.”

The $90 million rebate estimate for 2018 could result in considerably fewer actual credits paid because the Hawaii Film Office sometimes includes productions that seek credits but fail to go forward.

For instance, the office estimated $44.5 million in credits for 2016 but the state Department of Taxation reported distributing $31.9 million that year in its most recent tax credit report. In 2015, the estimate was $40.3 million and the distribution was $39.9 million.

Under the cap, tax credit awards would be pro-rated based on spending totals among productions, and any credits over $35 million can be paid in the following year with the cap and sunset date still applying.

The state Department of Business, Economic Development and Tourism said the cap creates uncertainty for productions not knowing how much in credits will be available, which is diminishing the state’s film-friendly reputation and resulting in lost business. DBEDT also said its Film Office is struggling to administer extra accounting requirements with the cap.

A hearing on the bill by the House Finance committee could be the final opportunity for public testimony on the measure. This hearing has yet to be scheduled.