SIC members question film industry loans–updated

Two outgoing members of the State Investment Council want New Mexico to review a no-interest loan program to film productions.

“We are concerned about the costs of the film program and the returns to the state,” Peter Frank told the investment agency Tuesday.

Frank, along with Andrew Davis, urged the SIC to perform a cost-benefit analysis of the program.  Both men were on the SIC until earlier this month when a new law changed the makeup of council membership.

“While much of the structure (of the program) results from legislative mandate, the loss to the SIC/State from the absence of economic returns under the program is substantial,” reads a subcommittee report Frank gave to the State Investment Council.

“These investments have drug down our performance,” added State Land Commissioner Patrick Lyons, who is a SIC member and sat on the subcommittee handing over the report. Lyons is a critic of the SIC’s film program.

Representatives of the governor’s office Thursday defended the program, saying that the no-interest loan program had produced jobs and was financially stable.

“This program has never lost one dollar,” said Eric Witt of Gov. Bill Richardson’s office. Witt added that the loan program provided a safe haven investment during the recent financial meltdown.

“These low-interest return investments are part of any reasonable portfolio strategy,” Witt said.

The no-interest loan program is one of several incentives New Mexico has offered to attract film productions to the state.

Defenders say New Mexico’s efforts have paid off in much-needed work and have helped to grow the state’s local film industry. Critics question the bang for the buck New Mexico is receiving from the incentives.

The SIC’s no-interest loan program often has been overshadowed by New Mexico’s film tax credit. The tax credit program has generated a high-profile battle between the Richardson administration and some powerful lawmakers who have tried unsuccessfully to reduce or discontinue it. According to a state review, there were 52 film tax credits worth $46 million in 2008 and 78 credits worth $76 million in 2009.

But despite the loan program’s low-profile visibility, there’s a substantial amount of money involved.

New Mexico has given no-interest loans totaling $273 million to 26 projects since 2003, according to a chart on the SIC Web site. The loans have varied from the $15 million given to the Denzel Washington film Book of Eli to $1.7 million given to the more obscure to Cruel World (aka The Experiment).

While defenders say the loan program helps attract jobs, there have been missteps. Bordertown, a Jennifer Lopez film, initially defaulted on a $2.35 million loan, an action that converted the loan into a interest-bearing loan, which was paid back in full, Witt said.

“Ironically, it was one of the projects where we actually made money,” Witt said, referring to the direct return on the investment vs. indirect results such as jobs produced.

This week’s call to review the no-interest loan program represents only the latest call to end the loan program. An SIC advisory committee urged the state to end the program in 2006.

Gov. Bill Richardson, a defender of New Mexico’s incentives to film productions, said Wednesday he hadn’t seen the SIC subcommittee’s report.

“I’ll have to see,” the governor said.

The scrutiny surrounding the SIC’s no-interest loan program was evident in a brief discussion members had over what the agency pays out to a consultant charged with vetting applications from film productions seeking no-interest loans.

Peter Dekom is paid roughly $350,000 a year – or $29,167 a month — to help the state sort through the applications, agency staff said. Dekom spends roughly 80 to 90 hours a month vetting applications, Greg Kulka, the SIC’s director of private equity and economic targeted investments, told SIC members.

The amount of money paid out provoked shock in one citizen attending the SIC meeting.

“That’s more than some university presidents earn,” Kay Linde Grotbeck told the council. “And I learn that it is half time. I think the public would be stunned.”

But SIC member Doug Brown defended the amount, saying Dekom brings Hollywood connections and decades of experience as an attorney to the job.

“He is a prominent individual in this industry. This industry is in a parallel universe that pays all out of proportion to what people here are used to seeing,” said Brown, a former state treasurer and dean of University of New Mexico’s Anderson School of Management.

Dekom’s contract is up at the end of this month, and the SIC voted to extend the contract for one month while the SIC puts that contract out to bid.

UPDATE: 5:42 p.m.

Charles Wollman of the SIC wrote in via e-mail to explain that the push in 2006 to end loans to film productions involved a different program.

“That program (the film production tax credit loan program) gave loans – with interest – based on anticipated tax rebates to films to help them defer start up costs of production.  The SIC only did two of those – The Flock – which paid back early – and Bordertown – which paid back late, but with penalty interest.”

“The Private Equity Committee agreed that since Bordertown had been such a headache however (we had to threaten legal action) that they wrote those types of loans out of policy, though SIC ability to make them remains in statute.”