That steady activity of film and TV shoots is raising New Mexico’s profile in Hollywood as several films or TV series shot here have racked up Oscar and Emmy awards in recent years. But the bigger profile is also raising the amount of money New Mexico is paying out to film and TV productions through a controversial tax credit program.

Over the past 33 months, 118 film and TV productions were paid $181 million through the program, including $60 million this fiscal year, state documents show.

This year’s payout appears likely to eclipse the $61,464,418.56 New Mexico doled out last year. This year’s total –$60,519,012.63 — was through April 14, more than two months shy of June 30, the end of the fiscal year, documents show.

The film tax credit program is wearing a bigger bulls-eye these days as New Mexico’s lagging economy, and a strained state budget, add urgency to critics’ calls for an end to the program.

Citing pared-down state services, higher unemployment and forced state worker furlough days — most state workers took their fifth, and final, furlough day of the fiscal year Friday, opponents say 2010 isn’t the time to be handing out money.

“We’re cutting services, furloughing state employees. And we’re sending tens of millions of dollars to Hollywood. That ain’t right. It’s wrong,” said first-term Rep. Dennis Kintigh, R-Roswell.

Kintigh, along with two top Senate Democrats, has emerged as a vocal critic of the program, citing worries about the state paying an industry to do business here at a time when New Mexico is hurting.

“We’re told if we don’t provide these incentives they will pack up and leave. If that’s the case the industry doesn’t have any roots here,” Kintigh said. “We don’t do that for the newspapers or the TV business.”

Doing away with the program is short-sighted, advocates say. The tax credits go toward reimbursing a portion of money production companies already have spent here in New Mexico, not to subsidize Hollywood.

Plus the incentives have helped grow New Mexico’s local film and TV industry from a few dozen folks several years ago to about 3,000 individuals earning a living, they say.

The average salary for someone working in the industry is “between $17 and $22 an hour, and that’s for the first 8 hours and then you go into the overtime and double time,” said Lisa Strout, director of the New Mexico Film Office.

At the same time the program helps bring in much-needed tax revenue for the state and local governments, thanks to the 24 major projects a year between films and TV series that New Mexico hosts, Strout said.

End the program, and you risk losing the jobs, not to mention the tax revenue, generated by the tax credit program.

“When certain people say, I don’t believe Hollywood will go away, well, call,” said Lisa Strout, director of the New Mexico Film Office. “I’ve had people tell me, ‘If this goes away, well, yeah, see ya.’”

The tax credit and how it works

The film tax credit isn’t a true tax credit, it’s more like a rebate. The film productions spend money in New Mexico and then the state reimburses a quarter of what each production spends in  ‘qualified expenses,’ a broad category that contains any direct production expense purchased in New Mexico that has a state tax attached.

That could mean lumber purchased in New Mexico to help build a set, meals bought from a local caterer or receipts from a local car rental company for vehicles used by producers.

The money New Mexicans earn while working on the production, as carpenters or electricians or technical crew, also qualify as expenses eligible for the 25 percent reimbursement.

Restrictions keep a film production from claiming expenses for non-residents, although there are exceptions. A production company can get a rebate on money paid in rent for non-resident actors and stunt performers (but not for directors or producers), according to rules on the New Mexico Film Office’s website.

A production company also can claim what a non-resident actor or stunt performer is paid as a qualified expense, but only after they are paid through a “New Mexico entity and the non-resident actors agree to file a New Mexico personal income tax return,” the rules say.

If the state has given a rebate of 25 percent, then the 118 productions that were paid $181 million since July 1, 2007, have spent at least $724 million in New Mexico.

That’s a pot of money that likely would not exist without the tax credit and other incentives, including New Mexico’s no-interest film loan program, the state has used to attract film and TV productions, supporters say.

“You cannot just look at the half the connection,” Strout added. “You can’t just look at money going out. You have to look at the money coming in. This is money that came in to this state that is new. The benefit that we’re looking at is to New Mexicans.”

Fact checking and audits

Strout said the state has put in safeguards to ensure the production companies aren’t reimbursed for more than they’re entitled to, including two types of audits performed by the state’s Taxation and Revenue Department.

Rick Homans, the state’s tax and revenue secretary, told the Independent that  his department asks smaller productions to document “every single expense.”

“On the larger ones, where there’s mountains of paperwork, we will randomly select invoices or receipts,” Homans said. “If in that random selection we see discrepancies then we will go deeper and deeper. We don’t commit the resources to go through every receipt.”

After going through receipts and invoices, his department then does a line-by-line audit of a production company’s application to confirm that every expense being applied for is eligible for the 25 percent reimbursement.

“If there’s any doubt about a transaction qualifying, then we ask for additional documentation until we’re satisfied,” Homans said.

The tax department has added personnel to its film tax credit division, which does 90 percent film tax credit work to “make sure we are paying these things out appropriately,” Homans said.

A competitive market

It’s not hard to find signs that New Mexico has raised its profile in Hollywood.

In addition to Breaking Bad, two other TV series are shooting in Albuquerque these days – USA’s In Plain Sight and Scoundrels, an ABC series premiering next month.

Meanwhile, dozens of films have been shot in New Mexico, from small character studies like Crazy Heart, for which Jeff Bridges won an Oscar this year, to the 2007 Oscar winner No Country for Old Men, based on Cormac McCarthey’s book by the same name.

But Strout said New Mexico can’t take that steady activity for granted. The competition for film and TV productions is fierce, with 40 other states offering incentives to lure productions their way.

The 25 percent New Mexico reimburses production companies for ‘qualified expenses’ is lower than the rate offered by 12 other states, including Michigan and Louisiana, Strout said.

“We are talking about one of the top exports from this country – the film and media industry –it’s like No. 2 or 3,” Strout said. “That’s why everyone is offering incentives.”

Not a convincing argument

Kintigh doesn’t find Strout’s argument convincing.

“This is a business bailout in advance,” Kintigh said. “We’re paying people to do business in New Mexico. That doesn’t work in any economic sense.”

Kintigh was unsuccessful this past legislative session in trying to stop the program with sponsored legislation. But he had some powerful allies in his fight, including Sen. President Pro Tem Tim Jennings and Senate Finance Committee Chairman John Arthur Smith. Smith has consistently questioned the economic worthiness of the program while Jennings suggested that Gov. Bill Richardson should shut down the program if he vetoed legislation restoring a state tax on food. (Richardson vetoed the tax but did not take Jennings up on his suggestion.)

Kintigh said he realizes what might be lost if the state stops the tax credit program.

“I’m scared they might” leave the state, Kintigh said of the film production companies.

The Roswell lawmaker said he has spoken with supporters of the tax credit program and feels for them.

“If these businesses leave their dreams are smashed,” Kintigh said. “I don’t want to destroy people’s dreams. That really grates on me, the people who have poured themselves into this. They have been sucked into something that isn’t sustainable.”

Homans also said that the number of MVD offices run by the state is dropping, but “we are developing many more online capabilities and encouraging our private partners to expand their operations.”

This isn’t the only cost-cutting measure the MVD will be implementing:

Michael Sandoval, director of the MVD, said state-run offices will close at 3:30 p.m. instead of 4 p.m. starting on July 6. The MVD says this will save $105,000 in annual overtime costs.

The MVD will also “discontinue printing of the driver’s manual that cost the agency $50,000 a year” and instead put the manual online.

The MVD may also discontinue or cut back the use of the MVD’s 1-800 number, which they say would save the department $375,000.

“We are investigating every opportunity to save taxpayer dollars and, at the same time, our goal is to maintain and even improve our service to the customers,” Sandoval said.

Even with these cuts and proposed cuts, a total of $655,000, the MVD will still need to reduce its costs by $545,000 to meet the budget requirements for FY 2011.

“We are reaching a critical point in our efforts to recruit new jobs to New Mexico, and I will be working closely with Secretary Mondragon to pursue some high-profile companies to the state,” Richardson said in a news release. “At the same time, we need all the expertise we can get as we complete construction of Spaceport America, and I am tapping Secretary Homans to lead that effort.”

Homans will stay on as Taxation and Revenue Secretary and serve as the Spaceport Authority’s chairman as it searches for a new executive director.

The task force will not make recommendations to the governor or the state legislator, but Secretary of Taxation and Revenue Rick Homans, who chairs the task force, will present the pros and cons that the task force comes up with with the governor before January’s special session.

“A number of people kept mentioning to me that it the meetings are being held during the afternoons, primarily during working hours, in all parts of the state…and it would be great if we could webcast it and open it up to more people to listen in,” Homans said late Tuesday.

The New Mexico Independent webcast and live blogged one of the previous meetings, held in mid-November at Expo New Mexico in Albuquerque.

Homans said that webcasting the Budget Balancing Task Force meetings would have several benefits.

“Number one, it sends the signal that it is a total transparent and open process. That nobody’s trying to hide anything or do anything in secret. Number two, you get to more people, but it can be done at the convenience of somebody’s home or office. You can be multitasking while you keep an eye on the webcast, and drop in and drop out of it as you desire,” he said.

Homans has experience keeping one eyeball on a webcast. He told The Independent that he had been an avid watcher of our live blogs during October’s special legislative session.

“During the special session I was on quite a bit because it was the best way to find out what was going on in three different places. You’ve got to be kind of a wonk sometimes to be into it, but it was pretty suspenseful to watch the deliberations on whether a bill would be considered germane or not,” he said.

The next task force meeting is scheduled for Thursday, Dec. 10, from 1-5 p.m. at the Farmington Civic Center. The last meeting is set for Thursday, Dec. 17, from 1-5 p.m. at the Santa Fe Community College. To watch live, go to the Budget Balancing Task Force Web site.

The webcast will include PowerPoint presentations that will be shown in-person, and Homans said he would try to make sure that speakers introduced themselves so that webcast viewers would know who is speaking.

Meetings in Albuquerque, Farmington and Las Cruces will follow, though those are not yet scheduled.

“Our revenue has taken a major hit from the global economic crisis, and we’ve responded by taking bold action to cut state spending to offset those losses,” Governor Richardson said. “But moving forward we must also take a serious look at options to increase our revenue in ways that allow us to maintain our competitive advantage and address New Mexico’s long-term financial health.”

A roster of the full task force, more than 40 New Mexicans who represent “a wide range of industries, education, labor and other non-profit organizations,” is embedded below.

Budget Balancing Task Force

The request comes on top of the cuts approved in this year’s budget. The request is part of the governor’s broader plan to balance the budget, which will be unveiled in early September, according to a press release sent out Monday by Richardson’s office.

The release said Richardson was urging other branches of state government not under his control to work up similar plans to cut budgets by up to 3 percent.

Richardson will present the budget-balancing plan to an executive-legislative working group being formed to negotiate ideas prior to a special session, the release said. It went on to explain that Richardson’s plan will not increase taxes and will not significantly impact services to the public

“We will all have to make additional sacrifices, but I believe we can close the existing budget gap in a fiscally responsible way, without increasing taxes,” Richardson said in the release. “The purpose of submitting my plan is simply to start the discussion. Nothing is etched in stone. I welcome the Legislature’s input.”

Richardson has appointed five members of the executive branch to the working group: Finance & Administration Secretary Katherine Miller, Taxation and Revenue Secretary Rick Homans, Deputy Chief of Staff Eric Witt, Deputy Chief of Staff Paul Ritzma and Deputy Secretary of Finance & Administration Dannette Burch.

But the state’s looming budget gap has the state’s chief executive indicating that he’s open to looking at closing some tax credits and tax incentives.

“We need to take a look at them, to look to see if some may have outlived their usefulness,” Richardson said in a brief interview with the Independent.

Richardson didn’t specifically name any tax credits or incentives that he’d be open to closing. But he and legislative leaders have agreed to a special legislative session in October to help close what has been estimated as a more than $400 million budget shortfall for this fiscal year, which ends next June 30.

Overall, the state’s revenues likely will drop by $700 million over two years from previous projections, enough to wipe out the state’s cash reserves.

That kind of fiscal hole has a way of focusing people’s attention, and already there’s a give and take between those who are advocating a strategy of closing the shortfall by trimming costs and those who say the state should focus on the tax side of the equation.

Richardson said Tuesday that while nothing is set in stone he is leery of changing his 2003 income tax cuts or the film tax incentives. He also said he did not want to cut education.

Richardson said he had named his budget chief, Katherine Miller, state Taxation and Revenue Department Secretary Rick Homans and Paul Ritzma from his staff as his negotiating team. Richardson said he’d get involved in the negotiations, too.

“The Legislature will name its group. We’ll start meeting right away,” Richardson said..

Legislators have complained in the past that some Cabinet secretaries in the Richardson administration have been dishonest or, at least not forthcoming with information. Rick Homans was before the committee today to be confirmed as head of the Taxation and Revenue Department.

Homans has been running the department on an interim basis for months.

Jennings spoke at length about what he described as lack of honesty by some Cabinet secretaries, and specifically mentioned the secretary of the Human Services Department. He said that makes it difficult to know when any are being honest, so he would ask during each confirmation hearing whether he can expect that secretary to be truthful.

If a secretary who pledged to be honest were caught lying, Jennings said he would do all he could to make sure that secretary would be forced from his or her job.

At times, Jennings appeared to be directly threatening or addressing Homans, in part because he used the word “you” while addressing the secretary instead of speaking generally about those he might catch lying.

But the leader of the Senate qualified his comments by telling Homans that he had never had a problem with him personally. That wasn’t enough to cool things off after Jennings’ strong words.

“This has gotten personal rather quickly,” Homans said when it was his turn to speak. “… I do take some offense.”

Homans did pledge to provide truthful information to lawmakers at all times.

“You have my truest commitment and pledge to deal with you in an utmost and forthright manner,” he said.

After Homans spoke, Jennings again qualified his prior statements by saying he didn’t intend for his comments to be taken personally.

“I don’t mean to put you on the spot, but I’m going to ask that of every Cabinet secretary from now on,” he said. “… I think you did a pretty good job at your last Cabinet position (at the Economic Development Department).”

Sen. Dede Feldman, D-Albuquerque, didn’t appear to be impressed by Jennings’ qualification of his statements.

“We have not always agreed, but I believe you to be a person of the highest integrity, and I just wanted you to know that,” Feldman, a member of the committee, told Homans. “… We have to disagree without being disagreeable and leave our personal grudges against one department there and not take it to other officials.”