Texas film industry prepares for incentive fight

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A promise to make Texas the film capital of the world has left local creatives raring to cash in — and preparing for a legislative battle.

The Texas Senate has proposed injecting $498 million to revamp the state’s film incentive program, a historic sum that rivals most other states and more than doubles the $200 million lawmakers plugged into the program during the last budget cycle.

Film industry insiders, who have for years been fighting for a larger and more consistent funding stream, could hardly believe it when they heard the $498 million figure, a line item in the draft budget the Senate filed last month. According to Lt. Gov. Dan Patrick, the funding would include $48 million in grants for small films and television commercials and up to $450 million in new tax credits, contingent on a bill passing.

“It’s like we are in a ‘stars aligned’ period,” said Brian Gannon, director of the Austin Film Commission. “There’s alignment across industry, across government. Everyone is excited.”

That excitement is palpable across Texas. From the 4,100-person town of Smithville to booming urban centers like Fort Worth, local officials, film commissions and business owners say movie production is a boon to their economy because it creates new jobs, attracts tourists and keeps businesses afloat.

In Smithville, a small town about 40 miles east of Austin, restaurant owners say they continue to reap benefits from the filming of the 1998 romantic drama “Hope Floats” because fans stop by to see the house where much of the Sandra Bullock movie was filmed and then wander into their outpost for a bite to eat.

Film stars have also thrown their weight behind film incentives. In a star-studded advertisement called True to Texas, Matthew McConaughey, Dennis Quaid, Woody Harrelson, Renee Zellweger and Billy Bob Thornton urge lawmakers to help “turn this state into a new Hollywood.” The actors say they want to tell Texas stories in their home state and need state support to do so.

Even so, economists remain skeptical about the return on investment of film incentives, and some state lawmakers say subsidizing movies is not the best use of taxpayer money.

“Half a billion dollars doesn’t need to be routed towards the entertainment industry,” said first-term state Rep. Daniel Alders, R-Tyler. “There are already Texas-sized incentives out here. Don’t act like you have to have a handout in order to do business in the state of Texas.”

Texas is one of 37 states to offer a film incentive program, according to the National Conference of State Legislatures. Those programs can take the form of cash grants, as in Texas, or tax credits, which are what some of Texas’ competitors, including Georgia and New Mexico, offer.

Under the 18-year-old program, the state provides rebates to reimburse production companies between 5% and 20% of what they spend in the state, including wages to Texas residents and costs to rent film space or book hotels. At least 60% of the production must be filmed in Texas, per state law. Productions can receive an additional 2.5% rebate if they film in underutilized or economically distressed areas.

Creative professionals say the program has been successful — it has created 182,000 Texas jobs and yielded $2.52 billion in-state spending, according to the Texas Film Commission which is housed under the governor’s office. And for every $1 paid out for a grant, $4.69 is spent in state, Adriana Cruz, executive director of the Texas Economic Development and Tourism division of the governor’s office testified last October.

Patrick, the second most powerful Texas official, has made transforming Texas into a film haven a priority this session, reserving Senate Bill 22 for that purpose. The bill has not been filed as of Thursday afternoon. Patrick’s office did not respond to The Texas Tribune’s questions, and several House members declined to weigh in until a bill was filed.

Industry leaders have proposed a transferable franchise tax credit — smaller film productions making less than $2.47 million in revenue are exempt from the tax — since Texas does not have a state income tax.

They’re also pushing for a more consistent funding stream instead of an amount that is determined at the whims of lawmakers every two years.

Regardless of what form SB 22 takes, there will likely be a legislative battle, said those who have watched lawmakers debate film incentives for more than a decade.

“There’s always a negativity around it,” said Adena Lewis, director of economic development and tourism for Bastrop County, the site of dozens of productions, including “Bernie,” “The Tree of Life,” and “Fear the Walking Dead.” “There will be legislators who will be absolutely against it because they think it’s money going to fat cat Hollywood guys when in fact it’s not.”

The rise of film incentives

Texas has had a stake in film and television since the 1970s, starting with classics such as “The Texas Chainsaw Massacre” and “The Whole Shootin’ Match,” and accelerating with homegrown talent like Richard Linklater, known for “Dazed and Confused” and “Boyhood,” and Robert Rodriguez, who owns Troublemaker Studios and conceived of the “Spy Kids” franchise.

But film incentives offered in places like Canada and the U.K. pulled production away from Texas during the early 2000s and led former Texas Gov. Rick to create the Texas Moving Industry Incentive Program in 2007.

“Texas was really wise in how they formulated the program,” said Gannon, who has been with the Austin Film Commission for 12 years. Other states, including Michigan and Louisiana, have created incentive programs that send dollars out of their state while Texas has stringent requirements ensuring a viable program, according to Gannon.

As other states have continued to increase the amount of money they are funneling to incentives, competition for production increased, and Texas lost some projects to nearby states such as Louisiana and New Mexico.

Quickly, it has become a race to the bottom to whichever state offers the most incentives.

“The industry chases tax incentives,” said Alton Butler, who is developing a 560-acre ranch in Bastrop County into a massive production space with rentable sound stages, sets and accommodations. “They will go to any state, any country.”

Without a film incentive program, industry experts say, some Texas stories cannot be told in Texas. Fort Worth native Taylor Sheridan, who created the massively popular Yellowstone franchise, has lamented to lawmakers that his film “Hell or High Water” filmed in New Mexico because they offered a 30% rebate.

Some residents in places like Bastrop County, where Smithville is located, are eager to see the state increase incentives because they say more film production means money for local businesses, from the caterers who feed film crews to the hotels that house them.

“They come in and say ‘throw something together for 100 people,’” said Troy Streuer, owner of the restaurant Pocket’s Grille in Smithville and former city council member there. “When I’m writing out their bill, it’s like $1,000 just for lunch.”

Streuer credits “Hope Floats” with saving his business from having to close soon after opening and said he hasn’t suffered a slump since, in part because of the influx of tourists and the revenue he brings in during film production.

“When a project comes to town, it’s kind of like a wave,” Lewis said. “You don’t know where they are going to spend their money.”

Production companies often compensate businesses for wages lost from street closures. And Texas counties have also earned money from production companies who pay to film scenes on public property such as in jails or courthouses.

Beneficiaries of film production dollars are not limited to Central Texas. Parts of Sheridan’s “Landman” were filmed in Midland and Odessa. And coastal cities, such as Baytown have been named “Film Friendly” by the governor’s office, a state certification signaling a community’s commitment to courting production and accommodating creative projects.

“Now that we are officially film friendly, I can’t wait to see what happens,” said Anna Yowell, tourism manager for the City of Baytown, which earned the designation last month. Yowell said Baytown would not seek compensation from production companies but that businesses who are inconvenienced by filming could negotiate compensation with production companies directly.

Critics of incentives

Economists who have studied tax incentive programs across the country have long been skeptical of their value. Research on film incentive programs in New York, Georgia, Michigan and California have found that tax credits have a negligible impact on economic activity, when measuring job growth and tax revenue.

In cases where a film incentive does spur job creation, it isn’t enough to justify the cost of the incentive, said Michael Thom, a tax expert at the University of Southern California.

“The incentives boost the industry’s profit margins, which is why they want them so badly,” Thom said, adding that the Texas Film Commission’s claim that the incentive program delivers a 469% return on investment is “preposterous.”

Some producers would choose to film in Texas even if they did not receive grant dollars, Thom said. And the figure doesn’t account for what the state could be losing by not spending that money on something else, whether public schools or safety.

Alders, the East Texas lawmaker, agrees.

“That calculation is a little disingenuous,” he said. Instead of using general revenue to refill the incentive program’s coffers, Alders suggested the funding come straight from the sales tax revenue the film industry generated.

“If we are getting money back, then that bucket should have been filled one time and should never have to be refilled with taxpayer dollars,” he said.

Lawmakers have also emphasized that Texas offers other unique filming benefits: no state income tax, a unique topography and a friendly business environment.

“We don’t have to pay other businesses to come here,” state Sen. Bob Hall, R-Edgewood, said during a public hearing last year. “Why do we have to have the taxpayers of Texas subsidize something that you would do to put out a quality product?”

In addition to the incentive program, Texas offers a sales and use tax exemption to qualifying media production facilities such as animation studios and sound stages. Lewis said she is helping prepare an application for Butler, who is relocating from Los Angeles to Bastrop to develop 204 Texas, a massive production studio, along the Colorado River.

Some local communities, including El Paso and Fort Worth, also administer their own incentive programs that can supplement the state dollars.

Butler said he has faced some pushback from Bastrop residents who don’t want to see development in their quiet community. After Butler unveiled the project three years ago, a petition opposing the venue garnered 933 signatures and raised concerns about noise and possible damage to wildlife. Butler has tried to allay concerns, but some residents remain critical of the project.

“There’s still going to be haters,” Butler said, noting that every development faces criticism from people who don’t want population growth. “You’re not going to stop growth, it’s just going to happen.”

State officials and local residents have also questioned what type of material will be filmed using public dollars. Residents have raised concerns about pornography being filmed in Texas, Butler said, while officials including Texas Agriculture Commissioner Sid Miller worry about “subsidizing the folks that brought us woke, anti-Christian bigotry.”

Under state law, the Texas Film Commission has discretion over what projects receive rebates. Applicants must submit their project’s script when they seek state funding, and the commission can deny applications because they feature inappropriate content or portray Texas negatively.

It’s not clear how often the state has restricted funding because of the project’s portrayal of Texas. Since 2007, the incentive program has yielded approximately 2,117 applications, and 1,280 of those have been approved, as of January, said Stephanie Whallon, appointed by Gov. Greg Abbott to serve as director of the Texas Film Commission. Whallon did not answer questions about why certain projects were not approved.

In 2010, state officials denied incentive funding for Robert Rodriguez’ film “Machete,” citing its unfavorable portrayal of Texas. The company behind the film sued, and a Texas appeals court ultimately ruled in 2016 that the state acted within its authority when it decided to deny funds because of the film’s negative portrayal of Texas.