Is That a Wrap for Incentives?

Broadcaster and conspiracy theorist Alex Jones in a May 2010 video titled "Racist Film 'Machete' Produced With Taxpayer Funds!"

You've probably noticed that the economy sucks. The state needs to find an extra $27 billion, and filmmakers, TV producers, and game developers in Texas are scratching for funding. So how tough is it going to be for visual artists to ask lawmakers to put more money into job-saving production incentives?

Quick answer: Pretty tough, and the racially charged debate over why the state wouldn't fund Machete, plus a change of leadership at the Texas Film Commission, could make it tougher.

The industry is convinced that the Texas Moving Image Industry Incentives Program works. When lawmakers first put money in the program in 2007, in-state production went up. When the Legislature improved the terms and added more cash in 2009, production went up again. In total, the state estimates that eligible projects have brought $600 million in economic activity to Texas. The terms may not be as generous as Michigan's 42% tax credit, but, as Texas Motion Picture Association President Don Stokes explained it, "We created a sliding-scale incentive program, where we were able to be competitive in the arenas in which we need to be most competitive."

Numbers from the state back that assertion up. In a recent study, the comptroller's office reported that in 2005, before the incentives took effect, there were 51 film and TV projects in Texas, spending a total of $155 million. By 2009, there were 244 projects worth $249.7 million. In total, projects approved for incentives created 27,057 jobs, including 3,790 full-time positions. Austin Film Society Executive Director Rebecca Campbell said, "Since the incentive bill was signed, we've definitely seen an uptick and a surge in energy." Prior to that, she said, "Competing states were getting film after film after film that would have gone to Texas."

So who gets that money? While the program is still popularly referred to as film incentives, television was the single biggest recipient of funds, with 22 projects with production budgets totaling $132.7 million in line to split $24.5 million between them. However, the best return on investment may be video games: $9 million in grants snagged $170.7 million in game development spending. Video games also created the most full-time jobs: 1,694 compared to 692 in films. While he would like Texas gaming companies to have a bigger share of the reimbursement pie, TxMPA animation, video game, and visual FXindustry chair Jay Schuh said he understood that moviemaking's nomadic nature requires better lures. Since the film commission sets the application rules after the budget cash is appropriated, he said, "Potentially at that time we may try to level the playing field."

So what happens if Texas doesn't fund the refunds? Stokes predicted a return to pre-2005 production levels – "and that's a lot of economic activity and a lot of jobs that will go away," he said.

In the last two legislative sessions, the cash request was pretty simple: The Texas Film Com­mission wasn't asking for much ($22 million in 2007 and $62 million in 2009), which produced significant job creation for such a tiny slice of the Texas budget. Advocates hoped that, if the program created jobs and brought in more tax revenue than it cost, the state might boost the incentive pot. Instead, when the Governor's Office filed its appropriations request last August, it only asked for $53 million – down $9 million from 2009.

It gets worse. When the draft version of the budget was unveiled on Jan. 19, the total allocation for all film and music promotion was slashed from $67 million to $10 million for the next two years. Lawmakers are now trying to work out whether that leaves anything for the incentives.

Austin Rep. Dawnna Dukes has used her position on the budget-building House Appropriations Committee to ensure funding. This year, with every essential service from Medicaid to public schools facing the chop, her job gets tougher, but she's still optimistic. She said: "What we know – what the comptroller's report shows and what statistical data we have shows – is that film incentives do work. They have been effective in Texas. They do create more jobs in Texas, and they have brought in more production."

Last time Dukes asked for cash, she had Film Commissioner Bob Hudgins in her corner. Broadly regarded as the strongest and most convincing voice for the program, he resigned in November, and Gov. Rick Perry replaced him with Interim Director Evan Fitzmaurice, formerly an entertainment business attorney with the Los Angeles firm of Jackoway Tyerman before joining the governor's general counsel last year. While Fitzmaurice called the incentives the "crown jewel of the film commission," it may take all his accounting acumen to convince lawmakers that they are not costume jewelry. He said, "We've got a good story to tell, and we look forward to telling it as often as possible."

Fitzmaurice may be an unknown quantity as an advocate for the commission, but TxMPA's Schuh said his members are already reporting a new management style since he took over. He said, "Bob [Hudgins] traveled around the state to get a feeling for what the needs of the people in the different regions were, and my understanding is that Evan [Fitzmaurice] is trying hard to facilitate getting people paid as quickly as possible." That may help clear the backlog of payments: Between April 23, 2009, and Aug. 31, 2010, the commission approved 260 applications worth $48 million in grants; however, to date, it has cut less than $6 million in checks.

Rep. Dawnna Dukes, a leading advocate of incentives, at the opening of the Texas Legislature on Jan. 11 (Photo by John Anderson)

For the most part, the incentive program has run pretty smoothly: Producers and developers submit their applications and receipts, and if they can prove that they spent the right money in Texas, they get a check from the state. But there's one other test, buried in the government code:

"The office is not required to act on any grant application and may deny an application because of inappropriate content or content that portrays Texas or Texans in a negative fashion, as determined by the office, in a moving image project." Quick boil-down version: Don't make Texas look bad.

The clause has always been an anomaly in the program, the Snow White to its seven dwarves. Everything else is dealt with by the commission's production accountants, but this requires a judgment call. The rules already bar subsidies for porn or anything that violates state obscenity laws, but lawmakers have yet to define what exactly constitutes a "negative fashion."

What makes Texas look bad? No one knows. So who gets to make that decision? The film commission. And how does it make that decision? That's a mystery.

The clause was first enacted in 2009, when Hudgins announced that Waco – a planned drama based on the 1993 Branch Davidian Siege – would not receive funds because there were too many glaring inaccuracies in the submitted script. Not that it really mattered, because the filmmakers never shot a frame. Gary Bond, the city of Aus­tin's director of film marketing, noted that, two years on, "they still don't have the financing to make the film." However, he added, "If it ever gets made, that's the way it will be marketed: 'the film Texas didn't want you to see.'"

But when the clause sliced Robert Rodri­guez's Machete, that caused a much bigger stir. Unlike Waco, this was a completed movie from one of Texas' most successful and prolific directors. So when the news came down on Dec. 1, 2010, that it was being denied incentives, Rebecca Campbell with Austin Studios described the letter as "a knife in the heart, because it was Robert and Elizabeth [Avellán, Machete's producer] who have spent more money in the state than anyone else."

The commission's decision put the spotlight on a part of the legislation that almost seemed like a joke. When Republican Senate Finance Committee Chair Steve Ogden added it to the rules in 2007, no one really knew what he meant. (As the Chronicle mused at the time, in "Money for the Movies," Newsdesk blog, April 16, 2007: "Does [Ogden] mean everyone-is-a-homicidal-nutter, Texas Chainsaw Massacre-style bad light or flat-out-unfunny, Man of the House-style bad light?") Lawmakers briefly batted around examples like Michael Moore's Fahrenheit 9/11, which might make Texas look bad because it criticized then-President George W. Bush. However, the backroom chatter around the Legislature was that, like many Aggies, Ogden was smarting over scenes in 2006's period basketball drama Glory Road representing some students at what was then East Texas State University as racists. According to Dukes, Ogden made the clause a precondition of revamping the program, but, she said, "It was discussed as though it related to issues in a documentary format." That's not what happened with Machete. Instead, she said, "What occurred was pressure from the right wing on a fiction."

The pressure came in the form of a wave of letters to the Governor's Office and the Texas Film Commission, savaging Rodriguez's Mexploita­tion potboiler as a call to race war. Here are a few samples of what landed on the commission's doorstep:

• "What is the Sam Hell are you people thinking??? Gone from 'Remember the Alamo!' to this piece of garbage?"

• "How sickening to know a movie about the Waco killings were denied and slop like Machete was accepted."

•"Say, if yew need more illegal Mexicans and Mayans for that new bio-Epic, Machete: Mexican Racial Wars and the invasion of the American Southwest, we can send yew two-thousand today!"

•"I wanted to remind Rodriquez that HIspanics are still only 17% of the US. And knives don't make one invulnerable to bullets last I heard. Does Rodriquez really want to find out?"

Applications approved by the Texas film commission, April 23, 2009-Aug. 31, 2010

But there's a problem with the campaign. The letter writing began on May 13. Machete didn't open until Sept. 3. Why were people complaining about a film that they hadn't seen?

Enter broadcaster and conspiracy theorist Alex Jones. In a video posted on May 9, 2010 – four months before the film was released – Jones claimed that he was a fan of Rodriguez but that, "I would say it's a 90 percent chance right now, [Rodriguez] is going to trigger racial riots and racial killings in the United States." How did he know? Because he had seen the famous Cinco de Mayo trailer, in which Danny Trejo as Machete said he was sending a message to Arizona. Its tongue-in-cheek tone seemed to bypass Jones, who called it "a call for racial warfare and death." But Jones didn't put all the blame on Rodriguez. Instead, he blamed "the globalists, the people that ran the British Empire," and painted the film as a recruiting tool for La Raza (which, according to Jones, was founded by the CIA and the Liberation Theologists).

Four days later, Jones issued another video screed. Calling the still-unreleased Machete a "Birth of a Nation Hispanic Ku Klux Klan film," he said: "We've got to call the state of Texas, the Film Commission, Rick Perry's office. We need to get the funding at the state level stripped out of the film commission if they do not stop this." If they did not, he warned, it would cause "the birth of the Machete murder nation."

Over the course of six months, the film commission received around 500 letters, including 137 copies of the same form letter from the Peter Morrison Report complete with the same typo accusing Machete of being "ant-American propaganda." Hardin County Repub­lic­an Party Treasurer Peter Morrison used his website to bombard lawmakers with protest faxes; other recent campaigns have included "Arizona Leads the Way on Illegal Immigration" and a special one for conservative ideologue Rep. Debbie Riddle, R-Tomball, titled "Thank you for being honest about entitlements for illegal aliens."

When Machete finally came out on Sept. 3, Jones' fellow PrisonPlanet.com author Kurt Nimmo called it "race war propaganda hastily disguised behind a stylized, bloodthirsty black comedy" in a tirade that restoked fires previously lit by Jones.

The complaint letters were filled with half-truths, many of which can be traced back to Jones' May 13 diatribe. The big one was that the commission had already paid the incentives. (As Hudgins patiently pointed out in responses to these letters, this was impossible because the film had not yet submitted all its paperwork.) Another was that the state house doors had been flung wide open to Rodriguez's crew. According to Julie Fields of the State Preservation Board, "There was no filming on the grounds." There were scenes shot on the sidewalk and roads south of the Capitol which used the dome as a backdrop: In fact, rather than subsidizing the film, this meant the state turned a profit. Fields said, "We charged them to block off [parking] meters."

It wasn't the only time last year that the Governor's Office dabbled in art criticism. Last March, Conservative Republicans of Texas President Steven Hotze thanked Perry for "his behind the scenes work" in canceling a Tarleton State University student workshop production of Terrence McNally's rarely performed play Corpus Christi. That time, the fringe right came out to condemn the production as blasphemous and pro-gay but used the same argument: that the state of Texas should not be using taxpayer dollars to fund something they don't like – whether they'd seen it or not.

Did the letters have any impact on the defunding decision? That's impossible to say. When the Chronicle requested a copy of all documents relating to the decision, the governor's press office said that the rejection process was basically done by word of mouth. Fitzmaurice downplayed both the "negative fashion" language and the Machete incident. As it has only hit two projects, he said, "This sort of supermarginal 'if-ever' clause around context is not something that I intend to make as my calling card."

However, that's like saying the speed limit only counts if you break it – and Texas isn't even posting the speed limit. TxMPA's Stokes said that, while "the state has every right to incentivize what projects it deems appropriate," Machete highlighted a major ambiguity in the program. He said, "I would just like to see some clarification for the producers, so they can tailor their projects better to take advantage of the incentives program, knowing that they fit that criteria or not."

Dukes agreed with Stokes and called the Machete decision "purely political." It's still unclear who made the final decision – or how, or why – and so Dukes argued that "the best thing that could occur is to strip that language so it could really be a quantitative decision." However, considering that advocates will have a tough enough time protecting the program's funding, she advised against rocking the boat. Opening the anti-Texas clause up for discussion may attract the attention of conservatives "who would probably try to make it stronger, and we would need to prevent that," she said.

If budget crunches and bad clauses weren't bad enough, there's another hurdle for incentive advocates. The biggest standing argument for Texas sweetening the deal for filmmakers and game developers was basically "everyone else is doing it." So what if other states cancel their programs?

That's exactly what's happening. The draft budget for New Mexico proposes a massive drop in its subsidies. Kansas and New Jersey have already suspended their tax credits. Arizona let funding for its program expire at the end of 2010, and Iowa, Missouri, and Washington state look set to follow suit. Other states have become less generous and more thorough in their bookkeeping: Louisiana, whose adoption of a film incentive program in 2002 started the current subsidy war, revamped its program after former Film Commission Director Mark Smith got a two-year jail sentence for taking bribes from an applicant.

According to the national Center on Budget and Policy Priorities, those states are the smart ones. In a heavily publicized report titled "State Film Subsidies: Not Much Bang for Too Many Bucks," former Federal Reserve Bank of Boston Vice President Robert Tannenwald called production incentives "costly" and "ineffective." He lambasted states like Con­nec­ticut and California, which, rather than Texas-style post-production reimbursements, use transferable tax credits: If productions come in under budget, they can sell off the excess credits. In a recent conference call discussing that report, Tannenwald said, "Whatever happens, the film producer gets its subsidy, and the state is on the hook to pay it out to somebody in full." If states are really interested in economic development, he argued, that cash should be used for "proven building blocks of sound economic development: good public schools, effective public safety, quality of life, and efficient, reliable modern infrastructure." With Texas Repub­lic­ans looking to slash $5 billion just from public school funding, that's a powerful argument.

Yet for every state that's backing away from incentives, there's another doubling down. Last August, New York locked in $420 million per year for the next five years to cover its tax credits, while Wisconsin lawmakers may revive their partially mothballed program. There's also international competition: Canada has had a wildly successful program since 1997, and when the Czech Republic launched a 20% rebate last year, 15 of the first 22 applicants were international projects. The competition is particularly tough for video games. According to the Entertainment Software Association, 20 states now have some form of digital media incentives. However, according to Austin Studios director of operations Catherine Parrington, while some states publicize big numbers, "if you want to cash in on that quickly, they'll negotiate you down. So at the end of it, [producers] are getting an incentive similar to what they're getting here." Unlike Texas, with its skilled crews and acres of sound stages, most of those states have no real history of filmmaking, so as a result, she added, "There're a couple of people who have soured [to those states], to our benefit."

Ultimately, Austin Studios' Campbell said, "We do need to put this 'Oh, it's not working in other states, so it must not be working in Texas' conversation to rest. It's working in Texas, and it's not breaking the bank."