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State Budget Impacts On Local Economy

By Jenny Callison and Cece Nunn, posted Aug 15, 2014
Some building rehabilitation projects, such as the current one on an office building at 228 N. Front St. (above), utilized the state's historic preservation tax credits. (Photo by Chris Brehmer)
If the General Assembly’s short session had been a movie, movies themselves would be part of the cast, and reviewers would take note of the film’s longer-than-expected run time and confusing end.

In real life, lawmakers finally agreed on a state budget the first two days of August.

Though several incentives important to some local sectors – including film production and historic preservation credits – lost in the budget fight, they remained possible in a separate measure as of press time while lawmakers figured out their adjournment plan.

Here’s a look at some of the ways that the $21 billion budget Gov. Pat McCrory signed Aug. 7 could affect Wilmington’s business community.

FILM INCENTIVES
After lively discussions on film incentives that lasted until the last few hours of budget deliberations, the General Assembly passed a budget bill that will replace the current tax credit program – when it expires at the end of 2014 – with The Film and Entertainment Grant Fund.

The legislators allocated $10 million for the grant program for 2015, a far cry from the $61 million the state refunded to qualifying film projects in 2013.

To qualify for a grant, according to the legislation, a feature film would need to have $10 million of qualifying expenses, a television episode at least $1 million and a commercial for theatrical or television viewing at least $500,000. Other stipulations apply.

Grant funds would be capped at $5 million for a feature film, $5 million for a single episode of a TV or video production and $250,000 for a commercial.

The prospect of much less money, as well as the general vagaries of grant funding, have local industry officials worried.

“We’re saddened by the idea of a $10 million appropriation,” Johnny Griffin, director of the Wilmington Regional Film Commission, said in late July. “That amount is woefully inadequate for us to grow or even maintain the current level of success we’ve had.”

Despite consistent efforts of Rep. Ted Davis (R-New Hanover) to extend the existing tax credit program, there was enough opposition – mostly in the Senate – to keep even a modified tax credit program out of the final budget.

“I and a majority of the House members voted for the Davis amendment last week to extend the film incentives,” Rep. Rick Catlin (R-New Hanover) said in an Aug. 7 email, adding he hoped the Senate would reconvene and “support our House efforts to preserve the film industry jobs.”

Legislators opposed to the program have cited the transitory nature of film projects, a dislike of incentives in general and uncertainty about the industry’s economic impact as reasons for their opposition.

Grant programs, unlike tax credit programs, are often at the mercy of legislative budgets, Griffin said. Because grant programs do not have automatically recurring budget appropriations, the available funding can vary from year to year, and projects must wait until a new fiscal year to know how much is available.

“It takes away their Tier One status,” he said of states with grant programs, explaining that Tier One states – as North Carolina is now – are the go-to states for film projects because their incentives program guarantees payment for qualifying projects.

Griffin said he’s still hearing from productions that are looking to start work in North Carolina immediately and wrap their production activities by the end of December.

Bill Vassar, executive vice president of EUE/Screen Gems Studios in Wilmington, echoed Griffin’s concerns.

“Today, North Carolina is one of a handful of states first considered to locate a television series or feature film. This means thousands of jobs for our people and tens of millions of dollars spent with local businesses down the street,” he said.

The looming film incentives change is already having an impact in the Wilmington area, said Stephanie Lanier, owner and broker-in-charge of Lanier Property Group. Because her husband, Andrew, her partner in the real estate business, also works in the film industry locally, she knows many area film-related workers. She said many of them are considering – or planning – a move to another state such as Georgia that has a more attractive film incentive program.

“People are contacting us, asking us what to do about their property here. Should they sell? Rent it out? How should they value it?” she said. “Some of them have secondary homes that they rent out to others in the film industry. Some have side businesses here; what do they do about those?”

Lanier noted that she and her husband are in the latter category.

“The film industry allowed us the freedom and flexibility to build our real estate business,” she said. “A lot of people don’t understand the ripple effect of taking away the existing film incentive. We’re losing projects already; the damage is done.”

HISTORIC PRESERVATION CREDITS
Other incentives that disappear Dec. 31 are tax credits for the renovation of historic properties.

That could be bad news for the homes and commercial buildings at risk. In downtown Wilmington, architect and developer Clark Hipp was in the midst this month of finishing the rehabilitation of a 15,000-square-foot office building at 228 N. Front St., at the same time lawmakers stripped out a last-minute proposal to save some form of historic preservation tax credits.

“We would not have been able to make this a successful project without the benefit of the tax credit,” Hipp said of the office building, where crews were able to keep, for example, historic windows and floors because of the savings resulting from the credits.

Such projects are “not just a way for an individual to make money; it benefits a community,” Hipp said, with one rehabilitation project inspiring others to do the same.

With no incentives, “I believe that it will become less financially viable to redevelop historic properties, and so we will begin to lose them,” Hipp said.

Preservationists have said they hope a legislative study of historic preservation’s economic impact can lead to a better incentive program in 2015.

But as they deal with the gap between the expiration and any new action, the loss of the credits will “compel preservationists to be creative,” said George Edwards, executive director of Historic Wilmington Foundation Inc.

HIGHER EDUCATION FUNDING
Although University of North Carolina system leaders had worried about further cuts to the system’s already reduced budget, the new state spending plan included a slight bump for the system, said Mark Lanier, assistant to the chancellor and trustees at University of North Carolina Wilmington.

In the final version of the budget, the allocation for the entire system was slightly over $2.5 billion, an increase of about $28 million over the prior year, Lanier said.

“There is a lot to appreciate in this budget, including the first new investment by the General Assembly for parts of our strategic directions initiative and the support of the New Teacher Support program,” UNC system president Tom Ross said in a statement shortly after McCrory signed the budget into law.

Lanier said UNCW’s budget would actually increase a bit, largely because of increased enrollment. One relatively new program, the RN to BSN program, is driving much of that growth, he said.

“Many hospitals are encouraging their RNs [registered nurses] to have a bachelor of science in nursing degree. UNCW has a very innovative online program that allows them to get their degree,” Lanier said. “The courses are offered in seven-week modules to accelerate program completion and to fit the schedules of working health care professionals. We’ve gotten really good enrollment in this program.”

BUSINESS PRIVILEGE TAX
At the end of May, the General Assembly adopted, and the governor signed, House Bill 1050, which covered a range of adjustments to the tax bill passed in the long session last year.

One important part of the bill was the elimination of the business privilege tax, effective July 1, 2015. The existing legislation gives incorporated areas the authority to charge businesses a tax for doing business within corporation limits, and, for many municipalities, represents a sizeable amount of revenue.

A major argument against the business privilege tax was that it was applied unevenly to different kinds of businesses and did not apply to some kinds of professional services.

When the city’s authority to levy the tax ends next July, Wilmington stands to lose about $1.7 million annually, said city spokeswoman Malissa Talbert.

In the meantime, the existing program was amended during the session so that municipalities can now charge for business operations only when they are for companies physically located within the municipality. Previously the tax applied to any business operations.
 

Budget Recap

• Lawmakers replaced the film incentives expiring Dec. 31 with grant pool of $10 million.
 
• Historic preservation credits were not renewed, but an economic analysis of historic preservation efforts is expected to be conducted.
 
• Businesses will no longer have to pay a privilege tax to municipalities, including Wilmington, as of July 1, 2015.
 
• The state’s new budget essentially maintains funding for higher education.
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