Closing credits

A state incentive made North Carolina a haven for Hollywood, but tax reform may end the show.

By Edward Martin

Above, under a full moon, mists shroud the forest’s gnarled oaks. Down here, where there’s neither night nor day, footsteps echo hollowly in a gloomy passageway. Serpentine roots reach out of gray rock walls. “These,” a young woman whispers to her companion, as if hesitant to breathe in the odor of decaying flesh, “are the catacombs.” Everybody whispers here, but the only smell is of freshly cut plywood. Signs warn: Hot Set — Do Not Enter. Fox Broadcasting Co., part of New York-based News Corp., films its Sleepy Hollow television series at EUE/Screen Gems Studios in Wilmington. At 50 acres, it’s the largest soundstage lot outside California.

Outside again, executive assistant Layne Woods laughs as the golf cart in which she’s ferrying a visitor from one cavernous metal building to another splashes through puddles in pelting rain. Later, her boss, Executive Vice President Bill Vassar, watches from his office window as a queue builds under a catering truck’s awning. “It’s a fairly normal day,” says the 30-year veteran of managing film lots. “We’ve got three productions underway, so there are about 300 to 400 workers on the property. Sometimes, when we really get going, there are a thousand.”

Since Italian movie producer Dino De Laurentiis arrived in 1984 to film Stephen King’s Firestarter, at least 350 film, television and commercial projects have been shot at the studio. While the region around the Port City was earning its “Hollywood East” and “Wilmywood” nicknames, filmmakers gradually spread across the state. The Last of the Mohicans, released in 1992, helped put the North Carolina mountains on the movie map. Principal filming for Iron Man 3, last year’s highest-grossing feature film, was at EUE/Screen Gems, but some scenes were shot at SAS Institute Inc. headquarters in Cary. For three seasons, Charlotte was home of Homeland, New York-based Showtime Networks Inc.’s Emmy-winning TV series. More than 30 counties hosted about 60 productions last year. “This is a serious industry,” says Sheila Brothers, a Wilmington radio and TV personality who blogs about the film business. It’s also an industry that could be in serious trouble in North Carolina.

Only six months after Gov. Pat McCrory reported that producers spent about $254 million in the state last year, creating 4,000 jobs and 25,000 part-time and temporary positions, the financial incentive that boosters insist keeps this industry in North Carolina faces a crucial test when the General Assembly reconvenes this month. Signed into law by Democratic Gov. Mike Easley in 2006, the tax credit returns 25% of a production’s cost. Unless renewed, it will expire at year-end.

The issue divides politicians of all stripes. In Wilmington, a GOP state representative who commissioned a study critical of the incentive was singled out by a Democratic opponent as threatening “local jobs and a strong industry.” Republicans, who gained control of both houses of the legislature in 2010 and won the governor’s office two years later, are split, too. Some fear ballot-box retribution for killing jobs, while others fret over having to explain their support to conservative constituents who consider the incentive corporate welfare for rich, liberal Hollywood interests.

Stung by some in his party for seeming to endorse film incentives last fall, McCrory is undecided on the issue, his press secretary says. A spokeswoman for House Speaker Thom Tillis, who is running for U.S. Senate, says he “decides incentives on a case-by-case basis,” though, she concedes, members of his caucus “obviously don’t all see it the same way.” Through his spokeswoman, Senate President Pro Tempore Phil Berger deferred to Bob Rucho, co-chairman of the Senate Finance Committee. “Those numbers are not credible,” he says, attacking the figures McCrory cited. In an interview, the Matthews state senator says the industry provided fewer than 200 jobs — later amending that to fewer than 1,000 — in 2013. “That 4,000 number includes people selling tickets and popcorn and everything else you can think of. The reality is, there are very few jobs, and they aren’t even permanent. Most of these people work six weeks or three months, then they’re off.”

Ambivalence is evident even within McCrory’s administration. The state Film Office is under the N.C. Department of Commerce, whose secretary, Sharon Decker, supports economic incentives to attract and retain business. Film Commissioner Aaron Syrett, who works for her, says unequivocally that losing the credits would kill the Tar Heel film industry. On the other hand, the John Locke Foundation, a Raleigh-based conservative think tank, derides them. It issued a report that says the industry employs only a few hundred people in the state and returns less than 20 cents on each dollar it receives, based on the theory that money paid in incentives is redirected, by way of taxes, from potentially more lucrative uses. The foundation’s co-founder and principal benefactor is Art Pope, the governor’s budget director. (Its chairman and president, John Hood, writes a monthly column for this magazine.)

Rick Parris’ family owns H&S Lumber & Glass Co. in Charlotte. In business since 1937, it rides the ups and downs of construction, including long, frightening slumps. “You don’t ever know,” he says. Film production reached here in force with a rash of made-for-TV movies, including 1993’s The Black Widow Murders, based on an Alamance County preacher’s daughter who poisoned her husband and several other men. It was filmed in Charlotte’s Plaza Midwood neighborhood. Big-budget theatrical releases followed, including The Rage: Carrie 2, released in 1999, and 2006’s Talladega Nights: The Ballad of Ricky Bobby. Filmmakers found H&S to be a quick, reliable source. Parris estimates a third of its annual revenue — “hundreds of thousands of dollars” — comes from films and TV productions.

In 2011, H&S trucks carried materials to locations in western North Carolina for the first The Hunger Games movie. “They had 300 carpenters working there at one time,” he says. “Some think these people fly in here and get their money and leave, but they live in North Carolina. The stage manager of Homeland lives a few blocks from where we are right now.” H&S supplies lumber, plaster molding and other material for the TV series. “They sure break a lot of glass.”

 

Under an elegant arched portico and up carpeted stairs, wooden floors creak. Roaring down from the cliffs of Hickory Nut Gorge, March winds rattle windows. The past is present at Lake Lure Inn, which is much as it was when built in 1927. But unlike Sleepy Hollow, its spirits are real. President Franklin Delano Roosevelt’s black-and-white photo, taken during a 1936 visit, hangs in the antique-filled lobby. Today, though, the stars of 1987’s Dirty Dancing, filmed partly at the inn, are more revered than novelist F. Scott Fitzgerald, who also was once a guest.

Photogenic landscapes and buildings made the state a movie star, but its early history in film is as easy to overlook as locations used in Robert Mitchum’s 1958 moonshine-running classic, Thunder Road, shot around Lake Lure. Compiling an exhibit called “Starring North Carolina” that will open in November at N.C. Museum of History in Raleigh, registrar Camille Hunt counted more than 3,000 films in which the state has made an appearance. Conquest of Canaan, about a small-town lawyer, was shot in Asheville in the 1920s. “We have evidence of an earlier one, but we don’t have concrete proof. We think a short one called The Heart of Esmeralda was filmed in Henderson County in 1912.”

Syrett isn’t surprised. “North Carolina has always been a great place for films,” says the former Utah film commissioner, who joined the N.C. Film Office in 2007. “We can be Anywhere USA, from beaches to mountains, large cities to small cities, rural to urban.” The state didn’t have a film office until 1980. Wilmington became its film capital by chance and, even after that, almost flickered out. Scouting locations for Firestarter, De Laurentiis stumbled upon historic Orton Plantation, across the Cape Fear River in Brunswick County. Impressed by the climate and diverse locations, he set up De Laurentiis Entertainment Group Film Studios in a former warehouse in Wilmington. Five years later, Carolco Pictures Inc. bought the property out of bankruptcy. It went under in 1996. New York-based EUE/Screen Gems Ltd. bought and began expanding the lot, including $2 million of upgrades in the last several years. Meanwhile, moviemaking spread to other parts of the state. In 1985, Steven Spielberg filmed The Color Purple, starring Oprah Winfrey and Whoopi Goldberg, in Anson County.

Farm fields stretch to the horizon in Duplin County, where more than 2 million hogs vastly outnumber the 60,000 people who live there. They raise chickens, too, which explains the presence of what is claimed to be the world’s largest frying pan, a 15-foot giant shelved in a gazebo in downtown Rose Hill. In February 2013, a man came to Salon Exclusive, Catherine Floyd’s brick-fronted beauty shop, a few blocks away on Church Street. Iron Man 3 producers wanted to turn her town into a Tennessee hamlet. “They said they’d just be using the front of my shop, and mostly at night, but they’d pay me $150 a night to stay here, or hire someone to, just to cut the lights on and off inside if they needed to.” She stayed. “I’m not about to give the keys to my shop to anybody else.” Other businesses got similar offers, including The Trading Co., which also sold hardware and building materials to the crew. Filming went on sporadically until August. “Some of the people from out of town were a little bigger than their britches, but the working people building the sets were from right here in North Carolina,” Floyd says. “They were incredibly nice, and it sure helped our economy, no doubt about it.” In Burgaw, the CBS series Under the Dome did something similar last year, with Dee’s Drugstore in the role of a pharmacy in the fictional town of Chester’s Mill and the Pender County Courthouse standing in for its town hall and police station.

Just how much money stays behind after the cameras leave is unclear, but it’s substantial, just counting taxes alone. Robert Handfield, an N.C. State University professor and supply-chain expert, says the film industry generated more than $170 million in state and local taxes — while getting $112 million in tax credits — from 2007 to 2012. “For every dollar of credits issued, the industry generates $1.52 in tax revenue back to the state.” During that span, he says, filmmakers spent just over $1 billion in North Carolina, returning $9.11 on each dollar of incentives. Film commissions in the western part of the state, Charlotte, Triad, Triangle and Wilmington, as well as the Washington, D.C.-based Motion Picture Association of America, sponsored the study.

Iron Man [3] came here and dropped $180 million,” says Vassar, adding that television series often spend more than big-screen films. Dawson’s Creek, shot in Wilmington from 1998 through 2003, cost about $1.8 million per episode, and One Tree Hill was a fixture from 2003 through early 2012. Such longevity feeds on itself. “A plus for North Carolina is the solid, talented crew base, more than 4,000-strong,” says Brothers, who writes The Wilmywood Daily blog about the industry. “When you have a crew bringing your show in on budget, master craftsmen and artists working on construction sets as well as all facets of production, it’s a win for the studios. You don’t get there on the backs of actors and producers alone. It takes a village.”


A secret lurks under the floor of Sleepy Hollow’s catacombs set. “It’s covered up now,” reveals Woods, Vassar’s assistant. “It’s the pool” — one of two massive tanks here, each holding a million gallons, for underwater special effects. Over and around it are tens of thousands of square feet of plywood sets and miles of wiring. Separate buildings hold electrical, carpentry and millwork shops. EUE/Screen Gems recently spent about $1 million upgrading computer systems to boost graphics capabilities. “If we hadn’t,” Vassar says, “Los Angeles would have been complaining we’re back here in Hooterville with crank phones.” Filmmaking is a massive, expensive and highly technical undertaking. Though De Laurentiis initially set up shop in a warehouse, this built-from-scratch complex cost hundreds of millions of dollars, and what grew up around it is the core of the state’s permanent workforce in film. Handfield counts 4,259 and says their annual pay averages about $24,000 more than the national norm for private industry. Most have sawdust rather than stardust in their eyes.

Many belong to Local 491 of the International Alliance of Theatrical Stage Employees, which has joined the lobbying for incentives, aligning itself with management and local government. In an anti-labor, right-to-work state, the union label might be a political handicap, but it fits the unconventional nature of film work. “Dino brought master carpenters, riggers, electricians — all the best from all over the world — and had them live here,” Vassar says. “A lot of the people on this lot are in their 20s today, and their parents grew up doing film. They sleep in their own beds at night and want to be in North Carolina.” More than 60% have worked in film 10 years or longer, Handfield says. For many — independent contractors, self-employed or working for small companies — their $240-a-year union dues gets them access to insurance and other benefits and helps them overlap jobs posted by the local. “You might be doing a commercial that works for three days or a TV series for nine months, but as long as those projects keep coming in, it creates full-time work for you,” says Johnny Griffin, director of Wilmington Regional Film Commission. “A lot of these people have been doing this for 20 or 30 years, and it’s their only source of income.”

Small businesses also stand to get hurt if the film incentive disappears — Handfield estimates $164 million in lost sales, based on 2012 data. H&S Lumber, Parris says, would be one. In addition to lost sales, “I’m wearing out tires and burning gas that I go down the street to the local dealer and buy. I had a truck I let them use in Hunger Games. It needed a back set of tires, and that set of tires was $2,200. They went out and bought them and didn’t blink an eye.”

“To me,” Brothers says, “film incentives are nonpartisan. Louisiana, South Carolina and Georgia are all led by Republicans who fully support incentives, as do Democratic leaders in New York and Hawaii.” In Georgia, legislators are watching North Carolina’s scuffle. That state has a slightly smaller EUE/Screen Gems studio outside Atlanta but bigger incentives. Vassar nods at carpenters, electricians, grips, gaffers and others working on the lot. “It’s not all Susan Sarandon and her friends making a lot of money. These are mostly highly skilled, blue-collar workers who’re well paid.” Handfield says trades workers and technicians earn an average of $66,000 a year. He projects that more than 3,400 would leave for other states — primarily Georgia and Louisiana, which have the nation’s richest incentives — if the industry collapses in North Carolina.

Vassar heads the North Carolina Production Alliance, formed in February to fight for the incentive. Last fall, Wilmington hired one of the state’s highest-profile lobbying firms, Charlotte-based McGuireWoods Consulting LLP, to twist legislators’ arms after a previous study it had commissioned Handfield to perform concluded that New Hanover County could lose out on $10 million a year in tax revenue if the incentive expires. Lobbying efforts also are underway in the Triad, Raleigh, Asheville and elsewhere, including Charlotte, where the local film commission is staging celebrity events to drum up support for keeping the credit. Richard Petty has been enlisted. A member of the Screen Actors Guild, the legendary racer calls the incentive “critical to having this industry in North Carolina.” EUE/Screen Gems resumed tours of the lot in late April.

Critics such as Rucho dismiss those arguments and statistics. “They’re exaggerating all this stuff,” he says. “If we’re going to be passing out money — and that’s what we’re doing — we ought to have a measure, and that measure is long-term, permanent jobs.” Rucho repeatedly quotes Locke Foundation reports that dispute what supporters claim. After the latest Handfield study came out in early April, another, commissioned by Wilmington Republican Rep. Rick Catlin and several other House members, ripped into the report, saying it was “based on a series of misunderstandings of the state’s tax laws, invalid or overstated assumptions and errors in accounting.” Done by the legislature’s Fiscal Research Division and focused on 2012, it concluded the state lost more than $33 million on the $84.2 million of credits that year. Critics attack on other fronts, too. Jon Sanders, the Locke Foundation’s director of regulatory studies, cites widely varying claims of returns, from $1.50 per $1 spent in New Mexico, to as much as $20.50 in Florida. “Findings with such enormously high multipliers are simply not believable,” he says. What’s clear, though, is that a nationwide arms race is underway.

North Carolina’s package makes it formidable but not invincible. Georgia offers up to a 30% tax credit with no caps — including a 10% bonus if a filmmaker gets the state’s peach logo into a scene. And it has begun pointedly telling location scouts that there’s no sunset clause. Louisiana goes even further, offering, among other things, 30% tax credits that can be sold back to the state at 85% of face value.

Film incentives aren’t just a Tar Heel issue. Forty-four states offer them, and many are equally torn. In Alaska, lawmakers are debating a bill to repeal them, arguing, as Rucho does, that they cost more than they’re worth. In March, the Oklahoma House refused to extend that state’s, as much for bipartisan condemnation of immoral Hollywood as their lack of economic benefit. On the other hand, California — its $17 billion-a-year movie industry being bled by North Carolina, Louisiana, New York, Georgia and other states — is debating increasing its
offerings, as are Florida and Pennsylvania. In Virginia, a bill would bump the credit from 15% to 20%, though that’s still less than North Carolina’s. A tea party conservative from the rural southwest section of the Old Dominion State sponsored the measure. Nationwide, a small industry has grown up evaluating film-incentive packages and advising moviemakers of the best deals. New Orleans-based Film Production Capital LLC rates states. Places with no incentive get no stars. Georgia and Louisiana earn five. North Carolina rates four, in a second tier with Massachusetts, Pennsylvania and several others.

Now, within weeks, politics rather than production values could determine North Carolina’s film career. For the moment, though, on a side street in the mercantile section of downtown Wilmington that dates to before the Civil War, policy matters are but ideological flotsam in a flow of green beer. It’s not yet noon, but inside the dim pub, the wait staff plies libations to a dozen patrons. It’s St. Patrick’s Day at Hell’s Kitchen, and sitting at a back table, Eric Laut pores over figures on his laptop. A former business-development manager, he moved from Chicago, enticed partly by the film economy, and bought the pub on Princess Street in February. “I like the dichotomy,” he says. “We’re actually a family place, but people think of Hell’s Angels when they hear the name.” There’s something else about the premises that isn’t as it seems.

“This wasn’t a bar to start with. It was just a historic old place they remade into a bar as a set for Dawson’s Creek. A local guy bought it when they finished and turned it into the real thing.” Illusion becomes reality in an enterprise built partly on fantasy. Critics insist that its economic impact is an illusion, too. Defenders say detractors can’t understand an industry that, instead of fabric or furniture, manufactures make-believe.