State senator wants independent audit of New Mexico's film tax credit

Dec. 8—A state senator said he will call for an independent audit of the state's film rebate program in the upcoming legislative session amid growing concerns it may not produce enough bang for the buck.

Sen. George Muñoz, D-Gallup, said he's concerned about both the possibility of overpayments to film companies and a lack of data on eligible expenses used to get rebates.

"An accredited out-of-state auditing firm would have to dig into it," he said.

"I'm not saying the film industry does not create jobs, but at some point if the state Economic Development Department and the film office can't calculate down to the penny what they are reimbursing for, then we don't know what we're getting," said Muñoz, who is the chairman of the Senate Finance Committee.

The program aims to draw moviemakers to New Mexico to create both jobs and revenue by allowing production companies to apply for 25% rebates on qualified expenses for projects shot in the state. Additional uplifts in the program allow for some production companies to apply for up to 40% of qualified expenses.

A September Legislative Finance Committee report said it's time to reevaluate its financial impact.

The report says the rebate initiative accounts for 37% of all state economic development incentives but provides less than 1% of total private employment in the state. It also said the program helps provide about 8,000 jobs a year in the film industry, which costs the state about $23,000 in rebates per job.

In light of that report, Muñoz wrote to state film office Director Amber Dodson in early October, asking her to provide more detailed information on how the film tax credits are calculated and data on eligibility requirements, among other queries.

Dodson responded with a letter in late October describing how the film production rebate — considered a tax credit — works.

Regarding the possibility of overpayments, Dodson wrote that before 2019 there was "no proper database with consistent information and statistics on registered productions," nor any "consistent analysis and oversight of registration and tax credit applications and data." But she wrote that safeguards are now in place to rectify that thanks to legislation passed in 2019.

The letter says the film office has since created a process to better capture and evaluate production information, "allowing us to monitor daily estimated payouts and the film tax credit funds."

Dodson's letter also provided information on the number of New Mexico resident actors, day players, background actors and crew members working in the industry since 2020.

In terms of crew members, that figure has ranged from about 2,700 in fiscal year 2020 — the year the pandemic shut down production — to nearly 7,500 in fiscal year 2022.

At a legislative committee hearing earlier this year, Dodson said although the film industry provides around 8,000 jobs a year for New Mexicans, that does not equate to 8,000 individuals because some film workers may get jobs on more than one production a year.

Muñoz said he wants more information and believes a Legislature-approved audit may provide it. If not, he said, he is willing to use his capital outlay funds to get the job done.

"We ought to send an auditor in and audit how they are doing this," he said. "We have to fund a special audit for them."

Bruce Krasnow, spokesman for the state Economic Development Department, said Friday the film office "encourages the Legislature to commission its own analysis and study."

When the state commissioned studies on the financial and employment impact of the film rebate program in the past, it was accused of being biased toward the film industry, Krasnow said.

There have been at least three such reports over the past 15 years. The first, in 2008, showed an investment return of 14 cents on every dollar spent on the program. The second, in 2009, put that figure at 94 cents per dollar invested. The third, in 2014, estimated the figure at 33 cents per dollar.

Many Republican lawmakers have long questioned the benefits of the rebate program and have said the state would do better investing that money into other tax incentive initiatives. Democrats, for the most part, have supported the program or voiced little objection to it.

Senate Majority Leader Peter Wirth, D-Santa Fe, said in a legislative hearing in November the program pumps money into local communities as production companies pay for hotels and housing, restaurants and catering and rental vehicles, helping the state during challenging economic times.

"But for the film industry we would have been in worse trouble than we were in," he said.

But Muñoz is not the only Democrat asking questions about the program now. At a legislative hearing earlier this week, Reps. Derrick Lente, D-Sandia Pueblo, and Susan Herrera, D-Embudo, raised concerns about how much bang the state is getting for its buck.

"Film and tax credits are out of line," Herrera said. "We need to look at that as a Legislature and maybe slow that growth down. I know this is a very political statement to be making ... but that's what we need to do."

Herrera noted New Mexico is grappling with poverty and other issues.

"To be supporting tycoons in the film industry, I guess, is not the direction I would go," she said.