Netflix has finally earned film studio status after buying ABQ Studios in Albuquerque, New Mexico at an absolute steal.
The initial purchase price, which closed in October, was less than $30 million. However, after receiving generous taxpayer funds, the streaming giant will only spend around $15 million out-of-pocket.
Netflix will receive a total of $14.5 million in government funds for the purchase, which includes $10 million from the state of New Mexico and $4.5 million from the city of Albuquerque.
ABQ Studios was built in 2007 for $91 million following the state’s production boom that developed after the launch of New Mexico’s incentive program. The latest assessed value of the property was only $22.7 million, according to the Bernalillo County Assessor’s office.
The complex entered Chapter 11 bankruptcy in 2010 after the housing crisis turned the area into a ghost town. The studio was then acquired in 2011 by New York-based Amalgamated Bank.
The site includes eight sound stages totaling 132,000 square feet of space, plus 100,000 square feet of production offices and a large backlot.
Netflix has a lease on the Sunset Bronson soundstage facility next to its Los Angeles headquarters, but ABQ is its first wholly owned production space.
Netflix plans to spend $1 billion in New Mexico over the next decade. The company projects that 1,000 production jobs a year will be created at the facility.
Netflix has already shot several productions in New Mexico, including shows like Godless and Longmire, films like The Ridiculous Six, and future productions Daybreak, Chambers and Messiah.
Productions shot in the state are eligible for a tax credit up to 30% under the New Mexico Film Tax Credit Program.
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Tax Incentive Woes
The Film Tax Credit Program, approved by the New Mexico’s legislature in 2002, allows film and television companies to be reimbursed for 25% to 30% of qualified taxable expenditures. These funds are taken from the state’s general fund, which also finances public education.
However, after New Mexico passed an annual $50 million limit on film payouts, claims continue to outpace what’s available under the cap.
The cap passed by lawmakers in 2011 has produced a massive backlog of about $180 million in film incentives to pay out, as of the last fiscal year.
The credit cap doesn’t limit the amount filmmakers are eligible to receive, but after a decade-long production surge, the state owes far more in any given year than can be paid under the cap, causing the debt to accumulate.
This growing financial obligation is only getting worse as more productions line up to shoot in the state. Without adjustments to the film credit payout system, this backlog will only swell.
The debt obligation is projected to rise to $250 million by the end of the current fiscal year in June 2019. If current trends continue, these obligations will reach $700 million by 2023. According to chief economist for New Mexico’s Legislative Finance Committee, a film company claiming a credit in 2023 would have to wait 14 years to get reimbursed under the projected backlog.
State tax credit programs have grown more common over the last decade. Similar to taxpayer-funded sports stadiums, these programs are seen as unneeded welfare for the rich.
Criticism is only growing as many states struggle to plug funding gaps for basic services. Taxpayer rights groups have led campaigns to reduce tax programs in North Carolina, Michigan and Louisiana.
In contrast, lawmakers in Georgia are doubling down on these programs in an effort to buildout the production industry which is coined Y’allywood and to subsidize the restaurant and hotel industry.
Legislators on the both sides of the aisle in New Mexico believe the tax credit system needs revamped, but cannot agree on specific solutions.
New Mexico’s new governor wants to remove the $50 million annual cap, in order to boost more spending on services and creating new jobs in the state. However, there are a number of studies that show these incentive programs are not a net win for the state in the long run.
FilmTake Away
Given New Mexico’s proximity to Hollywood, any changes to the current system will have serious implications for producers, tax credit funders, and other territories offering incentives.
Financiers are already reducing exposure to tax credits in New Mexico as old debts continue to mount.