When a family of Hollywood producers came to Santa Fe asking for public funding to build a film studio in 2008, state and local officials rolled out the red carpet.
Over the next two years, the project received $20 million in public incentives, including a $10 million state economic development grant created by a legislative appropriation pushed through by then-Gov. Bill Richardson. He had known the filmmakers — brothers Lance and Conrad Hool — since their days playing Little League baseball together in Mexico City.
Santa Fe County sold the brothers a piece of land in a specially created media district for them to build the studio, and it supplied the plot with about $3.6 million worth of high-speed Internet connections, road improvements and water. The county also agreed to guarantee a $6.5 million construction loan to the Hools for the endeavor.
Five years later, studio and county officials are calling the project a success, saying it is on track to meet the job-creation goals that were a requirement of all the public subsidies it received. Among the major productions that have been shot there are the 2013 comedy We’re the Millers, starring Jennifer Aniston and Jason Sudeikis.
But it may be too soon to pop the Champagne cork. A closer examination of the studio’s numbers and the government’s less-than-stringent protocols for verifying them indicate the studio still has a lot to accomplish before taxpayers can be assured they’ll see a return on their investment.
In 2011, the first phase of Santa Fe Studios was completed on a 65-acre tract of land off N.M. 14 south of the city. The state-of-the-art development includes two 20,000-square-foot sound stages, with ceilings high enough to allow an airplane to be suspended inside, as well as office suites, hair and makeup facilities, and a 4,600-square-foot “mill” building, where sets are constructed.
In exchange for the public backing, the Hool brothers and Lance Hool’s son, Jason Hool, agreed to train a local workforce and provide 500,000 hours of above-minimum-wage jobs within six years.
According to Santa Fe County — which is charged with tracking the job-creation requirements in the deal — the studio has created about 200,000 job hours, or just under half of those required.
The agreements that govern the deal were signed in 2010. The Hools’ job-creation goals are due to be completed in October 2016. With four years left to go before the agreement is supposed to be filled, Conrad Hool said he’s confident Santa Fe Studios will be able to hold up its end of the bargain.
He acknowledged the studio had a slow start — caused in part by incoming Gov. Susana Martinez announcing she would re-examine incentives for film productions in 2011.
The possibility that the tax incentives could be slashed “threw cold water” on the New Mexico film industry for a while, said Eric Witt, Richardson’s former deputy chief of staff and film adviser.
But in the end, said New Mexico Film Office Director Nick Maniatis, the changes to the tax incentives were minor, and filmmakers returned to the Land of Enchantment.
Actor, director and producer Seth MacFarlane — creator of the animated television series Family Guy and American Dad — shot two productions at Santa Fe Studios this summer. One, A Million Ways to Die in the West, a feature-length comedy starring MacFarlane and Charlize Theron, is slated to be released in 2014. The other, a pilot for a documentary series called Cosmos, based on the popular 1980s series Cosmos: A Personal Voyage, hosted by Carl Sagan, could return for a long-term engagement.
“We couldn’t get it going at first,” Conrad Hool said. “It was a scary time. But now it looks great. We really have high hopes.”
In fact, Hool said, the facility was so busy this summer that the partners are eager to start the second phase of the project, which includes two more large sound stages and an additional ancillary building. Hool said the partners do not plan to seek public funding for the expansion, which he estimated will cost about $15 million.
Deals come with complicated calculations
Despite the Hools’ forward-looking optimism, the studio still has significant job-creation goals to meet and still owes more than $6 million on the private loan for the first phase of the project.
Attempts to forecast the future performance of the project and the likelihood that it will meet its goals within the allotted time frame are complicated by the numerous agreements that were created between the Hools and the government entities that subsidized the project.
According to information provided by Santa Fe County, construction hours can be counted among the job requirements contained in the county’s land agreement with the Hools, but they cannot be counted among the hours required by the state’s $10 million Local Economic Development Act grant. On the other hand, “off-site” hours — jobs created when a production is based at the studio but doesn’t shoot there — can be counted toward the goals required in the state grant, but they are not counted toward the goals in the county land agreement.
According to data provided by Santa Fe County, the jobs that apply to the land deal totaled 200,498 as of Oct. 16, and the hours that could be counted toward the state grant totaled 215,943. The first figure includes 125,000 worth of construction jobs. The second includes 133,000 hours of off-site jobs.
Verification of the job numbers has been less than vigorous. County officials appear to have accepted the hours reported by the studios as fact and have done little to substantiate them. And the state says it has not received official reports on the project since construction ended, nor does it appear that there is any requirement for the studio to report to the state past that date.
Impact on film industry underestimated?
New Mexico Economic Development Secretary Jon Barela said he would not approve of such a deal if it came before him today.
“For $10 million, there is some question about the required 500,000 hours of jobs,” Barela said in a recent interview. By his estimation, that equals about 240 jobs over six years. “The big question is: Is that a good investment? That’s a lot of money for 240 jobs.”
Meanwhile, the heads of the state film office and the union that represents film workers say the job hours the studio has reported are vastly understated.
Labor leader Jon Hendry, president of the New Mexico Federation of Labor and a business agent for the International Alliance of Theatrical Stage Employees Local 480, said the studio project has had a “huge, enormous life-changing” impact on the film union’s 11,000 members.
In the last six months alone, Hendry estimated, IATSE members — including light, sound, hair and makeup, and special effects workers — earned about $6.2 million working on projects based at Santa Fe Studios. Divided by an average wage of $25 an hour, Hendry said, that would mean the workers logged about 248,000 hours since April 2013. And that doesn’t count writers, camera operators, actors, extras, teamsters or security guards.
New Mexico Film Office Director Nick Maniatis offered another estimate of how many job hours are being created at the studio, based on anecdotal evidence.
According to him, the four most recent productions shot at Santa Fe Studios reported a combined 57,400 “labor days,” or about 459,200 work hours. Even that number could be low because labor days in the film industry are often 12 to 16 hours long.
Such widely varying statistics makes it hard to pinpoint the studio’s progress toward its job goals. Maniatis said more specific numbers are available from the state Taxation and Revenue Department — because productions submit data to the department to receive tax rebates — but a request for that information filed with that agency Monday had not been answered as of Friday.
To further confuse matters, Hool and County Attorney Steve Ross said there is a significant lag time between when the work is performed and when reporting is completed, meaning current numbers don’t reflect recent activity at the facility.
That would suggest the studio is doing better than even its owners say, which would have bearing on how quickly they would have to repay their loan obligations.
The agreement, which relates to the $2.6 million piece of property the studio bought from the county, requires the Hools to make payments gradually as the number of job hours increases.
Every time the studio reports 100,000 job hours, it is required to make a payment of $524,000 on the land. That agreement allows the studio to count the jobs created during construction, but not off-site hours created by productions that shoot elsewhere. The studio has made two payments toward the land debt, one in October 2011, shortly after the building was completed, and another just last month. In order to keep on track with the agreement, the studio will have to make three more $524,000 payments between now and Dec. 14, 2015, when the entire amount is due.
The studio also still owes about $6.2 million on a $6.5 million construction loan it obtained from Los Alamos National Bank to build the facility. That loan is guaranteed by $6.5 million from Santa Fe County, which is being held in a “lockbox” and will gradually be released as the original note is paid down. Conrad Hool said Friday that after the studio makes its November payment on the loan, it will have paid $260,000 of the principal.
Quarterly and annual reports submitted by Santa Fe Studios to Santa Fe County — and annual reviews the county is obligated to perform — were requested Oct. 22, but also had not been produced as of Friday.
Political favoritism and risk to taxpayers
Fred Nathan, the executive director of Think New Mexico, said the Santa Fe Studios project is a perfect example of the need for New Mexico to re-examine the way economic development funds are disbursed to remove political favoritism from the equation and guarantee results. The think tank — which recently released a report that dinged Santa Fe Studios’ job-creation figures and was disputed by the Hools — advocates for the creation of post-job-creation incentives.
“While post-performance incentives are only provided after performance has been documented,” Nathan wrote in an email to The New Mexican, “pre-performance incentives lack that safeguard. New Mexico’s state and local governments do not appear to have a system in place to audit whether pre-performance benchmarks have been met; rather it seems to be done unevenly on a case by case basis. For example, in the case of Santa Fe Studios, will there be an independent, third party evaluation of whether the company has met the benchmarks that it agreed to?”
When asked in writing whether Santa Fe County verifies the job-creation data submitted by the studios, county spokeswoman Kristine Mihelcic replied: “The Economic Development position (which until March had been vacant for about a year) periodically meets with staff from the studios to discuss the delivery of hours and the methodology, by which hours are reported.”
David Grisham, who filled the position in March and said he is still coming up to speed on the “complicated” project, said there has been discussion this week about instituting more robust methods of authenticating the job claims.
Barela, the state economic development secretary, said that while the studio project probably would not have been funded in the current administration, given that the project was approved, “We’ll try to make the best of it.” Barela said there are several reasons he would not have green-lighted the deal shepherded in by Richardson.
One, he said, is the amount of the incentive. “It was a very rich contribution to this one entity,” Barela said, noting that the $10 million Economic Development Grant represents about three times the $3.3 million his department has been allocated for all such incentives since he took office in 2011.
Barela said there also are very few “clawbacks” included in the deal that would protect the public’s investment in the event of a default. And, he said, the requirements that are incorporated into the deal are written in such a way that they are “subject to interpretation.” This gives the agreements very little teeth. Barela said he’s since created administrative rules and legislation that would keep such vague agreements from being approved in the future.
Indeed, if the Hools do default on their agreements, it is Santa Fe County taxpayers who will be left holding the bag.
According to the terms of the various agreements, if the Hools default, Santa Fe County will be given a “reasonable amount of time” to fulfill the job-creation goals of the project by running the studio itself. If it is unable to do so, the agreements state, the county will be obliged to liquidate whatever assets it can in order to repay the state a prorated fraction of the $10 million (the county would be given credit for its infrastructure expenditures and the portion of jobs the studios had created). The county is not obligated to repay the loan with proceeds from any other source besides studio assets.
If that happened, the county would reclaim ownership of the land where the studio sits, but it would still be responsible for guaranteeing the studio’s loan from Los Alamos National Bank. Payments for that note would be debited from the $6.5 million posted as collateral on the project, in increments of no more than $900,000 per year.
Everyone involved is hoping that doesn’t happen.
“Everybody’s hope is that [the project] is successful and many jobs are created,” Barela said. “Nobody wants to see a loss of taxpayer money, regardless of how the deal was consummated.”
Maniatis said the outlook for the film industry in New Mexico is good.
“I usually say I’m cautiously optimistic,” Maniatis said Thursday. “But actually, I’m very optimistic. Time will tell. We can’t control the market and what happens. We are beholden to the vagaries of business like any industry, but as far as our strengths — ability to provide crew and facilities — we are one of the best.”
Contact Phaedra Haywood at 986-3068 or firstname.lastname@example.org.