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High filming costs force
The state's options are limited, though it could allow the production to use the Hawaii Film Studio rent-free, which would save ABC/Touchstone about $500,000 a year. The Hawaii Film Studio, which has a 16,500-square-foot sound stage, is being used by Fox Television's "North Shore" hotel drama.
The annual savings on sound-stage costs, however, would not be enough to keep "Lost" in Hawaii, ABC sources said.
Liu believes ABC/Touchstone wants to remain in Hawaii because "they've been successful here and cast and crew are happy."
"If I were a producer, I would say, 'Why tinker with a model that's worked?'" he said.
Jorge Garcia, who plays Hurley in the show, said the subject of relocating has been mentioned a few times. "We all immediately shoot it down," he says.
Liu said he hopes to have an assistance package ready by the end of February.
"Whatever we come up with, the state must be comfortable that it can offer this to other productions as well, and that's what is taking us time to prepare," Liu said.
"Lost" will get no special deal, he said: "That would be the worst for the industry, the worst for Hawaii, and the state ends up with everyone being suspicious and unhappy."
Another option has the state helping "Lost" get discounted contracts with local vendors for vehicle rentals, air transportation and accommodations, said Marsha Wienert, the state's tourism liaison. The production won't disclose these costs, but the amount saved likely would do little to offset the series' deficit.
According to several sources, "Lost" producers spend about $70,000 a month for its 30,000-square-foot sound stage in the former Xerox building, office space at Dole Cannery and storage units. The production also spends as much as $20,000 a month on a special air-conditioning system to cool the stage.
Because the show's current sound stage can only hold one major set, the production has had to do more shooting outdoors, adding $30,000 to $60,000 an episode to the budget, sources said.
The public may perceive that since the series is a hit, it's making money. But "Lost" is "not a bona fide hit" financially until it runs five years then goes into syndication, an executive said.
A major reason for the "Lost" budget problems surrounds Act 221.
ABC/Touchstone expected to raise as much as 20 percent of the show's budget from selling investment credits under the act, which is designed to encourage investment in the state's fledgling high-tech industry. For qualifying investments, the act provides a 100-percent tax credit over five years. According to sources, the Department of Taxation allowed fewer tax credits for each dollar invested than expected, which caused the budget deficit. Details of Act 221 transactions are confidential.
Some Hollywood filmmakers say the administration and Tax Department are being overly careful in granting Act 221 investment credits after production companies for "Blue Crush" and "The Big Bounce" films a few years ago received especially high returns. Universal reportedly got a $15 million to $18 million tax credit on the $41 million budget of "Blue Crush"; Warner Bros. received $13 million in tax credits on the $53 million budget of "The Big Bounce."
Some state officials and the public believed that "Blue Crush" took advantage of the legislation, which lawmakers later agreed had been too liberally written. The act has been tightened and applications more scrutinized.
"What happened back then can't happen now," Drosd said.
The Hawaii Film Office, the local Screen Actors Guild and others within the state's production industry this legislative session will propose a bill that provides a 15 percent to 20 percent tax credit for money that productions spend in Hawaii. The bill won't be voted on until after ABC/Touchstone executives decide whether to relocate.
The bill would allow productions to factor rebates into their budgets. The state currently offers productions a refundable 4-percent production expense and 100-percent hotel room tax credit, based on qualifying criteria. Several states offer production expense incentives more attractive than Hawaii's production and hotel room tax.
Competition to attract productions has become so intense that New Mexico Gov. Bill Richardson traveled to Hollywood last year to meet with executives from Universal, Dreamworks SKG, Warner Brothers, MGM and Paramount studios to lure them to his state. Since Richardson took office, 14 films have been shot in New Mexico, including the remake of "The Longest Yard," which star Adam Sandler wanted to shoot in Hawaii.
No Hawaii governor has traveled to Hollywood to help promote the industry.
If Hawaii loses "Lost," it's losing a wealthy neighbor that has spent heavily with local businesses.
When ABC/Touchstone was preparing its camera equipment order prior to arriving in Hawaii last spring, executives required supplier Panavision to open a Hawaii company. The production also uses Hawaiian and Aloha airlines exclusively to transport actors, executives and crew to and from Los Angeles.
» The Motion Picture and Film Production Income Tax Credit offers a 4-percent rebate on general expenditures and a 7.25-percent credit on hotel expenditures.
» Act 221 is a 100-percent tax credit on investments apportioned over five years on investments that meet a set of guidelines that have been interpreted differently depending on the project. The program was intended to promote high-tech businesses, but it has been used for film productions. The funds also are supposed to be for recurring projects in the state, but have been used for individual films.
Productions spending $1 million receive rebates of 5 percent of labor withholding tax to crew, cast and extras subject to state withholding tax; and 7 percent rebate of expenditures for items purchased or rented from South Carolina vendors. Those spending $250,000 are exempted from a 5 percent sales-and-use tax and a 7 percent accommodations tax.
Filmmakers who create, convert or equip a South Carolina film or post-production facility receive a 20- percent investor credit. Total credits for all investors per facility is $5 million: A minimum investment is $2 million for a production studio, while a post-production facility requires a $1 million minimum. Those willing to ante up a $500,000 annual base investment to create a South Carolina commercial production company will receive a 10-percent tax credit for the total annual outlay.
The state also gives an employment tax credit of 10 percent for Louisiana residents on productions costing $300,000 to $1 million, and a tax credit of 20 percent on productions costing more than $1 million (does not apply to individual salaries above $1 million). Unused credits may carry over for 10 years.
An investment tax credit of 10 percent is available to productions spending $300,000 to $1 million in the state, and a tax credit of 15 percent is available to those that spend more than $1 million. Unused credits can carry over for 10 years.
The investment program uses money from the state's severance fund to make equity investment in films substantially shot in the state. The original limit was 0.5 percent ($20 million), which was raised to 2.5 percent ($80 million) last year, or up to $7.5 million for one project. New Mexico negotiates a portion of the profits as compensation, and loans are repayable in 2 to 5 years. Qualified productions must have a majority of New Mexico crew, be shot substantially in the state, be rated PG-13 or milder (unless otherwise approved) and the production must have a loan guarantor. The state offers a 50 percent tax rebate on salaries of New Mexico workers who qualify as trainees.