Are We Really Cashing in On TV And Film Production in Hawai‘i, Or Is It Just a Hollywood Illusion?

Last year was Hawai‘i’s most lucrative year to date for film production. So why are we setting limits that some say will keep studios away?

November 26, 2019

James Charisma,

photos: getty images, composite by james nakamura

For two months last spring, most of Netflix’s Triple Frontier, about former Special Forces operatives teaming up to rob a violent crime lord in South America, was filmed in various locations across O‘ahu. In the movie, Ben Affleck’s character, a soldier turned real estate agent, tries to sell a condo at Pae Ko Gardens in Kapolei, visits a makeshift mini mart in ‘Ewa Beach for beer and sends his teenage daughter off to school at King Intermediate in Kāne‘ohe. He later leads a squad of commandos (played by actors Oscar Isaac and Charlie Hunnam, among others) on a raid filmed off Old Pali Road, evacuates from an airstrip near the Andes (actually Dillingham Airfield) and gets into a shootout at a coca farm … at Kualoa Ranch. Of Triple Frontier’s $115 million budget, more than $75 million was spent in the Islands, according to Netflix. It’s more than any other single feature film in Hawai‘i’s history.

“The general public may think this money just goes to Hollywood but when feature films or television shows, like [Hawai‘i] Five-0 or Magnum P.I., shoot in Hawai‘i, they’re employing our neighbors,” says Georja Skinner. As chief officer of the Creative Industries Division of the Hawai‘i Department of Business, Economic Development and Tourism, Skinner knows the reach of media production in the Islands, especially as it affects local industries outside of film and TV. “There’s a trickle-down effect that employs dozens of industries across Hawai‘i. Productions are paying for catering and craft services. They’re hiring local print companies, ordering ice, purchasing lumber from City Mill and housing off-island actors in hotels. And all that money they’re spending here in Hawai‘i is subject to tax.”

In 2018, according to DBEDT, film and television productions brought in more than $419 million, with an additional $825 million trickling to other industries. It resulted in more than $51 million in taxes for Hawai‘i and employed 4,767 local people, up from 2,670 five years before.

But these movies and TV shows aren’t just here for the beach. There’s a 20% to 25% tax credit incentive, which basically works like a rebate. For every $200,000 a production spends here, it’ll receive $40,000 (in Honolulu) or $50,000 (in Kaua‘i, Maui or Hawai‘i counties) in the form of a check from the state after the Hawai‘i Film Office certifies the qualified expenditures. The incentive covers up to $15 million for a single project. But after Hawai‘i paid out close to $99 million to productions in 2016 and 2017 (while gaining little more than $50 million in tax revenues), lawmakers capped tax credits at just $35 million annually on a first-come, first-served basis. In this past legislative session, lawmakers increased the limit to $50 million. However, like an offer that’s only available “while supplies last,” it’s impossible to know how many productions might now bypass Hawai‘i completely because producers aren’t sure if the cap will have already been exhausted for a given year by the time they wrap up and submit their paperwork. They already know Hawai‘i Five-0 and Magnum P.I. will take an annual chunk. What’s left?

Local film industry pros approve of the $15 million increase, but many believe it’s not enough. “We’re extremely grateful that the measure to raise the cap ultimately passed and wasn’t vetoed, but this number still doesn’t leave room for growth and it’s going to impact the volume of business that comes in,” says Hawai‘i State Film Commissioner Donne Dawson. “It’s worrisome because we’ll struggle more to get business to Hawai‘i and we’ll lose productions to other states with higher level caps.” Thirty-one other states offer tax incentives for film and television productions, ranging from 5% to 45%.

State Sen. Glenn Wakai, chair of the Senate’s Committee on Economic Development, Tourism and Technology, supports the incentive but is wary of any industry operating without regulations. “From a state perspective, we have to be responsible for the public’s money. I understand the local film industry wants the sky to be the limit, but we need some ability to budget.”

Dawson believes a tax incentive cap is meant to hedge runaway spending within the film industry. “But the [film] industry is self-regulating. Not having a cap doesn’t just mean we’d suddenly be flooded with movies and TV shows,” she says. “Serious productions research ahead to determine the local crew capacity, what else is filming here at the same time and what limitations might exist, including available stage space.”

In the early 2000s, there was a different investment tax in place that did lead to costly consequences. It started with Act 178, first adopted in 1999 as a way to encourage the development of Hawai‘i’s fledgling tech sector, as well as film, and to diversify the state’s tourism-dependent economy. This tax credit initially allowed a 10% write-off for any investment in qualified high-technology businesses, with a maximum of $500,000 for the taxable year. But in 2001, it was replaced by Act 221, which would increase the credit to 100%, with no limit, until 2010.

Act 221 benefited local businesses that include Mānoa-based Pukoa Scientific, a former research and engineering company that developed software for military sensors. In a 2010 interview with the Honolulu Star-Advertiser, Pukoa CEO James Karins said research tax credits helped bring in $2.8 million in revenue since he started his company in 2004.

The ocean engineering company Navatek grew its patent portfolio from two to 21, according to President and CEO Martin Kao. Act 221 also helped myriad local film and TV production companies, including ABC’s Lost, a talk show hosted by Andy Bumatai and a company that sold swimming lessons on DVD.

But unlike the current film tax credit program (which originated in 2006 as Act 88 and is managed by the Hawai‘i Film Office and DBEDT), Act 221 went largely unmonitored. More than 370 companies benefited from the incentive from 2001 to 2010, according to the Honolulu Star-Advertiser, although only the names of 141 of them were listed by the state in 2009 in a two-page report that raised some eyebrows. (A law passed in 2007 only required companies that received taxpayer-subsidized investments after June 30, 2007, be made public.) Of the 141 “high-tech” companies listed, 82 had no full-time employees in 2008. The other 59 businesses only had 697 people on payroll, which seemed low considering the tax credit program’s estimated cost of between $100 million and $200 million a year. Additionally, industry experts question how many non-high-tech companies were able to receive tax credits for what would basically be considered operating expenses—by moving employees to subsidiary companies providing similar services (but that could qualify for the tax credits).

The abuse of Act 221 caused a lot of backlash documented in former state auditor Marion Higa’s 2012 report that found big holes when it came to accountability. There were no goals or performance measures, the Department of Taxation didn’t verify taxpayers’ self-reported numbers and, in a sample selection of tax years (2001 to 2004), less than 3% of high-tech tax claims were audited. Over the course of a decade, an estimated $1 billion in tax revenue for the state was lost. And without performance metrics at the time, no one has any way of knowing whether the program was successful. The fallout from Act 221 would leave a lasting impact on future legislation relating to tax credits in the state for technology, film or otherwise.

“For many companies, [Act 221] became a money grab. It burned hundreds of millions of dollars from Hawai‘i’s economy and left very little to show for that today,” says Wakai, who is in favor of a cap. He compares it to managing one’s own personal finances: “No one runs their life without knowing what their electricity bill might be from month to month.” Which is fair. But if my electricity bill were tied to my income—just like how the Hawai‘i tax credit is proportionately tied to the amount of taxes the state receives from film and TV productions—and on months where my electricity bill was possibly doubled, it would mean that my total income also doubled, then no, I wouldn’t have a problem.

Then again, I’m biased. I’m the editorial director of ‘Ohina, a local platform for developing and showcasing locally produced short films. Writing for HONOLULU, I’ve also attended the season premieres of Hawai‘i Five-0 in Waikīkī and have met the tourists who come out in droves to see the actors and visit various filming locations from the show, as well as from movies that include From Here to Eternity, Jurassic Park and 50 First Dates. I believe in Hawai‘i’s film industry and want it to succeed.

“What’s frustrating is, when we talk about the film tax incentive and see economic analyses of film and television productions in Hawai‘i, what isn’t taken into consideration is the impact that shows like Lost or movies like Forgetting Sarah Marshall have on our tourist industry,” says Ricardo Galindez, attorney and co-founder of Island Film Group, a local media production services company. How many people see Hawai‘i on-screen and then decide to come here for their next vacation? Or spend an extra day seeing the filming locations or eating at a place they saw on a show? He says that he often encounters financial experts who try to estimate the effects of film tax credits on Hawai‘i’s economy to determine if the state is losing money, but they don’t include these types of “invisible” benefits. “Nobody tries to come up with a number for that and I think it’s because the value is probably pretty high,” Galindez says. “What’s the value of a 30-second commercial on primetime television? Multiply that for a 25-episode season of Hawai‘i Five-0.”

Not that any of this matters if productions don’t even know about Hawai‘i’s tax credit. Each year, Galindez and his business partner, Roy Tijoe, travel to the Mainland to attend film festivals and industry events to promote Hawai‘i as a filming location. “Even on our most recent trips, we’re still meeting a lot of producers who don’t even know Hawai‘i has a film incentive program,” Tijoe says.

Galindez and Tijoe believe that legislators may view tax incentives as unnecessary when movies and TV shows have already been coming to Hawai‘i to film for decades. But they say a capped tax incentive may change that. “They’ll go somewhere else. Believe it or not, Hawai‘i is already a tough sell because the logistics make it more expensive to shoot here,” says Galindez. “So if producers aren’t even sure if they’re going to receive the credit because maybe the state has already hit its cap halfway through the year—and Hawai‘i only has a 20% to 25% credit compared to a 30% or 40% credit in other states to begin with—productions won’t happen. And the local people who get hired to support these productions will be affected.”

Says Dawson: “It’s important to keep in mind this industry is like a three-legged stool: It needs a stable tax credit program, strong support within the state government and solid infrastructure to create a pipeline. Without all three components, it compromises the local film industry.” Her vision is for Hawai‘i to one day become a thriving ecosystem of media development, both with projects from the Mainland and locally produced productions. It’s Wakai’s goal too: “We see many local people on sets, holding microphones, adjusting lights and cooking the food. But how do we also get them writing the scripts and sitting in the director’s chair on major films and shows? We can’t only be helping Hollywood grow their bottom line without having Hawai‘i residents fully benefit in this industry.”

“What isn’t taken into consideration is the impact that shows like Lost or movies like Forgetting Sarah Marshall have on our tourist industry.”

One hopeful note is the continued development of initiatives by DBEDT’s Creative Industries Division, which was created to advocate for and expand business opportunities within sectors that comprise Hawai‘i’s creative economy. The division, which includes the Hawai‘i Film Office and the Arts and Culture Development Branch, has also grown to focus on the development of creative and media entrepreneurs in a variety of disciplines, from screenwriting and producing to music, performing arts and interactive media.

Then there’s Creative Lab Hawai‘i and the ‘Ohina Filmmakers Lab, two programs designed to build a continuum of talent through immersives and weekend workshops. Creative Lab launched in 2012 as a way to connect up-and-coming local filmmakers, producers and screenwriters (as well as video game and fashion designers, musicians and new media programmers) with industry pros. Earlier this year, Winter’s Bone writer and producer Anne Rosellini and Fight Club screenwriter Jim Uhls were mentors at immersive workshops for producers and writers, respectively. Similarly, past ‘Ohina Filmmakers Lab mentors included Captain America executive producer Nate Moore and Black Panther screenwriter Joe Robert Cole.

“There’s a diversity of emerging media industries that are quickly becoming an anchor for our creative economy in Hawai‘i, including film. And many people who worked as production assistants on big-budget films or shows like Lost went on to hold above-the-line positions as directors of photography, associate producers and production managers,” says Skinner. “The majority of employees on any given project are from right here in Hawai‘i who have gone on to build a career. These productions employ the services of many small, medium and large companies in the Islands. No pun intended, but they’re not getting enough credit.”