A new network television series filmed on Oahu premiered last week9/22, and there is new public insight into state tax credits that helped fund the show and other film productions in Hawaii last year.
“Rescue: HI-Surf” debuted on Fox with fictional stories about beach lifeguards who, in the first episode, revive a surfer from Florida named Reef who surfs Pipeline for the first time.
“You got lucky Reef,” lifeguard Capt. Harlan “Sonny” Jennings, played by New Zealand actor Robbie Magasiva, says in the show. “Welcome to the North Shore.”
Hawaii taxpayers helped finance the series in 2023 with an estimated $215,162 in tax credits, according to a report submitted to the state Legislature earlier this year.
The report from the Hawaii Film Office listed the names of film projects with estimated credit claims for the first time in the subsidy program’s 27-year history. Previously, recipients of credits were listed only by the type of production, which includes movies, episodic shows and commercials.
For 2023, the biggest estimated credit was $5.7 million for a live-action remake of Disney’s 2002 animated movie “Lilo & Stitch.”
The second-biggest was $4.9 million for the fifth and final season of a “Magnum P.I.” reboot. The TV show was canceled by NBC last year after CBS decided to drop it after four seasons. The final episode aired early this year.
Another now-canceled TV series, “NCIS: Hawai‘i,” also had a big share of estimated credits in 2023, totaling $3.7 million for seasons two and three. CBS announced its cancellation in April.
Roll more credits
In all, $21 million in credit claims are expected from 28 productions last year: eight commercials, seven feature films, seven TV series, three TV movies, two TV specials and one documentary.
“Red One,” a Christmas action-adventure comedy starring Dwayne Johnson, is one of the feature films and has an estimated $2.6 million credit claim.
Some of the commercials, and corresponding estimated claims, were for Aulani Resort ($88,438), First Hawaiian Bank ($123,705) and Kona Brewing Co. ($308,696).
The two TV specials were broadcasts of the 61st annual Merrie Monarch Festival ($120,465) and the 103rd annual Kamehameha Schools Song Contest ($65,752).
To qualify, a production must have a minimum of $100,000 in qualified spending, and the credit is a share of such spending — 22% on Oahu and 27% on the neighbor islands.
The program, intended to encourage industry growth that supports jobs, currently has a $50 million annual credit cap. The credits are refundable, meaning the state pays a production for the value of any credits exceeding a production’s tax liability.
Last year’s $21 million estimated credit claim total was down from $68 million in 2022, according to the state Department of Business, Economic Development and Tourism.
Under the program, if earned credits exceed the $50 million annual cap, productions can receive unpaid credits in subsequent years if cap space exists. So in addition to $21 million for 2023, another $27.4 million in credits are to be distributed from past carryover balances, leaving an extra $1.6 million for this year.
Hawaii’s film tax credit program was established in 1997 and has been modified by lawmakers many times since then, usually to expand incentives, amid strong industry support offset by some critics.
Benefits questioned
The Tax Foundation of Hawaii has called the program a “drain on the state treasury” with no rational basis for increasing and extending credits other than to keep pace with escalating incentives in other states.
A University of Hawaii Economic Research Organization analysis in 2021 recommended ending the program in 2030, saying the main reason productions film in Hawaii is access to the state’s natural and cultural capital.
Local economist Paul Brewbaker of TZ Economics also has long questioned the merit of the program, noting that a reboot of “Hawaii Five-0” that ran from 2010 to 2020 wasn’t likely going to be made in Georgia where attractive film tax credits exist.
“I am skeptical that the State of Hawaii hasn’t just been getting hosed by the film industry for the last forty years,” Brewbaker said in an email.
DBEDT for several years has produced a cost-benefit analysis of the program, and concludes that it makes good economic sense for the state.
The agency’s most recent study, published in February and based on 2022 credits, said the amount of spending in the local economy by productions, including wages paid to local cast and crew members, far exceeds the tax credit payments given.
Positive impacts from movies, TV shows and other productions attracting tourists to Hawaii are not quantified or factored into DBEDT’s report.
The study by DBEDT’s Research and Economic Analysis Division said the $68 million in 2022 claims stemmed from $260 million in contributions to the state’s gross domestic product, including $159 million in personal income.
DBEDT’s report also said that tax revenue generated by all productions qualifying for credits in 2022 amounted to $35 million, or about half of the credit payments made.
“One dollar of Hawai‘i’s film tax credit generated 52 cents of state tax revenues,” the report said.
Qualified spending by productions in 2022 included $33.8 million for equipment rentals, $25.8 million for business services, $11.4 million for hotel accommodations, $7.5 million for catering, $5.9 million for construction and $2.7 million for storage.
The report also said 26 film productions in 2022 supported 12,003 Hawaii resident jobs, including indirect job support. However, the report said 51% of those jobs were “production extras” that have a relatively insignificant impact on employment and are prone to being counted multiple times because some extras work on more than one production.
To account for the notion that some productions would have filmed in Hawaii without the tax credit program, DBEDT also did its cost-benefit analysis with such an approximation. This was derived by using the annual industry spending average from 1987 to 1996 before the credit program was introduced, and adjusting that figure for inflation through 2022.
On this basis, DBEDT said the positive economic impact from $68 million in credits amounted to $162 million toward gross domestic product, including $100 million in personal income and $25 million in state tax revenue.
For “Rescue: HI-Surf,” the $215,162 estimated tax credit claim for 2023 was based on estimated qualified expenses totaling $978,009, according to the Film Office report to the Legislature.
The report said spending to produce the show generated $105,625 in state tax revenue and employed 106 local residents, plus 29 nonresidents.
Among the local hires is Kekoa Kekumano, an actor and City and County of Honolulu lifeguard who plays lifeguard Laka Hanohano on the show. Kekumano previously appeared in the movie “Aquaman” along with the “Hawaii Five-0” reboot and HBO’s miniseries “The White Lotus.”
Zoe Cipres, another local actor, also plays a lifeguard, Hina Alexander, on “Rescue.”
In a news release Thursday, DBEDT hailed the show as “TV’s highest rated fall drama to debut in six years.” The agency said the Sept. 22 premiere reached 4.7 million viewers per Nielsen’s fast national ratings. A second episode aired Sept. 23.
Tax credit changes
The requirement to publicly disclose names of productions that claim tax credits was done through a bill the Legislature passed in 2022 and became effective for 2023 productions.
Some film industry representatives opposed the change.
“While we have no objection to the information being provided to the Legislature, we are deeply concerned that the media will obtain this information and use it to smear qualified production companies in the same manner that projects under Act 221 were unfairly targeted,” Roy Tjioe and Ricardo Galindez, attorneys who co-founded Island Film Group, said in written testimony on the 2022 bill.
Act 221, enacted in 2001, provided 100% income tax credits for investments in Hawaii technology companies to expand that industry. It was abolished in 2010.
The 2022 law amending the film tax credit program also decreased the minimum amount of production costs to qualify for tax credits to $100,000 from $200,000. It also increased the maximum credit per production to $17 million from $15 million. It did not raise the $50 million annual cap, but extended a window to 2032 from 2025 to pay credits that couldn’t be paid earlier due to annual caps.
Last year, at least two bills proposed increasing the annual cap to $60 million, but the measures failed. There also was at least one bill in 2023 that proposed increasing the cap to $75 million, but that failed too.
At its peak, film tax credit claims hit $80 million in 2018 after surging from $32 million in 2016, which prompted lawmakers to rein in the program. Industry backers criticized the move as being detrimental to the film industry in Hawaii, and have been pushing since to increase the $50 million cap.
The Film Office, which is attached to DBEDT, said in its report earlier this year to lawmakers, “In order to expand opportunities for jobs and careers, increase studio capacity and facilities, the $50 million cap should consider being increased.”
