 Welcome back to Think Tech. This is Talking Tax with Tom Yamachika, the president of the Tax Foundation of Hawaii. Today, we're going to talk about Kurt Krufella's special mission with regard to film credits in Hawaii. Welcome to the show, Tom. Thank you, Jay. I'm glad to be here. I looked up Kurt Krufella, and while he is a very publicity-minded person, if you Google him, you get a lot of hits. He's always on the platform somehow, but this one seems to be a continuing controversy that he has created. Can you talk about it? Can you talk about how the film credit works and what's wrong as far as he's concerned? Let me just kind of start by saying Kurt Krufella ran and won as a Republican, okay? And he's one of... He used to be the only Republican in the Senate. Now there are two, him and Senator Awa, which, interestingly enough, means that because of the policy that there'd be bipartisanship on every committee in the legislature, he's on pretty much all of the committees, including, importantly for us here at Talking Tax, the Senate Ways and Means Committee. Isn't that Donovan Delacruz's committee? Yeah, yeah. Senator Delacruz chairs the committee, but Favella does have a seat on it. He apparently has been persuaded by the Teamsters that there are problems with the Hawaii Movie and TV Production Tax Credit. By way of background, we've had the Movie and TV Production Tax Credit in place for a long time since, I believe, 1988. You know, it was in some years more, some years less, but the basic idea is that when Movie and TV Productions come here, they're allowed a tax credit based on what they spend here well, not necessarily here, but it has to be subject to our local tax, either a general excise tax, use tax, or income tax. The Teamsters believe that's not enough, and they kind of made a show of it this past session. We talked earlier about what happened with the Film Credit Bill with the Senate Wains and Means Committee grabbing something relatively unrelated, shoving a bunch of these changes that the Teamsters wanted into the bill. And when the House didn't hear it, they took one of the House bills and they basically shoved all those provisions in that one, much to the consternation of the House Committee. What did it provide? Well, for one thing, the bill provided differential tax credit rates depending on whether you have local payroll or out-of-state payroll. Let me stop you there and say, gee, that sounds like a violation of the United States Constitution Commerce Clause. Yeah, it probably is. I mean, I thought so. The deputy attorney general thought so. But did that modify the Ways and Means Committee? I don't think so. But let's go back to Fevella's film feud. So it's now after the termination of the legislature. On May 31, there was a press conference held at the Capitol regarding that movie and TV production tax credit. And two of the main speakers were a gentleman from the Teamsters, a gentleman named Kevin Holu, and Senator Fevella. Now, Mr. Holu's basic point was that there weren't enough local Teamster members working in the productions. So they wanted, and it's no secret we've been just talking about this, they testified in favor of the predecessor to the bills that we were just talking about, urging them to amend the legislation by adding in safeguards to ensure that productions are engaging with local unions and hiring Hawaii residents and utilizing Hawaii-based businesses for goods and services. Safeguards, it sounds like a euphemism to me. Yeah, it actually is mandates. It's not safeguards, it's mandates. That's what they wanted to put in. That's what they did put in. And of course, at that press conference, Senator Fevella got up to speak. And he had his own views about how the states administering the credit. This is Hawaii, he said. People were standing in line to film here. But when you get one person making the decisions, that's the discouragement. That's the guys discouraging people to come here. So what did he mean by that? Who's the one person? And what are the decisions? Isn't it just simply in the law? His beef was with Donnie Dawson, the head of the Hawaii Film Office. She has been the head of the Hawaii Film Office for like 20, 25 years. Yeah, but to emphasize the point, he filed a formal personnel complaint against Ms. Dawson. And that's kind of working its way through the Department of Business and Economic Development right now. Saying what? Saying that Ms. Dawson misled legislators by describing what the bill would do. That's interesting. Yeah, I mean, during the time that when the bill was out, the MPAA, among others, had some complaints about the bill. We did, too. We had some concerns about constitutionality over the Commerce Clause, as you just mentioned. Basically, what the Commerce Clause says is that we in the US are supposed to be one big happy family. So you have one state and another state. We're all in this together. We're paddling the same canoe. We're all one ohana. So one state shouldn't be discriminating against commerce coming from another state. But that's exactly what the bill did. And it was very explicit about it. So is that what Donnie Dawson was charged with, testifying that it violated the Commerce Clause? No, I think she made some other points that were kind of consistent with what the MPAA was saying. I believe in civil beats coverage, they did have a copy of the handout that Ms. Dawson gave Senator Fevella and others. Just as an explainer to what the industry position was. Now, let me boil this down just as far as our conversation is concerned up to this point. This controversy is about requiring local union labor in violation of the Commerce Clause of the United States Constitution. And so one side of the controversy is, yeah, we should have local union labor in violation of the clause. And the other side is we shouldn't because it violates the clause and I suppose other industry considerations. Is that the controversy? Well, there's two parts to it. One of them is that part, right? And of course Senator Fevella's rejoinder is that working with mainland companies, managing studios and production at Huy, you don't want to have a problem. Everything should be local. It's our land, it's our police, it's our people. That's basically his argument. I saw him quoted for that in the civil beat article. That was extraordinary. That's what he's saying, but we do have the Commerce Clause and I don't know if Mr. Fevella recalls this, but when he was first sworn in as a Senator, he had to take an oath to support and defend both the Constitution of Hawaii and the Constitution of the United States. Well, the Constitution of Hawaii calls for a compliance with the Constitution of the United States. Doesn't really have to, but it does. And article 16, section four of the Hawaii Constitution calls for every lawmaker to take that oath. So is he alone on this or are there others who join him from the legislature? Well, I mean, obviously there were others in Ways and Means Committee who were kind of singing the teamsters tune, right? It takes more than one person to do those kind of legislative maneuvers, but you have to kind of look at the reality and the reality isn't that people are lining up on the door, I mean lining up to film here. Do you remember Jason Momoa, Hawaii-born actor? He made it one of his life projects to film a Hawaiian historical drama. Chief of war. Chief of war is what it's called and that series is indeed being shot now in New Zealand. Yeah, part of the film was shot in Hawaii on all of the major Hawaiian islands, but as it turns out, a good part of the movie is shot in New Zealand, a number of the principal cast members are New Zealanders, not Hawaiians. Why? It turns out that New Zealand offers international productions, a production grant of up to 25% on qualifying New Zealand production expenditures. That's better than a tax credit. Apparently it is because according to the producer of Chief of War, a gentleman named Brian Keaulana, he said, to survive, we had to go to Aotearoa, which is New Zealand, to survive for this. But by keeping the tax credit, it would give us the opportunity to keep us guys at home. Let's hypothetical. Suppose this bill passes, okay? And we have more local teamsters staffing these films to the extent there are films here in Hawaii. If they are, if the films come here. Well, I'm assuming that, okay? Well, yeah, that's a big assumption now, because if you jack up the mandates, if you jack up the price of coming here, what are the productions gonna do? They're gonna go to New Zealand, just like Chief of War did. There's many considerations, but let's assume, of course they do, they do come here. Let's assume, and this is a really big possibility, I mean, an encouraging possibility, there's enough talent right here in Hawaii to make films, okay, except they would have to use Teamster help, lots of it to make their film here in Hawaii. Is that competitive, or would that also force local filmmakers to go elsewhere? That's another dimension, and that definitely needs to be considered. I mean, if you're going to tell, you know, the big productions that if you're gonna film here, you need, Hawaii needs to have the whole enchilada, then either they go elsewhere, or they come here and kind of suck up all the local resources, in which case the smaller productions may get starved out. Yeah, that's what I'm thinking. The smaller productions are the ones I would care about most, but I don't think this bill would help local productions. This bill would impose a de facto obligation on every production to use Teamster help and to have more help. And the result is that nobody could make a film economically and to the extent to Hawaii might attract either local or out-of-state business, it would diminish. The other thing is, and I would like to spend a few minutes with you on this, it is troubling, is it not, to look from the outside in and see this obvious attempt by Pavella who is essentially working for the union, manipulate the law, so as to help the union and position the union to have more union members, more work, more local union members working on films that are made here. This is troubling in the sense that it doesn't look good from the outside. It looks like we have a problem in incentivizing moviemaking in Hawaii and the people who should be like Donnie Dawson who should be incentivizing, who should be managing the efforts of filmmakers to make films in Hawaii are not really in charge. And there's a statement here about our willingness to accommodate filmmakers of all kinds from Hawaii and elsewhere when you have the union running things and you have shouting and screaming and lots of newspaper articles about Pavella. And I'm thinking that if I'm a filmmaker in Los Angeles, I would say, gee, we've had problems in Hawaii before. We've had problems with tax credits in Hawaii. It's not completely predictable. We've had problems with the teamsters before. And I'm in LA, I would say, I'm not gonna do this. I'm gonna go to New Zealand right away. The weather is good in Hawaii, but gee, this environment is really not made for filmmaking. Yeah, no, I mean, there are, we're not an island unto ourselves. We have competition. We have Puerto Rico, we have New Zealand, we have other places in tropical climates. And of course there's the green screen, right? Any place, even in Los Angeles, can be made to look like Hawaii. And there's animation that looks like a green screen. The technology is extraordinary now. In the old days, the green screen would have visible issues to an audience, but now green screens are so effective you can't tell the difference. And beyond that, you can make the green screen better and better with animation. And again, you can't tell the difference. So there are so many options that are cheaper, that are open to filmmakers now. The technology really covers it all. Don't forget AI, Tom, because AI can generate scenes and backgrounds and all kinds of things that will help a filmmaker create an alternative set and scenery. So this is really foolish, not only to make an unconstitutional bill and push it and shout about it, but also to tell the world about our attitudinal problems. Yeah, I think it's very dangerous to make broad statements about insularism that, you know, hoys-hoys and nothing else matters. It's kind of like, make America agree it again, but on a smaller scale. Yeah, we have so many issues like this. You know, the whole affair, the OHA attempt to build a 40-story condominium on Kakaako Mackay, I saw that there are those who would stop the improvement of the Puna geothermal venture. And I'm sure that you recognize that the Manakea project with the 30-meter telescope, which would be a tremendous item for prestige for Hawaii, it has been stopped against all the findings, all the courts, all the arbitration. It ain't going anywhere right now and it probably is dead Mackay mort. And so, I mean, we have these issues where people want to advance, how shall I characterize this, local partisan issues in order to make it hard for people to do business, make projects, make progress. And it seems to be happening more and more. Think of the ferry. Think of the super ferries, another one. These projects all got stuck because of partisan issues like this one. Absolutely. And if we want to make Hawaii a business-friendly place, if we want to attract capital from outside, which is what these film projects do, okay? I think we have to be accommodating, at least to some degree. I don't think this is over, Tom. Of course it's not. This is just a symptom, not the disease. And it's really ultimately damaging to the film industry here, which is a great possibility for us. We should be inviting them from hither and yon. We should have films all over the lot. It makes so much money and it sells Hawaii, doesn't it? Yeah, and importantly, it brings in capital from outside of what we now have. I mean, we've always complained. I mean, we've heard lots of complaints over the years that Hawaii is capital short. Well, the answer is to get entities or businesses outside of Hawaii to invest in Hawaii and move your productions, one of them. And the other kinds of capital, capital would come in for the telescope, capital that come in for the super ferry. I could go on, all these are stopped and the capital doesn't come in and you start counting them up on your fingers and toes and it's billions and billions of dollars that had been locked up or rejected. You talk about Donnie Dawson and some of the filmmakers coming down and opposing this bill. And of course, the tax foundation opposed the bill, but is there an organization that would say, wait a minute, this is unhinged. It's not legal and it's not good for us. Is there an organization, kind of a chamber of commerce organization that would come down and oppose a bill like this and tell it like it is? Well, I mean, supposedly that's one function of the NPA produces or directors. It's more than tax and it's more than filmmaking. It's inviting offshore capital to come here. Yes, it should be managed. And I think Tech had a very interesting program about managing offshore capital 10 years ago and I thought that was really important to understand it from that point of view. We need somebody to A, advocate for bringing offshore capital here and B, managing it effectively. Well, I mean, supposedly that's what we look to our governor for. You know, when our governor there saying, this is the policy of the state, this is what we want to attract. You know, we love films and we totally support the industry's use of Hawaii to promote Hawaii. Come on down, we'll make life comfortable for you. We'll show you our local spirit. We'll show you our hospitality. Right, and what are the side benefits of all of that is that our budding filmmakers from the Academy for Creative Media, other places in the university, you know, all these filmmaking organizations that are small, they're low capital, small organizations in Hawaii, trying to make films would rub shoulders with, you know, more serious, more heavily capitalized producers from the mainland. And A, they could learn a lot. They could even just watch, but they could get jobs too. They could learn a lot and make a real industry here. Well, I mean, what happens, you know, is that local people who want to get a job in filmmaking wind up going to the mainland. I think there should be a countervailing deal here in the next session that would further encourage them, not reject them, and at least we'll have two hands clapping, don't you think? Yeah, I mean, we have a film credit that's for better or for worse, survived more than 25 years. Why aren't we using it? We should be using it. We should be extending the sunset date. We should be maybe, you know, reducing up their percentages a little bit, but let's not do stupid things. Well, you know, it's a marketplace thing. If we find that producers going around us, going to Puerto Rico and New Zealand and what have you, and other places in Asia, I should add, Yeah, that's not their fault. No, it's the economics of it. That's right. So we have to get into the mix and be more competitive. That's simple. And it's a combination of things. It's not only increasing the film credit, but it's developing an attitude. You know, the aloha spirit, if you mentioned, where we demonstrate that we care about them and we support them and we help them. And we try to get jobs and internships and the like so that local people can learn from them. It's a very, as you said, it's a very highly technical business now. You know, you can't learn it by not getting close to it. You have to get close to it. Yeah, we ought to be concentrating on people like Chris Lee, who were in the industry and have come here to impart his vast knowledge to local people who want to get into the industry. We ought to be listening to him more. We need to kind of pick the industries that we want to help given that we've already picked this one. We really should be, you know, accommodating if we can. You know, we shouldn't be trying to kick them out. We shouldn't be taking the attitude that, oh, they're gonna come here anyway, because they won't. And we're finding this out more and more as we've seen with Jason Momoa's experience. They'll go elsewhere. They don't have to stay here. And we should realize that, and we should realize that we're in competition to attract and keep industries like that. Thank you, Tom. Important discussion. Thank you very much. I hope that people get the message on this. Thank you, aloha. Thank you so much for watching Think Tech Hawaii. If you like what we do, please click the like and subscribe button on YouTube. You can also follow us on Facebook, Instagram, and LinkedIn. Check out our website, thinktechawaii.com. Mahalo.