Case #2020-11 IRB Netflix Studios

ALBUQUERQUE DEVELOPMENT COMMISSION November 23, 2020 Industrial Revenue Bond Hearing IRB 20-1: Netflix Studios LLC Project Case Number: IRB2020-11 REQUEST: Approval of $500,000,000 in City Industrial Revenue Bonds to be issued in two series is requested. PROJECT SUMMARY: Netflix Studios is planning to increase and expand their presence in Albuquerque by purchasing an additional 170 acres of land and investing more than $500 million in capital and another $1 billion in production spending, in addition to the company’s commitment of $1 billion in production spend under the 2018 local economic development transaction, to develop a major film and television production campus in Mesa Del Sol’s Planned Community Development. Netflix, Inc. is an American technology and media services provider and production company headquartered in Los Gatos, California. Netflix was founded in 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California. The company's primary business is its subscription-based streaming service which offers online streaming of a library of films and television series, including those produced in-house. Netflix purchased Albuquerque Studios in 2018, and has undertaken significant production expenditures of approximately $150 million over two years (prior to the Covid pandemic that has limited film and television production worldwide). In 2020, Netflix began a competitive site selection process to determine where to focus its future production investment for the next decade and beyond. Netflix has three primary production facilities in North America other than Albuquerque, including Los Angeles, Atlanta, and Vancouver, Canada. The company sought a location with good business resiliency (not subject to shutdowns due to weather or other natural disasters), and selected the site at Mesa Del Sol in Albuquerque, New Mexico. They took into consideration the strong relationships that have been built at the state and local levels, access to leadership, the size and experience of the local crew, the ease of permitting, the ability to purchase goods and services from local vendors, and the strength and consistency of the Film Production reimbursement and crew training programs. The company’s proposed $500 million capital investment will occur in two phases and include the purchase of approximately 170 acres of land and include improvements to the existing facility, the construction of ten sound stages, a 120,000 square foot office building, mill buildings for set construction, a 50,000 square foot special effects warehouse, a commissary, and other support buildings. Additionally, the company anticipates a post-production facility, wardrobe suites, a backlot and other development. Netflix also commits to develop a significant film training program in conjunction with New Mexico academic institutions, including the development of an indigenous film production training program. The capital investment is accompanied by the significant commitment from the company to undertake an additional $1 billion in production spend by December 31, 2033. Netflix commits to a Direct Spend (on its own productions) of at least $1.2 billion, and $800 million in Direct and/or Indirect Spend (leasing the facility to other production companies), for a total of $2 billion in Direct and Indirect Spend ($1.2 billion of that generated locally). The New Mexico Economic Development Department has collected and analyzed many types of productions over the years and estimates that this additional production spend will generate approximately 994 new jobs. INDUSTRIAL REVENUE BONDS: Industrial Revenue Bonds (“IRB”) are useful to companies because they provide property tax abatements on real and personal property and gross receipts tax or compensating tax exemptions on eligible purchases. The City acts as a conduit issuer of the bonds, and therefore any property bought or developed with bond proceeds is done under the name of the City, and the City technically holds title to the property and leases it to the company. Cities are not taxed for property/items they purchase or hold title to, so there is a tax abatement on real and personal property taxes, and an exemption on the gross receipts/compensating tax on the purchase of equipment, on any and all funded with bond proceeds. There is no liability to the City or the taxpayers as the City is simply a conduit issuer and the company is solely responsible for repayment of the bonds. It is important to note that a $500 million dollar IRB project does not represent expenditure of any City funds that are being paid to the company, or even the amount of tax abatement. It reflects the amount of money the company is investing in the community. Netflix will receive an 80% property tax abatement on any existing buildings or improvements on their existing site, and an 80% abatement on any personal property, existing or new, for that site. They also will receive an exemption on any gross receipts or compensating taxes due for the purchase of new equipment purchased with bond proceeds and owned and operated by Netflix for that site. The new site, and any improvements made, owned, and operated by Netflix on those new parcels, will receive a 90% real and personal property tax abatement, and a gross receipts or compensating tax exemption on the purchase of new equipment purchased with bond proceeds owned and operated by Netflix. It is also important to understand that for this project some of the evaluation criteria and performance measures normally addressed in an IRB project around job creation had to be addressed differently due to the nature of the film and television industry. The focus, evaluation, and performance requirements for this project are structured around the company’s capital investment and economic activity in both direct and indirect production spend which results in hundreds of jobs in the community. The performance measures and penalties/clawbacks are built around the company’s ability to meet its capital investment commitments. Each production company’s jobs are not permanent and vary depending on the production. However, the continued ongoing production spend will directly improve, sustain, and grow the employment opportunities for New Mexicans. In addition, Netflix estimates that approximately 30% of production spending goes into goods and services, of which 70% is spent locally. This means the additional $1 billion of production spending can be expected to generate approximately $210 million spent on local goods and services. The City’s IRB Ordinance requires that economic development projects requesting economic assistance from the City shall clearly demonstrate the benefits that will accrue to the community, and that the applicant is making a substantive contribution to the community. Our analysis demonstrates that by fulfilling the commitment for $500 million in capital investment and $1.2 billion in Direct Spend and another $800 million in Direct and/or Indirect Spend for a total production spend investment of $2 billion, the Netflix IRB Project will be providing a high degree of benefits to the community and a strong substantive contribution. The IRB application, attached as Exhibit 1 provides details of the Project and the investment to be created, and associated community economic impacts which are further analyzed below. 2 This project includes a Fiscal Impact Analysis prepared by the University of New Mexico’s Bureau of Business and Economic Research which is attached as Exhibit 2. The fiscal impact determination of the Project is derived from information the company and the New Mexico State Film Office provided. The analysis shows that based on the assumptions contained therein, the company will be making a substantive contribution to the community and will generate more than $3.8 million in positive net tax revenues. Consequently, the City projects to recoup the value of its investment within ten years. FINDINGS: 1. IRB-20-1 is a qualified project as defined by the State’s Industrial Revenue Bond Act and the City enabling legislation (Resolution R-196, Sixth Council (16-1985) as amended by Resolution 350 Sixth Council.); and 2. IRB 20-1 would make positive substantive contributions to the local economy and community by growing and enhancing Albuquerque’s position as a significant center for motion picture and media production with a Five Hundred Million Dollar ($500,000,000) private sector capital investment and an additional One Billion ($1,000,000,000) in production spend; and 3. IRB 20-1 would anchor the shared community vision of Mesa Del Sol as a major employment center for Albuquerque, and comply with the adopted Comprehensive and Planned Community development requirements; and 4. IRB 20-1 would make positive substantive contributions to the local economy and community by purchasing additional acreage and making additional renovations and improvements to the existing Netflix facilities at Mesa del Sol and developing a major television and film production campus; and 5. IRB 20-1 would make additional positive contributions to the local economy by committing to $150--$500 million in capital investment and an additional One Billion ($1,000,000,000) in TV, film, and media productions, and committing to operate in the community for at least ten years; and 6.IRB 20-1 would have additional positive community impact by the development of a significant training program/center with institutions of higher education, and a focus on dedicating resources to develop production skills and capacity for indigenous people; and 7. IRB 20-1 has demonstrated the financial capability to undertake and successfully manage the Project and provided acceptable security; and 8. IRB 20-1 would more than adequately meet the IRB evaluation criteria established by the City and would comply with the adopted City plans and policies, and meet community economic development priorities and objectives, and a make a substantive contribution to the community. PROJECT ANALYSIS: The project, as proposed in the project application, will be analyzed in accordance with the City’s Industrial Revenue Bond criteria.

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