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New Mexico rejects film grant application for ‘Rust’ after fatal shooting of Alec Baldwin

SANTA FE, NM – Producers of the Western film “Rust” may have to forgo a solid economic incentive while they try to sell the film to distributors and meet financial obligations to the immediate family of a cameraman who was shot and killed by Alec Baldwin during rehearsal in 2021.

New Mexico tax authorities in the spring rejected a request from Rust Movie Productions for up to $1.6 million in incentives, according to documents obtained by The Associated Press. The deadline for the producers to appeal the decision is at the end of July.

Baldwin is scheduled to go on trial next week on manslaughter charges in connection with the death of Halyna Hutchins. The lead actor and co-producer of “Rust” had a gun pointed at Hutchins when a shot went off, killing her and wounding director Joel Souza.

Melina Spadone, an attorney for the production company, said the film production tax credit would be used to fund a legal settlement between the producers and Hutchins' widower and son.

“The denial of the tax credit has thrown these financial arrangements into disarray,” said Spadone, a New York and Los Angeles-based senior counsel at Pillsbury Winthrop Shaw Pittman. She helped broker the 2022 settlement that restarted the stalled production of “Rust” in Montana with some of the original cast and crew, including Baldwin and Souza. Filming wrapped last year.

Terms of the agreement are confidential, but producers say completing the film would serve to honor Hutchins' artistic vision and raise money for her young son.

According to court documents, the settlement payments are up to a year behind while lawyers for Hutchins' widower determine “next steps,” including whether to reinstate the wrongful death suit or file new claims. Legal representatives for Matthew Hutchins did not respond to phone calls and emails seeking comment.

Both Baldwin's prosecution and the film's tax credit application have financial implications for New Mexico taxpayers. The Santa Fe District Attorney's Office said it had spent $625,000 on prosecutions related to “Rust” through the end of April.

The state's film incentive program is one of the most generous in the country, offering direct rebates of between 25 and 40 percent on a range of expenses to attract film projects, jobs and infrastructure investment. Only Georgia pays out a higher percentage of grants.

It includes a one-time option to transfer the payment to a financial institution. This allows producers to use the rebate to finance production up front, often converting the rights to the rebate and future film revenues into production credits.

Beneficiaries of the rebate program include the 2011 film “Cowboys and Aliens” and the television series “Better Call Saul,” a spin-off of “Breaking Bad.” As for current productions, New Mexico is the setting for a new film starring Matthew McConaughey and America Ferrera about the rescue of students during a 2018 wildfire in the town of Paradise – the most devastating in California history.

Charlie Moore, a spokesman for the New Mexico Taxation and Revenue Department, declined to comment specifically on the Rust application, citing concerns about confidential taxpayer information. Applications are reviewed for a long list of accounting and eligibility requirements.

In the most recent 12-month period, 56 applications for film funding were approved and 43 were partially or fully rejected, Moore said.

Documents obtained by AP show that the New Mexico Film Office sent a memo to Rust in January confirming its eligibility to apply for the tax break. The process involves accounting records, a review of outstanding debts and a credits statement with New Mexico as the filming location. The final decision on whether the expenditure is eligible rests with tax officials.

Spadone, Rust's attorney, said the rejection of the application was “surprising” and could undermine confidence in the tax program and have a chilling effect on tax-backed loans that boost the local film industry.

Alton Walpole, production manager at Mountainair Films in Santa Fe who was not involved in “Rust,” said he faulted the film's makers for appearing to slack on safety, but authorities are required to review the tax credit application based only on legal and accounting principles – or risk losing major projects to other states. Movies are inherently dangerous, even without firearms on set, he noted.

“They'll say, 'Wait, are we going to New Mexico? They might deny the rebate,'” Walpole said. “They're watching every penny.”

“The general opinion? I would say don't give them the discount. But I think they are legally entitled to it,” he said.

At least 18 states have enacted measures to introduce or expand film tax incentives since 2021, while some have gone in the opposite direction and sought to limit the transferability and refundability of credits.

Under Democratic Gov. Michelle Lujan Grisham, New Mexico has raised annual spending caps and expanded the film tax credit because of a billion-dollar surplus due to record oil and natural gas production. Film rebate payments totaled $100 million in the fiscal year ending in June 2023 and are expected to rise to nearly $272 million by 2027, according to documents from the Internal Revenue Service and the Legislature's Budget and Accountability Office.

Democratic Senator George Muñoz criticized the stimulus program and asked whether taxpayers should pay for unforeseen expenses.

“If we give tax credits and there's a problem with the film or on the set, do they really qualify or do they disqualify themselves?” says Muñoz, chairman of the Senate Budget Committee.

“Rust” does not yet have a US distributor, as the producers are offering the recently completed film at film festivals.