Despite an unprecedented budget shortfall, Kentucky has agreed to give away $162 million in state money to subsidize more than 200 films, television shows and commercials produced in the commonwealth, approving two-thirds of that money in just the last year, according to data released by the Kentucky Tourism, Arts and Heritage Cabinet.
State lawmakers say the explosive growth of Kentucky’s film tax credit program is alarming in the face of spending cuts for schools, social services and other essential needs.
“This good-intentioned incentive has morphed into a major drain on our state budget,” said Rep. Chris Harris, D-Forest Hills. “We haven’t been provided with any reliable data that would justify the cost of this program. Other states that have had similar tax credits in the past are reconsidering, and I believe Kentucky should as well.”
Sen. Paul Hornback, R-Shelbyville, said Kentucky at a minimum should cap the film incentives program to prevent its costs from spiraling out of control.
“I actually think we need to end this program, and I know many others in the Senate who feel the same way,” Hornback said.
“Many other states are getting away from film incentives because they just don’t pay off economically. I’ve been in some of our communities where they’ve done filming, and it’s a feel-good thing — you know, people enjoyed seeing their towns promoted, and there were a handful of short-term jobs — but there was minimal economic gain in terms of what the state of Kentucky is agreeing to pay for these projects,” Hornback.
The Herald-Leader reported in October that Kentucky had approved about $90 million in film tax credits for more than 150 productions, but that was using state data available as of last summer. The newer and larger figure includes approvals from the Kentucky Tourism Development Finance Authority as of Dec. 31.
One company alone was approved for $14.9 million in tax credits last month: Artman Cooper LLC of New York City. The state did not release any information about what that subsidized film project is supposed to be; the company’s listed owner did not respond to a request through social media for comment.
Jay Hall, executive director of the Kentucky Office of Film and Tourism Development, said in an interview this week that aggressive marketing and positive word-of-mouth in the film industry is responsible for the film tax credit’s rapidly accelerating growth. There were nine applications for the credit this year as of Wednesday, Hall said.
Asked whether the program’s cost might prove to be excessive, Hall replied, “I’m not in a position to tell you if it’s excessive. I don’t work for the state budget office, and I’m not a finance guy.”
Kentucky reimburses production companies for as much as 35 percent of the cost of filming inside the state. The tax credits began in 2009, although the legislature made their terms much more generous in 2015 at the request of then-First Lady Jane Beshear so more producers would apply.
Most completed productions so far have been low-budget projects, including reality television shows, movies that debuted at minor film festivals and commercials for Kentucky companies, including Valvoline, Heaven Hill Distillery and Appalachian Wireless.
As of Dec. 31, the state had only awarded $13.2 million of the total sum of film tax credits that it had approved. Production companies are given four years to finish their projects and collect their credits, and most of the approvals so far have been issued well within that window.
Nobody knows how much of the $162 million approved so far ultimately will be collected. In an interview last year, state tourism officials estimated that half of the movies approved for credits will be completed within the allotted four-year time limit.
Using taxpayer money to subsidize film-making is a fading trend across much of the country. This winter, West Virginia joined the growing list of states to recommend the elimination of their own film tax credits after West Virginia’s legislative auditor found “minimal economic benefit” and questionable spending due to lax oversight.
Other states to uncover similar problems include Louisiana, Arizona, Iowa, Connecticut, Massachusetts, New Mexico and Pennsylvania.
In Kentucky, however, neither the state auditor nor state lawmakers have ever examined the film tax credit program, and no economic impact study has been commissioned to determine if the state’s General Fund is likely to recover what it will forfeit in coming years.
Film crews spend their money locally — at hotels and restaurants, on part-time workers and supplies — but the tax incentives come out of the state Treasury. So in terms of the revenue necessary to pay for state services like schools, it’s not a $1-to-$1 match. Only a small portion of the incentives are ever recovered by Frankfort through state taxes on filmmakers’ economic activity.
The most disturbing fact about the film tax credit is that it has no cap to limit its expansion, the Kentucky Center for Economic Policy in Berea warned in a policy paper last fall. At its current rate of unchecked growth, the program is on track to approve more than $400 million in incentives by the end of 2018, the center said, which Kentucky cannot afford.
“The film tax break is growing out of control, and it’s a way too generous program that research has shown has a very poor return on investment,” Bailey said this week. “Especially given Kentucky’s other budget needs, it’s time to end this tax break just as seven other states have done in recent years.”
Hornback, the GOP state senator, said the legislature should limit or eliminate Kentucky’s film incentives, but it’s unlikely to do so during the 2018 session. Gov. Matt Bevin and legislative leaders have made it clear they want to address comprehensive tax reform all at once, after lawmakers have passed a two-year spending plan and revamped the public pension systems, Hornback said.
“Senate leadership doesn’t want to do this piecemeal, so I don’t think we would get to the film incentives until we get to tax reform as a whole,” Hornback said. “Now, that doesn’t mean we can’t do anything sooner. We might be able to get a cap in place before then. Let’s see.”