Friday, January 09, 2009

Film tax credit threatened

Christine Stuart over at CT News Junkie takes a look at the future of the film tax credit for the new legislative session.
(According to a state press release) it looks like the chairs of the legislature’s two budget committees are taking a hard look at the benefit of the state’s film tax credit enacted in 2006 and backed by former Speaker of the House James Amann.

“The goal is to objectively determine if the state comes out ahead when the giveaways are matched up against the new business they generate,” Sen. Eileen Daily, D-Westbrook, said in the press release.
The film tax credit is a discounted tax rate for TV and film production that takes place within the state. The press release (linked here), which is admittedly incomplete, says productions spent over $600 million in the state and created an estimated 2,040 freelance jobs. The release also details an estimated $1.4 million in payroll taxes against roughly $90 million in tax credits.

The important thing to consider is that the payroll tax isn't the only way the state benefits from the increased TV/film productions. There's also the purchases of materials, hotel rooms, food & beverage, etc. that generates taxes that otherwise wouldn't be made. Hiring local workers not only provides payroll taxes, but it cuts down on the need for unemployment benefits, adds state income tax, and increases skills of the work force. Production companies are looking to move permanently to Connecticut which will provide more jobs and add to the tax revenues, albeit at a reduced tax rate.

But considering these economic boosts wouldn't occur if the tax credit wasn't in place, you have to ask if getting 70% of the tax rate for real addition productions isn't better than 100% of the tax rate for no additional production.

Last year CT Voices for Children (a very worthwhile organization) made some news by publicly criticizing the value of film tax credits enacted by the legislature in 2006. The executive director complained that the danger is the film tax credit is uncapped and “as a result, there is no limit to the revenue loss Connecticut might face through these two credits.”

The irony here is that by focusing on the 30% lost revenue for the credit, she's ignoring the additional 70% tax revenue generated by productions that otherwise wouldn't move here. Sure, there are some permanent production companies here that are benefiting greatly from the tax credits, such as WWE, which has their headquarters in Stamford. But before making any changes to the program we need to take a close and detailed look at ALL the data, not just cherry-picked data that doesn't show the whole economic picture.

If the press release is widely distributed without a fair report following it, many people will focus on the figures of $1.4 million gained against $90 million supposedly lost. These numbers are very far from the real economic situation, and if they are used to repeal this program without a fair examination, Connecticut may lose more real income than it saves.

One thing that the tax credit doesn't guarantee is the quality of the films made in Connecticut, as the image above from the filming of "Righteous Kill" demonstrates; a very average cop drama that wastes the talents of two Oscar winners that had scenes filmed here in Milford.


Ed McKeon said...

I have the advantage of owning and running a film production company, and having a seat on the Film Commission.

Like most residents, I love the idea of films being produced in Connecticut.

But the tax incentive program has done very little for local production companies, or local crews.

Anecdotally, when an indie film was being shot on Middletown's Main Street, I couldn't find a single CT crew member. Everything from the equipment rental, to the craft services came from out of state.

And the numbers you cite from Stuart's article are the ones to be considered. That ration $90 million in tax credits, against $1.4 million in payroll taxes is the most immediate accurate measure of success. The ancillary gains are minor - hotels, meals, etc - because if they were significant and actual, we'd be reading about them.

What's more insulting is that the state, its agencies and its politicians frequently hire outside-the-state production companies to do their work. The Secretary of State used an out-of-state company to shoot her voting machine videos and commercials. Most of the candidates in the 2006 elections, including Ned Lamont, hired out-of-state production companies to shoot their commercials. Our lottery spots are shot in Atlanta.

The incentive bill is sexy (Jim Amman got to appear in the Indiana Jones movie - whoopee!), but seriously flawed. I don't think it should go away, but it needs re-thinking, and in these times, maybe temporary suspension.

If the state really wants to encourage an in-state film industry, it should do what Canada has done - direct grants to filmmakers.

CT Bob said...

Thanks for the detailed comment, Ed.

There's several things you brought up that definitely should be addressed. Perhaps the tax credit law should be revamped to include a necessary amount of local workers on the films. Although, if the report I quoted is accurate, they did provide over 2,000 jobs, temporary though they may be.

I agree that I'd like to see them add a requirement that all govt. video contracts be awarded to local production companies. That's a no-brainer and should be included in any discussion of the law. There's no reason to spend our tax dollars out of state.

The Ned Lamont-Bill Hillsman thing was somewhat more justified, in that Lamont was spending his own money and he wanted the best political ad man out there (at least, outside the beltway, since I heard that nobody in DC wanted to rock the Lieberman boat).

And maybe a requirement to use in-state resources for rentals and such might help; maybe it can be factored in as an incremental tax credit, so the guys who use all out-of-state resources only get 25%, while those who use in-state get 30-35%. Something other than a flat tax credit might provide the incentive to hire and rent locally.

The figure of $600 million being spent in-state cannot be simply cast aside in this discussion. There are many factors when that kind of dough is scattered around the state, and simply limiting the discussion to the $1.4 million in payroll taxes is ignoring a lot of probable economic benefits.

If, after a fair and careful examination of ALL the economic benefits of the law, it's found to be costing the state more than it nets, then yeah maybe it should be dropped.

As far as Jimmy Amann appearing in the movies, that's probably going to be the only place we'll see him after 2010. ;)

Ed, if may I ask, does your own company benefit from the tax credit?

Middletown Eye (Ed McKeon) said...

The majority of our budgets are below $50,000, which is the threshold for the tax credit. We've not once been able to apply for it, and few local companies that I know of, have.

For the record, our company has been around for almost 30 years. We've pumped a lot of money into the state economy in that time. We've shot all over the country and internationally, and we just completed a doc on Alzheimers which is in national public TV distribution. Like many other companies in CT we can do the work if given the chance. The bill is not designed to work to the advantage of CT production companies.

As for Lamont and Hillsman, we literally begged to be involved on those shoots, and our company was eventually hired as "local producers," but the preponderence of top-end crew members were from Minnesota. They were all pros, but they weren't doing anything we couldn't do.

The temporary jobs number is without detail. Almost anyone on a set is working a temporary job. Most of the people on these sets are from out of state.

Middletown Eye (Ed McKeon) said...

BTW, amen on Amman.

CT Bob said...

Thanks, Ed.

OK, I see your point. I don't know why the state doesn't do more for local production companies, nor do I think it's fair to have a $50K threshold before being able to get the same breaks that the big players get.

I hope you're in touch with legislators to try to effect changes in the law that might help local interests. I would think that your insider's knowledge of the business would count for a lot when trying to get positive changes made.

Authentic Connecticut Republican said...

It appears that Ed knows what he's talking about.

Take a look at this now 24-25 year old work that might as well have been produced last week.

There's 3 parts, the above link is to the 1st one only, but you'll want to watch the entire half hour.

Anonymous said...


You're being bamboozled. (and you're not the only one.)

The film companies aren't paying 70% of their taxes. They're paying no taxes. And on top of that they're getting a massive subsidy from the State.

You see the "tax credits" are transferable. They don't just go against a film company's tax bill. Instead they are sold, for something like 90% of the dollar, to other CT companies.

For example, if a production spends $10 Million in CT, they get $3 Million in credits, even though their tax bill will be nowhere near the $3 Million. (maybe a million or two of the ten million will be profit, but the taxes would only be a fraction of that.)

What happens next is that a middle-man sells the extra "tax credits" to other companies, and the production companies get subsidized that way.

So really, you need to look at this not as tax breaks, but as a close to 30% State subsidy for film production.

If this massive subsidization was going to the establishment of a long-term industry, I might be for it.

But the film productions are highly mobile, and they will be gone as soon as the subsidy disappears.

Think about it. If we are going to subsidize an industry at 30%, wouldn't we be better off concentrating on boat-builders? At least those guys would be sinking $$$ into real infrastructure that hopefully would be productive in terms of jobs, long after the subsidies end.


CT Bob said...

If that's the case, then I can't argue with the anti-credit crowd. Could you cite a source for your claim?

(and I admire how clever you're being, by trying to appeal to my nautical side using boat builders as an example!)

CT Bob said...

ACR, I'm going to watch the video after the football games. I enjoy the Leatherman stories. Milford had its own version of the Leatherman saga around the late 1800s.

Authentic Connecticut Republican said...

>>Milford had its own version of the Leatherman saga around the late 1800s.

Probably the same guy; here's a list of known towns he visited:

North Salem
New Britain
Old Saybrook
New Haven
New Canaan
White Plains
Mount Kisco
Bedford Hills
Pound Ridge

CT Bob said...

Then it probably was him, especially if he visited New Haven and Stratford.

Anonymous said...

Way back in the 90’s I wrote a dozen emails to the Governor Roland, Rosa DeLauro, Joe Lieberman, Chris Dodd and many others about fixing the tax law PS 92.13 and adding tax credits in the State. We once had a fledging movie industry until they messed with this law. Yes some producers were abusing it by putting their Lamborghinis as production costs but it should only have been tweaked not used to balance the budget.
I think it was Ella Grasso or Lowell Weicker with the smart idea to change the law so dramatically and use the funds to balance the budget. What happened took many years long past when they left office so no one realized what they did. Eventually the studios packed their bags and moved to Beverly…… Hills that is, swimming pools and movies stars. Well they were already there but they did go to other States. Now trying to get them back will be even harder. The tax credit only addresses large companies and not the small ones where the workers will get trained.
I lost my job because the television company I worked for moved to North Carolina so it prompted me to write these emails to let them know about the problem with the tax law. I also suggested adding tax credits and to build studios here. But when they finally changed the laws they made the credits only for the big companies. This is why the State lacks a work force. The people that moved away are not going to move back now. We need to train new people that live here.
The new credits to build digital sound stages here will help if we also help small companies teach workers how to use the computers. They need to help the small companies so they can teach workers to fill the large companies positions. Like apprentices do for a blacksmith. But these companies can’t afford to buy the high tech computers and the people they will train can’t afford to invest time into an education unless there is work. Everyone at that level will just keep doing what they are doing unless there is a light at the end of the tunnel.
So the tax credit and funding should also be going to the small companies as incentives to get involved. Then when the large companies need workers they won’t have to ship them in from out of State. I have a small production company but none of the video work came to us so I now produce signs. At least I can make money producing signs right now and hope to produce content for the movie industry in the future. But they will also need signs, backdrops and other graphics to. So I am hedging my bets. If I could produce government videos I would and invest into new equipment, cameras and computers and also be able to train workers. But that hasn't happened. The companies getting the tax credits have no reason to use our company because it wasn’t written into the law.
Like a previous post says have the State hire these small companies to do production work so they are training the workforce in the process. All the local towns PEG channels could be used as training facilities if they invested money into them. Instead the DPUC dropped most of the funding for those channels. The towns could then be able to produce DVD’s and other media content to promote tourism and other revenue generating resources that brings in new money from out of Town. That would fuel more money for training and build the workforce at the same time getting bigger and bigger each time.
The worker needs to know how to create 3D wire frames and computer renderings. This is the future of the movie industry. A lot of workers have this experience from the manufacturers in our State. So that is one advantage along with we are starting from scratch.
The tax breaks are great because it is half the cost to produce here than in New York or Boston and we are right next door. So they get the same benefits for a lot less. Now if we have a large workforce to choose from we would be all set.

Anonymous said...

There are plans to build the largest sound stages in the country at the Stratford Army Engine plant using the tax credits. This location is the best place in Connecticut for a movie studio if not the whole country. The State now has plans to make it the center of the State’s expanding movie industry. This location will be the key to the State’s success mostly because of its location and what it has to offer. It is in between Boston and New York City. At only 50 miles away it is far enough away that rent is cheap and the traffic is low but still close by. The State’s largest city Bridgeport is next door with many low rent buildings to support prop shops and design studios. There is plenty of rental properties and apartments minutes away to support the workers. The key benefit and main feature is the airport right on property so producers and actors can fly in and walk across the street to the studio. There is a deep water river that barges can move large props and items back and forth from studios in NY and props could be built and sent to the city. Actors and workers can shuttle back and forth via Long Island sound on high speed ferries built in Bridgeport. There is a train spur to bring in heavy items from all parts of the country and a train station 45 minutes from Grand Central. Four major highways intersect in the Town from the north, east and west with a vehicle ferry to the south and New York City.

A facility like this is what will jump start the movie industry in the State because there is nothing like it anywhere in the country let alone on the east coast. It will be the first sound stage that actors can actually fly to work. It will be much easier that flying into LaGuardia or Kennedy airport and taking a two hour taxi ride to the studio and paying top dollar to stay in a motel. Most actors now have private jets or they fly on small private airplanes that either can’t fly into the large airports or they have to pay enormous fees to land and park. Here they will be able to fly in and fly out the same day and have their jet serviced at the same time. At night they can take a helicopter into the city or take the train, ferry or drive their car. They will be able to afford a second home for the price of rent in the city. If they come by boat or yacht they will have a dock right at the studio across from an airport. Trips to Martha’s Vineyard , the Hampton’s and Montauk Point are a few hours away. No other studio location will have this type of access and still be 50 minutes from New Your City. With 30 sound stages this will be the largest facility in the country. Everything from production costs to housing, motels, foods, travel and employees will cost less.

There are a lot of manufacturing companies here with an educated workforce. Many designers have computer design experience and can easily be retrained. Many companies’ use 3d wire framing and rendering of animated graphics already so training the workers to produce movie graphics and animated scenes will be simple. Once the smaller support companies can afford the computer systems and software the workforce can be built. This is who the State should be those government jobs to like someone else mentioned instead of sending them out of State. They could build up the businesses and train the workers at the same time. Plus these workers will stay here and not go back home to another State like the temporary workers do increasing the payback of the tax incentives.
Actors may come and go but the workers need to stay movie to movie. The State needs to support the infrastructure and the small businesses that will train the workforce. This is the glue to hold it together. When all the pieces of the puzzle fit it can truly be called Hollywood East. LIGHTS! CAMERA! ACTION

CT Bob said...

Email me, I'd like to discuss this more. I doubt many people will see your comments because the original post was from January. My email address is on the sidebar of the main page.


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