January 14, 2013

Connecticut Voices for Children: Fiddling While Rome Burns: Connecticut’s Multi-Million Dollar, Money Losing Subsidy to the Entertainment Industry

ITEP Work in Action

While intended to spark a home-grown entertainment industry in Connecticut, Connecticut Voices’ analysis of recently-released data from the Commission on Culture and Tourism shows that the tax credits have largely been subsidizing out-of-state personnel and businesses. Data in a spreadsheet provided to a General Assembly subcommittee looking at tax credits showed that only 11% of the $113.2 million of state revenues lost through the “film tax credit” subsidized production expenses that were classified as “actual Connecticut expenditures.” Eight productions received a total of $9.3 million in tax credit subsidies, though the Commission data showed no actual Connecticut production spending at all. Overall, according to these data, Connecticut has awarded $2.73 in production tax credits for every dollar of actual Connecticut spending on the production of films, television shows, commercials, infomercials, and video games.

Applying some very optimistic and generous assumptions to the state tax revenues likely to have resulted from the expenditures documented in the Commission’s report, Connecticut Voices concluded that Connecticut’s “return on investment” through these tax credits would have been sharply negative, with the state recouping in taxes on the documented production expenses less than one in five dollars of the revenues paid out in tax credits. This finding is in accord with research in other states, which the report also summarizes.

The report also discussed some of the rather unique characteristics of this credit, which was enacted just three years ago. The film production tax credit covers 30% of eligible production expenses. Unlike other Connecticut business tax credits, this credit does not simply reduce the taxes an entertainment production company owes Connecticut (dollar-for-dollar), but also can be sold by production companies with insufficient tax liability to use up all the credits. Credits have, in fact, been sold to companies wholly unrelated to the entertainment industry. So Connecticut is “on the hook” for a subsidy equal to 30% of a company’s qualifying production costs, whether or not that company owes any Connecticut taxes. Further, there are no caps on the amount of credits that may be granted per production, or in total, so Connecticut can lose virtually unlimited amounts of revenues, even in a deficit year.

The report recommends either eliminating the film tax credits or limiting them, including by establishing a monetary cap on the amount the state can lose through the film tax credits (as proposed by Governor Rell and as established by several other states with film tax credits), prohibiting the awarding of tax credits for expenses incurred outside Connecticut, limiting the transferability of the credits, and requiring an independent assessment of their return to the state.

Read the Full Report (PDF)