Department of Economic and Community Development Commissioner David Lehman on Thursday called on state lawmakers to consider capping or reducing Connecticut’s tax incentives for film, television and digital production — programs that have been sparking for years. criticism from defenders who say the money would be better spent elsewhere.
Speaking at a joint hearing of three legislative committees to discuss his department’s 2021 annual report, Lehman highlighted the pros and cons of several state business incentive programs. But he drew particular attention to tax credits for films and digital media, saying they were among the incentives he said were ripe for an overhaul.
“If there was a reminder of some of the programs that we oversee, that would be one that I would suggest should be discussed,” Lehman said.
Lawmakers on the Appropriations, Commerce and Finance, and Revenue and Obligations Committees did not state their position on Lehman’s suggestion, but acknowledged the council.
“There’s been a lot of conversation around the movie and entertainment industry,” D-West Haven Rep. Dorinda Borer said during Thursday’s hearing. “We don’t necessarily want to go back, but going back to your point, we should always evaluate a program to see if it works.”
Established in 2006, industry incentive programs have been instrumental in establishing a thriving production ecosystem in Connecticut that employs thousands of people, Lehman said, but it comes at a significant cost.
Under Connecticut’s Film and Digital Media Production Tax Credit, companies can receive, in the form of a tax credit, up to 30% off qualifying production expenses or on the costs incurred in the State. There is no cap on the amount they can claim per year.
In its 2019 annual report, the DECD found that over the previous decade, average economic impact of the program had represented a loss of $58,510,604 in net revenue per year, or well over half a billion dollars in total.
“When you think about the cost to taxpayers versus the benefit to taxpayers, I think there’s an open question,” he said. “Does the cost outweigh the benefit here?” I think this is something the General Assembly should explore.
He recommended either capping the credit at a certain dollar amount or reducing the percentage. Connecticut Voices for Children public policy researchers have called for reforms similar to the program from 2009.
Many states and countries offer similar incentives to film and media companies. It can create a competitive “race to the bottom,” analysts said, and taxpayers in many regions have pushed back.
Lehman noted that on a per capita basis, Connecticut’s film industry tax incentive cost was second only to another state: Georgia. A recent audit of Georgia’s film industry incentives found waste and mismanagement within the program. Georgia lawmakers considered capping credit, but the proposal failed.
Connecticut state auditors have also raised concerns about that state’s film tax credit programs. Last year, auditors reported that Connecticut overpaid an animation companyBlue Sky Studios, by nearly $50 million in fiscal years 2016 to 2019. Disney acquired Blue Sky Studios for $70 million in 2019 and shuttered the company last year – announcing the closure just two weeks after having received a $32 million tax credit payment from the state.
The DECD commissioned a study on the Film and Digital Production Tax Credit and its economic impact, reporting its findings earlier this year. Since 2012, the state’s three film industry incentive programs have resulted in job growth, personal income growth and increased economic output for the state, according to the study.
But the longer these productions stay and grow, the more they cost the state. According to the study, the annual number of projects applying for Connecticut’s tax credit program has hovered between 25 and 41 since 2012. But the average spend per project has risen from $8.7 million in 2012 to $12 million. in 2020.
Lehman said Thursday that’s why he’s encouraging lawmakers to review the terms of the incentive.
Gary LeBeau, a former state senator and an early sponsor of the General Assembly movie tax credit program, said in an email Thursday that he would welcome a review of the program by the three committees.
“And that should go beyond the dollars spent and received on some of the intangible assets that make the state a hub of learning and creativity,” he wrote.
LeBeau said the legislation was not designed to induce “flying night” production, and he encouraged lawmakers to consult with the National Council of State Legislatures “to get a clearer picture of how the program of the Connecticut compares to other states.”