Department of Economic and Community Development Commissioner David Lehman called on state lawmakers Thursday to consider capping or reducing Connecticut’s tax incentives for film, television and digital media production — programs that have drawn criticism for years from advocates 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 pros and cons of several of the state’s business incentive programs. But he called specific attention to the film and digital media tax credits, saying they were among the incentives he believes are ripe for overhaul.
“If there was a dialing back of certain programs that we oversee, that would be the one I would suggest that there’s a discussion around,” Lehman said.
Lawmakers on the Appropriations, Commerce and Finance, Revenue & Bonding committees did not indicate where they stand on Lehman’s suggestion, but acknowledged the advice.
“There’s been a lot of conversation around the movie and entertainment industry,” said Rep. Dorinda Borer, D-West Haven, during the Thursday hearing. “We don’t necessarily want to go backwards, but to your point we should always evaluate a program to see that it’s working.”
Established in 2006, the industry incentive programs have gone a long way toward establishing a thriving production ecosystem in Connecticut that employs thousands of people, Lehman said, but that’s come 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 qualified production expenses or costs incurred in the state. There’s no cap on the amount they can claim per year.
In its 2019 annual report, DECD found that over the preceding decade, the average economic impact of the program had amounted to a loss of $58,510,604 in net revenue per year — well over half a billion dollars in all.
“When you think about the cost of taxpayers versus the benefit of taxpayers, I think there is an open question,” he said. “Does the cost exceed the benefit here? I think that’s something that General Assembly should explore.”
He recommended either capping the credit at a certain dollar amount, or reducing the percentage. Public policy researchers with Connecticut Voices for Children have called for similar reforms to the program as far back as 2009.
Many states and countries offer similar incentives to film and media companies. That can create a competitive “race to the bottom,” analysts say, and taxpayers in many regions have pushed back.
Lehman noted that on a per-capita basis, the cost of Connecticut’s film industry tax incentives was second only to one other state: Georgia. A recent audit of Georgia’s film industry incentives revealed waste and poor management within the program. Georgia legislators considered capping the credit, but the proposal failed.
State auditors in Connecticut have also raised concerns about this state’s film tax credit programs. Last year, auditors reported that Connecticut overpaid one animation company, Blue Sky Studios, by almost $50 million during the fiscal years 2016 through 2019. Disney acquired Blue Sky Studios for $70 million in 2019 and shuttered the company last year — announcing the closure just two weeks after receiving a $32 million tax credit payment from the state.
DECD commissioned a study of the Film and Digital Media Production Tax Credit and its economic impact, reporting its findings earlier this year. Since 2012, the state’s three film sector incentive programs have led to job growth, personal income growth and a rise in the state’s economic output, the study found.
But the longer these productions stick around — and grow — the more they cost the state to support. According to the study, the annual number of projects applying for Connecticut’s marquee tax credit program has hovered between 25 and 41 since 2012. But the average expenditure per project has jumped from $8.7 million in 2012 to $12 million in 2020.
Lehman said Thursday that’s why he’s encouraging lawmakers to revisit the terms of the incentive.
Gary LeBeau, a former state senator and one of the film tax credit program’s early sponsors in the General Assembly, said in an email Thursday that he would welcome a review of the program by the three committees.
“And it should look beyond the dollars expended and received to some of the intangibles that make the State a hub for learning and creativity,” he wrote.
LeBeau said the legislation was designed not to incent “fly by night” production, and he encouraged lawmakers to consult the National Council of State Legislatures “to get a clearer picture of how CT’s program compares to other states.”