Film Industry Tax Credits are Growing Rapidly and Pose a Significant Threat to State Revenues
October 23, 2017
In a recent important article, the Lexington Herald-Leader examined the proliferation of Kentucky’s film industry tax credits. The state’s law allowing the credits was amended in 2015 to reduce the minimum investment required, and to provide enhanced credits for productions that meet those requirements. At that time, we wrote about the dangers of expanding the program as legislators proposed.
The Herald-Leader article noted the state has awarded $90 million in tax credits from the time the program launched through June 30, 2017. Of that total, just under $2 million happened before the expansion in 2015. Since June 30, the program has continued to mushroom with an additional 57 projects approved for credits of $57.7 million. At this rate of growth, it is not unreasonable to expect that cumulative approvals since the 2015 expansion went into effect could exceed $200 million by the end of the year.
Project approvals have grown rapidly since 2015:
- 2015 – 15 projects approved for a total of $4.3 million in credits.
- 2016 – 55 projects approved for a total of $48.7 million in credits.
- 2017 through October – 126 projects for a total of $90.6 million dollars.
- Total 2015 – October 2017 – 196 projects with $143.6 million in credits granted.
There is no cap on the credits that may be approved under this program, and the credits are refundable, which means the Commonwealth of Kentucky cuts a check to the recipient in the amount of the credit that surpasses the recipient’s state tax liability. If this program continues to grow unchecked at its current rate, approvals could well exceed $400 million by the end of 2018 with no hard evidence that the foregone tax dollars have created permanent jobs, permanent infrastructure, or provided a positive return on investment. In fact, the vast majority of research on film industry tax credit programs has found that states receive a very poor return on investment. Since the peak, when 44 states offered film industry tax credits, seven states have ended their programs and several others have scaled their programs back by establishing caps, reducing benefits or limiting the applicability of the program.
The rapid and unchecked growth of this program since 2015 further threatens the scarce resources available to address our structural deficit and unfunded pension liabilities and to invest in the things that make our communities places where we all want to live and work. It is one of the tax breaks Kentucky should end so we have more resources to fund our priorities.