Quiet on the Set?

Posted by Eldar Beiseitov, August 19, 2009

Shooting movies and television programs in New York City has always been expensive. At the end of June, it became even more expensive. That’s when the city’s program that provided tax credits for qualified film and television production ran out of money.

This, and uncertainty about the renewal of a similar New York State tax credit, which had also run out of money, may have been factors in the decision by Warner Brothers Television in February to move Fox’s hit series “Fringe” from New York to Vancouver for next season.  Currently, it is filmed in Long Island City. (Back in 2008, NBC’s “Ugly Betty” moved from California to New York, to take advantage of our tax credit.)

From 2005 until it ran out of money, the city offered a Film Production Tax Credit program, with eligible film and television productions receiving a fully refundable tax credit equal to 5 percent of qualified production expenses. While many states, including New York, provide similar incentives, New York City is the only U.S. municipality that has had such a program.

The city’s film credit program was funded at $12.5 million in 2005 and then $30 million annually through 2011, but funding could be shifted from future years if needed for eligible productions until the total allocation of $192.5 million was reached. Now, with three years to go, all the money has already been committed.

Certain categories of productions are not covered by the program, including documentaries, news or current affairs programs, interview or talk shows, instructional videos, sport shows or events, and daytime soap operas. Similarly, while qualified expenses include costs of technical and crew production and expenditures for facilities, props, makeup, and wardrobe, the program excludes costs of stories and scripts, and wages for writers, directors, producers and performers.

The State of New York also offers production companies a similarly structured but much larger tax credit—30 percent—for filming in the state. When combined, the city and state refundable tax credits total 35 percent of eligible production costs for qualified feature films, television pilots, and television movies and miniseries.

Unlike many tax credits, which are available to all qualifying taxpayers regardless of the aggregate cost of the program, the city and state film credits are capped which means that once the authorized total spending for the program is reached, no new benefits are available, even for projects that would otherwise qualify. With both the state and the city tax credits maxed out, studio owners warned that New York had become a much less attractive place for film production. When the state adopted its budget for the 2009-2010 fiscal year, which began in April, the state credit was funded for an additional year.

Last May the Bloomberg Administration submitted to Albany a proposal to authorize additional funds for the city tax credit through 2011, at lower rates and with limits on how long television productions can receive the credit. Under the proposal, the program would receive $24 million annually through 2011 in additional city funding on top of the funds already committed.  Projects that do 75 percent of their work in the city would receive a 4 percent tax credit, down from 5 percent.

Television shows would get the full 4 percent for three years, but the credit would drop to 3 percent in the fourth year and to 2 percent the following year. Also, the proposed legislation would set a $250,000 cap for each qualified production.

Whether tax credits are effective is the subject of some debate. A study by the Federal Reserve Bank of Boston of a similar program in Connecticut evaluated the tax credits’ costs and benefits in 2009, and concluded that the credit does not pay for itself, meaning that new tax revenues generated by the production did not offset the cost of the credit.

On the other hand, a 2009 study by Ernst & Young, prepared at the request of the New York State Governor’s Office of Motion Picture and Television Development and the Motion Picture Association of America, concluded that the state’s tax credit did pay for itself, while another Ernst &Young study prepared for New Mexico reached the same conclusion. A recent publication by the Boston Fed explores why the findings of these studies diverge so widely.

Trackback/Pingback (1)

  1. [...] New York and the Film Tax Credit (IBO Web Log) [...]