Investigations Politics

Once a month or so, a group of governor-appointees talk moviemaking in a series of secret sessions in Frankfort. Upon wrapping their closed-door session, they commit Kentucky taxpayers to subsidizing millions for filmmakers who agree to come to the commonwealth.

In October alone, the Tourism Development Finance Authority approved $16.9 million in incentive requests — and they’ve pushed through more than $50 million since August.

It’s among the state’s largest taxpayer-funded incentive programs, and the Kentucky Tourism, Arts, and Heritage Cabinet convenes this process largely in secret.

The only details the cabinet routinely shares are the names of the limited liability corporations getting taxpayer money. And it remains unclear how the incentive program impacts the tax base, since out-of-state companies can get rebates even if they don’t pay Kentucky taxes.

This summer, after the Kentucky Center for Investigative Reporting requested records and shortly before the Lexington Herald-Leader published a story critical of the program, the film office stopped sharing each film’s plot synopsis with the Legislative Research Commission.

“I think it’s trying to hide stuff from us as much as anything,” said Paul Hornback, a Republican legislator from Shelbyville.

Some of the movies in the program have brought star power to the state. Restaurants and coffee shops now boast of visits from Nicolas Cage, Game of Thrones’ Emilia Clarke and Jesse Eisenberg. But millions have also gone to projects with much smaller audiences, like “Tragedy Girls,” a horror comedy released last month. The production got nearly $1 million in tax incentives and garnered positive critical reviews, but with a limited release in theaters it grossed only $58,000 in domestic box office returns in its first month.

Screenshot from the “Tragedy Girls” trailer.

State legislators first passed a film tax incentive program in 2009, subsidizing 20 percent of all costs incurred in-state by filmmakers. This offer was similar to the rates in other states.

Initially, incentives were approved at a rate of about one a month, with totals like $20,000 or $100,000, Hornback said.

“And it pretty much stayed like that until the last year and a half,” Hornback said. “Now its millions of dollars a month.”

In 2015, the state legislature approved a dramatic increase: the state would cut a check for up to 35 percent of the cost of work completed in Kentucky. Films and television shows that spend at least $250,000 are eligible, as are those who spend $100,000 on commercials or $20,000 on documentaries. Kentucky-based firms can qualify with even lower budgets.

Hornback sits on the government contract review committee, which votes on the film incentives but holds no real power to deny them. Hornback said he used to vote against the big money projects, but the tourism cabinet always overruled him.

“To qualify, all you have to do is film a film in Kentucky. All the dollars paid out can go out of state and be claimed as income. There’s nothing that’s required of them.”

The Tourism Development Finance Authority has never rejected incentives for a project.

While Kentucky spends millions to try to develop a film industry here, the rest of the country has largely rolled their programs back. An analysis from the National Conference of State Legislatures last year found that while 36 states have some form of film tax incentive, the trend has turned toward reducing or eliminating the programs. Louisiana added a per-project cap of $30 million and an annual program cap of $180 million.

Only Kentucky and Georgia have no caps on the program, according to the report. And more than half of the states with incentives require an audit or other verification from production companies on how money was spent. Kentucky requires receipts, but no audits.

Kentucky has paid out only $11 million in film incentives so far, though millions more have been approved. Not all incentives are claimed; some movies won’t get made, or they will decide to shoot elsewhere. Nonetheless, the state is currently on the hook for up to $135 million more for projects that have been approved since 2015.

State Rep. Rick Rand, D-Bedford, sponsored the legislation. He didn’t return a call for comment, but he told the Herald-Leader last month that he was surprised by the rapid growth his bill created.

“We were told it would be $3 to $5 million a year, not $50 million a year. That is far and above what we anticipated,” Rand said.

The conversations about films at the Kentucky Tourism Development Finance Authority used to take place in open meetings, but records show the group started going into secret sessions with filmmakers last November. The tourism cabinet provided hundreds of pages of the production’s applications to KyCIR, but many of the details, including the shooting locations and staffing budgets, were withheld.

Gov. Matt Bevin’s spokeswoman didn’t respond to an email requesting comment about the program. No one from the cabinet would answer questions about the program.

Jay Hall, executive director of the Kentucky Film Office, initially said he needed approval to comment from his agency’s public relations staff, but didn’t respond to subsequent emails. Garry Gupton, spokesman for the Tourism, Arts, and Heritage Cabinet, didn’t respond to requests for comment.

When a KyCIR reporter attended the development authority meeting in October, Gupton demanded the reporter’s name and motivation for attending the public meeting. Later, in a response to a KyCIR open records appeal, the cabinet’s general counsel said the reporter was “openly hostile” by recording the public meeting without asking first, declining to sign an attendance sheet and asking about the legal basis for the closed sessions.

Most of the well-known movies shot in Kentucky, like “Elizabethtown” or “Seabiscuit,” predate the program. In its list of 15 most famous films shot here, the only one that received tax incentives was Secretariat, which shot some of its scenes at Churchill Downs. The film office noted that the 2014 movie “Tammy” was partially set in Louisville, but most of the principal photography took place in North Carolina — “presumably because the state offered better tax credits at the time.”

The next year, North Carolina replaced their program with a less bountiful grant program, now capped at $30 million a year.

Many of the productions that have earned incentives are commercials or industry videos that relate to Kentucky, and likely would’ve been shot here anyway: $39,000 for a Tempur Pedic mattress commercial shot in a Sealy plant in Kentucky; $48,000 to American Made Heroes LLC to film a series of short spots on military service members being honored by Evan Williams Bourbon; $38,000 for Louisville Convention and Visitors Bureau brand videos; and $5,700 for a documentary about Louisville’s Beargrass Creek.

The state law just requires the companies to include a state logo and acknowledge the tax incentives in their credits on feature-length films.

Some in the local industry see benefits. David Cottingham, of Post Time Studios in Lexington, said his company has grown from 14 full-time staffers to 28 since the program expanded. The company has received $92,000 in incentives and been approved for more than $1.2 million more.

Simply put, the incentives allow companies he works with to spend more money, he said.

“The production company can’t be incentivized unless we’re spending our money, so we’re spending our clients’ money to get the incentive,” Cottingham said. “They actually reap the benefits… but we’re getting the projects and the work.”

Jason Bailey, executive director of the Kentucky Center for Economic Policy, said a $148 million program is a high cost for a few dozen permanent jobs and far more out-of-state labor.

“Films and film production is high-profile and maybe exciting. There’s a belief that if you somehow have more of those, the state will benefit,” said Bailey. “But there’s no evidence this happens in states that expand these tax credits.That’s why a lot of states are scaling them back or entirely eliminating them.”

Hornback intends to sponsor a bill in the next session to cap or completely eliminate the tax program.

“I don’t know if they’re legitimate or not legitimate (expenditures). I just know they’re requesting for the state to write them a check for reimbursement for part of their expenses, and i don’t see a return,” Hornback said. “Nobody has been able to show me the return.”

Kate Howard can be reached at khoward@kycir.org and (502) 814.6546.

Kate Howard is a veteran investigative reporter specializing in government accountability and higher education issues.