In approving its annual revenue bill last week, the state legislature restored Kentucky’s controversial film tax credit, once again making it refundable.
An amended House Bill 249 caps film incentives at $75 million annually and makes some changes to how the program will operate. These include tightening the timeline in which a project can apply for credits and complete production, as well as moving the approval process from the Tourism, Arts and Heritage Cabinet to the Economic Development Cabinet.
Geoffrey Storts, who calls Louisville home, said he cried in his car when he heard the news.
“I just burst out crying because it’s something that I’ve worked for for about three years now,” Storts said, adding that he’s often leaving Kentucky for work. “So I was the classic scene of a guy sitting in his car crying because he’s so happy.”
Storts works as a first assistant camera or focus puller, the film crew member who manipulates the camera while shooting to ensure the subject stays in focus. He’s formed an initiative called Below the Line, rallying the support of lawmakers on behalf of Kentucky filmmakers.
“It’s not about the glamour and glitz of Hollywood,” Storts said. “It’s actually about a labor force that is based in Kentucky, who… would have to go elsewhere and find these jobs.”
But critics say these tax credits only benefit big-shot Hollywood producers and that taxpayers aren’t getting a return on their investment.
Jason Bailey, executive director of the Kentucky Center for Economic Policy, called the film tax credits “highly ineffective and expensive” in a tweet last week.
He said making the credits refundable again is “diverting those dollars from schools, infrastructure, health and other services.”
The bill has been sent to Gov. Andy Beshear. When WFPL asked whether the governor supports the bill, a spokesperson pointed out he has “148 bills for consideration.”
“Some of those bills have substantial amendments and substitutes. Gov. Beshear and his team will review each bill… decide what is in the best interest of Kentuckians and act accordingly,” the statement said.
A Rocky Road For Kentucky’s Film Incentives
In 2009, Kentucky joined a growing list of states to establish a film tax incentive program. At the time, the commonwealth offered incentives of up to 20% of approved in-state spending, and the credits were refundable.
In 2015, the legislature increased incentives to a refundable income tax credit of 35% of Kentucky resident labor and 30% of out-of-state labor. In addition, there was no cap on credits, but a minimum amount had to be spent in-state based on the kind of project.
An economic and fiscal impact report released in March 2020 reports a significant rise in approved projects following the change, stating it “helped to solidify Kentucky’s position as a viable film destination and encourage the growing industry.”
But the bump in film production was not without controversy.
According to a 2017 Kentucky Center for Investigative Reporting story, the state’s Tourism, Arts, and Heritage Cabinet handled much of the approval process behind closed doors, and the Tourism Development Finance Authority never said no to a project applying for the tax credits.
There were also concerns about record keeping. Unclaimed incentives sat on the books as films fell through or went elsewhere, and Kentucky only required receipts from productions rather than audits or other more thorough verification methods.
In early 2018, then-Gov. Matt Bevin shut down the program to new applicants.
Elsewhere, between 2009 and 2018, more than a dozen states eliminated programs incentivizing film production, and several others drastically cut their programs, according to the National Conference of State Legislators.
During the 2018 legislative session, Kentucky’s film tax credits became nontransferable and nonrefundable, capped at $100 million annually. Many proponents of the incentives considered this a major blow to Kentucky’s film industry.
Nonrefundable tax credits can reduce the amount of taxes owed, whereas with refundable credits, filmmakers would actually receive money if the tax credit amount is bigger than their tax liability.
Some states, such as Georgia, offer transferable tax credits to spur in-state motion picture production. Projects that end up with tax credits greater than their liability can then sell those transferable credits.
The Latest Legislative Changes
Merry-Kay Poe said the latest changes proposed in HB 249 are “really smart legislation.”
Poe is president of Unbridled Films and chairs the Kentucky Film Commission, a citizen group the governor appointed to represent the commonwealth’s film industry. She believes requiring filmmakers to start production within six months of applying for the credits and to complete production within two years is a good idea.
“So what that’s going to do is make your applicants a lot more qualified,” Poe said. “They’re going to have to have their financing in place or at least a portion of it. They’re going to have to be serious about narrowing down their locations.”
That would help clean up the record-keeping, too, as some approved projects sat on the books for years only to end up filming elsewhere, she continued.
She also applauded lawmakers for returning the tax credits to refundable, saying it would make “Kentucky competitive with other states to get a lucrative and robust film industry going here.”
The Kentucky Center for Economic Policy worries that the move to make these tax credits refundable “will cause costs to balloon again.”
“A refundable credit is more like a grant than a credit, because if a person earning the credit doesn’t owe any taxes, the government cuts that person a check,” states a post on the center’s website. “This means that Kentucky tax dollars were used to pay out-of-state companies that came into Kentucky for a brief period of time to produce a film, and these companies were paid even though they did not create permanent jobs or make any long-term investments in the commonwealth.”
Poe pushed back on some of the criticism, saying it’s “pure ignorance of the industry.”
“You go from project to project,” Poe said. “It’s just the nature of this business… and they have to go to where the work is. What we’re trying to do is bring those people home, bring those jobs home, let those families move here, let the support businesses come back.”
Geoffrey Storts, who has worked in the industry for 11 years, added that good projects offer competitive wages.
“If we have an incentive, the jobs keep coming,” he said.
The Kentucky Center for Economic Policy also raised the issue of the American Rescue Plan’s prohibition on new tax cuts, a provision that says states would have to give back federal relief aid for tax cuts or breaks passed into law March 3, 2021 through Dec. 31, 2024.
But there appears to be a lack of clarity on that matter, as some argue the language is too vague, possibly even making the restriction unconstitutional. It will ultimately be up to the federal Department of the Treasury to interpret that part of the law.
Do Film Incentives Work? It’s Complicated
Film incentives can be a “mixed bag,” said Michael Seman, an assistant professor of arts management at Colorado State University.
“Whenever you’re addressing public funding for any industry, it comes with a certain set of dynamics,” he said. “Sometimes it works well. Sometimes it doesn’t work well.”
Seman, who teaches his students about film tax credits every year and has helped a few states devise film strategies, said incentives are effective in attracting projects.
“If you offer film incentives, you will have films coming through your region,” he said. “The question is how you capitalize on that efficiently to get the best return on the public’s money.”
To the argument that producers will come regardless of incentives, Seman said that’s rare. “They will actually alter the art to benefit from incentives.”
What it comes down to is that Kentucky has to decide if it wants a film industry, and then it has to put in place a long-term plan that makes sense for the state, Seman continued.
“It needs to have big productions come in, but it also needs to be able to develop the local talent.”
He points to New Mexico, which offers a 25% to 35% refundable tax credit. It was attractive enough for Netflix to set up a permanent shop in Albuquerque, and the streaming giant plans to expand its New Mexico base.
Geoffrey Storts said it’s going to take patience to build something in Kentucky, and it might take smaller projects to help the state get there. He’d like stronger requirements on using local labor to be eligible for the tax credits but thinks the recent changes are a step in the right direction.
It needs to be a “hand-in-hand relationship instead of a hand-out,” Storts said.