The New York State Fiscal Year 2024 Executive Budget proposes to extend and expand the Empire State Film Tax Credit. The State asserts that the proposed changes, designed to compete with other States’ credits, are needed to retain and attract productions to the State and City.

The proposal would increase the annual credit cap from $420 million to $700 million starting in 2024, extend the program’s duration from 2029 to 2034, and increase the value of the credit for beneficiaries; the total maximum cost would increase 55 percent, from $9.4 billion to $14.6 billion.¹

Given the current program’s generosity, in the absence of both a rigorous evaluation showing the current credit has produced commensurate economic benefits and analysis demonstrating that the proposed expansion would be economically beneficial, the expansion should be rejected. Furthermore, until such analysis justifies some form of incentive, the State should be shrinking the program.²

The industry has historically located itself in New York to leverage the local pool of specialized labor, facilities, and secondary support industries.³ Despite providing $6.5 billion in credits since the start of the program, the State has not performed a rigorous analysis to show that the program is necessary to attract productions to the State, or whether the foregone tax revenue from the credit exceeds the incremental economic activity of any additional productions attracted.

Furthermore, the credit is already generous and is relatively comparable to other states. New York’s current base rate of 25 percent is higher than California (20 percent) and Georgia (20 percent), but lower than Connecticut (30 percent) and New Jersey (30 percent).⁴ Increasing the value of the credit for productions is an effort to match or leapfrog other states’ programs. Not only is there no rigorous evidence this is beneficial, but participating potentially needlessly in a back and forth leapfrogging of ever more generous incentives only accelerates a race to the bottom, diminishing revenues instead of competing on New York’s comparative advantage.

The State is now evaluating the efficacy of its economic development incentives. If this evaluation is appropriately rigorous and demonstrates a benefit to preserving some modified version of the current program, it should inform the design of any policy that preserves a film tax credit.⁵ To demonstrate such a need, the evaluation should determine what economic activity was induced by the incentive, estimate the benefit of that additional economic activity, and compare it to the cost of the program and the impact of using those resources in another manner—the opportunity cost. Furthermore, it should focus on long-run effects, and analytically control for short-term industry fluctuations, especially the impacts of the COVID-19 pandemic.

Roll (Refundable) Credits: How the Film Tax Credit Works

The film tax credit program provides a refundable credit against New York State taxes equal to 25 percent of eligible production costs, such as most of the crew salaries and equipment rental costs, with thresholds for production budgets for both shoots in New York City and outside of the five boroughs.⁶ The program also provides a relocation credit for large variety shows and a post-production credit for productions shot outside of New York.⁷ The current program caps annual credits at $420 million, with a maximum of $25 million of that pool going to post-production beneficiaries.

Credits earned in any year that are in excess of the $420 million annual total cap are granted against future year allocations.⁸ For example, if the 2023 allocation has been fully awarded, the State would issue a credit against the 2024 allocation. As a result, the actual tax expenditure in a given year can exceed $420 million, as taxpayers claim credits granted in prior years. In tax year 2018, the most recent year for which actual costs are available, the film production credit cost $509.5 million and the post-production credit cost $14.8 million.⁹

Raise the Curtain: Proposal to Extend and Expand the Empire State Film Production Tax Credit

The Executive Budget proposes to increase the annual cap, extend the program, and make the incentive more valuable to individual productions. This would increase the lifetime maximum cost of the program 55 percent, from $9.4 billion under current law to $14.6 billion. (See Table 1.)

The proposal is comprised of two major components. The first component aims to increase the program overall, by boosting the maximum annual total credit cap from $420 million to $700 million beginning in calendar year 2024 while extending the program to 2034, five years beyond its scheduled sunset in 2029.

The second component looks to make the credit broader by increasing the share of a production’s costs that are creditable and expanding eligible expenses, increasing the value of the credit for eligible productions from current levels. The share of costs eligible for a credit would increase from 25 percent to 30 percent for most productions, reversing the decrease from 30 percent of costs enacted in fiscal year 2021.¹⁰ Creditable expenses would also be expanded to include the salaries of “above the line” employees, a film industry term for the high-dollar creative leaders on a film project.¹¹ There is no estimate available as to how much the average credit would increase under the proposal, and no evidence provided that this increase would yield economic value for New York.

This broadening also includes changes that would expand the relocation portion of the program aimed at luring existing productions to the state. Eligibility is currently very limited. The proposal modestly expands the eligibility, focusing on a small portion of television production.¹² These very specific requirements and eligibility rules suggest the State’s proposal may be targeting specific productions, as has been the case previously.¹³

Lastly, the Executive Budget proposes increasing the post-production portion of the program from $25 million to $45 million, while also increasing the value of the credit from 30 percent of eligible costs to 35 percent.

Prime Time Competition: State's Credits

Other states’ incentives were cited by the Governor and were a frequent point of discussion by both lawmakers and agency heads at the Joint Budget Hearing on Economic Development on February 9.¹⁴ New York’s proposed expansion is intended to match or surpass the film tax credits in other states, including California, New Jersey, and Georgia. The proposed increase to 30 percent of eligible costs exceeds California and matches typical rates seen in New Jersey and Georgia.¹⁵ Changes to the relocation credit would provide a credit at a higher rate of 30 percent for two years, surpassing California’s relocation program, which offers a 25 percent credit for one year.¹⁶ This competition with other states to attract productions by further subsidizing their costs leads, at some point, to self-defeating competition that drains tax revenues and does not help New York compete on its merits.

Cut! The Proposed Expansion and Extension Should be Rejected

CBC previously recommended New York phase out this credit, pointing out the State has failed to demonstrate that the credit is necessary to attract productions or create jobs that otherwise would not exist in New York. Biennial evaluations performed by consultants for Empire State Development since 2013 are based on a flawed methodology, which assumes that all productions receiving the credit would not take place in New York absent the credit.²⁰ Some of the productions that receive the credit would have filmed in New York even absent the program. A rigorous evaluation would: determine what economic activity was induced by the incentive, meaning would not have occurred absent the tax credit; estimate the benefit of that additional economic activity; and compare it the cost of the program and the impact of using those resources in another manner—the opportunity cost.

State Law directs the Department of Taxation and Finance to engage a private company to complete a comprehensive assessment of all economic development incentives, including the film tax credit, with a final report due in January 2024.²¹ Given that the current credit does not expire until 2029, there is ample time to conduct and use that analysis to inform any proposed continuation of the program.

The End: Conclusion

The Empire State Film Tax Credit should not be extended and expanded; absent a rigorous evaluation that demonstrates its need and cost-effectiveness, it should be phased out. New York continues to be a leader among states in economic development incentive program spending, but not in long-term job creation. Tax incentives should only be provided if justified by rigorous analysis. The forthcoming evaluation of State tax incentive programs, which by statute must consider their efficacy, should inform the existence and design of the film tax credit programs instead of actions by other state’s legislatures.