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Kentucky’s tax problem
Kentucky’s legislature needs billions of dollars to pay down the state’s unfunded pension liabilities. As it happens, Kentucky essentially gives away billions of dollars every year through what are called “tax expenditures.” Will Kentucky lawmakers close some of these loopholes?
Kentucky should eliminate a fast-growing program that has pledged more than $160 million to lure films and television shows because the program is running a deficit and cannot be defended alongside a $40 billion public pension shortfall, state officials told lawmakers on Wednesday.
“The problem is, we’re spending more than we’re receiving in tax revenue. That’s the bottom line to us,” Tourism Secretary Don Parkinson told a House budget subcommittee. “Right now, given the situation with the pensions, we just can’t justify it.”
Only if film incentives lured a major studio to Kentucky — a key objective of the program, which has proven unsuccessful so far — would there be any chance of the state treasury breaking even on what it is spending, Parkinson added.
“You have to have studios to get the payroll, to get the sales tax and everything, to make the numbers work,” he said. “Even at that, under the best case, it’s probably going to be marginal or it’s going to be break-even or maybe up or down maybe two or three million dollars. That’s once you get studios up and running. But right now, again, we’re operating with a deficit.”
In his budget proposal to the legislature, Gov. Matt Bevin called for ending state incentives for production of movies, television shows and commercials in Kentucky. Legislators will make a final decision about the program’s future in the two-year state budget they approve in April.
Bevin’s decision came after the Herald-Leader published a story last year that found the program was growing much faster than anticipated and no one had examined whether taxpayers were getting a fair return on their forfeited dollars.
As of last month, $162 million in incentive payments had been approved. Production companies have four years to finish their projects and claim the incentives.
Kentucky reimburses production companies for as much as 35 percent of the cost of filming. The incentives began in 2009, although the legislature made their terms much more generous in 2015 at the request of then-first lady Jane Beshear so more producers would apply.
Most completed productions so far have been low-budget projects, including reality television shows, movies that debuted at minor film festivals and commercials for Kentucky companies, including Valvoline, Heaven Hill Distillery and Appalachian Wireless.
As of Feb. 1, the state’s film office stopped accepting new applications for tax incentives, but any incentives already approved will be honored, said Jay Hall, who runs the film office. Not all of those projects will be completed, but many will, Hall said.
“We’re gonna be in the film business for quite some time just living up to the contracts we’ve already signed,” Parkinson told lawmakers Wednesday.
Several lawmakers on the House panel said they would regret the elimination of film incentives. Although they understand the stress on the state treasury, they said, their districts are enjoying local economic activity from film-making, such as temporary hiring for work crews and money flowing into hotels, restaurants and hardware stores.
“I’m afraid all of those (production) companies, they’re not going to come if we don’t have that incentive,” said state Rep. Bart Rowland, R-Tompkinsville.