KY officials ‘stacked the deck’ to get glowing report on film tax credits
To promote the revival of controversial refundable tax credits for film and television production in Kentucky, which the General Assembly voted this month to restore at a cost of $75 million a year, state tourism officials last year paid $34,865 for a study intended to determine the credits’ economic impact.
But the Kentucky Tourism, Arts & Heritage Cabinet carefully controlled who was interviewed for its study, limiting it to film industry insiders, most of whom financially had benefited from film tax credits and were vocal proponents, according to internal documents obtained by the Herald-Leader under the Open Records Act.
Worried about their study’s fairness and balance, a couple of state tourism officials suggested including one of the opponents of film tax credits: Andrew McNeill, the state’s deputy budget director under Republican Gov. Matt Bevin when Kentucky scaled back the credits in 2018, and who later went to work for conservative think tanks.
“The thought was that if the eight interviews were only with organizations that benefit from the incentive that it could be perceived that we stacked the deck for a specific result,” Christopher Reece, executive director of the cabinet’s finance office, explained to his colleagues in an email on Jan. 30, 2020.
“Our interest was to assure both pro and con voices were considered in the report to get the best impartial results,” Reece wrote.
The company hired to conduct the study, Camoin Associates of Saratoga Springs, N.Y., did not object to including someone who disagreed about the economic value of film tax credits, Reece added.
“We discussed the addition with Camoin,” Reece wrote. “They express no opinion to the necessity of an alternate point of view.”
However, Reece was overruled by his superiors.
“Does Mr. McNeill or his group have any activity with film production at all? Unless they do, I see no relevance as to why he would be included,” state Tourism Commissioner Mike Mangeot told Reece by email.
With that, McNeill was dropped from the list of people to interview.
No other critic of film tax credits was proposed to replace him, although there were a number to choose from. At the other end of the political spectrum, the liberal-leaning Kentucky Center for Economic Policy has called the credits “an ineffective and extraordinarily expensive giveaway” that drains money from vital public services.
Money from movies
Days later, analysts for Camoin Associates reported to state tourism officials “some good conversations with most of the interview candidates that you provided,” according to emails.
The emails identified people who were interviewed, all from the state’s film industry, including Frankfort lobbyist Stephanie Stumbo, who represents the Southern Kentucky Film Commission; Louisville film producer Stu Pollard; producer Merry-Kay Poe, president of Unbridled Films and chairwoman of the Kentucky Film Commission; and top executives at Wrigley Media Group, a Lexington production company that uses the film tax credits to help pay for projects such as Relative Justice, a reality TV show about family law disputes.
(Speaking of Wrigley Media Group: Jay Hall oversaw the assigning of the film tax credit study in January 2020 as the state’s acting tourism commissioner and former film office director. Hall then left state government and took a job at Wrigley Media Group as senior vice president for business development.)
Although they are not identified by name in the study’s final report, the “interviewees” are referenced throughout its pages to explain why it’s important for Kentucky to restore its refundable film tax credits. The taxpayer subsidies encourage producers to film inside Kentucky, which is good business, the interviewees said in the report.
“As the number of productions set in Kentucky increased, so did the ancillary benefits across other industries. These impacts are varied, with interviewees commenting on the benefits extending to restaurants and hotels that support production crews during filming, hardware stores that sell supplies used to make sets, and antique stores and similar shops that sell goods that are used as props in productions,” one section of the report stated.
In 2018, after awarding about $25 million in refundable film tax credits over the previous three years, Kentucky had an all-time high of 954 film-related jobs, according to the study. Nearly 70 film and television projects were awarded tax credits during those three years.
Trying to determine the impact of those tax credits, the final report from the study estimated statewide earnings of $16.3 million and statewide sales of $47.1 million from film production from July 2015 to June 2018. Those were the prime years when the refundable tax credit was in place, as compared to the less generous versions of the tax incentives the state offered for film production before and after that period, the report said.
“For the purposes of this analysis, it is assumed that 100 percent of this spending and earnings are net new to the Kentucky economy and, without the credit programs, this spending would not occur,” the report stated.
However, the report acknowledged later in a footnote: “Some economic activity in the film industry would still occur in Kentucky without the film tax incentives.”
State tourism cabinet and film office officials did not respond to calls Friday seeking comment on the study.
‘It’s corporate welfare’
McNeill, speaking by phone on Friday, said he never was contacted by researchers working on the study. He didn’t even realize the study was being conducted.
“I had no idea,” said McNeill, who is now a visiting policy fellow at The Bluegrass Institute, focused on the state budget, taxation and revenue. “It completely undermines the credibility of this report that they did not include a single dissenting voice from anyone.”
Had researchers asked him, McNeill said, he would have explained that he was a leading voice within the Bevin Administration three years ago when it scaled back Kentucky’s film tax credits, because their economic benefits were modest compared to their fast-growing costs to state taxpayers, in the tens of millions of dollars.
More than a dozen states have ended or reduced their tax incentives for film production since 2009, including Kentucky.
“It’s corporate welfare, in our view,” McNeill said. “It’s favoring one particular industry that has well-connected lobbyists and some influential people at the top, and some politicians who like to mingle with them, whereas the average Kentuckian and small Kentucky business doesn’t get to benefit from this sort of tax scheme.”
In 2018, Kentucky made its film tax credits non-refundable, so in-state production companies could use them to offset their tax liabilities for spending, but they would have little attraction to out-of-state production companies, McNeill said.
“With refundable tax credits, this is simply a direct draw upon the state treasury,” McNeill said.
“What it turns into is a check from the Revenue Cabinet, a public subsidy for the filmmakers,” he said. “That is the competitive game that is played in the film industry. Refundable tax credits are the tool we’re all supposed to offer to compete with each other, to attract film producers away from places like Georgia and New Mexico.”
Under House Bill 249, the film tax credits become refundable again starting Jan. 1. Approved production companies will be able to collect incentives worth 30 percent to 35 percent of their qualifying spending and payroll costs.
Democratic Gov. Andy Beshear vetoed one section of the 138-page House bill on Friday having to do with the state road fund, but he left intact the part about film tax credits.
This story was originally published March 29, 2021 at 9:21 AM.
