It's the "ripple effect" theory, and it is supposed to justify giving movie makers $46 million, net over payroll and sales taxes, to encourage them to film here.
Under new Connecticut estimates, a film and digital production tax credit cost the state’s budget $393 million in direct revenue between 2006 and 2014 in the form of tax credits claimed by companies and direct spending by the state supporting their growth.
Despite the direct costs to the state’s budget of the film and digital tax credit program — more than $46 million a year on average since 2006 — DECD recommends keeping the program intact. It is not a recommendation it extends to the full menu of tax credits currently under its stewardship, however; the department says Connecticut should jettison a manufacturing facilities tax credit on grounds the incentive has generated too few jobs to justify the $23 million cost to the state budget over two decades through 2014.
With the state itemizing only the direct impact of business tax credits on the budget’s bottom line, and not the ripple effect of spending they create, the ultimate payoff for incentives makes for a hazier estimate.
In the case of the film and digital tax credit, Malloy’s administration believes the state is still coming out ahead. The tax credit has helped support $122 million in annual payroll maintained by tax credit recipients on average; and another $38 million in spending on varying products and services that generates sales taxes and supports jobs at those vendors.
At income tax rates between 5.5 percent and 6.5 percent that the majority of the industry’s workers pay in Connecticut, the state would recoup more than $7 million in income taxes annually along with roughly $2.5 million in sales taxes produced via direct purchases by tax credit recipients. That would cover only 23 cents of every dollar the state pays out in tax credits, however, producing an average annual deficit of $43.7 million.
More of that gap is made up in other ways, including additional spending by employees and vendors that ripples out through the economy. On those merits, DECD recommends keeping the film and digital tax credits in place on the backs of Blue Sky Studios alone, which has averaged $13.5 million in incentives annually since moving its digital animation studio to Greenwich in 2008 from White Plains, N.Y. Those tax credits have supported some 500 employees’ work on a movie pipeline that has produced two features each in the “Ice Age” and “Rio” series, and others like “The Peanuts Movie” and “Ferdinand” in late 2017.
Other entities maintain large numbers of Connecticut jobs in part or wholly due to the credits, including NBC and WWE in Stamford and ESPN in Bristol. The three film tax credit programs have produced ancillary investments in educational programs at colleges to train people to work in film, television and digital animation industries, DECD staff notes in the department’s annual report released in February.
Expanding vocational schools, say, or addressing our crumbling highways might produce more tangible results, but movie stars seem to send tingles down the legs of our politicians.