Tax Credits

Massachusetts’ many tax credits and attempts at bringing them to light.

Film tax credit sunset looms

Film tax credit sunset looms

Rodrigues: ‘I still have concerns about the cost’

THE CHAIR OF THE SENATE WAYS AND MEANS Committee sounds as if he is in no hurry to eliminate the sunset provision contained in the state’s film tax credit law.

The tax credit, launched in 2006 and scheduled to sunset on December 31, 2022, has been the focus of a number of attempts to eliminate it or pare it back. All of those efforts failed because they required passing new legislation that was blocked in the House, where support for the film tax credit is strong. But now proponents of the tax credit need to pass legislation to eliminate the sunset provision, and Rodrigues, who has favored paring back the film tax credit in the past, indicated in an interview that his feelings about the credit have not changed.

“I still have concerns about the cost of the film tax credit,” he said. “I still have concerns on whether or not the Commonwealth is getting adequate return on its investments in the film industry.”

The film tax credit offers anyone shooting films, TV shows, or commercials in Massachusetts a credit equal to 25 percent of whatever they spend. The credits can be converted into cash by either selling them back to the state at 90 percent of their face value or by selling them to a corporation or individual with a large tax liability in Massachusetts.

Even though the film tax credit is not scheduled to sunset until the end of 2022, backers say the uncertainty about the credit’s future could lead to diminished investments by movie makers in Massachusetts over the next few years.

David Hartman, director of the Massachusetts Production Coalition, issued a statement saying the film tax credit has created thousands of jobs and supported businesses in 265 Massachusetts municipalities.

“Massachusetts workers and businesses in the state’s film production industry are grateful to the Legislature for their years of support that have helped make Massachusetts a leading filmmaking destination,” he said. “As the looming end date of the production incentive program puts these jobs, and the families that depend on them, at risk, we look forward to working with legislative leaders to protect – and expand – the good-paying jobs and business opportunities that the film industry creates in Massachusetts. With the exponential growth in streaming content produced by Netflix, Disney+, Hulu, Apple TV+, and others, Massachusetts has a critical opportunity to continue to attract multi-year episodic series that will create even more jobs and business opportunities in the future.”

Rodrigues said he continues to have concerns about the cost of the tax credit, but he stressed that the Senate as a whole has not discussed the issue in a long time and no decision has been reached about what to do. He noted the film tax credit is very popular with many members of the House and Senate.

“Remember, a tax credit is like a grant,” Rodrigues said. “The data seem to prove that it’s very expensive, that it does not create many full-time equivalent jobs. There’s a burst of activity during a particular filming and then activity ceases when the film goes away. The credits tend to benefit out-of-state residents.”

Netflix, Showtime to film series in Mass.

Netflix, Showtime to film series in Mass.

New productions come on heels of Castle Rock

A PANEL DISCUSSION exploring the benefits of the state’s film tax credit turned into a press conference of sorts on Tuesday when a couple of the panelists disclosed new series coming to shoot in Massachusetts.

Gary Crossen, the general manager of New England Studios in Devens, said Netflix will be filming a series at his facility starting in July and running through January. He said he was not at liberty to disclose the working title of the series or other details yet.

Dawn Richard, a set dresser from Fitchburg, disclosed that she is about to begin work on the second season of SMILF, a Showtime comedy series developed by Frankie Shaw about a mother from South Boston. Richard said the pilot was filmed primarily in Boston and the first season was shot primarily in Los Angeles, but the show is now going to film in Boston.

Boston City Councilor Ed Flynn criticized SMILF in February, calling for posters promoting the show to be taken down. Flynn called the show a “degrading crude, and inaccurate portrayal” of life in South Boston. “I’m tired of Hollywood making a profit off of these abysmal shows that in no way capture the real lives, character, and contributions of the people of South Boston,” he said at the time. He could not be reached for comment Tuesday.

Series are a huge deal for the state’s film industry because they typically employ a lot of people, spend a lot of money, and stay for an extended period of time. Hulu, for example, shot the 10-episode series Castle Rock in Massachusetts between August 2017 and January 2018. New England Studios was the primary base for filming but scenes were also shot in 16 other Massachusetts communities, including Orange, which served as the fictional Maine town of Castle Rock. Castle Rock, which is based on Stephen King stories, is expected to air this summer.

Alex Berard, an assistant location manager who worked on Castle Rock and was one of the panelists at the State House event on Tuesday, said the series would spend about 12 to 14 days shooting each episode, with three to four days spent in Orange.

The state’s film tax credit was approved in 2006 and took its current form in 2007. The credit allows producers of films, TV shows, and commercials to recoup 25 percent of whatever they spend in Massachusetts in the form of cash.

The Department of Revenue, which has analyzed film spending in Massachusetts, has published a number of studies indicating the state gets little economic bang for the bucks taxpayers spend on the tax credit. But Sen. Sal DiDomenico of Everett, who hosted the panel discussion, said he is convinced the film tax credit brings in more revenue to the state than goes out. He said the problem is that it’s difficult to track all the expenditures.

Hollywood haves and have-nots

Hollywood haves and have-nots

Film tax credit economic benefits flow primarily to Greater Boston

 NEW BEDFORD MAYOR JON MITCHELL thinks his city, with its gritty harbor, its cobblestoned streets, its mill buildings, and its sweeping ocean views, has Hollywood appeal.

Hollywood also appeals to him, not because he has any red carpet aspirations himself, but because of what he thinks a movie or a TV series could do for the city. He talked it over with Martin Chávez and Richard Berry, both of whom served as mayor of Albuquerque during the production of the hit series Breaking Bad. They told him the 62-episode series injected an average of $1 million per episode into the local economy. And even though the plot of the TV series revolved around methamphetamine dealing, Mitchell says the two mayors felt the exposure was positive.

“It made Albuquerque seem a little more edgy, a little more offbeat and novel, and people digged that. It actually induced more tourism,” Mitchell says. “I think there’s a lot to be said for that. By and large, movies and TV shows elevate a city’s profile, and we would welcome that.”

Yet over the last decade, only five productions have filmed in New Bedford. A recently released documentary on former New England Patriots tight end Aaron Hernandez conducted some interviews there in 2017. In 2014, a film called Good Kids spent about $20,000 shooting scenes in town. In 2010 and 2011, a pair of lower-budget indy films called Whaling City and Fairhaven shot in New Bedford. The only big budget movie to film there was Knight and Day, starring Tom Cruise and Cameron Diaz, in 2009. But Mitchell says the movie was only in town long enough to film a car chase on Route 18.

“The reality is there’s been very little interest,” Mitchell says.

New Bedford isn’t alone. CommonWealth analyzed data gathered by the Massachusetts Film Office and found that the economic impact of movie and TV productions, lured to the Bay State by the state’s generous film tax credit, is not distributed evenly across the state. Nearly three-quarters of the state’s film shoots over the last decade took place in Greater Boston, with 13 percent in Boston alone.  Forty-three percent of the state’s municipalities scored no film shoots at all over the last 11 years, and nearly three-quarters of cities and towns scored two or fewer.

New Bedford Mayor Jon Mitchell

Mitchell thinks union work rules that increase costs for productions shooting more than 30 miles from Boston are discouraging Hollywood from exploring the rest of the state. New York faced a similar problem, with most movies filming in New York City, so in 2013 its legislature sweetened the film tax credit to incentivize productions to give upstate New York a try. Mitchell says New Bedford might have landed a major movie if Massachusetts had a similar incentive, but instead the production went elsewhere to film because of the higher cost. He declined to identify the production.

The International Association of Theatrical Stage Employees, whose members earn more if a film is shot more than 30 miles from the film’s base, which is typically Boston, declined comment. So did the Massachusetts Film Office. The Teamsters, a union heavily involved with movie productions, did not respond to a request for comment.

Susan Nelson, executive director of the SAG-AFTRA New England local, which represents on-screen actors, said her members don’t receive more money if the production films more than 30 miles from Boston. She said she doubted union costs would be a key factor for most productions when deciding where to film. She said most first look for the best location from an artistic and convenience standpoint—and then weigh any financial considerations.

Nelson said she thinks most films are shot in and around Boston because the infrastructure is there. “Everything they need is in the Boston area, everything from props to talent to crew people. Even the hotels where the big-name actors like to stay are in Boston,” she says.

Whatever the cause, the real problem is that the entire state of Massachusetts is giving a tax break to movies and TV shows that film in the Bay State, but most of that filming—and the economic benefits that go with it—is taking place in Greater Boston. Mitchell says the geographical disparity illuminates a flaw in the way the tax credit is designed.

“It isn’t working if the costs are borne by people in every corner of the state but the benefits accrue primarily to Greater Boston,” the mayor says. “It’s hard to justify this program if the benefits are concentrated so disproportionately in Boston, which frankly doesn’t need much in the way of subsidy to drive economic development for any purpose.”

43% of towns saw no Hollywood action

The state’s film tax credit has received lots of scrutiny over the years, but no one has ever taken a close look at how the economic benefits are distributed across the state. The Massachusetts Film Office gathers data on where scenes for movies and TV series are shot, but has done nothing with the information other than post it on the agency’s website.

CommonWealth analyzed the data for the period from 2007, when the film tax credit took its current form, through 2017. The data indicate 186 productions filmed at 992 locations across the state. Seventy-three percent of the locations were within I-495, or roughly a 30-mile radius of Boston. Boston itself had the most location shoots, at 13 percent. There was a big fall-off after Boston, with Chelsea coming in at 2.5 percent and Lynn at 2.4 percent. Rounding out the top 11 were Worcester, Cambridge, Quincy, Gloucester, Danvers, Newton, Everett, and Ipswich. The top 11 combined for 31 percent of all location shoots.

Of the state’s 351 cities and towns, 153, or 43 percent, played host to no film shoots over the 11-year period. Most of the communities that failed to attract any film shoots are small, but the group included such small-to-medium-size municipalities as Agawam, Chicopee, Holyoke, Methuen, and West Springfield. Some communities within 30 miles of Boston are also on the zero location shoots list, including Bellingham, Boxborough, Holbrook, Holliston, Stoneham, and Winthrop.

Fifty-four communities saw one film shoot come to town over the 11-year period, including Gardner, Pittsfield, Sandwich, and Wakefield. Another 47 communities, including Amherst, Arlington, Fall River, Fitchburg, Leominster, Springfield, and Taunton, played host to two film shoots.

Only 23 communities hosted 11 or more film shoots, meaning they averaged at least one a year over the 11-year period.

Worcester is one of four communities that averaged two or more location shoots per year over the 11-year period, making it one of relatively few municipalities beyond I-495 that has managed to capture significant film business. Film industry officials say Worcester has great locations and the cost of shooting there is far less than it is in Boston, which may offset any higher labor costs associated with mounting a production more than 30 miles from the city.

Erin Williams, the city’s cultural development officer, says Worcester has had success landing films such as American Hustle and The Surrogates because of its diverse stock of locations and the willingness of municipal officials to supply permits and location assistance quickly. “We will drop whatever we’re doing to make sure the needs of the producers or the location scouts are met,” she says.

The geographical disparity in filming in Massachusetts adds a new element to the debate over the film tax credit, which has been controversial from the start because of its size, its extraordinary flexibility, and its economic impact. Most tax credits reduce how much the recipient has to pay in taxes. The film tax credit works the same way, but comes with a significant, added benefit. If a production company doesn’t have a tax liability in Massachusetts—and most don’t—the film tax credit can be sold to someone who does, or it can be sold back to the state. In other words, a film tax credit can be converted into cash.

The film tax credit can attract significant movie investments, but the cost is high. The film tax credit is equal to 25 percent of whatever the production company spends in Massachusetts. When Joy, which starred Jennifer Lawrence, filmed in Massachusetts in 2015, it was awarded a tax credit of $14.8 million, which means its total budget was probably about $59 million.

Unfortunately, Massachusetts workers and businesses don’t capture all the expenditures of a production. The state Department of Revenue says a lot of the movie investment money eventually flows out of Massachusetts to imported actors and out-of-state businesses. According to the Department of Revenue’s latest report covering 2014, there was $254 million in spending eligible for the film tax credit. Of that total, 45 percent went to Massachusetts residents or businesses and 55 percent to non-residents or out-of-state businesses.

The amount of movie expenditures has increased fairly dramatically since 2014, when the state issued $64.5 million in tax credits. In fiscal 2017, which ended on June 30, 2017, the state issued $90.9 million worth of tax credits, according to the state’s Comprehensive Annual Financial Report. That’s the most since 2008, when the state issued a record $120 million in film tax credits.

Like many analysts who follow public financial issues, Noah Berger, the president of the Massachusetts Budget and Policy Center, is not a fan of the film tax credit. He noted a production that pays a Hollywood actor $10 million on a film shoot in Massachusetts will receive a tax credit worth $2.5 million, but Massachusetts would see almost no gain because nearly all of the money would accompany the actor when he or she returns home.

He also says the Massachusetts tax credit can’t be targeted to parts of the state that need economic help because productions receive the same size tax credit whether they film in Boston or Holyoke. “In general, it’s not an effective way to put money into the economy,” he says. 

New York’s approach

Ghostbusters, the remake with Melissa McCarthy, Kristen Wiig, Kate McKinnon, and Lesley Jones, shows just how much money a big-budget movie can drop during a film shoot. According to state records, the film received $26.7 million in film tax credits in 2016, meaning the total outlay in Massachusetts was probably about $107 million.

Some of that money was undoubtedly spent in the communities where the film was shot—Boston, Brookline, Easton, Everett, Norwood, Waltham, and Weymouth. That doesn’t mean, however, that some of the spending didn’t spill over to other communities. Using percentages from the 2014 analysis of the film tax credit by the Revenue Department, an estimated $27 million of the $107 million would probably have gone to wages for Massachusetts residents and $22 million to nonwage spending, including hotel rooms, food, set construction, car rentals, cameras, costumes, and on and on.

Municipalities like playing host to film shoots because they inject money into the local economy and come with few negative consequences. For the most part, productions dole out money shooting a scene and then move on. Typically, no permanent jobs are created, which is both a negative and a positive—a  negative because the economic impact dissipates unless another production comes along to employ the same crew; a positive because the collateral impacts associated with permanent workers (more children in schools, more city services needed) are avoided.

New York dealt with the geographical disparity associated with its film tax credit in 2013 by adding an extra 10 percent credit for productions that shoot in 41 upstate counties. In 2017, another 11 counties were added, making all of upstate New York eligible. The extra 10 percent was targeted specifically at qualified labor costs incurred by productions that shoot more than 30 miles from New York City.

Jason Conwall, a spokesman for New York’s economic development office, says the “bump” for upstate productions is having a positive impact. He says 45 percent of the productions coming into the state in 2017 applied to shoot outside New York City. Of those 103 productions, he says, 53 scheduled more than half of their shoot days (967 total) in upstate counties.

Oregon, Louisiana, and California are other states that offer some form of incentive to producers to spread their movie shoots around the state.

House Majority Leader Ron Mariano, a leading supporter of the film tax credit, says he would be reluctant to revisit the language of the Massachusetts film tax credit, partly for political reasons and partly because he is skeptical of Mitchell’s claims. “I think it’s been fairly spread out across the east coast,” he says, referring to location shoots. “Because they haven’t gotten to New Bedford specifically, there could be a lot of different reasons for that. It’s all based on location and the scenes that they want to recreate.”

Mariano, who represents Quincy and Weymouth, two communities that have benefited from the tax credit, says he is wary of tinkering with the tax credit. “We’ve been fighting to keep this and finally we’ve got it established as a tool to create jobs,” he says. “Now to sweeten it and go back to the original fight all over again to increase it, I don’t know if it’s worth it. I’m not ready for that fight all over again. I think the governor is starting to realize there’s some benefit to this.”

Sen. Michael Rodrigues of Westport, who has proposed legislation to pare back the film tax credit, says the issue of geographical disparity has come up in his discussions with lawmakers.

“Very few districts, very few regions see the benefit of these tax investments, absolutely,” he says. “So the industry is certainly centered in and around 495. There are a few communities [that have benefited] out in the Berkshires, a couple down on the Cape because they have some unique geography. But it’s primarily Greater Boston. That’s why, although I never espouse to eliminate the tax credit, I think it’s very expensive for the return we get on it.”

Rodrigues wasn’t familiar with New York’s law, but he said the Empire State’s approach is interesting.

“We could look at it. That’s a unique idea,” he says. “If that means we expand the tax credit, so we add to the cost, I can tell you there won’t be much appetite for that. Maybe we could carve some out of the existing tax credit to ensure geographic distribution. But it’s not even on the radar screen for this session because the House has made it very clear they don’t want to change it.”

CT Lottery taps MA film tax credit

CT Lottery taps MA film tax credit

Bonehead move, or smart money-saving strategy?

LEAF THROUGH THE LIST of recipients of Massachusetts film tax credits and one name comes up year after year: the Connecticut Lottery.

One might think the lottery, created by the state of Connecticut, would want to do business as much as possible with companies in Connecticut. In a way, that’s the whole point of the lottery, to recycle gambling losses through the local economy.

On the other hand, it makes sense for a state agency to seek out the biggest bang for the buck. By shooting commercials in Massachusetts, the Connecticut Lottery can take advantage of the Massachusetts film tax credit, an economic development tool that entices film, TV, and advertising companies to shoot their projects in the Bay State in return for a tax credit that can be converted into cash equal to nearly a quarter of the production’s cost.

It isn’t huge money in the case of the Connecticut Lottery. Massachusetts awarded $51,886 in tax credits to the lottery for the production of a commercial in 2016, and a total of $204,000 in tax credits over the last five years.

A spokesman for the Connecticut Lottery said the agency tries to film commercials as much as it can in Connecticut, but declined to provide any explanation for why some of the advertising is being produced in Massachusetts. He referred questions to the lottery’s ad agency, Fuseideas, which is headquartered in Winchester, Massachusetts, and recently opened a Hartford office. The lottery’s contact person at Fuseideas did not return phone calls.

The Fuseideas website features some ads they did for the Connecticut Lottery, including one called Win for Life, which is about a lottery winner who goes around quietly handing out big tips to waiters. “Imagine what you could do,” said the ad’s voiceover at the end.

The Fuseideas website portrays the company as forward thinking. “We never accept the usual way of doing things,” the website says. “Everyone that works here is 100 percent committed to breaking the mold, avoiding the ordinary, and reinventing the game. Because that’s what it takes to compete and win in today’s marketplace. That’s what it takes to CRUSH THE QUO.”

IRS, DOR undermining Earned Income Tax Credit

IRS, DOR undermining Earned Income Tax Credit

Automatic audits of some recipients are onerous

IN THE MIDST of new proposals for a major tax system overhaul, there’s one tax policy almost everyone agrees has been highly effective: the Earned Income Tax Credit. It delivers significant financial relief to working families while providing financial incentive to work. In 2015, the average credit was $3,186 for families with children.

How disappointing, then, to see important working-class tax policy undermined, despite the best of intentions, by federal and state tax collection bureaucracies. In an effort to cut back on fraud, the IRS has delayed returns and both the IRS and the state Department of Revenue are now routinely auditing Schedule C returns — filings from self-employed individuals who are seeking the tax credit.

For these taxpayers, taking advantage of the EITC has become onerous and usually economically prohibitive. It simply isn’t worth the time and expense to claim the credit, according to Massachusetts Society of CPA members who have been working pro bono with EITC clients. The self-employed who are eligible for the credit are simply out of luck unless they want to spend money they may not have to battle the likes of the IRS and the DOR.

I know of no other category of taxpayer that faces almost automatic audits, and it’s a sad irony that it’s among the poorest that are receiving the toughest scrutiny.

Call it a governmental overreaction to a growing problem: Tax collectors have legitimate concerns about fraud, which totaled an estimated $3.1 billion in 2014. But for fraud related to the EITC, the numbers can be deceiving. The error rate with the credit is high, yet most of the filing problems stem from EITC’s sheer complexity—in other words, it’s not only fraud, it’s also plenty of confusion. The Center on Budget and Policy Priorities says the instructions for the EITC are nearly twice as long as those for the Alternative Minimum Tax, a tax that was originally targeted to prevent the wealthy from skirting the system but is now hitting the middle class.

It’s time to correct this bizarrely unfair tax-enforcement situation:

  • Eliminate the fraud at the source. We’ve filed legislation proposing due diligence requirements similar to those imposed by the IRS. This would require an EITC taxpayer to either use a CPA or go through a Volunteer Income Tax Assistance program that offers free tax assistance. This will cut down on the “fly-by-night” tax preparers who are ruining the credit opportunities for honest taxpayers.
  • Simplify the filing process. Although some helpful reforms have been adopted, confusion still can reign. Particularly confusing is the act of claiming a child dependent, where the EITC rules differ from the child care credit. The worst solution would be to further complicate the process with additional filing requirements.
  • Share information with the states. The IRS should share its list of suspect preparers with the state authorities, a common-sense way to coordinate and focus tax enforcement rather than punish a whole class of taxpayers indiscriminately.

Let’s stop the audit overkill and find more strategic approaches to balancing a valuable tax credit program with the need to battle tax fraud.

Amy Pitter is president and CEO of the Massachusetts Society of Certified Public Accountants.

House nixes gas tax hike, film tax credit cut

House nixes gas tax hike, film tax credit cut

Rep calls film tax credit "a boondoggle'


THE MASSACHUSETTS HOUSE on Monday shot down proposals to increase the gas tax and put a cap on the state’s film tax credit program as they began to dispense with more than 1,300 amendments to the annual state budget bill.

The House swiftly took care of more than 30 revenue-related amendments to the $39.48 billion budget, rejecting four and voting to study two others. The rest were withdrawn by their sponsors after behind the scenes talks.

The gas tax and film tax credit amendments, both filed by Rep. Angelo Scaccia, were rejected on voice votes.

Calling it the “biggest boondoggle” he has seen in his long legislative career, Scaccia argued for Massachusetts to cap its film tax credit at $40 million. Gov. Charlie Baker has also targeted the credit, which supporters say has enabled the state to grow its film industry sector.

“We have to get rid of this boondoggle,” said Scaccia.

House leadership has traditionally provided strong support for the tax credit. House Majority Leader Ronald Mariano opposed Scaccia’s amendment, noting a Braintree company employs 14 accountants who work in the sector and “wouldn’t be here if we didn’t have a film tax credit.”

Rep. Ann-Margaret Ferrante described the credit as a benefit for parts of the state that miss out on programs geared toward urban areas or specific industries. She pointed to several movies filmed in her North Shore district, including The Proposal, The Perfect Storm and Joy.

“I don’t begrudge gateway cities and larger cities for the amount of money they get, I do not begrudge Boston from having a whole MBTA travel system,” Ferrante said. “However, it is upsetting to me when I hear folks from larger cities complain about a program that directly results in a benefit for my district and to other districts that simply do not qualify for the benefits that larger cities get. I also am concerned and upset when I see tax credits go mainly to the businesses of white collar workers, because once again those aren’t the tax credits that benefit my district.”

Scaccia had also sought to increase the state’s tax on gasoline from 24 cents per gallon to 27 cents per gallon, saying during debate on the amendment that he was “not here to raise taxes per se” but wanted to address the way the state pays for transportation. The gas tax increase could help the MBTA move away from using capital funds to pay for operating expenses, which “does not make financial sense” Scaccia said.

Rep. Geoff Diehl, a chief proponent of the 2014 ballot campaign that repealed automatic gas tax increases, countered that the MBTA has sufficient revenue to cover its personnel expenses and road construction but must manage its money better. He said Massachusetts spends over four times the national average to repair roads, and 49 percent of the gas tax revenues go to the T.

During his arguments for an amendment to study reducing the state sales tax to 5 percent, Scaccia noted the MBTA was one of the few areas targeted for major investments in the budget, with $93 million more.

Michael Norton contributed reporting to this story.

House, Senate negotiators break budget stalemate

House, Senate negotiators break budget stalemate

Agree to boost EITC and suspend Pacheco law for 3 years at T

HOUSE AND SENATE NEGOTIATORS broke their deadlock on the fiscal 2016 budget Tuesday night by finding a novel way to fund an expansion of a tax credit that benefits low-income workers and by suspending so-called Pacheco law regulations at the MBTA for three years.

The agreement was unveiled at 8 pm Tuesday night, a week into fiscal 2016, and is expected to be voted on by the House and Senate on Wednesday. Senate President Stanley Rosenberg and Sen. Karen Spilka, the head of the Senate Ways and Means Committee, briefed a handful of reporters in Spilka’s office while House officials went home. Rosenberg predicted the $38.145 billion spending plan will be on Gov. Charlie Baker’s desk very soon.

The six lawmakers trying to hammer out a budget compromise between the two branches had been working for more than a month when the major pieces finally began falling into place. The lawmakers – three from the House and three from the Senate – agreed to a popular Senate proposal increasing the state’s Earned Income Tax Credit from 15 percent to 23 percent of what a filer receives under the federal credit, while rejecting a Senate proposal dramatically increasing state personal tax exemptions.  The tax credit change takes effect in calendar year 2016 and will increase the maximum benefit for some 400,000 working families from $951 to $1,459, Senate officials said.

The big stumbling block during the negotiations was how to pay for the EITC increase. Baker had suggested abolishing the state’s film tax credit,a move opposed by House leaders. The Senate in its budget had proposed freezing the state income tax rate, which is expected to decline from 5.15 percent to 5.1 percent in January and eventually to 5 percent, but that move was opposed by both Baker and House leaders.

The budget conferees instead took a third path, agreeing to permanently eliminate a corporate tax deduction known as FAS-109, which is available to a handful of multinational companies that operate in Massachusetts. Three companies would reportedly receive more than half of the $76 million in deductions. The deduction has been suspended each year for the last five years, but now it will be permanently eliminated and the money saved will go to pay for the EITC increase in tax year 2016.

The move to permanently abolish the corporate tax deduction raised eyebrows because the deduction had figured prominently in an earlier dispute between the two branches over whether the Senate could propose tax measures in its budget. Under the state constitution, the House must initiate so-called money bills. The Senate argued the House’s budget was a money bill because it contained two tax measures, one of which was the one-year suspension of the corporate tax deduction. The House insisted the suspension of the deduction did not qualify as a tax measure, but the Supreme Judicial Court sided with the Senate and said it did. The House now apparently agrees as well, since its representatives agreed to use the money saved by permanently eliminating the tax deduction to fund the EITC boost.

Regarding the MBTA, the conferees expanded the size of the Massachusetts Department of Transportation board from 7 to 11 members and also created a special MBTA fiscal control board made up of three members from the MassDOT board and two outside members. The legislation also names the secretary of transportation as the head of the MassDOT board and gives the secretary the authority to appoint the T’s general manager. The budget agreement preserves the existing cap on T fare increases at 5 percent every two years and also preserves funding for the T that Baker wanted to cut.

The big stumbling block on the T between the two branches was the Pacheco law, which regulates how government agencies can privatize state services. Baker wanted to exempt the T from the law and the House in its budget plan proposed a five-year suspension of the law, which is named for its chief sponsor, Sen. Marc Pacheco of Taunton. The Senate reluctantly agreed to a three-year suspension of the law, which requires public agencies to prove cost-savings before hiring private contractors to perform government services. One provision was added to the conference budget bill requiring the state Inspector General to analyze whether privatization projects pursued by the T over the next three years actually save the state money.

The Legislature’s T fixes give Baker much of what he wanted but not in exactly the ways he had proposed. Aside from more flexibility to impose fare increases, he had also sought authority to limit binding arbitration awards at the transit agency.

At $38.145 billion, the budget is up 3.5 percent over fiscal 2015’s spending levels but slightly below the 4.8 percent projected increase in tax revenues for this fiscal year, which began July 1. The budget contains a provision requiring that any expenditure of tax dollars for hosting the Olympics in 2024 must first be approved by the Legislature after public hearings. The budget, of course, remains in effect for  one year, through the end of June 2016.

The six lawmakers who served on the conference committee were Spilka of Ashland and fellow senators Sal DiDomenico of Everett and Vinny deMacedo of Plymouth, plus House Ways and Means Chair Brian Dempsey of Haverhill and fellow House members Stephen Kulik of Worthington and Todd Smola of Warren.

Budget transparency – even for tax credits

By Bruce Mohl

The Massachusetts House voted Wednesday night to create a budget website where taxpayers could track the flow of funds in and out of state government – even money doled out in the form of tax credits. Rep. Charles Murphy, the House’s budget chief, had called for the creation of the website in his fiscal 2011 budget proposal and, along with House Speaker Robert DeLeo, agreed to support the tax credit measure during floor debate. The website initiative passed unanimously and the tax credit measure was approved 130-27.

“We will have virtually instant access to the way we raise and spend money in the Commonwealth,” said Rep. Jay Kaufman of Lexington, who pushed for both proposals.

The proposed website would let users track appropriations and expenditures by agency, including quasi-public authorities. The tax credit language would require agencies that administer certain tax credits, including the film, medical device, and brownfields tax credits, to disclose the identity of recipients, the amount of credits they received, and the date the credits were issued. Currently, that information is not disclosed because state officials view it as private tax data.

The tax credit language is likely to win support from Gov. Deval Patrick, who pushed for a similar initiative in his budget proposal. But the Senate is likely to oppose the measure. Senate President Therese Murray and Sen. Karen Spilka of Framingham oppose identifying tax credit recipients by name because they say it will discourage business investment in Massachusetts.

MassPIRG, the consumer group, said the new website would dramatically increase the transparency of the budget process in Massachusetts. In a recent report, the group gave Massachusetts an “F” for its budget transparency efforts.

Status quo on probation

Status quo on probation

Rep. Murphy keeps probation within judiciary but under control of Legislature

Rep. Charles Murphy’s House budget proposal sticks with the status quo on the state’s probation service, keeping the department within the judiciary but under the tight control of the Legislature.

“We’re not going to cede our authority,” said the chairman of the House Ways and Means Committee when asked why he chose not to adopt Gov. Deval Patrick’s proposal to move probation into the executive branch or the judiciary’s request for tighter control over probation spending and hiring.

Widely regarded as a patronage haven for the Legislature, probation is located within the judicial branch of government but operates with an unusual degree of autonomy. The commissioner of probation operates with no term limit, he controls all hiring and firing within his agency, and court officials are barred from moving funds out of probation to deal with budget shortfalls in other areas of the judiciary.

Murphy said probation has worked “pretty well” in the judiciary and he saw no need to change anything, although he said he proposed a 4.2 percent cut in the agency’s budget this year.

Murphy made his comments at the State House as he unveiled his $27.8 billion budget proposal for fiscal 2011. Overall, the budget increases state spending by 3.2 percent, but includes roughly $1.4 billion in cuts and savings initiatives, including a reduction of roughly 4 percent in state aid for municipal education and the layoff of as many as 1,500 state workers.

Here are some provisions in the budget:

  • Although Murphy said he had to make steep cuts in state spending, he did not reduce or eliminate the state’s film tax credit, which is expected to cost the state at least $125 million in the coming fiscal year. Currently, the state pays a quarter of whatever a film or television producer spends shooting a movie, TV show, or commercial here. Patrick had recommended capping the film tax credit at $50 million for the year, but Murphy declined to go along. “We have an industry in its infancy and it’s a legitimate industry,” Murphy said. “Capping it would cut the industry off at its knees.”
  • Murphy dropped a provision he included in last year’s budget that would have required greater disclosure of who is receiving film and other state tax credits and what kind of jobs those credits are producing. Murphy said he was continuing to talk with some House members about an amendment to his proposal that would provide greater budgeting transparency. He said it might be linked to a separate proposal requiring the establishment of a website detailing how state funds are being spent.
  • Murphy is again supporting an initiative that would funnel any capital gains tax revenue above $1 billion into the state’s rainy day fund so the funds could be used to offset downward swings in tax receipts during recessionary periods.
Galvin gets less secretive about tax credit recipients

Galvin gets less secretive about tax credit recipients

secretary of state William Galvin is starting to lift the veil of secrecy surrounding his management of the state’s historic rehabilitation tax credit program, which provides financial incentives for developers to restore historic buildings.

Galvin recently posted on his state website the names of companies and projects receiving tax credit awards during the latest round of the $50 million-a-year program. Previously, he had informed winners in writing if they were awarded tax credits, but released no information to the public.

The tax credit initiative has been the focus of several articles in CommonWealth magazine, which obtained data on the program by filing public records requests with its administrator, the Massachusetts Historical Commission. The commission reports to Galvin, who is the state’s chief public information officer and oversees the state’s public records law.

Galvin’s spokesman, in a terse email, offered little insight on why the information was now being posted. “Another way of making the information available,” wrote Brian McNiff.

The shift by Galvin comes as pressure builds to make the awarding of state tax credits a more transparent process.“It’s good to see that the latest round is on the website,” says James Igoe, president of Preservation Massachusetts, a nonprofit group that pushed for the creation of the historic rehabilitation tax credit. “Hopefully, future rounds will be reported in similar fashion.”

Before Galvin began posting his tax credit awards online, Preservation Massachusetts regularly polled its members to find out whether they had received any credits or not. The organization shared the information it gathered with members and also used it to lobby for the tax credit on Beacon Hill.

The shift by Galvin comes at a time when pressure is building on Beacon Hill to make the awarding of state tax credits a more transparent process. In his budget proposal, Gov. Deval Patrick called for agencies issuing tax credits to detail who is receiving them and the number and pay of jobs they are generating.

A similar measure nearly became law last year, but stalled when Patrick balked at a Senate provision that would have kept the names of tax credit recipients confidential.

Right now there is little rhyme or reason to the way state agencies handle tax credits. Movie producers, for example, receive film tax credits equal to 25 percent of whatever they spend shooting movies in Massachusetts. The Department of Revenue, which hands out the tax credits, considers the names of recipients confidential.

By contrast, the Massachusetts Life Science Center goes through a public process in awarding tax credits. Its board makes awards to specific companies at a public meeting and spells out how many jobs the recipient will be required to generate. If the company fails to meet its jobs goal, the Life Sciences Center reserves the right to recover its money.

CommonWealth reported in its Summer 2008 issue that Galvin was running the historic rehabilitation tax credit program like a personal fiefdom, deciding which developers would receive tax credits using a secretive selection process that created uncertainty for developers and maximized his political clout.

A breakdown of tax credit awards obtained through a public records request showed that the most tax credits have gone to the Boston Red Sox for the renovation and restoration of Fenway Park. According to the records, the Sox have received $15.85 million in historic rehabilitation tax credits and are still seeking millions more. The second-biggest recipient was the Liberty Hotel, which received a total of $9.1 million in tax credits.

During the last two rounds of tax credit awards, the Sox received nothing. Red Sox spokeswoman Susan Goodenow says the club remains interested in obtaining historic rehabilitation tax credits. “We have applied for them and we’re going to keep applying,” she says.

During the most recent round of tax credit awards in December, Galvin handed out a total of 49, most of them for $500,000. The largest award, for $600,000, went to Stratford Capital Group LLC for a project in Athol.

Despite the tough economy and developers clamoring for financial help, records obtained through a Public Records Act request show Galvin did not give out the entire $50 million in tax credits last year; he carried $5.5 million over into this year.