Patrick administration divided on film tax credit

Gov. Deval Patrick officially supports the state's film tax credit, but key members of his cabinet are divided on the issue.

HollywoodEastShells Greg Bialecki, the secretary of housing and urban development, sees the 25 percent tax credit as the carrot that will eventually lure a TV and film industry to Massachusetts, but Leslie Kirwan, the secretary of administration and finance, is concerned about the tax credit's high cost and anemic job creation.

Bialecki says he and Kirwan have been meeting with the governor on the issue for a couple months, trying to figure out the right balance between cost and benefit.

"It's a balance between 'how do you promote a new industry in Massachusetts' versus 'how much is it costing you and how much you can afford to spend,'" Bialecki said. "The governor and Secretary Kirwan and I have been discussing this balance. It's a judgment call. It's not an easy question."

Bialecki stressed that he and Kirwan are not battling with each other. "It's a discussion," he said. "We're not necessarily on different sides of the table." Kirwan declined comment.

The differing viewpoints may help explain the conflicting signals coming out of the administration on the film tax credit. This week, for example, the governor signed into law a budget measure Kirwan had proposed that would cap how much of a movie star's salary would be eligible for the film tax credit. Then, when lawmakers and industry officials complained, Patrick signed into law another spending bill containing a provision repealing the earlier one. Earlier this month, Kirwan turned down a request for a $50 million state infrastructure subsidy from the backers of a Plymouth movie studio, a decision that stalled the project, at least temporarily. 

The film tax credit is a high-stakes issue. The Massachusetts credit is one of the most generous in the nation (see "Subsidizing the Stars"). It offers producers a 25 percent tax credit on all payroll and production expenditures in Massachusetts and also exempts most of a film company's purchases from the state's sales tax, which was raised on Monday from 5 percent to 6.25 percent.

Most tax credits reduce the amount of tax the taxpayer owes, but the film tax credit is refundable, meaning it can be used even if the taxpayer doesn't owe the state any taxes. In essence, for every dollar a film company spends in Massachusetts, it receives a credit worth 25 cents that can be converted into cash, either through a direct payment from the state or by selling the credit to anyone who owes taxes in Massachusetts.

The state Revenue Department, which reports to Kirwan, has completed an economic analysis of the film tax credit that the administration has been sitting on for more than a month. Bialecki didn't release any details of the report, but he said available data indicate that a good chunk of film spending in Massachusetts is going to people who come here from California and then return to California after the movie is wrapped. He said the state receives income taxes on any money earned here and benefits economically from film spending here, but it misses out on spending by those film workers once they return home. "That state gets the economic multiplier," he said.

Bialecki says the way to capture more of the economic benefit of the film tax credit it to build movie studios in Massachusetts that could support a year-round industry doing commercials, TV shows, and movies.

While Bialecki is focused on future possibilities, Kirwan is reportedly worried about the present and the heavy cost of the tax credit. Struggling to balance this year's budget, Kirwan crafted a proposal that would have capped at $2 million the amount of a movie star's salary that would be eligible for the tax credit. She estimated it would save the state $20 million this year.

Under current law, a producer paying a star $10 million for appearing in a movie shot in Massachusetts could apply for film tax credits equal to 25 percent of that amount, or $2.5 million. Under the cap proposal pushed by Kirwan, the producer could only seek tax credits equal to 25 percent of $2 million, or $500,000.

Kirwan included the cap in an outside section of a revised budget the governor filed in early June. In a very unusual move, House and Senate budget conferees included the proposal in their final bill, even though it wasn't in either branch's budget. The bill landed on the governor's desk and he signed it into law on Monday. 

But before the governor signed it lawmakers were already moving, apparently with Patrick's assent, to repeal the provision dealing with star salaries. Industry officials, including the producers of a big budget Tom Cruise movie headed for Massachusetts this fall, said the provision would prompt them to go elsewhere to shoot their films. They also grumbled about how the measure was passed so quickly, with no debate, and made retroactive to June 1. The House responded on June 25 by passing a supplemental spending bill that contained language repealing the star salaries provision in the state budget. Patrick signed both bills into law, effectively amending the film tax credit with one law and then restoring the credit to its original form with the other.

The fledgling film industry in Massachusetts got more bad news last month when Kirwan turned down a $50 million state infrastructure subsidy for Plymouth Rock Studios, a business group trying to build sound stages in Plymouth. To qualify for the subsidy, Plymouth Rock had to show that the net new tax revenues from its project would cover the state's costs of supplying the infrastructure funds. Kirwan ruled the Plymouth Rock project didn't meet that test, but only by defining the state's costs broadly. She included not only the cost of floating $50 million in bonds but also the cost of film tax credits issued to producers using the studio.

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Bruce Mohl

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About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Bialecki is still hopeful a movie studio or two will be built in Massachusetts, but he says discussions are also ongoing within the administration on whether the cost of the film tax credit can be reduced without undercutting its primary objective of building a movie industry here. "It's a subject we're going to continue to discuss," he said.

"Hollywood East" image from Plymouth Rock Studios.