Kentucky tightens the guardrails on its controversial film incentives program
The state of Kentucky has new guidelines for its film incentives program.
During a regular Kentucky Economic Development Finance Authority board meeting on Thursday, members approved the guidelines –which had been drafted by cabinet staff– without any opposition.
“I think this is going to be very valuable for the commonwealth,” State Senate Majority Whip Mike Wilson said during the meeting. Wilson is a Republican who represents District 32, which includes Bowling Green.
Wilson has supported state film incentives, which are intended to foster and attract film and television production to Kentucky.
“We see more and more companies wanting to come into the state as a result of the incentives,” he continued. “So, I'm excited about the future possibilities of this.”
With Kentucky's entertainment and film incentives program, qualifying producers are able to recoup some of their production costs through a refundable income tax credit.
The state’s Cabinet for Economic Development will oversee the program, a change made during the last legislative session. Cabinet staff will track the progress of approved applications, Sarah Butler from the Cabinet’s Department for Financial Services said during the KEDFA meeting before the guidebook was approved. They’ll also present annual reports on the program to the state legislature.
In March, the state legislature boosted Kentucky’s controversial film tax credit, making it refundable again.
In doing so, state lawmakers capped total incentives at $75 million annually.
They also changed how the program would operate:
- The timeline in which a project can apply for credits and complete production is tighter.
- The approval process moved from the Tourism, Arts and Heritage Cabinet to the Economic Development Cabinet.
Proponents of the incentives program celebrated lawmakers returning it to refundable credits, saying this will help bring back production and provide employment opportunities for Kentucky-based crew.
Companies approved for film incentives must present their production start and completion dates to the Cabinet, and they must wrap up the project within two years of their start date.
With the newly approved guidebook, individual projects are capped at $10 million in a calendar year, and a production company can qualify for incentives on a maximum of four projects a year.
Additionally, there will be a nonrefundable application fee ranging from $250 to $1,000, depending on the production’s qualifying expenditures.
All changes go into effect Jan. 1.
A rocky ride for the state’s film incentives program
Kentucky established its film tax incentive program in 2009, and the state legislature gave it a significant boost in 2015, increasing the incentive from up to 20% refundable credits on approved in-state spending to as much as 30%. That change further incentivized the use of Kentucky labor by offering an extra 5% to productions hiring any local labor. There was no cap on credits.
While the state saw a rise in film production, it was not without controversy.
According to a 2017 Kentucky Center for Investigative Reporting story, the state’s Tourism, Arts, and Heritage Cabinet handled much of the approval process in secrecy. KyCIR also reported that the cabinet never said no to a project.
Opponents of the program also took issue with the process production companies went through to verify their expenditures, saying it wasn’t thorough enough. And lagging record keeping left unclaimed incentives on the books for years.
Then-Gov. Matt Bevin shut it all down in early 2018, closing the program to new applicants.
During the 2018 legislative session, state lawmakers made the state film tax credits nontransferable and nonrefundable, capping it at $100 million.
The Kentucky Tourism, Arts and Heritage Cabinet also came under scrutiny earlier this year for commissioning and influencing a “pro-industry study” of the state’s film incentives program, according to an investigation from the Lexington Herald Leader.
Kentucky’s program, like its peers in other states, has its fair share of critics who often say the tax credits are hand-outs to Hollywood and that they don’t yield a good return on investment.
When Kentucky state lawmakers decided to make the credits refundable again, Jason Bailey, executive director of the Kentucky Center for Economic Policy, took to Twitter to call the film tax credits “highly ineffective and expensive.”
Michael Seman, an assistant professor of arts management at Colorado State University, told WFPL last March that state-backed film incentives are a “mixed bag.”
“Whenever you’re addressing public funding for any industry, it comes with a certain set of dynamics,” he said. “Sometimes it works well. Sometimes it doesn’t work well.”
Seman said it comes down to whether Kentucky wants to have a local film industry and how to create a long-term plan to see those returns and make it sustainable. He pointed to New Mexico as an example, where Netflix has set up a permanent shop in Albuquerque.
“It needs to have big productions come in, but it also needs to be able to develop the local talent,” he said.Kentucky has several other incentive and tax credit programs offered to businesses and industries, according to the commonwealth’s Tax Expenditure Analysis for fiscal years 2022 - 2024.