Gov. Deval Patrick says he initially supported a budget proposal to limit how much of a movie star’s salary would be eligible for the Massachusetts film tax credits, but then changed his mind after reviewing the issue more closely.
Patrick filed the proposal early last month as part of his revised state budget. It would have capped at $2 million the amount of a star’s salary eligible for the state’s 25 percent film tax credit and saved the state an estimated $20 million this year. The measure was approved by the House and Senate and signed into law as part of the state budget on Monday. But shortly afterward Patrick signed a separate spending bill containing language repealing the earlier provision.
“It’s a policy choice,” Patrick said today in a brief interview at the door to his office, after a ceremonial signing of a new ethics reform law. “I thought more about it and got new information.”
He was vague about what new information he obtained, saying he consulted with his economic development staff about efforts to grow a film production industry in Massachusetts.
CWunbound reported yesterday that House officials inserted the repeal of the $2 million cap into the supplemental spending bill after reports began circulating that producers of a big budget film starring Tom Cruise and Cameron Diaz might not come to Massachusetts if the cap passed.
Asked whether Cruise had called him about the issue, Patrick smiled and said no. But Greg Bialecki, the governor’s secretary of housing and economic development, said the producers of the Cruise movie did communicate to the administration through intermediaries that the legislative provision would cause them to rethink their plans to come to Massachusetts. He said the producers were not only upset about the cap but also the way it was being implemented — very quickly, with no debate, and retroactive to June 1.
Bialecki said he did not know whether the repeal of the cap was enough to bring the Cruise movie, called “Wichita,” to Massachusetts. “I have not heard anything from anybody,” he said.
Bialecki said many lawmakers were also upset with the way the change in the film tax credit was handled. It was inserted by House and Senate conferees into their joint budget with no debate involving stakeholders or interested parties, he said. “They felt it was coming totally out of the blue,” he said. “The in and out on this reflected the fact that the Legislature was saying this is a change we ought to spend more time thinking about.”
The state’s film tax 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 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.
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 that the governor and the Legislature signed into law and then quickly repealed, the producer could only seek tax credits equal to 25 percent of $2 million, or $500,000.
The Patrick administration estimated that the $2 million cap would save the state $20 million this year, but Bialecki said that analysis may be flawed because it assumes the same number of films will be filmed in Massachusetts even with the cap in place. As the producers of the Cruise movie demonstrated, that may not be the case.
Bialecki said currently available evidence indicates the tax credit is not a slam-dunk economic bonanza for the state because most producers come here to film and then leave. But he said that may change if local movie studios get built and succeed in creating a year-round industry in Massachusetts. He said the administration is struggling internally to find the right balance on the film tax credit between competing fiscal and economic development concerns.
Three groups have proposed building movie studios in Massachusetts, with locations proposed for Boston, Plymouth, and Weymouth.
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