The Georgia film tax credit, long one of the world’s most generous subsidies for the entertainment industry, could be on the chopping block as the state pares spending to respond to an unprecedented budget crisis.
Last Friday, the state Senate passed $2.6 billion in cuts, including more than $1 billion in cuts to K-12 education. In that context, the state’s annual subsidy for Hollywood — which reached a record $860 million last year — is suddenly looking vulnerable.
“I think there is a political will to cap it,” said Rep. Matt Dollar, who chairs the House Working Group on Creative Arts and Entertainment and who is a big supporter of the credit. “It’s been talked about since the session started.”
On Monday, the Senate Finance Committee approved a bill, HB 1037, that would mandate audits for all film and TV projects that claim the credit. The bill, which Dollar authored, came in response to a pair of state audits issued in January that identified numerous weaknesses in oversight of the program.
The bill also included language that could have expanded the size of the credit by allowing commercials and other “presentations” to qualify. Sen. Chuck Hufstetler, the committee chairman, stripped that language out, saying he was not comfortable with expanding the credit.
“I really wasn’t interested in pursuing that bill with — it could be millions more,” Hufstetler said.
The Georgia Department of Audits and Accounts recommended in January that the legislature explore capping the credit “to reduce the fiscal risk to the state.”
Hufstetler noted that he was not proposing a cap at this point. Sen. Bill Heath, R-Bremen, picked up on the idea.
“Do we need to look at getting some caps in here?” he asked. “I mean there’s not a time more treacherous, dangerous than we are right now.”
Hufstetler said that for the time being, he is focused on passing the bill that mandates audits. Regarding capping the program, he said, “I don’t disagree it should be looked at. I don’t think we’re there yet on that.”
The film tax credit has long enjoyed broad bipartisan support in the state, which has become a major production hub over the last decade.
But in January, the DOAA released two audits that were highly critical of the program. One of the audits found that 58% of the credit amount in 2016 — or $385 million — went to companies that are headquartered in California. The audit also found that $245 million was used to subsidize out-of-state labor in 2016. The auditors also concluded that the state had been wildly overestimating the economic impact of the tax credit for years.
The second audit also found that poor oversight had allowed production companies to claim out-of-state expenses, which should have been disallowed. Only 12% of projects were audited in 2016, representing half of the total credits awarded. The DOAA recommended mandating audits on all projects, but noted that even that would not prevent many abuses. The auditors found $4 million in ineligible expenditures on eight projects that had not been disallowed. The auditors also warned that weak controls made the credit “ideal for fraud.”
The state Department of Revenue “has not created an environment that encourages or compels production companies to comply with the film tax credit requirements,” the DOAA auditors concluded. “Given its size and characteristics, the film tax credit represents a higher risk than many tax credits, justifying more robust compliance reviews.”
The Georgia Budget and Policy Institute, a non-partisan think tank, has recommended capping the program at $100 million per year. Danny Kanso, a policy analyst at GBPI, argued that that could be done without jeopardizing most industry jobs in Georgia, largely by eliminating credits that go out of state.
Dollar disputed that, saying that states that have capped their programs have seen jobs flee elsewhere — mostly to Georgia.
“Most people who look at the issue and looked at what other states have done know that a cap would be very detrimental to the industry,” he said.