In unpublished report, Cuomo’s tax commission questions a Cuomo initiative

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ALBANY—New York's tax rebates for movie and TV studios are so generous that the state is actually paying them to film here, according to an analysis prepared for—but not published by—one of Gov. Andrew Cuomo's tax commissions.

The 137-page addendum to the commission's formal report asserts the Film and Television Tax Credit—which Cuomo has expanded to $420 million a year—now accounts for nearly a quarter of all business tax subsidies the state offers, and should be rolled back.

The analysis was funded by Blackstone founder Peter G. Peterson and commission co-chair Peter Solomon, an investment banker and former deputy to New York City mayor Ed Koch.

Both conservatives and liberals have criticized business tax credits for unfairly picking winners and losers with scarce taxpayer dollars. But the Solomon panel's decision to commission a critical review of their efficacy and recommend the Cuomo administration move in the opposite direction was not in the original script.

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Cuomo named the commission late in 2012, a year after he rankled business leaders by renewing most of an expiring income tax surcharge on the wealthy—something the freshman Democrat had pledged not to do. It worked through this year looking for revenue-neutral changes to the state tax code, only to have the governor abruptly convene a second panel to examine ways to cut taxes in October. H. Carl McCall, who chairs the SUNY board of trustees, co-chairs both commissions, which have several members in common. While the governor insisted the commissions would work in parallel, some liberal groups charged he was sidelining Solomon as he scrutinized the tax credits.

“The film production credit, now generally 30 percent of qualifying costs, is large relative to industry profits and tax liability,” the addendum says. “Because the credit exceeds tax liability many times over and is refundable, in effect it is a program of cash payments by the state to credit recipients.”

“It is not clear from our analysis that there is sufficient justification for the size of the film credits. The state should consider scaling back the credits and monitoring the film industry closely to determine the impact on its activities of such a cutback,” the addendum concludes, suggesting a reduction of $50 million per year.

Paying an industry to do business here can be effective, the addendum acknowledges. But why target Hollywood?

The addendum says a similarly tailored credit for manufacturing would offer factories 40 times what they would otherwise owe in state taxes. While film has blossomed in New York—especially since the opening of Steiner Studios in the Brooklyn Navy Yard—the addendum notes that “the industry accounts for less than one percent of the state’s employment” and “many of the film industry jobs are temporary.”

The addendum also questions whether movies or projects, including Steiner Studios, wouldn't have come anyway.

During his 2010 campaign against Cuomo, Republican candidate Rick Lazio charged the governor and fellow Democrats pushed the programs to gain political donations from film and television executives. An analysis performed by the New York Public Interest Group for the New York Daily News found that state politicians raked in $900,000 in such contributions since 2010, with Cuomo leading the way at $219,000.

Earlier in 2013, Cuomo increased the annual allocation to $420 million per year through 2019—over $2 billion—and increased the credit to 40 percent of qualifying costs on certain Upstate counties. Cuomo also amended the law to allow relocating talk shows to qualify, a move that greased the move of NBC's “Tonight Show” from Los Angeles to New York.

Jason Conwall, a spokesman for Empire State Development, said the credit “has been responsible for injecting billions of dollars into New York’s economy. This year alone, the program attracted 173 projects to New York, and is expected to bring 125,839 jobs and $2.1 billion in new spending with them. Television and film producers consistently cite the Empire State Film Production Tax Credit Program as a leading factor in their decision to film and produce in New York – and the reason why they don’t choose to take their business elsewhere."

It's unclear why the addendum wasn't released alongside the formal report. Commission member James Wetzler said commissioners did not approve its release because he “didn't think it was publishable” and “in certain respects, the analysis was misleading.” James Parrott of the Fiscal Policy Institute, another commission member, said, “I'm not sure what happened. You'll have to ask the governor's office.”

A source familiar with the commission's workings said Cuomo aides pushed to keep it out of the report. Another person involved with the commission said its members only reviewed a draft of the addendum, but then Cuomo aides accelerated the release date before the full document was ready. An administration official, speaking on background, said the addendum wasn't approved by the commission was done on behalf of others.

Wetzler, a former state tax commissioner, said: “I think the commission was aware that there was some sensitivity about the film credit [from the governor's office], but, speaking for myself, that was not the reason for voting against publishing the report.”

He said programs like the film credit need to be evaluated not relative to a company's tax liability, but as a flat-out spending program. The addendum's application of tax principles like equity and transparency aren't necessarily operative, because the Legislature has determined to spend money attracting an industry.

Other aspects of the addendum that criticized the state's Brownfield Redevelopment Tax Credit and the geographic distribution of credits was flawed, Wetzler said, because it relied on older data that didn't account for changes to the various programs.

 

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