And… Action! Murphy Signs Boost in Tax Credit for Filmmakers

John Reitmeyer | January 22, 2020 | Budget
New law also ensures that incentives for Hollywood production firms and others will be around at least until mid-2028

A state tax-credit program set up to entice entertainment companies to film on location in New Jersey has just been given a bigger budget by Gov. Phil Murphy.

A bill signed by Murphy on Tuesday boosts the state’s total allowance for the tax credits —awarded to production companies to offset their expenses when filming in New Jersey — from $75 million to $100 million annually.

The same new law also extends the tax-break program by five years, ensuring it will be around at least until mid-2028.

Murphy has praised the tax breaks for helping to revive Hollywood’s interest in New Jersey in recent years, highlighting projects by companies like 20th Century Fox and Warner Brothers that have won awards under the incentive program.

“Expanding our popular film and digital media tax-credit program will ensure that studios will continue to seek out New Jersey as a filming location, bringing skilled jobs and economic activity with them,” Murphy said Tuesday.

Mixed message?

But others have called the tax breaks unnecessary and ineffective, especially for a state that has had trouble funding things like mass transit and higher education in recent years. The expansion of the entertainment-industry tax breaks also comes as Murphy and lawmakers remain deadlocked on what to do about other corporate tax-incentive programs that expired over the summer.

Some have said it sends a mixed message.

“What is it about this particular industry?” asked Sen. Joseph Pennacchio (R-Morris).

Murphy, a first-term Democrat, reinstated the entertainment tax-credit program during his first year in office, after it had been allowed to expire under former Republican Gov. Chris Christie. The new version of the program set specific requirements for companies seeking to obtain the credits, which can offset part of their state corporate and income-tax liabilities. For example, a film company must spend at least 60% of its total production budget in New Jersey to receive a tax break, and also must be planning to spend at least $1 million in the state.

“The Plot Against America” writer and executive producer David Simon, standing, and actor Morgan Spector wait for the day’s filming to begin in Cranford last August.

According to data provided by the state Economic Development Authority, a total of $57.4 million in awards have been approved since the incentive program was reinstated in July 2018. In all, the awards have gone to companies that are incurring more than $180 million in qualified production expenses in New Jersey. In addition to television and film projects, the tax-credit program also provides up to $10 million annually for digital productions.

Targeted tax breaks

In recent months, Murphy has highlighted the filming of Warner Brothers’ “Joker” in Newark and 20th Century Fox’s “West Side Story” in Paterson as examples of projects that benefited under the tax-credit program. Last year, an HBO miniseries based on the Philip Roth novel “The Plot Against America” also filmed in several locations in New Jersey after receiving a state tax break.

Tim Sullivan, the EDA’s chief executive officer, said the beefed-up incentive program positions New Jersey to become a “major hub for production and studio development.”

“Under Gov. Murphy’s leadership, New Jersey’s film and television sector is booming, which creates significant economic activity in the communities that host the production, particularly in industries like construction, security, and food service,” Sullivan said.

Meanwhile, the film-tax credit program has also served as a prime example of the type of focused tax breaks that Murphy has so far unsuccessfully sought to persuade lawmakers to embrace, instead of the broader corporate incentives for hiring and business investment that were allowed to expire last summer.

While those programs were largely open-ended, Murphy’s proposed reforms call for tax breaks that would be capped annually and targeted toward specific industries and activities.

In addition, the EDA’s administration of the prior generation of tax breaks has also been criticized in two separate reports issued by a special investigative task force that Murphy assembled last year after a State Comptroller’s  audit raised troubling questions about state oversight. The latest report from Murphy’s task force was issued last week, and just like a prior report, it questioned whether the tax breaks were gamed by politically connected businesses, including many that have moved to Camden in recent years.

Questions about bang for the buck

Pennacchio — the Republican lawmaker and frequent critic of the film-tax credits — said he wishes action on the bill expanding the program would have been held back until the results of a reported review of the program by the Office of the State Auditor are made public. The veteran senator also cited other recent studies that have questioned the effectiveness of such tax credits, highlighting the temporary nature of the hiring done by production companies when filming on location.

“They go from state-to-state looking to find out where the best tax credit is,” said Pennacchio, who favors cutting taxes and regulations over incentives. “The best incentive that you can give any company is just let them keep (more) of what they earn.”

But it isn’t just Republicans who have been critical of tax breaks for the entertainment industry.

Sheila Reynertson, a senior policy analyst with New Jersey Policy Perspective, a left-leaning think tank based in Trenton, questioned Tuesday whether the benefit is worth the cost.

“The high price of these tax breaks, combined with the short-term nature of the jobs they bring, make film tax credits a poor use of state resources,” Reynertson said. “New Jersey would be better off investing in assets already proven to drive economic growth, like job training, higher education, and transit infrastructure.”

An official fiscal estimate prepared by the nonpartisan Office of Legislative Services also noted the film tax-credit program does not require a “net benefit” analysis to demonstrate that the economic activity generated by the production companies will surpass the cost of any tax credits awarded to them. Such an analysis was required under the Christie-era tax-break programs that Murphy has criticized.

“The OLS cannot quantify the net fiscal impact because of insufficient information regarding: a) the number and details of the newly eligible film and digital media projects and expenses; and b) the State spending that may be crowded out by the additional tax credits,” the fiscal estimate said.