As Hochul and Adams Double Down on Business Tax Breaks, Some Lawmakers Push Back

New Tax Breaks for Film, Real Estate, and Broadway

An extension of the controversial state film and TV tax credit, sweetening the pot for producers who spend more money in New York. A new tax break to entice companies to lease space in older office buildings and an extension of a city tax credit designed to lure companies to the boroughs outside Manhattan. A larger tax incentive to aid Broadway. And those are only a few of the business tax benefits Gov. Kathy Hochul has proposed to extend, expand or create in her budget proposal.

Film Industry Subsidies

The most attention is likely to be centered on New York’s already lucrative $700 million-a-year tax credit for film and TV productions. California Gov. Gavin Newsom, confronted with a sharp exodus of productions from Los Angeles, has proposed doubling that state’s credit to $700 million a year from $300 million. In response, Hochul has proposed extending New York’s $700 million a year credit by two years through 2036, adding $100 million a year for independent productions, and raising the credit to 40% for 30% for companies doing three major productions in the state. And while New York had always prided itself on excluding the highest-paid actors and directors from the credit, Hochul proposes removing that restriction to match the incentive in states like New Jersey and Georgia.

“It isn’t very attractive at the moment. New York ranked ninth out of ten for potential locations for filming this year, besting only California, in a survey of studio executives by the firm ProdPro.”

Critics of the film subsidy received a major boost last year when a study by PFM Group Consulting of Philadelphia — ordered by the Legislature and released last year by the Hochul administration — found that each job created by the tax incentive cost the state a little more than $60,000. The return on investment — tax revenue produced by each dollar spent — was a measly 31%. “The total cost will be $9.6 billion during the course of the current program and that is truly a stupendous amount of money,” said John Kaehny, executive director of Reinvent Albany, a fierce critic of the film incentive.

Broadway Production Tax Break

The governor also wants to help the theater industry, increasing a temporary pandemic-related theatrical production tax break instituted in 2020 by one-third, to $400 million in total, and extending it for two years through 2027. Broadway shows, including the most successful ones, can receive up to $3 million. Off-Broadway productions are capped at $350,000. Despite a rebound in attendance that could match Broadway’s pre-pandemic record and rising gross revenues, Broadway needs the help, said Jason Laks, president of the Broadway League trade association. He said that only 1 in 10 productions are actually able to repay investors, down from an average of 20% before the pandemic. “We are facing increased costs — and I don’t mean just labor costs,” he said. “The challenge for Broadway is that we are only good if people want to invest in shows,” he added.

Real Estate Rewards

Likely to be less controversial are two real estate breaks Mayor Eric Adams pushed at a press conference Monday touting his jobs efforts. He will need the state legislature to act in order to make them happen. One is a new concept. RACE, short for the Relocation Assistance Credit per Employee, would authorize the city to provide a one-time $5,000 credit per full time worker for firms moving to New York and leasing at least 20,000 square feet in a building built before 2000. As proposed by Adams, it would be relatively modest, capped at 5,000 employees. Adams also is seeking to extend the REAP program, which provides a $3,000 tax credit for 12 years for every employee a company moves to most areas north of 96th Street in Manhattan and the other boroughs.

Other Proposed Tax Breaks

Hochul, too, wants to create new tax breaks, in addition to extending old ones. The governor wants to add new tax relief for semiconductor firms, which could be used by Micron for the plant it intends to build near Syracuse. She is also looking to extend the Excelsior tax program created by former Gov. Andrew Cuomo, which goes to firms in industries the state has designated as “strategic” like research or manufacturing, to 2039 even though it doesn’t sunset until 2028.

Fiscal Critics Emerge

A study by an independent consultant, ordered by the legislature and released early last year, called many of them a waste of money. A subsequent hearing chaired by State Sen. James Skoufis in November focused attention on the programs with the least return on investment. And a package of bills to rein them in is expected to be introduced soon by four influential Democratic state senators.

“If we don’t make a dent into the problem of costly incentives this year given the report and the hearing, I am not optimistic we will ever make progress,” said Skoufis, a Democrat who represents a district in Orange County and has emerged as a key critic of the tax breaks.

Battle Lines Drawn

The battle over these incentives will heat up in the next couple of weeks when Skoufis and three other influential Democratic state senators — Liz Krueger of Manhattan, Sean Ryan of Buffalo, and deputy majority leader Michael Giannaris of Queens — introduce a legislative package designed to curb the use of incentives. How restrictive the proposal will be could not be learned, but they will test whether Democratic support for incentives is weakening. “The most powerful single corporate subsidized group, Hollywood producers, are big givers to Hochul. So are the powerful industry labor unions,” said Kaehny. “And there is a third force: Soundstage owners.” Skoufis knows that too. “We all have studios in our districts,” he said.

Conclusion

As Hochul and Adams double down on business tax breaks, lawmakers are pushing back. The film and TV industry is a significant employer in the state, but the cost of the tax incentive is high, with each job created costing the state over $60,000. The theater industry also needs help, but the cost of the tax break is unclear. The real estate industry is pushing for new incentives, but their cost is also unknown. As lawmakers debate these proposals, the fate of New York’s economy hangs in the balance.

FAQs

What are the proposed business tax breaks?

* Film and TV tax credit extension
* Broadway production tax break expansion
* New real estate break, RACE, for firms leasing space in older office buildings
* Semiconductor tax relief
* Extension of the Excelsior tax program

What is the cost of the film tax credit?

* $9.6 billion during the course of the current program

What is the return on investment for the film tax credit?

* 31%

Is the Broadway production tax break needed?

* Broadway needs help, despite a rebound in attendance, as only 1 in 10 productions can repay investors.