Tuesday, July 23, 2024

How movie tax credits fit into Louisiana’s budget debate

by BIZ Magazine

By Greg LaRose, Louisiana Illuminator

The lucrative incentives Louisiana provides to motion picture productions have been linked to money spent on early childhood education in the ongoing debate over the state budget in the legislature. It’s just a flimsy fiscal paper chain for now, but a separate measure lawmakers have advanced could ultimately do away with tax credits for movies and TV shows shot here.

House Speaker Clay Schexnayder, R-Gonzales, gained approval this week for a bill that pares down the transfer value for motion picture tax credits from 90% to zero over the next 10 years. Most companies that make movies in Louisiana aren’t based here, so they have to transfer any tax credits they receive to see the cash benefit. State law currently limits transfers to 90% of the credit’s value.

If Schexnayder’s proposal takes effect, the transfer rate will drop to 82.5% on July 1, the start of the state fiscal year. The share would step downward annually, reaching 45% by 2028 and ultimately zero by 2034.

Under current law, the motion picture tax credit program expires in 2025.

The House approved the speaker’s bill Monday, sending it to the Senate for consideration.

Senators will also receive House Bill 1, the state government’s operating budget, next week. As it advanced through the House, a pinch point for the spending plan was Gov. John Bel Edwards’ proposed $2,000 pay raise for K-12 teachers versus Republican leadership’s preference to put money toward retiring debt in the teacher and state employee retirement systems.

GOP lawmakers argued by paying down the retirement debt, local school districts would then have the resources and flexibility to enact their own teacher salary hikes. Democrats have countered that the state has ample reserves to award teacher raises, though some fiscal conservatives are looking ahead to 2025 when a 0.45% of the state sales tax expires — creating a substantial revenue gap that could threaten recurring costs such as teacher salaries.

Another casualty in the governor’s proposed budget is $51 million for early childhood education programs that would cover some 8,000 students. Democrats were unsuccessful Thursday when they tried to restore this money and the teacher raises during floor debate over the budget.

Speaker Pro Tempore Tanner Magee, R-Houma, then offered an amendment that would make money for early childhood education conditional on the repeal of the motion picture tax credit — the program House lawmakers had already voted to renew in Schexnayder’s bill.

“We should never choose movies, mostly made in New Orleans, over our children,” Magee said on the floor.

This caught Democrats in the House off-guard. Rep. Tammy Phelps, D-Shreveport, asked Magee why he had earlier voted against restorative amendments for teacher raises. Rep. Sam Jenkins, D-Lake Charles, questioned why Magee wouldn’t instead find actual dollars for early childhood education rather than depend on potential money from repealed tax credits.

“Our children are not a contingency for me,” said Rep. Jason Hughes, D-New Orleans, arguing against the amendment.

Magee’s change prevailed and was attached to the House version of the budget approved in a party line vote. 

A figure on just how much money Louisiana could get back if movie tax credits were repealed was difficult for lawmakers to nail down Thursday. A $10 million amount was mentioned as already committed to production credits, but Commissioner of Administration Jay Dardenne, the governor’s lead budget author, said there’s no way of landing on a firm number because it depends on when the credits are actually redeemed.

Schexnayder’s bill would continue a $150 million cap on motion picture tax credits, but there’s no official fiscal impact from the measure because the state doesn’t officially recognize the credits as lost revenue until they are redeemed.

In addition to the tax credit program, production companies can also apply for a tax rebate of up to 40% on eligible in-state purchases. In-state and out-of-state labor qualify for that incentive, which is also capped at $150 million annually.   

So far in fiscal year 2022-23, which ends June 30, Louisiana has approved nearly $105 million in motion picture investor and infrastructure tax credits against its $150 million, according to the state revenue department. The previous year credit total was close to $144 million following a pandemic-related drop to $85 million in 2020-21. The last pre-pandemic allotment was just over $2 million less than the $180 million ceiling for that year. 

Industry sources say they contribute more than $1 billion to Louisiana’s economy annually, with 35% of that in the form of in-state payroll.

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