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Tourism, Arts and Heritage Cabinet - Office of the Secretary th 500 Mero Street, 5 Floor Frankfort, KY 40601

ECONOMIC AND FISCAL IMPACT

KENTUCKY'S INCENTIVE PROGRAM

Tourism, Arts and Heritage Cabinet of Kentucky

MARCH 2020

PREPARED BY:

120 West Avenue, Suite 303 Saratoga Springs, NY 12866 518.899.2608 www.camoinassociates.com ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 ABOUT CAMOIN 310 Camoin 310 has provided economic development consulting services to municipalities, economic development agencies, and private enterprises since 1999. Through the services offered, Camoin 310 has had the opportunity to serve EDOs and local and state governments from Maine to ; corporations and that include Lowes Home Improvement, FedEx, Amazon, Volvo (Nova Bus) and the Islanders; as well as private developers proposing projects in excess of $6 billion. Our reputation for detailed, place-specific, and accurate analysis has led to projects in 32 states and garnered attention from national media outlets including Marketplace (NPR), Crain’s New York Business, Forbes magazine, , and The Wall Street Journal. Additionally, our strategies have helped our clients gain both national and local media coverage for their projects in order to build public support and leverage additional funding. We are based in Saratoga Springs, NY, with regional offices in Portland, ME; Boston, MA; Richmond, VA and Brattleboro, VT. To learn more about our experience and projects in all of our lines, please visit our at www.camoinassociates.com. You can also find us on Twitter @camoinassociate and on Facebook.

THE PROJECT TEAM

Rachel Selsky Vice President, Project Principal

Jessica Ulbricht Analyst, Project Staff

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 ABOUT THE STUDY

Camoin 310 was retained by Kentucky’s Tourism, Arts and Heritage Cabinet to measure the economic contribution of the film tax programs on the state. The goal of this analysis is to provide a STUDY INFORMATION complete assessment of the total economic, employment, and return on investment impact of the program across Kentucky. Data Source: The primary tool used in this analysis is the input-output model Kentucky Film Office developed by Economic Modeling Specialists Intl. (EMSI). Primary data used in this study was obtained from the Kentucky Film Office and included: approved expenditures and approved . Geography: Additional information on the methodology can be found later in the Commonwealth of Kentucky report. Study Periods: The economic impacts are presented in four categories: direct June 2009-June 2015 impact, indirect impact, induced impact, and total impact. The indirect and induced impacts are commonly referred to as the July 2015-June 2018 “multiplier effect.” July 2018-January 2020

Modeling Tool: EMSI

DIRECT IMPACTS INDIRECT IMPACTS INDUCED IMPACTS

Film expenditures on labor, As businesses supplying directly to Impacts that occur as employees in equipment, , lodging, the film industry make purchases the film industry and working for film food, transportation, and many other from second-tier suppliers, those industry suppliers spend their wages expenses. second-tier suppliers make in the economy. purchases from third-tier suppliers, and so on, back through the supply chain.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310

CONTENTS

INTRODUCTION ...... 1 METHODOLOGY ...... 5 CONTENTSECONOMIC IMPACT ANALYSIS ...... 6 FISCAL IMPACT ANALYSIS ...... 9 RETURN ON INVESTMENT ...... 12 ANCILLARY IMPACTS ...... 14 ATTACHMENT A: WHAT IS ECONOMIC IMPACT ANALYSIS? ...... 19

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ECONOMIC IMPACT OF KENTUCKY’S FILM TAX CREDIT PROGRAM

Kentucky’s film incentive program was established to encourage the development of a film and industry in the state. Since the program’s implementation, new jobs, employee earnings, , and tax revenue have been generated in Kentucky.

Average Annual Expenditures Approved Average Annual Credits Awarded

June 2009 - June 2015 $2,147,140 June 2009 - June 2015 $457,556

July 2015 - June 2018 $29,485,608 July 2015 - June 2018 $8,932,167

July 2018 - Jan. 2020 $6,393 July 2018 - Jan. 2020 $2,185

AVERAGE ANNUAL ECONOMIC AVERAGE ANNUAL TAX REVENUE ACTIVITY GENERATED GENERATED

$2,736,581 June 2009 - June 2015 30 Jobs July 2015 - June 2018 405

July 2018 - January 2020 0 $189,737 $442

June 2009 - July 2015 - July 2018 - June 2015 June 2018 January 2020

$1,187,735 June 2009 - June 2015 Earnings ADDITIONAL EARNINGS FOR $16,310,577 July 2015 - June 2018 KENTUCKY’S RESIDENTS

$3,537 July 2018 - January 2020 For every one dollar of credits certified, there was an additional:

Sales $3,435,147 June 2009 - June 2015 $2.60 $1.83 $1.62 (2009-2015) (2015-2018) (2018-2020) $47,173,170 July 2015 - June 2018

$10,229 July 2018 - January 2020 in earnings in the state.

2020 Camoin Associates, Inc. www.camoinassociates.com ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 INTRODUCTION

The purpose of this report is to quantify the economic and fiscal impacts generated by the film tax credit programs administered by the Tourism, Arts and Heritage Cabinet (the “Cabinet”) within the Commonwealth of Kentucky (the “State”) over three periods (the “Study Periods”):

 June 2009 to June 2015  July 2015 to June 2018  July 2018 to January 2020 The Film Incentive Program was established to encourage the development of a film and entertainment industry in Kentucky. Camoin 310 was retained by the Cabinet to with the Kentucky Film Office to calculate the impact of the tax credit programs on the state’s economy and to compare how these impacts have fluctuated as the incentive program has changed. History of the Kentucky Entertainment Tax Credits Kentucky’s film incentives were first introduced as a tool available to the entertainment industry during the government’s 2009 legislative session. Kentucky is home to numerous assets that make it a natural fit for the film industry, including a variety of landscapes, the presence of all four seasons, and a diverse labor force. Upon creation of the initial legislation, incentives were available for up to 20% of approved expenditures and were refundable. Additionally, there was no cap on the amount of incentives awarded per production. Under this version of the program, interest in the state’s film industry started to grow with major motion pictures including Secretariat and The Ides of March filming portions of their productions within Kentucky to take advantage of the state’s natural assets plus the tax benefits.

In 2015, Kentucky furthered its Figure 1 commitment to support the state’s entertainment industry by significantly enhancing the incentive program, which caused the state to attract more productions and film industry related business. In the 2015 legislative session, credits were increased to 30% of approved expenditures, 35% of Kentucky resident labor, and 30% of non- resident labor. A 35% incentive for approved expenditures and all labor for filming in an enhanced incentive county was also implemented.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 The incentives remained Figure 2 refundable and uncapped. As a result of these changes, the number of projects awarded credits increased significantly from 8 projects in 2015 to 36 projects in 2017 (Figure 1). This concerted effort of incentives and the necessary crew base/workforce helped to solidify Kentucky’s position as a viable film destination and encourage the growing industry.

Increased pressure on budget accountability led to another round of changes during the 2018 legislative session. During this session, film tax credits were made non-refundable and non-transferable and incentive awards were capped at $100 million per year. Following this change, the amount of total expenditures and credits awarded under the program dropped off significantly (Figure 2).

Alongside changes to the film tax credit incentive program were changes in the number of industry jobs1 in the state. Between 2005 and 2013, job growth in Kentucky’s film industry was stagnant; the number of jobs hovered around 550 throughout this period. The number of jobs in the industry started to trend upwards in 2014, reaching a peak for the period in 2018 (954 total film related jobs). Figure 3 illustrates this trend.

Figure 3

1 Based on activity (jobs and sales) in Kentucky’s economy, the film industry is defined as NAICS codes 512110 Motion Pictures and Video Production and 711410 Agents and Managers for Artists, Athletes, Entertainers, and Other Public Figures.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 Role of the Kentucky Entertainment Incentive Programs Kentucky’s film credit incentive program was implemented to attract and support the state’s entertainment industry. Since the program’s introduction in 2009 the film credit incentive program has been modified twice, to find the right balance between economic stimulation and fiscal responsibility. Taken within this context, an understanding of the changes within the Kentucky film industry and incentive program over time are necessary to assess the impact of the program.

Camoin 310 conducted interviews with seven entertainment professionals to gather information about how the industry has changed over time, the role of the tax credit program in attracting productions to Kentucky, and the perception of the impacts of the industry and incentive program. The following is a summary of the major themes from this research.

ROLE OF THE TAX CREDIT PROGRAM

 The film industry is recognized as an economic development opportunity for Kentucky. Kentucky’s natural resources, diverse landscapes (urban, rural, water), available workforce and residents interested in working in the industry, and educational programs designed to create a pipeline of skilled workers make the state a natural fit for film and entertainment content creation.  Although Kentucky has significant natural resources that benefit the film industry, before the incentives in 2009 there was little presence of the film industry. The incentive program was enabled to establish Kentucky as a viable filming destination and make it possible to compete with other states that were building successful industries through the offering of tax credits. While California and New York are typically thought of as the epicenter of the film and entertainment industry, other states are quickly growing in industry strength. and are two such states that were frequently mentioned by interviewees as Kentucky’s primary competitors.  The incentive program has helped build up a local crew base and film industry workforce. In addition to attracting portions of the production of large feature , such as Secretariat, the initial version of the program helped to attract more independent films and filmmakers to the state. As smaller and independent productions began to leverage the program, local workers gained the skills needed to work in and support a larger film industry.  Interviewees repeatedly stated that cost is still the biggest factor for where to film a production and that the bottom line continues to drive decision making. Total content is increasing with the new streaming services and avenues to consumer media, and producers are being paid less for content, encouraging so decisionmakers to go wherever production costs will be lower. It was noted that even if a story is set in Kentucky, producers will almost certainly film elsewhere if they can get it done for less money.  Interviewees felt that in making the credit non-refundable and non-transferable, the state is much less competitive from a cost standpoint for production site selection.

IMPACT OF THE INCENTIVE PROGRAMS ON KENTUCKY

 The entertainment industry is constantly evolving. According to interviews, content is more episodic today than it has been in the past and is being distributed on an ever-growing number of channels. Interviewees noted that this means that work has become recurring, with production companies producing more recurring short-form content rather than single blockbusters.  Following the 2015 enhancement to the film tax credit incentive program, investment in Kentucky’s film industry increased. Interviewees noted that it was during this time that many of the state’s film industry

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 professionals moved back to Kentucky, after pursuing opportunities in other states. Many stories were told of people who purchased homes, bought cars, and established their families within Kentucky as a result of this program.  As the number of productions set in Kentucky increased, so did the ancillary benefits across other industries. These impacts are varied, with interviewees commenting on the benefits extending to and that support production crews during filming, hardware stores that sell supplies used to make sets, and antique stores and similar shops that sell that are used as props in productions.  It was also emphasized that the film industry supports a diverse workforce and hires locally for a variety of positions to support productions, including painters, contractors, caterers, writers, voiceover professionals, and audio engineers, among others.  Film productions have also had a positive impact on local economies. Interviewees pointed to a number of examples of local stores being refurbished for use in a film, and businesses continuing to leverage these improvements when filming ends.  Film productions are not limited to a single area of Kentucky. They occur in towns both big and small and distribute the associated benefits across the state.  The increase in productions in the state has also resulted in film-induced tourism in Kentucky. Interviewees pointed to examples of this including Keeneland racetrack using Secretariat as a marketing draw to bring people to tour the property, Versailles, KY and Lexington, KY businesses capitalizing on being the filming locations of ’s The Stand In, and production cast and crews generating a “buzz” for Kentucky on social media.  Interviewees felt that the instability and uncertainty with the credit program is the biggest hinderance to keeping the positive momentum of the film industry growing. There is a general feeling that people, especially those who hold a connection to Kentucky, really want to invest in the industry, but frequent changes to the program and a lack of a long history of favorable benefits are preventing this from occurring.

Figure 4: Production Filming in Kentucky; Source: Kentucky Film Office

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 METHODOLOGY Camoin 310 uses software created by Economic Modeling Specialists, Intl. (EMSI) to calculate the economic impacts of the Film Incentive Program. The total Kentucky spending and earnings were provided to Camoin 310 by program for projects having credits certified between 2009 and 2019. Camoin 310 employed the following methodology to calculate the economic impact of the Kentucky film tax credit programs.

1. Calculate total direct spending and earnings: The first step is to identify the total amount of qualified Modeling Software spending occurring and earnings generated in Economic Modeling Specialists, Intl. (EMSI) Kentucky as a result of the tax credit programs. These designed the input-output model used in this figures were used as the direct input into the model. analysis. The EMSI model allows the analyst to This information was provided by the Kentucky Film input the amount of new direct economic activity Office and reviewed by Camoin 310. This is a (spending, earnings, or jobs) occurring within the conservative approach, as non-qualified expenditures, Commonwealth of Kentucky and uses the direct which have an impact on the economy, are not tracked inputs to estimate the spillover effects that the net or included. For the purposed of this analysis, it is new spending, earnings, or jobs have as these new assumed that 100% of this spending and earnings are dollars circulate throughout the economy. This is net new to the Kentucky economy and, without the captured in the indirect and induced impacts and 2 credit programs, this spending would not occur. is commonly referred to as the “multiplier effect.” 2. Model industry activity. In order to model the See Appendix A for more information on economic impact of the tax credits, it is important to economic impact analysis. accurately model the industries within which this What does “Net New” Mean? activity is taking place. This analysis uses the direct spending and earnings identified in Step 1 and When looking at the economic impacts of a distributes them among two major NAICS industries project, it’s important to look only at the that cover Kentucky’s film industry. These reflect the economic changes that would not happen in that industries where the tax credits will have the strongest project’s absence. These effects are the “net new” impact. effect: purchases made only as a result of the 3. Model economic impacts. Using the total sales and project in question. earnings figures as inputs, we modeled the indirect Definition of a “Job” impacts – in terms of jobs, earnings (employee wages), and sales – of the tax credits on the Commonwealth A “job” is equal to one person employed for some of Kentucky. Economic multipliers were provided amount of time (part-time, full-time, or through the EMSI software package. temporary) during the study period. In this case, the spending did not create new jobs; however, 4. Model fiscal impacts. Local and state tax revenues the jobs reported should be considered “jobs resulting from economic activity associated with the supported by the certified spending.” tax credits were then estimated based on the results of the economic impact analysis.

2 While some economic activity in the film industry would still occur in Kentucky without the film tax incentives, the vast majority of activity would not occur, as illustrated by the increase in spending and jobs that resulted from the 2009 implementation of the program and the 2015 enhancement to the film tax credits (Figure 2 and Figure 3).

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 ECONOMIC IMPACT ANALYSIS Table 1 shows approved expenditures3 associated with Kentucky’s film tax credit programs for each of the three study periods, as provided by the Kentucky Film Office.

It is important to note that this analysis takes a conservative approach and only includes qualified spending by productions approved for a tax credit. Beyond the qualified spending, additional non-qualified spending occurs in Kentucky as a result of the film tax credit program and overall industry activity. Although not covered by the credit, non-qualified expenditures have an economic impact on Kentucky as this spending would not occur in the state but for productions the film tax credit program. Non-qualified expenditures, including spending on food and drinks for wrap parties, are not always reported consistently to the Kentucky Film Office and are therefore were not included in total expenditure figures used throughout this analysis. The total actual economic impact of the film industry on Kentucky is likely higher than captured here.

Table 1

In total, approved expenditures for the first period of June 2009 to June 2015 equaled nearly $13.1 million. Cumulative expenditures were much higher over the June 2015 to June 2018 period, at nearly $88.5 million, and decreased to approximately $10,000 in the most recent period of July 2018 to January 2020. These total annual spending figures were used as the direct inputs in the model to generate the total impact in terms of new sales, jobs, and earnings.

3 Qualifying expenditures are approved by the Kentucky Film Office, the Secretary of the Tourism, Arts and Heritage Cabinet, the Finance Administration Cabinet and the Kentucky Tourism Development Finance Authority. Qualifying expenditures must be made from businesses within the Commonwealth of Kentucky and include things like labor costs, supplies, and equipment. Approved expenditures are eligible to receive the tax credit.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 CUMULATIVE ECONOMIC IMPACT

The direct, indirect, and induced economic impacts of Kentucky’s film tax credit programs for each of the three periods are displayed in Table 2. The sum of these impacts represent the total economic impact for each of the study periods and is cumulative across years.4

Between June 2009 and June 2015, 180 jobs, over $7.2 million in earnings, and nearly $20.9 million in sales resulted from the program. The impacts were greater between July 2015 and June 2018, at 1,216 jobs created, over $48.9 million in earnings, and over $141.5 million in sales. In the last year and a half (July 2018 to January 2020), spending related to the credit program has not resulted in any new jobs and only approximately $5,600 in earnings and $16,200 in sales.

Table 2

4 Note that these are conservative estimates of the economic impact as non-qualified expenditures are not included in the direct sales numbers. The total economic impact on Kentucky is slightly higher than what is displayed here.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 AVERAGE ANNUAL ECONOMIC IMPACT

Since the study periods encompass varying lengths of time, the economic impacts were annualized to allow for comparison of the economic impacts between periods. The average annual total economic impact of the program was much higher in the July 2015 to June 2018 period than in the preceding and succeeding periods. On average, 405 jobs, over $16.3 million in earnings, and nearly $47.2 million in sales were created annually between July 2015 and June 2018 as a result of direct, indirect, and induced impacts of Kentucky’s incentive program. This compared to 30 jobs, nearly $1.2 million in earnings and over $3.4 million in sales created annually between June 2009 and June 2015, and no jobs, over $3,500 in earnings and over $10,200 in sales created annually between July 2018 and January 2020.

The average total annual economic impacts of the program are summarized in Table 3. Figure 5 presents the same information graphically.

Table 3

Figure 5: Average Annual Total Economic Impact of Tax Credit Program

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 FISCAL IMPACT ANALYSIS

Beyond the economic impacts calculated above, there are also fiscal impacts of the film industry that result from increased economic activity and accrue in the form of additional tax revenue. To estimate tax collections, Camoin 310 calculated the proportion of film production spending associated with credit-eligible products and services relative to Kentucky’s Gross State Product across the three study periods. This percentage was then applied to Kentucky’s total tax collections for each of those three periods to determine the portion of tax collections attributable to the film tax credit program. This methodology is based on the assumption that the share of credit related to Kentucky’s Gross State Product is approximately equal to the share of Kentucky’s tax collections attributable to the tax credit program. In other words, the film industry activity makes up a certain percentage of the state’s total economic activity and therefore the film industry accounts for a similar percentage of the state’s revenue. Table 4 and Table 5 detail this calculation.

Table 4

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 Camoin 310 estimates tax collection resulting from the film tax credit to be nearly $1.2 million between June 2009 and June 2015, over $8.2 million in the July 2015 to June 2018 period, and nearly negligible ($442) between July 2018 and January 2020.

Table 5

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 On an annual basis, the tax collections attributable to the credit program were nearly $190,000 in the June 2009 to June 2015 period. This jumped to over $2.7 million between July 2015 and June 2018, while decreasing to nearly $0 in the most recent period.

Table 6

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 RETURN ON INVESTMENT

Kentucky is essentially investing in the entertainment industry in the state through the use of tax credit programs. When considering the return on that investment, there are a number of ways to look at it, including direct new tax revenue generated by the industry and additional sales/earnings in the state that are attributable to the program. The following tables show the impact of the entertainment tax credit programs on the state’s finances, overall state resident earnings, and industry sales.

ADDITIONAL PUBLIC REVENUE PER DOLLAR OF CREDIT

As calculated in the previous section (Table 5), the film tax credit programs generate additional tax revenue for the state. The total credits certified for each of the three study periods was used in conjunction with the total tax revenue to quantify the return on investment for each of the three Study Periods.

With nearly $2.8 million in credits certified, the June 2009 to June 2015 period offered the highest return on investment of 0.41, or about 41 cents in tax revenue for every dollar of tax credit. The return on investment was slightly lower in the July 2015 to June 2018 period, at 0.31, and was lowest in the July 2018 to January 2020 period at 0.13.

Table 7

The ROI varies for each of the three periods and is greatly impacted by the amount of credits issued. The increase of the credit from 20% of approved expenditures to 30/35% of approved expenditures resulted in a decrease in ROI. That being said, this is only one way to look at return on investment of this program. This ratio contemplates only the tax revenue generated and must be understood in terms of the jobs, wages, economic activity, and other ancillary benefits associated with the tax credits. Additionally, it is critical to note that this type of analysis is based on best available data and readers should expect a slight margin of error in the ROI of approximately 10%+/-.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 DYNAMIC IMPACT OF PROGRAMS ON STATEWIDE EARNINGS AND SALES

As shown in the Economic Impact Analysis (Table 2) on page 6, the entertainment tax credit program resulted in new earnings and sales for residents and businesses in Kentucky. The following table calculates how the credits issued resulted in economic activity in the state.

The multiplier effect was most pronounced in the June 2009 to June 2015 period. Over this time, for every one dollar of credits certified, there was an additional $2.60 in earnings and $7.51 in sales in the state. This is followed by the July 2015 to June 2018 period, where for every one dollar of credits certified there was an additional $1.83 in earnings and $5.28 in sales in the state. Between July 2018 and January 2020 the impact of one dollar of credits certified was an additional $1.62 in earnings and $4.68 in sales in the state.

Table 8

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 ANCILLARY IMPACTS Beyond the quantitative impacts of the film industry and the film credit program, additional impacts across a variety of sectors have occurred. The following section summarizes the impacts of the industry and incentive on Kentucky’s higher institutions, tourism, and production related infrastructure. Information included in these sections is based on discussions with interviewees and supplemented by additional research.

EDUCATION

Kentucky’s higher education institutions offer a number of film production and related programs. According to the National Center for Education Statistics, just over 1,100 film industry related degrees were completed in the 2017- 2018 school year.5 Interviewees consistently noted that these education programs are an important component of workforce education and are valuable in preparing both entry level students for the film industry workforce and for the continuing education of experienced professionals. Creating a pipeline of qualified and skilled workers is necessary to building a strong industry of any kind, and these film related programs help support that pipeline.

Figure 6

Programs offered by Kentucky’s higher education institutions focus on the interdisciplinary nature of the film industry, with many offering a variety of programs or concentrations geared towards different specialties and interests. These programs recognize the diversity of skillsets that are required to make a successful production and have created learning opportunities that span this spectrum. Some of the schools that produce the highest number of graduates with film industry related degrees include:

5 This represents degree completions of students by major and does not take into account any minor programs that may have been completed. Degrees completed are across all levels (Bachelor’s, Master’s, certificate program, etc.) and represent those identified by the U.S. Department of Education’s Classification of Instructions Programs (CIP) code 50: Visual and Performing Arts.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310  Asbury : Asbury University in Wilmore, KY is home to a robust film industry offering. The university’s School of Communication Arts offers a Media Communication major with a variety of concentrations available in media performance, and video production, film production, production , multimedia, and audio production. Significant investments have been made in the school’s film equipment and film facilities. Available to students are 50 video editing suites, an indoor back lot, an outdoor back lot, six backgrounds used in feature films, a 5,500 square foot , set building shop, audio production facility, and a 120 seat theater. In addition to standard degree programs, Asbury offers the Kentucky Film Certification, which is recognized by the KY Film Office and KY Film Association. To help professionals improve their skills, this program allows them to select an area to be certified in, complete online courses taught by professionals, and attend hands-on classes led by Kentucky’s industry professionals. Advanced certifications are also available for participants who work on professional productions in their job-specific role. Certifications cover the gamut of diverse film related skills. Certifications in audio, , grip, electric, safety, locations, production, construction, makeup, and Steadicam are available.  Northern Kentucky University: Northern Kentucky University’s Cinema Studies minor is an interdisciplinary program that is intended to help students develop and broaden their understanding of the history, theory, production, reception, and analysis of cinema. This minor gives students broad exposure to cinema theory and skills that can be used in their future workplaces.  University of Kentucky: The University of Kentucky offers a comprehensive Media Arts and Studies major geared towards preparation for a variety of careers including producer, director, editor, technical supervisor, multimedia designer, animator, multimedia developer, telecommunication manager, graphic designer, and audience and content researcher. With concentrations in video and audio production, multimedia design and development, media , and media studies this program appeals to students interested in working in all facets of the film industry.  University of Louisville: The University of Louisville’s Department of Communication offers an interdisciplinary and Production minor that gives students knowledge of the film industry history and theories, proficiencies in , , sound recording, and editing. The department promotes local volunteer and internship opportunities, including those with the Louisville Film Society. While measurable enrollment trends have not resulted from the film incentive program, anecdotally the biggest impact has been on the ability of graduates to remain within Kentucky. Interviewees noted that many film program graduates would like to stay in Kentucky after graduating but uncertainty of future opportunities has resulted in many of these graduates seeking opportunities in other states which have a longer history of favorable incentive programs.

TOURISM

Kentucky’s tourism industry is booming. According to a 2019 study by Tourism Economics, over 71.6 million visitors spent nearly $7.6 billion in Kentucky in 2018. Visitor spending has increased steadily since 2013, with 2018 spending representing a 3.7% increase from the previous year.6 Data from EMSI shows that tourism related jobs7 have been on the rise in the state since 2009. As of 2019, there were nearly 5,900 tourism related jobs in Kentucky.

6 “Economic Impact of Tourism in Kentucky, 2018.” Tourism Economics, An Oxford Economics Company, 2019. 7 Tourism related jobs are considered to be those in NAICS 71: Arts, Entertainment, and Recreation and NAICS 72: Accommodation and Food Services.

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CAMOIN 310 Figure 7

While it is clear that Kentucky’s popularity as a visitor destination is increasing, little research or data exists to quantify the purpose of these visits. General trends however have pointed to an increased propensity for film induced tourism among travelers. Tourists are often attracted to places that they have seen on screen, either in film, TV, commercials or . Such content increases awareness of certain destinations, making them more competitive in attracting visitors. Film-induced tourism has many benefits for local . In particular, tourism that is generated can be year-round and not limited by seasonal weather changes. Additionally, film locations enhance the cultural value of a location. According to a survey from the Association of Film Commissioners International, 10% of people who travel to a new location picked their location based off of a movie’s setting.8

Films that involve an emotional experience that links the storyline with the location are particularly successful in generating tourism.9 This link is often the driving factor that prompts the audience to visit the film site and seek the experience that was portrayed by the film. Ultimately, more successful feature films can be pointed to as having an impact on visitation to the area.

In Kentucky, Secretariat is the perfect example of this phenomenon. A major motion picture inspired by a true story and set against a stunning landscape evoked an emotional connection with viewers. Produced over 30 years after some of Secretariat’s most memorable victories, this film reminded horse fans of the excitement of the time and introduced a new of fans to the story. Capitalizing on this revived interest in the horse, the beauty of Kentucky, and the nostalgia of horse racing communities and organizations have promoted filming locations and locations of the actual events as a way to generate tourism. VisitLEX for example provides a two-night itinerary on its website called “Welcoming Secretariat.” This suggested itinerary is geared towards fans of both the movie and the horse, giving visitors to Lexington a comprehensive list of sites and attractions to visit including Keeneland Race Course, the Kentucky Horse Park, and the International Museum of the Horse. Many of these attractions leverage both the horse and the movie in their visitor attraction and promotional materials as well. In addition to regular

8 Popular Movies Can Increase Tourism to the Film’s Location Between 25%-300%. Champion Traveler. Retrieved from: https://championtraveler.com/news/popular-movies-can-increase-tourism-to-the-films-location-between-25-300/ 9 Niziol, Anna. Film Tourism as a New Way to Market a Destination. Scientific Review of Physical , Volume 5 Issue 4.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 tours, Keeneland Race Course hosts an annual Secretariat Festival which features a life size cut out of the horse and at the 2019 festival unveiled the Secretariat bronze monument.

Though Secretariat is still paying dividends to Kentucky’s tourism economy, major feature films like this occur less frequently than other forms of content creation. While it is easiest to point to the impact of a film like Secretariat on Kentucky’s reputation as a tourism destination, many of the interviewees that we spoke with cited smaller scale tourism related impacts that Figure 8: Secretariat Monument at Keeneland; Source: Lexington Herald Leader have resulted from the film industry. Anecdotally, interviewees spoke about production crews who come to work on a project in the state using their weekends to explore the local sights and attractions. This presumably has a ripple effect- as these production crews head back to their home communities, they are able to speak positively about their Kentucky experience and what the state has to offer, generating a positive “buzz” and interest in Kentucky as a destination. Social media posts production crews and actors and actresses make while working in Kentucky have a similar impact on buzz generation. While data on the extent of film induced tourism is limited, the presence of a film industry within the state has positive impacts on the marketability of Kentucky and the perception of the state as a visitor destination.

INFRASTRUCTURE

Since the film tax credit’s inception in 2009, some private investment has been made in film related infrastructure including studio expansions, new sound stages, and new equipment within the state. Many interviewees noted however that uncertainty in the future of the incentive program has prevented this investment from reaching its full potential. Building a new studio or similar facility incurs millions of dollars in costs for the project owner. Investing these funds upfront has become a huge risk given the uncertainty around changes in the incentive program. According to interviewees, the switch to a non-refundable and non-transferable credit program has caused many to wonder if the investment is made and new facilities are built, will productions come? Investment and development of this magnitude takes many years to come to fruition; a lack of confidence in the consistency of the incentives offered has prevented infrastructure impacts from reaching their full potential.

That being said, many interviewees noted that the film infrastructure that exists in Kentucky at this time is able to support much of the current industry demand. It was noted however that should the incentives be made more favorable, there will be a need for additional private investment in studio and sound stage space. Amidst uncertainty about the future of the film tax credit program some related infrastructure investments are still occurring. Following the filming of several movies in southern Kentucky ground was broken in on a new studio. Bale Studios, in Horse Cave, KY is slated to work with six projects that are still eligible for the old incentives.10 The studio and its supporters

10 French, Jackson. Breaks Ground in Horse Cave. Bowling Green Daily News, 16 Aug. 2019.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 are optimistic about the potential of the industry in the state and hopeful that the incentive programs will be made refundable again in order to attract new productions to the area. As of January 2020, construction has yet to begin, but is still planned.11

Given the significant investment needed to implement infrastructure improvements, a longer period of favorable incentives is necessary to instill confidence in the future of the industry in Kentucky. As a result, greater infrastructure improvement impacts will be realized over time.

11 Kinslow, Gina. Construction Yet to Start, but Still Planned for Horse Cave Film Studio. Glasgow Daily Times, 3 Jan. 2020.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310 ATTACHMENT A: WHAT IS ECONOMIC IMPACT ANALYSIS? The purpose of conducting an economic impact study is to ascertain the total cumulative changes in employment, earnings and output in a given economy due to some initial “change in final demand”. To understand the meaning of “change in final demand”, consider the installation of a new widget manufacturer in Anytown, USA. The widget manufacturer sells $1 million worth of its widgets per year exclusively to consumers in Canada. Therefore, the annual change in final demand in the is $1 million because dollars are flowing in from outside the United States and are therefore “new” dollars in the economy.

This change in final demand translates into the first round of buying and selling that occurs in an economy. For example, the widget manufacturer must buy its inputs of production (electricity, steel, etc.), must or purchase property and pay its workers. This first round is commonly referred to as the “Direct Effects” of the change in final demand and is the basis of additional rounds of buying and selling described below.

To continue this example, the widget manufacturer’s vendors (the supplier of electricity and the supplier of steel) will enjoy additional output (i.e. sales) that will sustain their businesses and cause them to make additional purchases in the economy. The steel producer will need more pig iron and the electric company will purchase additional power from generation entities. In this second round, some of those additional purchases will be made in the US economy and some will “leak out”. What remains will cause a third round (with leakage) and a fourth (and so on) in ever- diminishing rounds of industry-to-industry purchases. Finally, the widget manufacturer has employees who will naturally spend their wages. Again, those wages spent will either be for local goods and services or will “leak” out of the economy. The purchases of local goods and services will then stimulate other local economic activity. Together, these effects are referred to as the “Indirect Effects” of the change in final demand.

Therefore, the total economic impact resulting from the new widget manufacturer is the initial $1 million of new money (i.e. Direct Effects) flowing in the US economy, plus the Indirect Effects. The ratio of Total Effects to Direct Effects is called the “multiplier effect” and is often reported as a dollar-of-impact per dollar-of-change. Therefore, a multiplier of 2.4 means that for every dollar ($1) of change in final demand, an additional $1.40 of indirect economic activity occurs for a total of $2.40.

Key information for the reader to retain is that this type of analysis requires rigorous and careful consideration of the geography selected (i.e. how the “local economy” is defined) and the implications of the geography on the computation of the change in final demand. If this analysis wanted to consider the impact of the widget manufacturer on the entire North American continent, it would have to conclude that the change in final demand is zero and therefore the economic impact is zero. This is because the $1 million of widgets being purchased by Canadians is not causing total North American demand to increase by $1 million. Presumably, those Canadian purchasers will have $1 million less to spend on other items and the effects of additional widget production will be cancelled out by a commensurate reduction in the purchases of other goods and services.

Changes in final demand, and therefore Direct Effects, can occur in a number of circumstances. The above example is easiest to understand: the effect of a manufacturer producing locally but selling globally. If, however, 100% of domestic demand for a good is being met by foreign suppliers (say, DVD players being imported into the US from Korea and ), locating a manufacturer of DVD players in the US will cause a change in final demand because all of those dollars currently leaving the US economy will instead remain. A situation can be envisioned whereby a producer is serving both local and foreign demand, and an impact analysis would have to be careful in calculating how many “new” dollars the producer would be causing to occur domestically.

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ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM

CAMOIN 310

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Camoin 310 120 West Avenue, Suite 303 Saratoga Springs, NY 12866 518.899.2608 www.camoinassociates.com @camoinassociate

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