2020 Economic and Fiscal Impact Study
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SUBMITTED TO: Tourism, Arts and Heritage Cabinet - Office of the Secretary th 500 Mero Street, 5 Floor Frankfort, KY 40601 ECONOMIC AND FISCAL IMPACT KENTUCKY'S FILM 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 California; corporations and organizations that include Lowes Home Improvement, FedEx, Amazon, Volvo (Nova Bus) and the New York 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, The New York Times, and The Wall Street Journal. Additionally, our marketing 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 service lines, please visit our website 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 ii 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 credit 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 credits. 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 industry expenditures on labor, As businesses supplying directly to Impacts that occur as employees in equipment, construction, 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. iii 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 iv ECONOMIC IMPACT OF KENTUCKY’S FILM TAX CREDIT PROGRAM Kentucky’s film incentive program was established to encourage the development of a film and entertainment industry in the state. Since the program’s implementation, new jobs, employee earnings, sales, 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 work 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. 1 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 building 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. 2 ECONOMIC AND FISCAL IMPACT ANALYSIS OF KENTUCKY’S FILM INCENTIVE PROGRAM CAMOIN 310 Role of the Kentucky Entertainment Incentive Programs Kentucky’s film credit