Gov. Kathy Hochul wants taxpayers to subsidize the pay of actors and directors who work on movies and TV shows that film in New York — all as part of ongoing arms race with New Jersey to attract the film industry to their side of the Hudson River.

New York currently sets aside $420 million a year for tax credits for the film industry in an effort to lure entertainment industry jobs to the Empire State. As part of her state budget plan, Hochul is proposing a dramatic increase. She wants to boost the annual cap by a full 66%, allowing movie and TV projects to collectively claim up to $700 million a year beginning in 2024 — which would again make it the largest tax break the state offers to a single industry.

The governor’s plan, unveiled as part of her $227 billion state budget proposal last week, doesn’t stop there. For the first time, Hochul said she wants the state to allow productions to claim the credit for so-called “above the line” costs — things like pay for actors with speaking roles, performers, directors, composers and producers, subject to certain limitations. Currently, the tax break applies only to “below the line” costs like crew salaries, background actors, facility rentals, editing, catering and the like.

All told, Hochul’s proposal — which would also extend the program through 2034 — would increase the amount of state tax credits available to Hollywood filmmakers by $2.8 billion over the next decade, a price some budget watchers and advocates say is difficult to stomach. The tax break proposal comes as Hochul won her bid for governor, during which she scored hundreds of thousands of dollars in contributions from the TV and film industry.

“Even by New York standards — by excessive New York standards — this is astounding almost,” said E.J. McMahon, founding senior fellow of the Empire Center, a fiscally conservative think tank that has long been critical of the film tax credit. “Why do you have to increase it, much less maintain it? It does not pay for itself. It absolutely does not.”

Today, the state provides a base tax credit of 25% of a film project’s qualifying costs, though Hochul wants to boost it back up to 30%, where it stood prior to 2020.

Hochul’s proposal would allow the credit to cover actor and director salaries — which some other states, including New Jersey, allow — with two caveats. It would only apply to the first $500,000 of an individual’s salary, and a production could only claim a total amount of “above the line” costs that equals no more than 40% of its “below the line” costs.

“Governor Hochul is focused on growing industries and opportunities across the state and the film and television industry is no different,” said Kristin Devoe, a spokesperson for Empire State Development (ESD), the state entity that oversees the tax break program.

A national race

For nearly two decades, New York has provided significant tax credits to the film industry, ballooning from its initial cost of $25 million in 2004 to its $420 million today.

As it stands, New York’s tax breaks can already be quite large for some productions. NBC’s The Blacklist, Amazon’s The Marvelous Mrs. Maisel and CBS’ Madam Secretary all received more than $20 million in tax credits each in 2020, for example, according to state records. The 19th season of Law and Order SVU received $16 million.

It’s all been part of a national race to woo film productions in hopes of bolstering employment in the entertainment industry. Today, at least 35 states offer some sort of incentives to film producers — down from a peak of 45 states in 2010, according to the National Conference of State Legislatures.

Among those states is New Jersey, which offers a base tax break worth 30% of a film production’s qualified costs, which is higher than New York’s. The state also covers a portion of actor and director salaries, with certain limitations.

Hochul’s administration says competition from New Jersey is a primary reason why it’s necessary to bolster New York’s film-tax credit. Along with matching New Jersey’s base rate, Hochul also wants to provide an additional 5% for film projects that relocate to New York from another state.

ESD maintains a list of film projects that opted for New Jersey over New York in recent years, including movies like Oppenheimer, Bros and Mean Girls: The Musical, as well as TV shows like The Walking Dead: Dead City and two seasons of Wu Tang: An American Saga.

“The proposed enhancement of the film tax credit will grow the film industry and keep New York competitive in this very important sector of our economy which has generated over $20 billion in spending and created 57,300 direct jobs over two years in the Empire State,” Devoe said.

Weighing the pros and cons

The effect of tax breaks for the film industry has been hotly debated, both in New York and nationwide.

In New York, a state-commissioned study determined the $420 million-a-year tax credit helped support $9.9 billion in direct spending in New York in 2019 and 2020 combined, along with another $10.6 billion in “indirect and induced” spending.

But other states have drawn different conclusions. State analysts in California, Pennsylvania and Virginia have all questioned whether there’s a sufficient return on investment from film-tax credits, with the California Legislative Analyst’s Office once concluding the “costs outweigh the benefits.”

Even in New York, there have been differing conclusions. In 2013, a tax commission appointed by then-Gov. Andrew Cuomo concluded the credit should be rolled back, though its final report was initially shielded from the public.

At the same time, Hollywood has been a reliable source of campaign donations for New York politicians — particularly those in the governor’s office.

During her successful election campaign last year, Hochul received donations from people like famed director Steven Spielberg and his wife, Kate Capshaw, both of whom gave her the maximum $47,100. Filmmaker Jeffrey Katzenberg chipped in $35,000, while former Walt Disney Company CEO Michael Eisner contributed $30,000; Actor Amy Schumer gave $10,000.

Among the film studios that contributed to Hochul included CBS, Paramount, Sony and Warner Brothers, according to campaign-finance records.

“This is a huge industry and the more money, the bigger it is,” said McMahon. “And the more money it makes, the more political influence it has over people like the governor and the legislature of New York state.”

Hochul has repeatedly denied that campaign donations have any effect on the way she governs. “I’m guided by what’s best for New Yorkers,” she said after unveiling her budget Wednesday.

Her proposal has support from the various unions that represent film workers, including SAG-AFTRA, the union that represents actors. (SAG-AFTRA also represents radio and television reporters, including those who work at WNYC and Gothamist.)

“These proposed reforms will stem a current loss of production and lift our industry to new heights,” the film and television unions wrote in a joint statement.

Questioning Hochul’s priorities

But other advocates question why Hochul is favoring a plan to boost the film industry rather than bolstering the state’s child tax credit, which some have spent years trying to convince policymakers to increase.

Expanding the Empire State Child Tax Credit to include children under the age of four and ensure more people could access the full credit would cost about the same amount of money as Hochul’s proposed film-tax credit increase, said Kate Breslin, president and CEO of the Schuyler Center for Analysis and Advocacy.

“Honestly, I don't understand it at all,” Breslin said. “It’s shocking that we don't see some investment on the child-tax credit side, and then we see this relatively large proposal related to the film tax credit.”

Hochul will spend the next two months negotiating a final budget plan with state lawmakers ahead of the state’s new fiscal year, which begins April 1.

State lawmakers will hold a hearing on the governor’s tax proposals on Thursday.

Empire State Development corrected a statement from spokesperson Kristin Devoe clarifying the number of jobs supported by the film industry in New York. This story has been updated.