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

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.

Mayor Eric Adams and business interests are mobilizing to lobby for those incentives  and in the past the Legislature has routinely approved them with very few changes.

But this year could be different. 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 curb them is expected to be introduced soon by four influential Democratic state senators.

The stakes are high.

“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.

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.

“This change makes New York more attractive for larger productions, particularly for those with star-driven products,” said Josh Levine, regional lobbyist for the Motion Picture Association of America.

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 Hochbul 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.

Skoufis agrees.

“It is a raw deal for taxpayers,” he told THE CITY. “It is flabbergasting for me that anyone would seek to expand the program.”

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.

The Broadway credit also came under scrutiny in the November hearing, and its prospects are unclear.

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 3,000 employees with each participating business limited to 300 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.

The Five Boro Jobs Campaign, a group organized by the Real Estate Board of New York, sent a letter supporting both to the governor this week, signed by the presidents of all five borough chambers of commerce and leaders of many business improvement districts.

REAP cost only $27 million last year, down from $30 million the year before, according to the city’s Certified Annual Financial Report.

Still, there is no analysis that shows whether REAP is worth the cost, said Andrew Rein, president of the fiscal watchdog group the Citizens Budget Commission.

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.

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 Andrew Gounardes of Brooklyn — 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.

What you will hear in Albany all the time is that tax incentives are a small amount to pay for programs that create highly compensated union jobs and labor peace,” said Kaehny. “It allows Democrats who are tarred with the tax-and-spend brush to point to things they support that are small business.

Reinvent Albany will devote its resources to opposing the film and tax credit because “that’s where the money is.” But it knows the proponents are powerful.

“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.