R.I. overspent on film tax credits in 2022. Lawmakers must correct $3.2M difference this year.
Initial estimates predict the third season of 'The Gilded Age,' taped in Newport in late 2024, spent nearly $27 million on filming in Rhode Island. Season 3, which debuts June 22 on HBO, would qualify for $8 million in state tax credits. Matt Walker and Taaissa Farmiga appear in the first episode of Season 3, above. (Photo by Karolina Wojtasik/HBO)
From 'The Gilded Age' to 'Hocus Pocus 2,' Rhode Island has played a starring role in a growing number of TV shows, movies, commercials and theater productions.
So many, in fact, that the state unintentionally approved more tax credits to production companies for local spending than available state funding for the incentive program.
The unexpected $3.2 million shortfall, which dates back to credits from productions completed in 2022, was recently revealed in a May 28 memo from Gov. Dan McKee to state lawmakers. McKee suggested dipping into state coffers in the upcoming fiscal 2026 budget to cover the retroactive overrun.
Not a welcome proposal as the Rhode Island General Assembly grapples with a projected $185 million deficit heading into the new fiscal year alongside potentially devastating federal funding cuts to major programs like Medicaid. But lawmakers may not have much choice — the 2005 law that created the motion picture tax credit program offers a three-year window for eligible productions to redeem approved credits, which are based on state taxes paid on workers' wages and local goods and services.
This is the final year for companies to redeem credits they were awarded in 2022 — the year of the inadvertent overspend.
'The production companies followed the rules,' Brian Daniels, director of the Rhode Island Office of Management and Budget, told lawmakers during a presentation to the Senate Committee on Finance Tuesday night. 'They didn't do anything wrong. There's not a lot of discretion here.'
The film incentive program is a perennial hot potato on Smith Hill; proponents insist that offering tax credits for up to 30% of local production costs boosts Rhode Island's economy, creating jobs and incentivizing people to visit (and spend more money) to see the places where their favorite shows and films were created. Naysayers question whether the unquantifiable 'indirect spend' from the program is actually enough to offset the initial upfront investment, also noting that more than half of jobs go to non-Rhode Island residents, as documented in multiple reports by the Rhode Island Office of Revenue Analysis.
The revenue office in a July 2024 report reiterated its prior conclusions that the state loses money on the program, with 9 cents in net general revenues for every dollar spent on tax credits from 2019-2021, and $3.19 in total economic output. The findings suggest the program is less beneficial than a 2021 study commissioned by the Greater Newport Chamber of Commerce, which touted a 'multiplier effect' in which $1 invested in tax credits for locally filmed productions yielded $5.44 in economic activity for the state.
Yet even Feinberg, the program's most stalwart defender, admits there are some problems with timing and accuracy of initial production cost projections.
Feinberg helps market the Ocean State to production companies, relying on the tax credit program as a key incentive. He also gives first vetting to tax credit applications, sending an initial determination based on eligibility and projected local spending to the Rhode Island Division of Taxation. Lawmakers determine a maximum amount in each state budget plan for the program based on the preliminary estimates and introductory conversations— many of which never turn into actual productions eligible for state funding.
But it is only after taping finishes and a thorough audit by state tax officials that credits are awarded — often years after the initial estimates upon which state budget calculations are made.
Usually, the mismatch is not a problem. Costs, and therefore credit amounts, are almost always lower than initially estimated.
Until now, when final audits show the state gave out $33.2 million in tax credits to eight productions that wrapped in 2022 — exceeding the $30 million funding cap for that year.
In 2022, pent-up post-COVID demand converged with a rush to finish filming in anticipation of writers' and actors' union strikes that happened in 2023 to create what Steven Feinberg, executive director for the Rhode Island Film and Television office, called the 'perfect storm.'
'This was an anomaly,' Feinberg said, speaking to lawmakers Tuesday. 'I've been doing this for 20 years, and this has never happened.'
Feinberg also noted the earlier-than-expected completion of an 'Emmy-award winning,' show, referring to the second season of HBO's 'The Gilded Age.'
The hit TV series concluded filming its second season in Newport in October 2022, receiving $7.5 million in state tax credits based on more than $28.4 million in local production costs, according to program information submitted to state budget analysts at the May Revenue and Caseload Estimating Conference.
A third season of 'The Gilded Age' was taped in Newport in late 2024. Final production costs have not been submitted, but initial estimates predict a nearly $27 million spend, with a corresponding $8 million in tax credits.
This was an anomaly. I've been doing this for 20 years, and this has never happened.
– Steven Feinberg, executive director of the Rhode Island Film and Television Office, on exceeding the state's funding cap for motion picture tax credits in 2022
Of the $40 million set aside in 2023 for tax credits, $31 million remains, Daniels said. McKee's proposed $14 billion fiscal 2026 budget would authorize up to $20 million more for the program in 2026.
Still, both Daniels and Feinberg acknowledged the need to address timing and accuracy of program awards. Feinberg said his office is working with the state taxation division to keep officials in the loop on potential changes to initial project estimates, while also considering how to tweak state regulations to better align budgets and awards.
Feinberg did not immediately respond to requests for more information Wednesday.
Senate Finance Chairman Lou DiPalma pointed out that if the overspend was uncovered after the legislative session ended on June 30, the consequences could have been worse.
'What would you do if we're not here?' DiPalma said during the hearing. 'Do you wait till January?'
He continued, 'We're fortunate it hasn't manifested itself yet, but what we can do, we should do. What did we learn? We don't want this to happen again.'
DiPalma's concern over reporting discrepancies did not preclude him from a more lighthearted request of Feinberg.
'I still want to meet Danny DeVito,' DiPalma said. 'When can that happen?'
House Speaker K. Joseph Shekarchi and Senate President Valarie Lawson both remained noncommittal on the proposed funding adjustment in separate statements Wednesday. The additional money will be considered as part of budget deliberations, which are expected to be hammered out in the next few weeks ahead.
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