Connecticut’s three media tax credits are under new scrutiny following a report from the State Auditors of Public Accounts. The report outlined hundreds of millions of dollars in film and television production tax credits awarded either without completed applications or to recipients who submitted their applications outside the 90-day window.

The report also included a number of findings wherein the voucher program – which is administered by the Department of Economic and Community Development (DECD) – improperly utilized fees associated with the application process and determined the program lacks many internal controls.

In one finding, auditors determined that $139 million in tax credit vouchers were approved for productions that had not completed the application process within 90 days of their final eligible expense. This period is established by state law. In another, auditors determined that credits were issued to productions that had not submitted affidavits of related parties or real and tangible property disclosures. 

The audit also found issues with the way the program was utilizing the application fees. In one finding, auditors determined that the program was using the fee as the final eligible payment, effectively extending the 90-day window from the date the fee was paid. This reportedly occurred on applications totaling more than $180 million. They also found evidence that the fees were spent on a variety of department expenses, rather than only on the items outlined in state statutes.

Administrators for the program disputed some of these claims, however, arguing in their official response that, in at least a few places, the state audit misunderstood the procedures in place. 

“The presently required affidavit of understanding and compliance is testament that the applicant has disclosed all related parties,” said the statement. “Mandating a second affidavit would be redundant.”

Additionally, administrators argued that some of the audited applications were for infrastructure credits, which have a separate application process that doesn’t require the same paperwork. While the auditors did not contest the administrators’ arguments, they did point out that the confusion caused in this case further supports the audit’s findings of a lack of internal controls and well-documented procedures. 

Administrators also argued that using the application fee to establish the 90-day window is allowed under the established parameters of the application process saying that the fee is an expense incurred by the production. While that fee cannot be counted when assessing the amount of credits the production would receive it is “an expense nonetheless.”

The state’s film and tax credits were established to provide incentives to producers of film, television, digital media, and animation, hoping to attract projects to the state. The program includes three credits that can be used for different purposes including a standard film and television Production Credit, a credit for animation projects, and one to support the creation of production infrastructure in the state. Productions can use these credits to lower their tax liability for specific expenses incurred within the state. 

These credits have not always been considered a net positive for taxpayers. Proponents of the credits claim that the productions brought to the state by the tax credits provide local spending and jobs. Detractors, however, argue that this spending does not offset the amount of revenue loss caused by approving millions of dollars in tax savings for large companies.

In reports from DECD itself, the film tax credit program amounts to around $60 million in net losses to the state’s bottom line each year. DECD’s commissioner David Lehman even argued before state lawmakers in 2022 that the program should be trimmed back.

Then there is the question of who actually benefits from these credits. With productions that spend more than a million dollars in the state able to recoup 30% in tax credits, these credits regularly amount to more than the production’s actual liability. State law allows producers to sell these credits to other companies looking to lower their own tax bill.

In a 2021 report for Yankee Institute for Public Policy, of which Inside Investigator is an independently managed program, reporter Marc E. Fitch discovered that in a 10-year period, the state’s insurance companies claimed more than $581 million in tax credits from the program which had been purchased from qualifying productions, leading to further revenue losses.

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