The Broadway tax credit could be eliminated through budget cuts

The lifeline for Broadway may soon be eliminated.

The New York City Musical and Theatrical Production Tax Credit was introduced in 2021 to help the theater industry recover from the COVID-19 pandemic. It has become an essential component to the profitability of Broadway shows. The tax credit, which provides up to $3 million for new shows, is now often built into repayment plans, and some star-studded plays don’t even break even on Broadway without it.

“It’s an integral part of how we raise money and finance shows,” explained John Johnson, a producer on the upcoming play Good night and good luck. Government support can make investing in Broadway musicals and plays look more attractive, and “(without the tax credit) we could get 30 to 40 percent fewer shows in some years because of the risk profile of shows and the increasing risks.” “It’s difficult “to capitalize on that,” echoed Jeff Daniel, chief strategy officer of the Shubert Organization, which owns 17 Broadway theaters.

But with Donald Trump set to begin his second term as president of the United States next month, New York state lawmakers assume they cannot turn to the federal government for financial help and are now looking for areas in which they can make cuts in costs.

“We know we are entering an era in which we expect far less cooperation or funding from our federal government,” acknowledged State Senator Liz Krueger, who serves as chairwoman of the New York Senate Finance Committee. “We need to be smarter in New York State about what programs we’re running, whether they’re worth the money, whether they’re a poor use of public money,” she added, asking: “Are we going to continue doing this, frankly?” we knew they were bad policies forever, and yet don’t decide to do anything about it?”

One program targeted on the chopping block is the Broadway Tax Credit.

According to a recent report prepared for the New York State Department of Taxation and Finance, Philadelphia-based consulting firm PFM found that the New York City Musical and Theatrical Production Tax Credit generated about $15.6 million in state taxes over the past three years generated taxes. Considering that $67.2 million has been spent so far, the program has provided a return of 23 cents for every dollar of taxpayer money spent.

However, the calculation does not take into account the economic impact of the tourists that Broadway shows attract to New York City.

According to the national trade association Broadway League, about 64.7 percent of Broadway theatergoers lived outside of New York City and surrounding suburbs in the 2023 season. Out-of-town visitors spend millions upon millions of dollars on hotels, restaurants, transportation, shopping and other activities that generate tax revenue for the state that the report’s authors rate as “significant.”

Still, the Broadway tax credit program “doesn’t add value to taxpayers,” complained state Sen. James Skoufis, who serves as chairman of the Committee on Investigations and Government Operations. “There is an opportunity cost associated with the program,” he said, and “most importantly, taxpayers do not see a positive return on investment.”

Senator Skoufis said continuing to offer the tax credit program without doing further analysis “would be like throwing money into a stock, seeing the stock lose a huge amount of value over the past year, and then saying, ‘(o)h, “Well “I like this stock” and invest more money in it without evaluating whether it is a wise investment or not.” “We are policymakers here,” he emphasized, adding: “We should not spend money on Spending on things just because they are fun for us make.”

Other criticisms of the tax credit program include the fact that “larger shows, which typically hire more employees, receive a higher share of the tax credit due to the structure of the program,” the report’s authors write.

In addition, PFM consultants criticized the tax credit program for “not taking into account the needs of production.” “Shows that would have secured financing regardless of the existence of the loan benefit just as much as shows that might not have,” the consultants claimed, and a portion of the government subsidies went to the producers and investors of Broadway shows with the highest box office numbers.

“It’s just that the state gives public money to private companies,” complained State Senator Sean Ryan.

Plus, Broadway doesn’t go anywhere,” State Senator Skoufis quipped. “If we end this incentive, Broadway will not resume operations and will move to Des Moines, Iowa or New Jersey,” he continued.

“We have a program that is demonstrably an unwise investment, and I think common sense would dictate that we should reevaluate the program, as well as the pennies on the dollar that we are getting back for the Empire State program “Senator Skoufis commented.

New York state politicians introduced the Empire State Musical and Theatrical Tax Credit in 2014 to encourage producers to rehearse and present national touring productions of their Broadway shows upstate. The program reimburses a quarter of qualified production costs and provides productions with up to $8 million in tax credits each year.

However, according to PFM’s report, the upstate tax credit only provides a return of six cents on every tax dollar spent. “While growing the industry in other parts (of New York State) outside of New York City is a worthy goal, it does not result in a positive return on investment even after considering the qualitative impact,” the consultants concluded.

However, Empire State Development Commissioner Hope Knight, who oversees the tax credit programs, defended the upstate tax credit during the hearing. “Without the tax credit,” she said, “touring productions would go to other locations and we would not receive … $117 million in expenses incurred by producing these productions in these upstate communities.”

Discussions about the tax credits are expected to continue in the New York State Legislature over the next few months.

Disclaimer: Disclaimer: I am a director of the theatrical production company 42nd.club, which has co-produced Broadway shows that have been awarded the New York City Musical and Theatrical Production Tax Credit.