Schilling Deal Could Threaten RI Film and TV Industry
Thursday, July 29, 2010
GoLocalProv has uncovered this loophole in the Motion Picture Production Tax Credits law, which allows the credits to be used for video games.
Two experts—Steven Monacelli, a founding partner at the prominent accounting firm Restivo Monacelli and URI business professor Ed Mazze—confirmed yesterday that Schilling not only could apply for the credits but also could receive millions of dollars in tax credits in addition to his $75 million loan guarantee.
Approximately $15 million in credits are available each year to cover part of the cost of producing motion pictures. In return, between 2005 and 2009, the state has received a $465.5 million economic boost and 4,184 new jobs, according to a study done by Mazze.
But the loophole would allow Schilling’s company, 38 Studios, to snatch up potentially all of the credits before other film and television projects could utilize them.
The $75 million loan guarantee is expected to result in just 450 new jobs over three years—far less than what the state got for the $56.7 million the tax credit has cost it since 2005.
Schilling’s company also is supposed to be generating more than $3.5 million a year in income tax revenues for the state—but that benefit could be wiped away if he goes after the tax credits.
That makes what could be a bad deal for the state even worse, according to URI business professor Ed Mazze. “I think that would be the icing on the cake,” Mazze said. “I think that would be a smack on the head.” Mazze said $75 million loan guarantee was a risk because 38 Studios is a start-up business that has yet to generate any revenue.
The credit raises the question of whether the $75 million loan guarantee was even necessary to lure Schilling to Rhode Island in the first place. “That would have been a very good incentive,” Mazze said. “I don’t know if it would have been enough to bring him to the state.”
Then there is always the possibility that Schilling will not deliver on the 450 jobs he has promised. If he doesn’t, he must pay a penalty of $7,500 a year for each job he doesn’t create, according to the terms of his deal with the Rhode Island Economic Development Corporation.
In a worst case scenario, that penalty would total $3.375 million.
Mazze said it’s a small price to pay for how much the state is offering. “How would you like to get $75 million and be penalized for a little over $3 million?” Mazze said. “He’s going to walk out with a tremendous amount of money and the only penalty is that if didn’t create jobs he pays a penalty per every job not created.”
The EDC board of directors approved the $75 million loan guarantee earlier this week. Schilling will receive the first $15 million installment of the loan by the end of next month—before he even sets foot in Rhode Island. He has until Feb. 2011 to actually relocate his company here.
A summary of the terms of the deal provided by the EDC omits any mention of the tax credits. A spokeswoman for the agency could not be reached for comment last night.
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