Four years ago, New York state began offering tax breaks to the city’s theater productions in what was described as a temporary pandemic lifeline. Now, as Gov. Kathy Hochul seeks to extend and expand the measure, it is set to become the latest industry handout to entrench itself in the state budget despite considerable cost and questionable benefit to taxpayers.
In her executive budget released on Tuesday, Hochul proposed extending the New York City Musical and Theatrical Production Tax Credit for two years through 2027, and growing its annual allocation from $300 million to $400 million. The benefit allows large Broadway shows to receive as much as $3 million in annual subsidies, and nearly two dozen shows received the maximum amount last year — including popular productions like “The Lion King,” the New York Times reported.
If approved by the Legislature in the coming weeks, it would be the third time the credit has been extended or expanded since then-Gov. Andrew Cuomo first placed it in the 2021 state budget during a moment of peril for the theater industry. At that time, it was budgeted at $100 million and was supposed to expire in 2023.
The initial program also included language that would shrink the $3 million cap to $1.5 million during the tax break’s second year of existence, unless an analysis of hotel occupancy and travel metrics showed that the city’s tourism industry had “not sufficiently recovered” from the pandemic. Over the next two years, lawmakers extended the program twice more and expanded it to $300 million — and, in 2023, quietly removed the provision that would shrink the tax break if the tourism industry recovered.
Theater owners and producers have advocated for the program, which they have credited with helping Broadway return to about 84% of its pre-pandemic revenue levels.
But the deepening investment also coincides with questions about the tax break’s effectiveness: In 2023, a state-commissioned report found that the credit had directly generated just 23 cents for every dollar the state invested, and auditors noted that the program tends to give the biggest awards to large shows without accounting for whether they really need the help. Still, the report concluded that the tax break may have been a net benefit, since the return of Broadway helped revive the city’s restaurant and hotel industries in hard-to-measure ways.
‘Gut analysis’
Hochul herself told the Times last year that the tax credit was “not a permanent situation” and characterized it as “temporary assistance” — although it now appears set to last for a minimum of six years.
Sean Campion, director of economic development studies at the Citizens Budget Commission, said it was “perfectly reasonable” for the state to give Broadway a lifeline during the depths of the pandemic. But he questioned the wisdom of renewing the benefit as Broadway sales rebound and the city’s hotels are packed.
“It’s even less certain now that Broadway needs those incentives, in order to either encourage productions to restart or just to be profitable,” Campion told Crain’s. The hawkish think tank has long urged Albany lawmakers not to renew tax incentives unless they can prove that the programs generate a return on investment.
Hochul’s budget director, Blake Washington, offered a muted defense of the incentives on Tuesday, when a reporter asked about the Broadway benefit as well as another proposal to extend the state’s generous film tax credit. Washington acknowledged the unflattering 2023 state study, but said the governor was relying on a “gut analysis.”
“Maybe sometimes on paper, they don’t score as well for the academicians that look at this,” Washington said during a press conference. “But we all know deep inside — the Legislature’s seen in their wisdom, certainly the governor — she looks at some of those investments as being essential to the culture of the state of New York, the city of New York,” Washington said.
He added that Hochul had been “alarmed” by talk in the theater industry that some productions were taking their business to London, since they found it easier to start up a show abroad.
“Taking away a tax credit this time and fueling that growth overseas would be a dagger in the governor’s heart,” Washington said.
In its current form, the theatrical tax credit offers two levels of benefits. Broadway theaters — venues between 41st and 54th streets in Manhattan with at least 500 seats — are eligible for the full $3 million credit. Off-Broadway venues, located elsewhere in Manhattan with at least 100 seats, can receive no more than $350,000.
Theater owners can apply to be reimbursed for up to 25% of their production costs. The Shubert Organization, a major theater owner, reported lobbying Hochul’s office about the tax credit last year, and the trade group the Broadway League said in a statement it was pleased with Hochul’s proposal.
“All the people who work on Broadway are deeply appreciative of Governor Hochul supporting the industry’s jobs and economic impact,” Broadway League President Jason Laks said in a statement. “There is no question there would be fewer productions on Broadway right now without the direct support of this benefit.”
