State auditors on Wednesday criticized the state Department of Economic and Community Development for handing out millions of dollars more in state assistance than companies were due.
The agency distributed $49.4 million more in film production tax credits to a digital animation company than it would have been entitled to under the relevant tax credit program, auditors said without identifying the company.
DECD issued a $15 million maximum annual tax credit to the company using the digital animation tax credit program in the state’s budget year that ended June 30, 2016. The agency allowed the company to start receiving film production tax credits of $94.4 million from 2016 through 2019, auditors said.
The company requested Urban and Industrial Site Reinvestment tax credits, but DECD allowed it to participate in the film production tax credit program that does not have an annual cap. The legislature did not intend for digital animation companies to be eligible for film production tax credits, auditors said.
DECD told auditors it disagreed, saying a digital animation production company is eligible for film production tax credits under state law.
“The company produces motion pictures, which is a statutorily qualified medium,” DECD said.
In addition, the company’s productions are defined in law to include a “production by any means and media in any digital media format, film or videotape,” it said.
A spokesman for DECD referred questions to the agency’s responses to the auditors.
Separately, auditors said DECD should not have awarded $11.5 million to a company in its “First Five Plus” program intended to draw large employers. The financial incentive was intended to create 200 jobs in five years.
The unidentified company was not required to create the jobs in 24 months and should have been required to invest at least $25 million, auditors said. But the budget called for the company to invest $13.5 million.
“Without investing at least $25 million, it appears the company did not qualify as a First Five Plus recipient and should not have been awarded more than $10 million in assistance,” auditors said.
DECD told auditors it disagrees, citing state law. The agency said the $25 million cost, including the state’s $11.5 million, meets criteria that a business development project eligible for state aid will invest at least $25 million and create a minimum of 200 jobs no later than five years from the date the application is approved.
Still, it said it will seek legal interpretation.
Stephen Singer can be reached at firstname.lastname@example.org.