The state's new budget contains restrictions on the film and television tax credit program that, while not as radical as originally proposed, may make the state less appealing to Hollywood, some industry observers and legislators fear.

The Malloy administration, the driving force behind the changes, hopes they will lead instead to a permanent film industry in Connecticut even with the new limits on how tax credits can be used.

"Time will tell," said ex-House Speaker James Amann, D-Milford, an architect of the five-year-old tax incentives. "If the numbers go down, the governor's no dummy. Then maybe we need to go back to the drawing board and say this was too much of a radical move."

Since July 2006, the state has issued $180 million in tax credits to about $615 million worth of film and television productions, according to the Department of Economic and Community Development.

The incentives have bolstered existing companies, lured others to Connecticut and resulted in lots of star sightings as visiting productions shot scenes at outdoor locales and local sound stages.

But as the state's fiscal crisis grew, so did concerns the credits were not paying for themselves and providing enough of an economic boost.

Democratic Gov. Dannel P. Malloy, in his initial budget in February, proposed significantly limiting what many consider the program's chief attraction -- the ability of visiting productions to sell their tax breaks to companies with an in-state tax liability.

Production companies do not themselves use the full value of the credits, typically selling them for around 80 cents per dollar, often to Connecticut's thriving insurance industry. But, observers say, the transferability of those credits helps get films financed.

Malloy's initial plan reduced the transferability of the credits from 100 percent to 50 percent in 2011-12 and 25 percent in subsequent years.

That proposal alarmed Sen. Gary LeBeau, D-East Hartford, a Commerce Committee chairman who has been pushing for construction of a studio in his district. LeBeau and others concluded the governor intended to prevent any one production from ever transferring more than a quarter of its credits.

LeBeau now says the administration misworded the initial proposal and intended the changes reflected in the budget passed last week. Under that plan, LeBeau said, visiting productions can still transfer 100 percent of their credits. But only 50 percent will be eligible in year one, with the balance split between years two and three, cutting an estimated $11.7 million from the new budget.

"They changed it to be what they wanted in the first place," LeBeau said.

Furthermore, productions also will be required to shoot at least 50 percent of principal photography in Connecticut, up from 25 percent.

"This drives work into bona fide Connecticut studios," LeBeau said. "That was always my objective."

George Norfleet, director of DECD's film division, said the state could see a drop in movies and television shows that were planning to visit, shoot a couple of scenes and depart.

"Those productions will not find Connecticut necessarily that attractive," Norfleet said. "But I don't see this development is going to prohibit continued growth of our industry here."

Of greater concern to Amann and LeBeau is a third change directed at some of the biggest buyers of film tax credits -- insurance companies.

Insurers previously have been able to apply the credits to 70 percent of their insurance premium tax liability. That amount for the next two years will be limited to 30 percent.

"We're in the 'insurance capital of the world,' " Amann said. "Why, of all things, limit their ability to do that? It's a good business transaction."

Sen. Eileen Daily, D-Westbrook, who chairs the Finance, Revenue and Bonding Committee, said the new limitations were imposed in exchange for lawmakers' abandoning other tax proposals on insurers.

Bruce Heller, co-founder of the Stamford-based Connecticut Film Center, expressed mixed feelings about the changes to the film tax credits. The center has been involved in the initiative from the start, both offering production facilities and brokering tax credit sales.

"We're working with members of the industry and Legislature and the administration to further refine the program so it works for the state and our current economic environment," Heller said. "Overall I think it's pretty darn good."

Heller said it is possible the credits will be less marketable to insurance companies. "Time will tell whether there's an effect or other corporations will pick these up," Heller said.

The Connecticut Film Center and others in the industry have in the past expressed frustration with lawmakers for changing the rules mid-game and scaring away business.

Asked if he has received complaints from productions that have already committed to filming in state, Norfleet said, "I wouldn't say complaints, but questions."

"No matter what business you're in, if you think you understand what's going on and things change, it forces you to re-comprehend the entire undertaking," Norfleet said. "I've received phone calls but, to date, the productions that were considering coming here (are) trying to figure out a way to make it work."

Staff writer Brian Lockhart can be reached at brian.lockhart@scni.com