Calif. OKs $500M Tax Credit for Hollywood

California bowed to the changing geography of film production on Thursday with an historic bill that will provide $500 million in tax incentives for productions that stay in the state.

After years of watching one of the state’s core industries, entertainment, flee to Canada, England, New York, Louisiana and other states and countries that offered huge tax incentives, the legislature finally – and after intense lobbying efforts -- passed the incentive program as part of the state budget.

The “Ugly Betty Bill,” so named for the show that fled Los Angeles for New York’s incentives, includes a 25% refundable tax credit for film productions shooting in the state.

The program is funded for five years at $100 million per year beginning in fiscal year July 2009/10 through the 2013/14 fiscal year. Credits may not be utilized until tax years beginning in Jan. 2011.

The bill also includes a temporary $3,000 tax incentive to businesses with 20 or fewer employees for each new full-time job they create.

Gov. Arnold Schwarzenegger has previously stated that he would sign a bill to stem runaway production. California’s film and TV industry pros have watched jobs fade for 15 years because of lucrative tax incentives offered by other countries and states. According to statistics gathered by the film permit-processing group Film LA, production outside of locally based studios fell 14 percent last year to 7,043 days, the lowest level since annual counting began in 1993.

Meanwhile a 2007 study by Ernst and Young found New York State and New York City has collected $2.7 billion in taxes from movie and television productions since enacting their incentive program.

“Betty”’s author Assemblymember Paul Krekorian told TheWrap he expects production in California will increase immediately after the Governor signs the bill. “This is not a subsidy for rich Hollywood producers or for studios. This will help retain middle class jobs for he carpenters, electricians and camera operators who go to work in a pick-up not a limo,” noted Krekorian, a former entertainment and intellectual-property lawyer and current chair of the Select Committee on the Preservation of California's Entertainment Industry.

Krekorian explained that while production will flourish in the short term, producers won’t receive their state rebates until 2011. “So we’ll get an immediate surge in production, but it won’t have a negative impact on our general fund until 2011.”

The bill – known as AB X315 in the state Senate -- includes a 20% income tax credit for the first production costs totaling $75 million. Indie films with budgets under $10 million and TV shows returning from other states will receive a 25% credit.

Those incentives are relatively low compared with the whopping 35-42% credits offered by states such as New York, Louisiana, and Michigan.

The state has always been reluctant to adopt tax incentives because of the revenues it would suck from the state, since production is one of California’s core industries.

Jamie Cella, president and chief executive of Culver Studios, said California’s plan will create jobs and make the state competitive, but the Golden State will not be the cheapest place to make movies and TV shows.

“The bottom line is people will stay here and take advantage of this credit rather than going to Michigan,” he said.

 

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