Hollywood Tax Credit Fight: Will California Finally Support Blockbusters and Broadcast?

Hollywood Tax Credit Fight: Will California Finally Support Blockbusters and Broadcast?

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Legislation will be introduced this week to expand California's $100 million film tax incentive program

For 16 years, Chef Robért Catering has fed the casts and crews of some of Hollywood's biggest movies and TV shows, from “The Dark Knight Rises” to “The Mentalist.” But as more productions chase generous tax subsidies out of state, principal Ray Bidenost wonders if  he made a mistake investing so heavily in California.

“I know a major studio that is working on a big-budget film and they keep encouraging us to open up shop in London,” said Bidenost, who's established branches in production hotspots such as New Mexico and Georgia but recently bought and revamped a $4 million facility in L.A. “They keep saying, ‘You'll stay busy if you're in London,’ but I don't want to be in London, I want to be here.”

With films such as the upcoming “Star Wars” trilogy, “Hunger Games” sequels and “Batman vs. Superman” all filming out of state or overseas, that may no longer be a viable business decision.

Runaway production is spurring the California state government to consider expanding its $100 million film tax incentive to include big-budget films and broadcast network and premium cable shows. The current incentive program limits qualifying productions to films with budgets under $75 million and basic cable programs; it also oversubscribes, with the California Film Commission typically exhausting its allotment by the very beginning of each fiscal year.

Legislation will be introduced this week by Democratic state Assemblyman Raul Bocanegra, with the backing of Los Angeles Mayor Eric Garcetti and a coalition that includes production guilds and the film industry's lobbying arm, the Motion Picture Association of America.  If it passes the state senate and general assembly, a signature decision by Gov. Jerry Brown is expected by next Labor Day.

Also read: Hollywood Misses $500M Potential Windfall as China Holds Line on Foreign Film Quota

Currently, more than 40 states and a dozen countries offer some form of tax incentive, and the consequences are being acutely felt in the entertainment capital.

Of the 30 highest budgeted films in 2013, only two were largely shot in California. At the same time, the number of one-hour television productions has fallen by 64 percent, according to the Los Angeles Mayor's Office. Feature feature film production has plummeted 56 percent since a peak  in 1996, while television production has dropped 39 percent from a high in 2008.

“If we want to keep these jobs, we have to get in the game,” said Yusef Robb, director of communications for the Los Angeles mayor's office. “Florida is not going to let its sunshine get taken away, Texas is not going to let its football get taken away and New York is not going to let the financial services industry get taken away, why should California allow other states to take the entertainment industry away?”

To make their case, the MPAA, the mayor's office and their allies plan to focus on the threat to middle-class entertainment industry jobs.

“It's all about job creation and keeping our crew members working, and that filters down to all the small businesses that depend on a vibrant entertainment economy,” Amy Lemisch, executive director of the California Film Commission, said.

She noted that the current incentives are out-stripped by those offered in the United Kingdom, Louisiana or New York.

“Our program is more modest, but you don't want to give away more than you have to,” Lemisch said. “You want to make it competitive enough so it makes financial sense when producers realize they don't have to incur as much shipping and travel expenses.”

The threat to California jobs is real, but tax incentives remain controversial even among members of the entertainment industry. Scott Ross, co-founder of the visual effects house Digital Domain, notes that the current situation has become an arms race with no end in sight. It's one that he argues has devastated California's post-production industry and forced workers to uproot their lives and families to work in cities such as Vancouver and London that offer richer incentives.

Also read: What Comcast Purchase of Time Warner Cable Means for Cord-Cutting – and Consolidation

“Tax subsidies and incentives are like curing heroin with methadone,” Ross said. “You may not be addicted to heroin any more, but now you're addicted to methadone. You're not solving the problem, you're just dressing it up.”

Proponents of the program argue that the current tax incentives have kept jobs in the state and paid for itself, reporting that the $100 million invested in incentives returns $792 in direct spending to California annually. Since the incentives kicked off in 2009, more than 200 film and television productions have taken advantage of the program, contributing $1.5 billion in paychecks to below-the-line crew, according to the California Film Commission.

Other studies offer credible evidence that the numbers don't always work out. One 2008 study by Massachusetts, for instance, found that for every dollar of film tax credits the state recouped only 15 cents in revenue.

“Twenty five years ago, we didn't have to pay major studios to make films, so why do taxpayers have to pay for it now?” Susan Christopherson, a professor at Cornell University's city and regional planning department, said. “Where's the capital to finance films? Why are producers having such trouble finding the capital?”

Also read: MPAA Chief Chris Dodd: The Entertainment Industry ‘Stands at a Crossroads’

Any legislation will ultimately need the approval of Gov. Brown, who has yet to signal support or opposition. That's standard procedure for the governor, who frequently avoids taking a stand on high-profile issues until late in the game to maximize leverage. He did sign the last extension of the program and, in a nod to Brown's camp, the new legislation won't have a dollar figure attached initially.

Advocates of expanding the program — an alliance of studio and network representatives, labor groups, local politicians, film liaisons and vendors — are feeling cautiously optimistic, in part because California's decade-long budget deficit was erased last year.

“I think most people can see the situation is pretty dire now, and that we're definitely not crying wolf” said Kathy Garmezy, associate executive director, government and international affairs at the Directors Guild of America, which is part of the coalition. ”We're still working at it, but I think a growing number of people understand that it will benefit regions all over the state, that it really will have an impact on the middle class, and that this isn't just a ‘Hollywood’ issue.”

  • kandy830

    my Aunty Amelia got a new blue Land Rover
    LR4 only from working part time off a home computer… helpful hints F­i­s­c­a­l­M­a­z­e­.­ℂ­o­m

  • mymaypo

    This is also about keeping Hollywood's status as a unique tourist destination. Why go to California when there is just as much going on in Albuquerque?

  • robengle

    “Proponents [report] that the $100 million invested in incentives returns $792 in direct spending to California annually.” Doesn't sound like a good deal at all. Even my seven-year-old daughter agrees. I'm guessing that the word “million” is missing somewhere in the sentence.

    I agree with Scott Ross that this seems like a never-ending arms race but bringing a knife to a gun fight means you are likely to get hurt. Until the effects of incentives can be mitigated in some other way it seems like California is going to have to play the game or see the continued erosion of the local film and television industry.

    • http://outinthestreetfilms.com/ Out in the Street Films

      It's like heroine or methadone. Who cares. Just gimme a fix.

  • Underneath the Glamour

    Hollywood is already dead, nothing left but a tarnished stain of what it once was. Doing anything to help bring film work back home is worth a shot, Los Angeles has nothing left to lose, except all the tourism once people really realize that movies are only being made in Canada and Europe.

    California let the studios sell away the heart and soul of Hollywood and let all of the industry jobs disappear with it.

  • Compudog

    What a silly comment from the esteemed professor at Cornell, that hotspot of tax incentive-driven industry. Especially amusing is the question asking why producers are having trouble finding capital. Let's put aside the fact that Ms. Christopherson has no clue how hard or easy it is to finance a film. I wonder what she'd do if she did raise millions to make a film and was told she could spend it outright, or spend it and recoup 30% of in soft money within 6 months. On second thought there really isn't much to wonder about, is there?

    ps – Producers don't “run away,” they shop for value. It's not a lot different from choosing a grocery store or a car. Push-away production is a more apt term for the state of affairs in California.

  • MegaGorgo

    Subsidies line the pockets of film studios at the expense of everyone else. More than 400 million in subsidies up in BC and what happens is you end up paying for 60% of the salaries. Really? Forget it. I how ADAPTVFX succeeds and gets the subsidies quashed by applying international trade law.

  • Yes on AB 1839

    YES on AB 1839
    Call / write Sacramento ASAP
    No tax break = no jobs
    Last gal get the lights..,

  • Q

    Ross has it right but using my own analogy, it's a band aid I wish the best of luck but they are trying to solve a problem of their own doing they let it happen.

    “Florida is not going to let its sunshine
    get taken away, Texas is not going to let its football get taken away
    and New York is not going to let the financial services industry get
    taken away, why should California allow other states to take the
    entertainment industry away?”

    Just like California let its other industries get taken away? It's a free market. Besides backlots and sound stages are becoming a thing of the past. A little history lesson runaway production put LA on the map yeah contrary to popular belief it's not a homegrown industry they got it, they developed it but they squandered it.