Expanding California’s TV, Film Tax Credits ‘Reasonable,’ State Analyst’s Office Says

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While citing reasons to consider protecting the flagship industry, the new report warns lawmakers to proceed cautiously

California’s Legislative Analyst’s Office on Wednesday issued its preliminary observations on the pending TV and film tax credit legislation, and it was a mixed bag for backers of the bill.

The report, Film and Television Production: Overview of Motion Picture Industry and State Tax Credits from the Legislature’s non-partisan fiscal and policy advisory agency, doesn’t make a recommendation on legislation to extend and expand the state’s tax credit program. Rather, it’s intended to provide background for lawmakers who are considering Assembly Bill 1839, California’s Film and Television Job Creation Program.

While noting that it might be difficult for the California not to provide subsidies and still maintain its leadership position in the industry — and pointing out that there were good reasons to consider protecting the state’s flagship industry — the report said that if legislators do renew and grow the existing program, it should do so cautiously.

Also read: Gov. Brown Getting the Message on California’s Film, TV Tax Credit Troubles

Assemblymembers Mike Gatto (D-Los Angeles) and Raul Bocanegra (D-Pacoima), who authored the bill, focused on the positive aspects of the analysis.

“The report confirmed what independent economic analyses of California’s Film Tax program have found: that the program has merit,” they said in a statement. “Today’s report states that it’s ‘reasonable’ to continue and expand the program and that the program pays for itself in state and local taxes, even without considering the revenue generated by tourism and other related industries.

“The report also confirmed that this flagship industry is at risk and that competition from other states and countries is both an aggressive and credible threat to California’s economy. We appreciate the LAO’s independent analysis and for recognizing that the uncertainty of our ability to sustain this industry in California makes it ‘reasonable’ to continue expansion of the current program.”

Also read: LA Film Shoots Surge 24 Percent Thanks to Tax Credit-Qualified Films

Brian Weatherford, who authored the report for the LAO, acknowledged that the report came down in the middle.

“It appears these subsides have some positive effects and there are reasons to consider expanding them, but the state has many priorities,” he told TheWrap.

The report cited six concerns that lawmakers should factor in as they consider the bill:

• Film and television production in California could decline anyway.

• Responding to other jurisdictions’ subsidies could be very expensive.

• Interstate and international competition could stoke a “race to the bottom.”

• For state government, the film tax credit does not “pay for itself.”

• Subsidizing one industry sets an awkward precedent.

• It will be difficult to evaluate the effectiveness of the film tax credit.cccc

The seeming contradiction regarding whether the tax credit program “pays for itself” is based on how much of the economic benefit goes to the state, as opposed to combined the state and local governments.

A 2014 Los Angeles Economic Development Corporation study said that for every $1 spent in tax dollars, the state saw a return of $1.11. The new report puts the returns for the state — which provides the tax subsidies — at 65 cents on the dollar, because the benefits are shared with municipalities.

The bill cleared its first hurdle on March 26 in the Assembly’s Arts and Entertainment committee and has been set for a May 13 hearing at the Assembly Revenue and Taxation panel.

If passed, it would replace a 2009 law that has provided $100 million a year in credits. To date, it has funded about 270 projects, generated $4.75 billion in economic activity and created 51,000 mainly high-paying jobs, many for skilled workers such as electricians, carpenters, animators and cinematographers, according to Gatto and Bocanegra.

The proposed legislation would extend the program until 2022 and broaden eligibility to include big movie productions and all TV series. The current program is limited to films with budgets under $75 million and cable shows. There’s no dollar figure attached at this point, but proponents would like to bring California’s funding in line with other states and countries, some of which offer more than $400 million in credits annually.