It's D-Day for California TV, Film Tax Credits: But How Essential Are They?

It's D-Day for California TV, Film Tax Credits: But How Essential Are They?

As the California Legislature nears a vote on extending its TV and film tax credits, even its backers admit the program is under-funded and over-subscribed

If California’s film and TV production tax credit extension clears the state Legislature before it ends its session late Friday, you’ll hear more sighs of relief than champagne corks popping.

For while Its backers say it is essential legislation if the state is to halt the production exodus that threatens its status as the world leader in TV, film and commercials, even they admit the program is under-funded and over-subscribed. 

The legislation, which will require Gov. Jerry Brown’s signature to go into law, would extend the state’s $100 million tax-credit fund for two more years, taking it through 2015.

California producers are allowed a 20 percent or 25 percent credit against income and sales and use taxes. 

There are actually two bills, a Senate and Assembly version, that are nearly identical. The Assembly bill is headed to the Senate for a floor vote expected Friday. The other still has to clear Assembly panels. 

“It may be under-funded, but it’s absolutely necessary for Hollywood and the state,” veteran producer Michael Helfant ("Very Bad Things") told TheWrap. 

It's not surprising Helfant's a believer; the program turned the tide for one of his films, the upcoming thriller “The Hive.”

In March, he and his team were days away from heading to Ottawa, Canada, when he received a call from the California Film Commission telling him that his project was eligible for credits.

“I’ve been making movies here for 25 years, and to see so many projects leaving the state has been a terrible thing to watch," he said. "We were ecstatic that we could stay.”

Also read: California Film, TV Tax Credit Bill Heads to Full Senate for Vote (Updated)

Shifting to L.A. helped him seal a deal with the star, Halle Berry (above), who wanted to stay near Los Angeles, and land Michael Imperioli and Morris Chestnut for supporting roles.

“The only reason we were able to shoot in L.A. was the tax credit,” Helfant told TheWrap.

The two bills originally called for a five-year extension but were scaled back earlier this year by budget-conscious legislators. The California Film and Television Tax Credit Program is currently scheduled to end in fiscal year 2014-15, with the last of the credits allocated by July 2013.

Brown signed a one-year extension last year, but his approval isn’t a given this time. 

While he counts Hollywood and the labor unions that back the bill among his supporters, he’s also concerned with maintaining a hard line on budget expenses during a period when the state is furloughing workers and cutting services. His own office of finance opposes the bill.

Skeptics note that the Motion Picture Assn. of America, the Hollywood studios' lobbying arm, commissioned the report, but a Los Angeles County Economic Development Corp. study found that the tax-credit program pumped $3.8 billion into the California economy and created more than 20,000 jobs in its first two years.

Also read: Report: L.A. Still Losing Drama Pilots to Other Cities

The extension is particularly important for TV dramas, which are increasingly finding out-of-state homes in places like New York. While the Big Apple was hitting record production levels in the past year, California’s output of TV dramas fell more than 11 percent.

“TV series need to be able to plan ahead for two or three years,” said Nancy Rae Stone, program director of the California Film Commission, which oversees the credit program. “If we can’t guarantee these incentives are going to be in place for the next three years, they won’t even consider us.”

Also read: New York Entices Film Industry by Tripling Post-Production Tax Credit

TV series are among the most desirable projects for the state because they employ more people for a longer period of time than movies or commercials do.

California’s incentives pale in comparison with those offered by other states. New York has made more than $400 million available and recently added a 30 percent incentive for post-production work. Louisiana and Georgia offer 30 percent to 35 percent tax incentives and are uncapped.

And that’s just the domestic competition. The U.K. , Canada and Sri Lanka have begun offering incentives, and other countries like New Zealand have ramped up state-of-the-art production infrastructures. Even Iceland recently lured the HBO series “Game of Thrones” and the feature films “Noah” and “Prometheus.”

So how does the California fight that?

“We’re still the film capital of the world,” Stone said, pointing to the state’s large number of studios and soundstages and its extensive and long-established pre- and post-production industries. “We have the largest and best talent base for casts and crews,” she said,. “And don't forget our weather.”

One of the bill’s authors, state Assemblyman Felipe Fuentes (D-Los Angeles), agreed that California doesn’t need to match other states’ packages to compete because of its built-in advantages.

Also read: Filmmakers Take Their Shot at the Tax Credit Lottery

“People’s families in the industry, a large part of the infrastructure that is available to the industry is already in California," Fuentes told TheWrap. "And if we can just stay competitive, that will make California the choice for the industry.”

Producer Helfant, who received tax credits of around $1.5 million on "The Hive," agrees.

“We might ultimately have spent a little more by staying here, but we were glad to do it because it made the movie better,” he said. “We tweaked the script and our director Brad Anderson made the city of L.A. a character in the film. We were able to use the best production and crew members and we employed 100-plus people.”

There are advantages to playing on the "home field," particularly for smaller projects. California productions that remain in-state don’t have to pay for transportation and lodging to take crews and casts to other locales or ship equipment. And the talent pool here remains the nation’s largest.

“A number of smaller productions simply wouldn’t happen if they couldn’t shoot here, because of the cost and the difficulty of putting together a cast.” Stone said.

There are far more applicants than the program can handle, so many that a lottery is held in June for access to the credits. In the most recent round, 28 projects initially were selected from a record 322 applications. Productions that didn’t make the cut are wait-listed, so they can step in should a project fail to come together. .

In the program’s most recent year, 51 feature films, 13 TV movies, 8 TV series and one miniseries all took advantage of the program. One series, ABC’s “Body of Proof” (pictured left) relocated from Rhode Island. Those productions are estimated to have spent $1.07 billion in the state, according to the film commission.

“There’s no doubt we could keep more productions if we had more resources,” said Stone, program director of the California Film Commission, which oversees the credit program. But she knows that’s not going to happen anytime soon, given the state’s financial woes.

There are opponents to the plan. State Assemblyman Chris Norby (R-Orange County) has voted against the incentives and maintains that the economic gains are not worth the cost to the state.

“Rather than try to out-subsidize competing states for their irresponsibility — like South Carolina, New Mexico, Louisiana and New York — we should simply allow those programs to implode and rely on the natural advantages of climate and talent and infrastructure that California already has,” Norby said.

Others believe that pitting states against each other is not the best approach and the federal government should play more of a role.

Documtentarian Michael Moore, for example, is on record as favoring a federal incentive program.

“We’re all Americans, and it’s pitting states against each other,” he said in an interview with Michigan's Grand Rapids Press. “In Canada, you can’t close a factory in Vancouver and move it to Toronto. I can see (adopting) a stronger, federally controlled tax program.”