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.

From left to right: Billie Piper, Rufus Sewell and Gillian Anderson in "Scoop" (Netflix)

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.

Cella spearheaded the campaign for New York’s incentive program in 2004 and worked closely with Krekorian and Assemblymember Karen Bass to craft “Ugly Betty.”

He noted that producers will chose to stay in California for the 25%, but also to take advantage of the vast resources and infrastructure that already exists here.

“In California, if you need 600 extras tomorrow, it’s easy to get,” he said. “It’s kind of hard to find 600 people in New Mexico on a day’s notice,” he said. “The studios are going to make the television show or movies no matter what. The question is where they’re made and who gets the work. California residents and California vendors or someone else?”

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But production tax credits have also come into question for how much they benefit the host state. The Curious Case of Benjamin Button in New Orleans cost Louisiana taxpayers over $27 million under the state’s credit plan. And legislators in Michigan are rethinking their generosity after local businesses complained of paying new taxes and surcharges.

There have been other problems in the Bayou state as well, despite the fact that 80 major film and television projects shot there last year. In 2007 Louisiana’s former film commissioner Mark Smith pleaded guilty to accepting $65,000 in bribes to help inflate tax credits. He is currently awaiting sentencing.

Krekorian said California will avoid a Button-like disaster because producers will have spent the money in the state before they receive the credit, as opposed to getting the money up front.

Paul Audley, the president of Film LA, pointed out that California’s moderate credit should help avoid over-funding Hollywood productions. “If structured properly, it’s been a winner for states that have done it. Others who have tried to compete by going perhaps too high haven’t been as successful.”

He added: “We know that feature film has left the state nearly completely and none of the major studios budget for doing work in California anymore. We also know from the unions that a lot of their members have moved to the other states where the work is. I think the old arguments are gone. It’s not a matter of trying to keep it here, now it’s a matter of trying to get it back.”

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