California Aims for $330 Million Tax Credit Sequel

Gov. Jerry Brown likely will sign legislation that would extend lucrative film and TV incentives to 2025.

California tripled its production tax credits in 2014 to $330 million per year in a bid to keep ever more film and television projects from decamping to New York, Atlanta, Canada and the U.K., that last a favorite for big budget films. But Georgia ($600 million in 2016) and New York ($420 million a year) still dole out more and offer more lucrative credits.

Both states teem with runaway productions that would once have stayed in California, even though the California program has been “highly successful,” according to a June 14 Milken Institute report, in reducing the exodus.

The California Film Commission reports that 150 film and TV series have been or are scheduled to be produced across the state under the program, resulting in expenditures of $5.9 billion (including $2.3 billion in wages paid to production employees and $1.7 billion in payments to supporting businesses) and more than 45,000 local jobs. Sen. Holly Mitchell breaks it down as 29,000 cast members hired, 18,000 crew members hired, and says that of the 150 projects, 13 were TV series that relocated to California from out of state. The total tax credits granted was $840 million.

Sony’s Quentin Tarantino drama Once Upon a Time in Hollywood, Paramount’s Transformers spinoff Bumblebee and Disney’s Captain Marvel are among the major studio films that have received tax incentives under the current program.

But the program sunsets in 2020, and with that expiration just around the corner, the Golden State once again was under pressure to respond. And so, on Monday, the legislature passed a bill extending the credits to 2025 but retaining the annual cap and modestly increasing the percentage credit for some shoots outside Los Angeles. That doesn’t move the needle much, but it should help retain productions.

Other changes in the legislation benefit indie pictures, musicians, training programs for under-represented communities, and diversity reporting and anti-harassment efforts (enforceable written policies are now required). Assembly Majority Leader Ian Calderon, a lead sponsor, said the focus on non-economic improvements was deliberate. “This is a fiscally conservative governor, and we didn’t want to rock the boat. It’s all a political calculus [and] we wanted to stay in line with [Gov. Jerry] Brown.”

“The program keeps families together,” said a statement from Mitchell, the lead sponsor in the state Senate. “It keeps children living with their parents 12 months out of the year, ensuring there are no long separations while one parent is out filming for months at a time.”

The twin topics of runaway production and tax incentives have fascinated academics. Economic geographers call Hollywood an example of a cluster, in the same way that Silicon Valley (tech), New York (finance, publishing, advertising), France (wine), Napa (wine again), Milan (fashion), Southeast Texas / Louisiana (chemicals) and many other places are the locus of business concentrations in a particular sector.

But Hollywood’s project-based organization and light weight production inputs (intellectual property and a small amount of labor and equipment) and outputs (video files and other digital data) make filmed entertainment one of the most mobile businesses, almost uniquely so. Amazon can seek out large incentives to locate its second headquarters, and Tesla got a $1.3 billion tax break for locating its battery factory in Nevada, but Hollywood productions can get up and go one by one at essentially a moment’s notice, and they have been since the 1980s, first to Vancouver, then elsewhere in Canada and then more broadly. That has led to loss of jobs in Hollywood.

Academics often say tax credits seldom produce enough public benefit to justify the expense, and a recent study by the Pew Charitable Trusts says that states such as Georgia don’t even engage in adequate cost-benefit analysis — but woe unto the politician who would write off thousands of jobs in a glittering industry. Although Gov. Brown’s office declined to comment, sources say he’s expected to sign the extension bill by the end of June — and why not? He greenlighted the 2014 legislation, and even in Sacramento, everyone loves a sequel.

This story first appeared in the June 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.