Is Hollywood about to get a Sacramento-style bailout?
With the number of local production days having fallen in the first quarter by 2.9 percent from a year ago, members of the state Assembly are rushing to sponsor bills aimed at providing tax incentives to keep Hollywood filmmakers from leaving the state.
Three bills recently introduced in the Assembly by Sheila Kuehl, D-Santa Monica, Scott Wildman, D-Los Angeles, and Herb Wesson, D-Culver City, would offer a variety of breaks ranging from 6 percent to 30 percent off the taxes paid on wages for employees.
Location shooting in L.A. is down for a variety of reasons, including a marked exodus to Canada and an overall drop in movie production. Whether the development is short-term or more long-lasting is a matter of debate; Hollywood is typically a cyclical industry, and some analysts say that the frenetic pace of the last two years would be hard to maintain.
Whatever the duration, there are real economic consequences to a decline in L.A. filming. Local companies that provide support services to Hollywood lose business, and the local film crews lose wages. The Entertainment Industry Development Corp. estimates that a single film day pumps $50,000 to $100,000 into a local economy.
While analysts agree that these kinds of tax breaks would be attractive to smaller production companies, some worry that the current focus of major studios on low-cost, big-profit movies will continue to push filming out of the country.
"A low tax climate helps, and I believe we've made some progress along those lines," said Tom Lieser, executive director of the UCLA Anderson Forecast. "But this is still a high-cost location."
Mike Frischkorn of the American Film Marketing Association said anything that makes the state more "production-friendly" would be a relief. But he believes that different kinds of incentives, such as sales tax rebates and free police protection for filming sites, should be brought into the discussion.
The Canadian government already offers tax breaks to production crews, and a favorable exchange rate increases the value of American dollars there.
Cody Cluff, president of the EIDC, warns that Australia, Mexico, Ireland and Eastern Europe are also poised to draw production away from the region.
For instance, Warner Bros.' "The Matrix" was shot entirely in Australia, and Paramount Pictures' "Mission: Impossible II" is scheduled to be filmed there this year, according to Jack Kyser, chief economist for the L.A. County Economic Development Corp.
The bills offered by the legislators are still in the early draft stage and aides to the three are conferring on how to merge them in order to push through some sort of unified legislation.
Right now, Kuehl's bill would make productions with budgets under $5 million eligible for 6 percent tax relief on the cost of labor.
Some critics contend that tax incentives are nothing more than a form of "Hollywood welfare." But Kuehl said her bill is targeted less at big-budget studio producers than smaller companies, because those operating on slimmer margins are precisely the ones most likely to film in Canada. Further, she says she held her tax incentive to 6 percent so as not to make it seem excessive to opponents of corporate welfare.
"It's always a fine line when you are offering incentives to what people perceive to be a successful industry," she said, noting that her proposal would require periodic reports to the Legislature to determine whether the tax breaks are working.
The legislation drafted by Wildman raises the stakes a bit more. His tax break would total 10 percent on wages and salaries paid to employees who work under a collective bargaining agreement.
"This is a work in progress," Wildman said. "It still doesn't compete with the 36 percent (tax break) that Alberta offers."
Wesson's proposal encourages production companies to use a specific segment of the California labor force. He wants to offer a 30 percent tax break to those companies that hire and train the area's poor people living in low-income households for entertainment jobs.
Even before the legislation is considered by the whole Assembly, Cluff believes some production companies that have gone overseas may come to realize there simply is no place like home.
"Ninety percent of the battle is getting (companies) to stop and think enough to compare the budgets not just a fantasy budget, but a paper budget between two locations," he said. "It's one thing to say, 'We'll get a 22 percent labor credit and use the exchange-rate differential.' But then you go there and you can't get camera equipment and something breaks down and you can't get it fixed, and you lose two days of filming. Those costs add up."
Cluff is in favor of the tax breaks, but wants to see more incentives given to productions that stay in California. For example, he would like to see a federal government loan program put in place to defray the expenses of film production.
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