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Saturday, Feb 4, 2023

Political Ambition, Upcoming Election Seen Driving Industry Subsidy Package

When it comes to tax breaks for Hollywood, timing is everything.

For years, entertainment industry lobbyists trooped to Sacramento to propose tax incentive packages that would counter the rising tide of runaway production. But the bills, labeled corporate welfare for millionaire producers, repeatedly went down in flames or quietly died.

Not this year.

A tax credit package, introduced publicly only last week, is moving through the state Legislature at lightning speed and widely expected to be signed into law next month. It would provide up to 15 percent in tax credits up to a maximum of $3 million on wages and equipment for productions that have at least 75 percent of principal filming done within California. The credits would come either in the form of tax reductions or direct cash payments to firms with no taxable profits.

So what changed? Package authors say it’s the more intense competition from other states for film production dollars, pointing to new tax breaks granted in New York and Louisiana. But the bigger answer lies in a changed political landscape.

For the first time in 30 years, an actor who is heavily influenced by Hollywood sits in the governor’s chair. Across the negotiating table is Fabian Nu & #324;ez, an ambitious young Assembly Speaker laying the groundwork for a likely run for statewide office.

Throw in a bitterly partisan special election looming in November, in which none of the participants is in high standing, and everybody needs to show a skeptical public that they can accomplish something.

Finally, an improved budget picture now makes tax breaks more palpable. Three years ago, when the last attempt was made at a tax break for filmmakers, plunging revenues and autopilot spending opened up a gaping $38 billion budget deficit. This year, expanding revenues shrank the deficit to around $6 billion.

“The political pieces appear to be coming together to make this happen,” said Barbara O’Connor, director of the Center for Politics and the Media at California State University Sacramento.

Of course, it helps to have an incentive package ready when the timing is right. Democratic state Sen. Kevin Murray, who represents Culver City (home to Sony Entertainment Corp.’s studios) has for years unsuccessfully pushed for filming tax breaks. Early this year, he approached Gov. Arnold Schwarzenegger and got him to sign on.

The effort might have died were it not for getting Nu & #324;ez on board this summer. A Speaker carrying a bill is usually a guarantee of passage in that chamber.

To sway Nu & #324;ez, proponents cited the considerable success that Louisiana has had with its tax credit program. In three years, movie companies have produced at least 31 major movie and television projects in the state. “What really sold it for me is what Louisiana has done,” said Nu & #324;ez in a conference call last week with editorial writers.

Nu & #324;ez denied any overt political considerations. But the Assembly Speaker has assumed a high profile in recent weeks including a much-publicized trip to Mexico late last week prompting many to speculate he’s laying the groundwork for a run for statewide office.

“No question that behind this move by Nu & #324;ez is ambition,” said Republican political consultant Allan Hoffenblum.

Nu & #324;ez and his fellow legislators can certainly use positive publicity, as can Schwarzenegger. Last week, the Public Policy Institute of California released a poll showing only 23 percent of likely voters approved of the way the Legislature is doing its job. Schwarzenegger, whose popularity was soaring a year ago, saw his approval rating among likely voters sink to 41 percent.

But the tax credit package has its critics. The left-leaning California Budget Project issued a position paper attacking it, while an internal analysis for the Senate Republican Office of Policy was also highly critical.

They say that the industry is rebounding without any tax incentives, noting the state’s TV and motion picture industry added 20,400 jobs in the year ended June 30, led by a boom in television production. “This bill is the equivalent of a direct payment from the state Treasury to one of the wealthiest industries in California,” concluded the Senate Republican staff analysis.

Instead, Senate Republicans suggest grants targeted at the type of productions likely to otherwise leave the state, although so far their arguments have failed to catch fire.

“This is legislation that has support in the Assembly, the Senate and the governor’s office, so the feeling is, why not go ahead and get it done,” said Darry Sragow, political consultant to Assembly Democrats.

Aimed at independents

To bolster their case, Nu & #324;ez and Murray are emphasizing that the package is really targeted at independent filmmakers, not the global media outlets that own film studios. “Without incentives, most independent films simply could not be made,” said Jean Prewitt, president of the Independent Film & TV Alliance and a proponent of the tax credit package.

Up until about 2000, CineTel Films Inc. routinely shot 90 percent of its productions in California. But since then, the company has shot in South Africa, Mexico, Romania and Canada.

“With independent films, you’re always on tight budgets, so you’re trying to get the most amount of production time at a location for least amount of money,” said Paul Hertzberg, president and chief executive of CineTel, which makes feature films and cable television special programming.

Hertzberg said a tax incentive for filming in California would have made a difference.

“Let’s say you’re getting an 18- to 19 percent subsidy from shooting in Canada, and you can get a 12- to 15 percent subsidy here. It’s still less, but there are other factors involved: How nice is it to be able to go home to your own bed at night to go to sleep? Your hotel bills will be less, and there’s something to be said for working close to home.”

But Brent Lovell, partner in Sky Entertainment Group, said it would have taken more than the tax credit to have convinced the company to shoot their teen television drama, “Palmetto Pointe,” in Los Angeles. The question was which state, North Carolina or South Carolina, had the better overall package?

“Our budget is $500,000 to $750,000 an episode,” said Lovell, executive producer of “Palmetto,” which was scheduled to premiere Sunday on the Independent Television network. “If we were out in L.A. trying to shoot on that budget no way.”

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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