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Friday, Sep 30, 2022

State Film Credit as Fixed Cost

Tax breaks seem to be the cost of doing business to keep motion picture filming in Hollywood.

The California Assembly Budget Committee is set to consider legislation April 17 to extend by five years the state’s motion picture tax credit program, which expires at the end of 2019. The California Senate Budget Committee is scheduled to address similar legislation on April 18.

A renewal would continue to give movies filmed in California and television shows relocated to the Golden State a refund of between 20 percent and 25 percent of their spending on production, editing and crew wages.

The program is statewide but has an outsized effect in the Los Angeles area, where more than 90 percent of movies and shows that receive tax credits are filmed, according to the California Film Commission, the state agency that administers the program.

Neither city or county governments of Los Angeles have their own such tax credits.

The current program, which Gov. Jerry Brown signed into law in 2014, expanded movie and television tax breaks from $100 million each year to $330 million per annum. The measure cleared the 80-seat Assembly unanimously and passed the 40-seat Senate with two votes against it.

The five-year extension, Assembly Bill 1834, proposed by Ian Calderon – a City of Industry Democrat and Senate Majority Leader – could also sail through both houses of the state legislature.

“This is generally something that everybody wants,” Calderon said. “We are recapturing what we believe to be our fair share,” of movie and television production.

The policy’s merits might be debatable, but few would contest the reality that credits play a key role in determining what films shoot where. Asked if most movies get a tax break, Amy Lemisch, director of the California Film Commission, said, “Oh yeah.”

Rate of return

A 2016 California Legislative Analyst Office’s report found two-thirds of movies that fail to get a California tax credit take their production elsewhere.

Tax credits have not always shaped movie and television production, according to a 2016 study by University of Southern California professor Michael Thom, who has argued motion picture tax credits have negligible benefits to state economies. Thom said that states get less than a dollar in tax revenue for every one dollar they put into tax credits on filming.

States, Thom found, have for decades provided perks to host show business, from hotel tax waivers to scouting location shoots.

But it was not until the late 1990s that North Carolina, Michigan, Louisiana and other states spent hundreds of millions dollars to lure production.

Today, according to Thom’s findings, most states have some tax credit program, and when one state scales back another moves in – a pattern that recently played out with North Carolina and Georgia.

A study by Film LA, an advocacy group for movie and TV filming in Los Angeles County, found that in 2016 Georgia was the primary .shooting location for more movies with budgets greater than $100 million than any other state, Canadian province, or European country.

Georgia hosted 16 movies with budgets greater than $100 million that year; California, by comparison, hosted 12 such films.

Georgia, whose state budget is approximately 13 percent of California’s annual expenditures, offers tax credits that offset 20 percent the cost of movie production, editing, and film crew wages.

The Peachtree state additionally bumps the credit to 30 percent if the filmmakers agree to show the Georgia logo among credits or during the film. And, unlike California, Georgia also counts film writer, director, and cast member wages toward the credit, including the multimillion dollar earnings of lead actors.

Georgia also has no cap on how much of a film’s budget these tax credits can be applied to, whereas California caps its 25 percent movie tax credit to the first $100 million.

“In order to attract larger films,” Film LA spokeswoman Danielle Walker said, “The cap would need to be increased or eliminated.”

Credit worthy?

Georgia was the subject of a possible Hollywood boycott last month, when its state Senate passed a bill to let adoption agencies exclude same sex couples from adopting.

The legislation is scotched for now. But even if Georgia were to lose Hollywood business, Lemisch said, recent history shows that another non-California state could emerge to take their place with the most generous tax credits.

Lemisch said that California’s tax credit program is more than just a survival play for keeping movies in Hollywood. It is a fiscally responsible approach that rewards the Los Angeles economy, she said, and workers like costume and set designers, editors, animators, and support staff.

Lemisch cited a September Film Commission study that the state spent $330 million in tax credits in 2016, and the movies and shows that got the credits poured $2.6 billion into the economy, including $900 million in film crew wages.

Thom is skeptical of the Film Commission’s focus on expenditures, contending that such measures confuse correlation with causation.

The Legislative Analyst Office findings partly agreed with Thom’s skepticism, but also gave a nod to the legislature’s position.

The state watchdog office asserted that any tax credit favoring one business over another is, “generally, very problematic.” However, the credits are, “understandable to defend a flagship industry targeted by other states.”


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