Incentives Watch: A Look at the Proposed Changes to California’s Film and Television Production Credit, Part 1

The American film industry is virtually synonymous with Hollywood, but in recent years, other states have been luring film and television productions away from California. Now, 39 states and Puerto Rico offer some kind of incentives for film production.

In response, California has proposed the California Film and Television Job Retention Act (AB1839). The bill was unanimously passed in the Assembly and has now passed the Senate Governance and Finance Committee. California State Assemblyman
Mike Gatto (D-Los Angeles), who co-authored the bill, discusses over email the changes the bill makes to California’s currently available film credits.

Mike Gatto was elected to represent the 43rd District of California in a Special Election in June 2010.  Previously, he served as District Director to a United States Congressman representing the San Fernando Valley and Burbank.  He also served in the administrations of two Los Angeles Mayors.  In the private sector, Mike worked as an attorney representing California’s small businesses.

This interview with California State Assemblyman Mike Gatto is the first in a two-part interview series on the proposed California Film and Television Job Retention Act. Next week, Joseph Henchman of the Tax Foundation provides his insights on the bill.

Bloomberg BNA: How does the proposed credit differ from the Film and Television Production Credit that is currently available in California?
Gatto: My staff put months and months of time looking at different studies, studies that were both very pro-industry and very hostile to the industry, to make sure the new program is not only bigger, but that it is smarter and more effective.  The new program lifts the cap on big ticket productions, so that bigger budget movies and large budget independent films can apply for the program.  We’ve come to find that those are the types of productions that create the most jobs.  We expand eligibility for television programs, so that shows of all platforms (such as Netflix and On Demand) can apply, and we’ve included pilot series.  We’ve structured it so that any television series in the program, whether it started as a pilot series or relocated to California, is guaranteed a credit in subsequent years so that California can begin to stabilize its television industry.  The new program will also include opportunities for additional “bumps” in the credit received, such as a 5 percent increase for filming outside of the Los Angeles area, a 5 percent increase for costs related to music scoring and recording, a 25 percent credit for films relocating to California, and a 25 percent credit for visual effects expenditures.  Those features have never been included in California’s program.

Bloomberg BNA: What sets the proposed credit apart from the film credits that are available in other states?
Gatto: Many other states have harmful programs that set out to lure this industry away from California.  We’ve designed our program to keep this signature industry in its birthplace.  Other states have uncapped programs, which is not something that we are looking to do in California.  Going into debt for an industry isn’t good public policy.

Right now, there is no specific dollar amount in the bill, but I absolutely support a cap on the program.  The bill’s language leaves a “blank” for the amount that is to be allocated annually to the program, indicating that there will be a set amount.  The amount has not been specified yet because we believe it is premature to put a number in the bill before this year’s budget was enacted and could be analyzed.  It is a fiscal bill, so the most natural point to put a number in the bill post-budget will be the next fiscal committee—the Senate Appropriations Committee.

We’ve added some unique things to our program, such as the opportunity for filmmakers to capitalize on the visual effects industry, an up-and-coming industry in California.  I think that the opportunity to be guaranteed a credit if you’ve got a renewed television series will really help to stabilize our television production and create thousands of secure, year-round jobs.

Bloomberg BNA: There seem to be two major criticisms of the proposed credit: that the credit will not bring enough return on its investment, and that the credit will disproportionately benefit Southern California over Northern California. Do you think that these are fair criticisms of the bill?
Gatto: I am always very careful to point out that data only goes so far.  There are a lot of things that we vote on that we can’t necessarily pinpoint a return on investment.  The Legislature passed a budget last week that provides for subsidies for childcare for working mothers, and it would be next to impossible to quantify what the state gets back for those subsidies.  For the production tax credit, how can the state calculate the value of a family getting to stay together because one parent doesn’t have to leave to work on a set in Georgia, or the value of a family getting to send a child to college, or the value of a productive middle class?  Studies on the dollar-for-dollar return on investment also don’t take into account the value of tourism in California, which will undoubtedly decrease if the film industry leaves California.  People love coming to California to see the “Hollywood” sign, but will people come to see it if Baton Rouge is the new Hollywood?

To your second question, I don’t think that it disproportionately benefits Southern California over Northern California.  Sure, the majority of local film production takes place in the Los Angeles area, but for that exact reason, we included a 5% bump for productions that film outside of that area.  I’d also like to point out that California’s tax collection system works a little differently than many other states—we have a centralized tax collection system.  Taxes collected in Los Angeles and San Diego and San Francisco go to help schools in Eureka and Fresno and Merced, and the same goes for all over the state.  Tax dollars collected don’t remain in the jurisdiction in which they were collected.

Bloomberg BNA: Which of the proposed tax credit changes do you predict will make into the final bill that is signed by Gov. Brown?
Gatto: We are going to send the Governor the smartest program that we can.  The details of the new program will have some dependence on the number in the bill, but we think that we have a pretty well-crafted piece of legislation.

Continue the discussion on LinkedIn:  What do the proposed tax credit changes mean for the California film industry?

For more information about California’s tax incentives, check out Bloomberg BNA’s Credits and Incentives Portfolios by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.

By:  Rishi Agrawal

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