Incentives

California May Quadruple Tax Breaks for Filmmakers


California May Quadruple Tax Breaks for Filmmakers

Photograph by David Livingston/Getty Images

In the race against runaway production, California is fighting for another act. Hollywood’s home state is on the cusp of expanding its film subsidies, to $400 million a year, in an attempt to stem the flow of work to other states and countries that offer studios larger incentives.

California’s current subsidy program, which started in 2009, hasn’t been able to keep up with the rebates, grants, and tax credits that other places dangle in front of studios. The state currently uses a lottery to determine which productions get a piece of the $100 million in annual subsidies, awarded as tax credits. Blockbusters—movies with a budget over $75 million—aren’t eligible.

The new subsidy bill, currently making its way through the state legislature, would allow big budget films to benefit while raising the overall cap to $400 million a year. While more movie productions would benefit, California’s tax credits would still cover a smaller percentage of costs than do those of New York, Louisiana, and some international destinations.

The bill also proposes replacing the lottery system with a program that would award points to productions based on how much economic benefit they predict they’ll bring. The editorial board of the Los Angeles Times called this last change an “improvement” that would “give Californians more confidence that their tax dollars were being used to greatest effect.” The paper also cautioned that, if not implemented carefully, the program could create a “new cottage industry of tax credit lobbyists using political influence to seek benefits for favored clients.”

The expansion was approved by the Senate Appropriations Committee on Thursday. It must go before the full Senate. Los Angeles Mayor Eric Garcetti said last week that Governor Jerry Brown is on board.

In the spring, the state’s nonpartisan Legislative Analyst’s Office warned that the math behind film subsidies doesn’t necessarily add up. Among other things, it said the state gets back 65¢ of every dollar it spends on the subsidies. It also pointed out that there hasn’t been analysis of whether other expenditures, such as education or social services, could produce better returns. The office said there could be reasons to help Hollywood, given its centrality to the state’s brand, but it added that with so many states and countries offering incentives, “it is unclear how these sorts of competitions end.”

The bill to ratchet up subsidies’ final version may end up also supporting one path to a partial ceasefire. Variety reported that Assemblyman Mike Gatto, one of the bill’s two primary sponsors, plans to include a provision that “would urge the federal government to impose sanctions, including tariffs, as a way to combat ‘unfair and illegal competition’ from other countries.” Gatto’s office confirmed that he  plans to add the provision when the bill is officially amended later this week. Using import duties, as Gatto suggests, is what visual effects workers are trying to do to fight subsidies being offered to conduct post-production work abroad.

The proposed bill would initially have provided funding through 2022. In an indication that California’s participation in the subsidy race might not last, the version approved last week pared funding to just four years’ worth—totaling $1.6 billion.

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

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