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Friday, Mar 29, 2024

Commentary—Tax Incentives Best Response to Runaway Production

A recently released U.S. Commerce Department report, “The Migration of U.S. Film and Television Production,” estimated that television production flight (runaway production) increased 230 percent from 1990 to 1998 and that up to $10 billion in film and television production has been lost to other countries in the last five years. Runaway production has significantly impacted California, which accounts for 81 percent of all motion picture starts in the U.S. and 80 percent of all television programming. The potential impact of runaway production on the San Fernando Valley is enormous. According to information provided by Jack Kyser, chief economist with the L.A. Economic Development Corp., the film industry is the largest in the San Fernando Valley. Approximately 54,000 (or 19 percent) of California’s 283,000 film industry employees work in the Valley. The most significant flight appears to be from California to Canada, and the productions most affected are those with budgets between $1 million and $5 million. Statistics released in February by Toronto’s Film & Television Office revealed that last year U.S. companies spent $890.3 million in Toronto on major projects, which include feature films, television movies, mini-series and specials. Additionally, $300 million was spent on 451 commercials and $125 million on animation. In 1999, California had a total of 152 weeks of “Movie of the Week” production compared to Canada’s 696 weeks. There are a number of reasons for the ever-increasing flight, including significant foreign tax incentives, a friendlier filming environment, lower labor costs and fewer union issues, favorable monetary exchange rates and provisions for buy-out of residuals. There are, of course, compelling reasons to film in California instead of Canada or elsewhere: significantly better year-round weather, availability of quality film crews, more infrastructure to support the filming and the avoidance of travel. Statistics, however, clearly show that the compelling reasons to stay in California do not carry as much weight as the incentives to leave. Thus far, the U.S. and California have taken baby steps to avert runaway production. A new three-year California program called “Film California First” provides $15 million annually, with a maximum of $300,000 per production, to reimburse certain costs incurred by qualified production companies when filming on public property in California. This program, although an excellent step, is considered by many to be far too small to impact the problem. It is time for action! Runaway production affects many employees and businesses. The hardest hit are the below-the-line workers (art, construction, costumes, props, camera, grips, sound, stage & studio and special effects) and small ancillary service businesses (caterers, dry cleaners, transportation companies, janitorial services, security services, short-term crew lodging, private residence rentals, camera rentals and many more). The Valley Industry and Commerce Association is currently conducting a survey of independent production, post-production and ancillary service companies to gather input as to incentives that could be offered by the U.S. and California to tip the scales and bring our production back home. Preliminary information gathered from several independent production companies indicates that tax incentives similar to those provided by Canada may be enough. Several congressmen, led by U.S. Rep. Xavier Becerra (D-Los Angeles), have drafted a tax incentive runaway production bill and asked VICA for help. In May, I traveled to Washington, D.C. as part of a VICA delegation to advocate on several business issues, runaway production among them. Our delegation was welcomed, with encouragement, by U.S. Representatives Xavier Becerra, Howard Berman, Brad Sherman and Henry Waxman as well as U.S. Sen. Dianne Feinstein and the legislative staff of U.S. Rep. Bill Thomas, chairman of the House Ways and Means Committee. The valuable information being obtained from the VICA survey will help provide these and other elected officials with a strong basis to enable the passage of remedial legislation. As chairman of VICA’s Subcommittee on Runaway Production, I encourage owners of independent production, post-production and ancillary service companies who wish to take part in the VICA survey and have not received a mailing, to complete one on VICA’s website: www.vica.com. Gregory N. Lippe, CPA, is managing partner of the Woodland Hills-based CPA firm of Lever, Lippe, Hellie & Russell LLP, and chairman of the VICA Subcommittee on Runaway Production.

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