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Tuesday, Oct 3, 2023

Report: Film Tax Credits Lose Money

State tax credits for the entertainment industry are not paying for themselves and expanding them could become an expensive race to the bottom – while not doing so could mean the state could lose its leadership in the entertainment industry. Those were the conflicting conclusions of a report by the Legislative Analyst’s Office as the Legislature considers expanding the program to better compete with other states offering richer filming incentives “Given that other states and countries are offering subsidies, it may be difficult for California not to provide subsidies and still retain its leadership position in this industry,” stated the report released Wednesday. The state’s production tax credit program began in 2009 as a response to television and feature films leaving California. The program is administered by the California Film Commission and funded $100 million annually through the 2016-2017 fiscal year. The pending bill would continue the tax credit program for five years, and open the program to feature films of any budget size, television pilots and new hourlong series regardless if they are on broadcast TV, cable or the Internet. It also would increase to 25 percent, from 20 percent, credits to productions filming outside the 30-mile Los Angeles zone. However, the Legislative Analyst’s report took exception with a study released in March by the Los Angeles County Economic Development Corp. that stated the state’s program pays for itself by returning $1.11 to state and local governments for every dollar of tax credits issued. The Legislative’s Analyst found that the amount was closer to 65 cents on every dollar. “It is incomplete—and, arguably, not accurate—to claim that the tax credit program pays for itself based on the LAEDC data,” the report said. The analyst’s office also found that expanding the program to the point of giving credits to all eligible projects would carry a $1 billion price tag. The state would also be engaging in “a race to the bottom” – a race that conceivably would have no end. “In responding to other states increased subsidy rates, California may only stoke this race to the bottom without making any real headway in terms of increasing its share of film and television productions,” the report added. This was a similar finding in a report issued in February by the Milken Institute, a Santa Monica think tank, that concluded California should not try to keep pace with states offering better incentive packages, as it’s a game the state “can’t win.” Still, there is heavy pressure to continue and expand subsidies. On-location feature film production is down 50 percent from its peak in 1996, and overall on-location television production is down from its peak in 2007, according to data from FilmL.A., the nonprofit coordinating filming permitting in the city and county of Los Angeles and other jurisdictions. FilmL.A.’s numbers do not reflect studio and soundstage filming activity. Thirty seven states offer tax credit programs, with New York offering the most with $420 million, followed by Louisiana with $236 million. California is fifth in the nation in the amount of its program, according to the LAO report. Assemblymen Mike Gatto, D-Los Angeles, and Raul Bocanegra, D-Pacoima, the main sponsors of the bill to extend the tax credit program, said they would use the report to strengthen their legislation. “We will continue to work on (the bill) to ensure that we make California more competitive in retaining and growing our signature industry,” they said in a prepared statement. The bill is scheduled for a May 13 hearing before the Revenue and Taxation Committee.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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