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Why California Needs a More Robust Film/TV Tax Credit Program

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California has a highly skilled work force and superior infrastructure compared to other states with film/TV tax credit programs. On February 19 of this year, California Assemblymembers Gatto and Bocanegra introduced AB 1839 with 59 co-sponsors to support and grow our entertainment industry so that California can be more competitive and increase film and TV production in our state.

California Needs a More Robust Film/TV Tax Credit Program.

The existing film/TV tax credit program was introduced in 2009 and is capped at $100 million, accessible via a lottery process that historically is maximized on Day 1. As Assemblyman Raul Bocanegra highlighted in his introduction to the Joint Oversight Hearing on October 9, 2013, the state needs "a robust and comprehensive film and television tax credit incentive program." At the same hearing, Assemblyman Richard Bloom raised concern over whether the $100 million in tax credits are "keeping the industry here and facilitating growth in the industry" (9 Oct. 2013). The current investment does provide a return; recent studies by the LAEDC identified that "[f]or every tax credit dollar allocated under the program to date, at least $1.16 in tax revenue will be returned to state and local governments" (Cooper, 14). But, as recent studies published in the LA Times demonstrate, more films and television shows are fleeing our state than staying here.

The Existing Tax Credit Program Should Be Revised.

California "should combine strong incentives with a combination of greater flexibility and availability in order to meet demand that already exists" (Klowden, Fighting Production Flight: Improving California's Filmed Entertainment Tax Credit Program, Milken Institute, 2012, 1). The State Legislature addresses some changes listed below, but should explore the following modifications when voting on a revision of the existing program:

  1. Increase annual tax credit allotment from $100 million to $400 million to meet demand
  2. Replace an annual lottery process with a quarterly lottery process
  3. Create separate applications and pools for television production and motion picture production
  4. Create incentives for film/TV productions that either film and/or spend 1/3rd of their budget outside of the Los Angeles Thirty-Mile Zone, including lottery priority and/or increased tax credit
  5. Replace current cap on studio production budgets with a cap on maximum tax credit value
  6. Open California Film Commission satellite office(s) in San Francisco Bay and San Diego
  7. Create a minimal post-production credit to incorporate high tech businesses and support
  8. Increase minimum 10% credit allotment for independent films to 25% to support small businesses that are the backbone of the industry
  9. Make the state a profit participant in last position up to the value of the credit claimed

A More Robust Film/TV Tax Credit Program is a Necessary Political Challenge

A revised tax credit program will not solve every problem or appease every voter. Underlying issues, including higher tax rates, local logistical problems, and regulatory impediments, create a hostile business environment (CSADC, 3; Assemblyman Bloom, Joint Oversight Hearing; San Jose Mercury News, Tom Verdin, August 2012). Some view movie production incentives as too costly for the state with temporary benefits (Tax Foundation, 2010). However, as states like New York and Louisiana provide more competitive production tax incentives, California is getting priced out.

In conclusion, the existing film/TV tax credit program generates a positive return on investment, but at a slower rate than is necessary to recapture our state's prior market share. The aforementioned policy modifications will make our existing program more robust and provide the conditions for California to regain and retain its leadership in film and television production.