Study Validates CA Film and TV Tax Credit

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Photo Source: The Weinstein Company
A report from the nonprofit think tank the Headway Project verifies the positive economic impact of California's Film & Television Tax Credit Program. The authors of the study conclude that the program "is creating jobs and is likely providing an immediate economic benefit to the state."

California implemented the program in 2009 to help prevent productions from shooting outside the state. Filmmakers can receive a credit of 20 percent to 25 percent of qualified production expenses, not including actors' salaries. The initiative excludes any project with a budget over $75 million. Even though California sets aside $100 million annually for the program, tax credits are given by lottery to only one in every five applicants. Back Stage reported in October 2011 that Gov. Jerry Brown extended the program through the 2014–15 fiscal year.

The study argues that some of the program's effects have been slightly exaggerated in the past. The Headway Project commissioned researchers from UCLA's Institute for Research on Labor and Employment to produce the economic findings of the report. They concluded that for every dollar spent on film subsidies, $1.04 was returned in combined state and local tax revenues. Last year, a study conducted by the Los Angeles County Economic Development Corporation and financed by the Motion Picture Association of America claimed the return was $1.13 for every dollar allocated, but this figure was based on an assumption that projects denied subsidies would film out of state. The Headway report finds that some productions were shot in California despite not receiving tax credits.

Nevertheless, "the two reports are really not very divergent," said Paul Audley, president of FilmL.A., a nonprofit organization that processes film, TV, and commercial production permits. Both reports indicate a positive return on investments made by the state. "The conclusion of the new report reinforces the conclusion of the LAEDC report—the California Film & Television Tax Credit is a cost-effective job creator that provides a net return to state and local governments, and it has helped increase film production for the first time after years of decreases," he added.

The report highlights the significant role state tax credits play in the selection of shooting locations, which does not surprise Audley. "Film incentives are the predominant factor driving location decisions today," he said. Audley pointed out that, besides filmmakers, other types of workers are leaving the Golden State: "Another great concern is that we are seeing craftspeople and vendors permanently relocating to other jurisdictions. If the state does not compete to stem the outflow, the only advantage left will be California's weather."

More-generous tax-credit policies in other states are drawing filmmakers and business owners away from California. For example, New York offers a 30 percent tax credit to reduce cost, and last August New York City Mayor Michael R. Bloomberg announced that a record-breaking 23 television series, including eight new productions, were being filmed in the five boroughs. Audley commented on the comparison: "When you look at the $420 million a year New York offers compared to California's $100 million, it is obvious that we are not truly in the competition for film business—and we need to be."

Michael Kong, a former magazine publishing executive, runs the Headway Project, and has made several recommendations to lawmakers on how to better the current program. Among them would be adding another $100 million to the program so that productions above $75 million could receive a 12 percent tax credit.

Kong would prefer to remove the limits on the funding entirely but realizes such a measure would likely not be approved: "If you agree with us that the state is making money on this credit, then logically you would remove the cap entirely and try to do as much of this business as possible, creating yet more revenue and jobs for the state. The problem is that, politically, this is unlikely to happen, at least until there is consensus on the performance data. Opponents of this tax credit just don't believe that $1.13 or $1.04 is the correct number."

Kong cited this year's Academy Awards as a great indication that there needs to be a change in the program. He said, "There are nine films nominated for best picture, and seven of them were made outside of California!" Only "Moneyball" and "The Artist" were filmed entirely in the Golden State.

Editor's Note: In an earlier version of the article, UCLA was said to have conducted the entire study. The Headway Project actually wrote the report and commissioned workers from the UCLA Institute for Research on Labor and Employment to produce only the economic findings included in the study. Back Stage regrets the error.